3 Questions Everyone with Retirement Savings Needs to Ask Themselves

Friday, September 4, 2015 | 8:16 pm

After an extremely volatile month in capital markets around the world, the reaction of many people is to do something…anything! Understandably so, as for most of us this is a major portion of our wealth at stake.

“Should we move much of our retirement savings to cash to protect our capital?”

“Should we now purchase options to protect against further downside?”

“Should we lower our international exposure?”

These questions are but a small sample, of the wide variety of inquiries we here at Haydel Biel & Associates have been fielding recently, after last month’s dramatic 10% market drop in a matter of days.

Well, rather than answer ‘reactive’ questions such as the above, we prefer to respond back with 3 ‘proactive’ questions of our own.

1. Do you have enough cash accessible to cover short-term goals or unexpected needs?

If the answer to that question is yes, and your ‘market-based’ investments are earmarked for long-term goals, then what exactly is it about the downturn that makes you worried?

An analogy from legendary investor, Warren Buffett, can help put these episodes into perspective:

“It should be an enormous advantage for investors in stocks to have those wildly fluctuating valuations
placed on their holdings – and for some investors, it is. After all, if a moody fellow with a farm bordering my property yelled out a price every day to me at which he would either buy my farm or sell me his – and those prices varied widely over short periods of time depending on his mental state – how in the world could I be other than benefited by his erratic behavior? If his daily shout-out was ridiculously low, and I had some spare cash, I would buy his farm. If the number he yelled was absurdly high, I could either sell to him or just go on farming. A “flash crash” or some other extreme market fluctuation can’t hurt an investor any more than an erratic and mouthy neighbor can hurt my farm investment.”

2. Do you have a diversified strategy in place with a strict investment process?

Clients of Haydel Biel & Associates follow a strict investment process with a pre-defined strategy in place, that’s been designed and implemented in ‘ordinary’ times, to withstand all market conditions. In fact, our investment motto is “To protect and grow your wealth…in that order”.

Specifically, this will usually include a mix of traditional ‘asset allocation’, strategic and opportunistic ‘active management’ and finally ‘alternative investments’: private equity, commercial real estate etc. whose cash flows and values often remain unwavering in periods of turbulence.

Of the utmost importance to every investor, is to have your plan and process in place before these episodes arrive. If you’re even contemplating changing your investment plan in the midst of turmoil, is it really an investment ‘process’ you’re following or an investment ‘fad’?

3. Is your strategy right for you?

Finally, and most importantly, if your current portfolio strategy has the capacity to fall by 20%, 30%, 40% or even 50% in a severe market downturn, like many ‘asset allocation’ strategies do (and will), how will it make you feel when your retirement accounts drop from say $500,000 to $400,000 in a matter of months, or even weeks? Would your plans for retirement remain on track? Do you feel comfortable knowing that it could drop yet another $100,000? If you feel completely comfortable with sticking to your strategy in such a scenario, then congratulations, your strategy is right for you!

But if, like many, this scenario makes you squirm, or if, like many, this scenario would keep you up at night, then perhaps your current strategy needs some adjusting. After all, the goal of money, for most, is to make you feel secure.

Do you know how much your current portfolio has the capacity to decline by in a market downturn? If so, are you genuinely prepared to ride that out when the time inevitably comes?

Make sure you have a robust plan in place and make sure you know the answers to all of these questions, sooner, rather than later, for in the world of investing, the words of Benjamin Franklin couldn’t ring more true, “If you fail to plan, you are planning to fail”.

Haydel Biel & Associates is located at 100 E. Corson Street Suite 310, Pasadena. For more information, call (626) 529-8347 or visit www.hbawealth.com.

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