Our economy has been growing and the stock market has been on the longest bull-run in history. As any elementary-aged child can tell you, what goes up must come down. Economist think a recession is just around the corner and you can read about what to do in this article.
If you don't want to read the article, here are the highlights...
- Put aside an emergency fund for six months worth of needs.
- Cut back on spending, or splurging.
- Keep contributing to your401[k].
- Don't pull from your retirement during a recession.
- Stocks will be on sale.
All of these things are good ideas but the article missed one big thing about preparing for a recession. Like most out-dated forms of investment management, such as the buy and hold strategy, are going to have investors riding the recession to the bottom and then spin it as that stocks are on sale now and you can get in at a good price.
We do not believe that people need to watch their retirement funds ride to the bottom of a market drop. We also believe that you don't have to lose a penny when the market tanks. Here is what we think being prepared for a recession looks like...
YOUR MONEY IS BEING WATCHED AT ALL TIMES
Would you like to know that someone is watching your 401[k] or IRA every moment the stock market is open? Most people would and our clients rest easily knowing that their money is being watched and managed at all times.
We use institutional money managers [really smart people with really smart systems] to watch clients' money. They have their programs and algorithms and when they see the market is going to go down, they pull your money out of the market and go to cash. They don't call you, or us, to ask if that is okay. They are responsible for managing your money and they don't want to lose any so they pull it out and let everyone else ride the market to the bottom.
When they see the market going back up, this is when stocks would be on sale, they get you back in. So, you miss most of the downturn and capture most of the upturn, you will be in a great place with your retirement accounts.
We call it the 80% approach. If you miss 80% of the downturn, and capture 80% of the upturn, that will workout really well for you.
YOU DON'T HAVE TO LOSE A PENNY WHEN THE MARKET CRASHES
It's true. We have clients that followed our advice for a portion of their retirement assets and those assets did not lose a penny when the market crashed in 2008.
We use fixed indexed annuities and indexed universal life insurance to achieve this. Now, before you recall and article you read about annuities or something you heard on the radio about annuities you should know that not all annuities are the same and we don't even recommend all annuities.
Here's why we recommend fixed indexed annuities and indexed universal life insurance...
- Your principle is guaranteed to never lose value. Stocks and mutual funds can't guarantee that.
- When the market crashes, no matter how far, you will never lose value due to the market crash.
- Periodically, the interest/growth that you have earned is locked in and becomes part of your principle which is guaranteed.
- Unlike old products you can participate in 100% of the market growth. Old products only let you participate up to a certain amount.
If you are numbers person, let's look at the lost decade, 2000 to 2009. This is the only time in the S&P history that it actually lost value. Negative 1% per year over that decade. These indexed products we recommend averaged over 4% a year during that same time.
During the worst 30-year period for the S&P it returned only 2.5%. If your money had been in these indexed products it would have earned 4.8%.
Not losing value during a crash or recession puts you in a far better place when the market rebounds. As a little bonus for the indexed universal life option, this can generate a tax-free income for you in retirement. Using this strategy can save someone hundreds of thousands of dollars in taxes in retirement, significantly increase retirement income, all while taking market risk off the table.
Being prepared for a recession does not mean you have to start socking money away, it just means you need to make sure your money is in the right place to either minimize or eliminate loss.
Insurance and investments work together. Having the right balance between the two can make sure your retirement does not get derailed by a recession or something else you don't see coming.
Contact us if you would like to make sure you are prepared for the next market correction.
ABOUT THE AUTHOR: Cory Carlton is a co-founder and CEO of Both Hands Financial Group. Cory specializes in helping people plan for the future by reducing exposure to market risk and minimizing taxes in retirement. There are three things Cory and the team at BHFG like to do: Reduce taxes by six-figures in retirement, increase retirement income, and take market risk off the table. Cory believes the right blend of insurance and investments will protect your assets and help them grow without taking the risk that old investment philosophies still use.