financial-risk-reviewI’m sure everybody is just on the edge of their seats with the way that this market has been roiling over the past two weeks. I’ve done a couple of videos addressing the recent situation. Just last week alone, we erased all of the gain for 2015. It all started when China had to halt trading because they were off by 7% just in one day last Monday. They’re trying to figure out how to stop this freefall. They can’t figure out how get their economy back up and humming again. There was a lot of noise. We’ve seen the market swing triple digit points down. Yesterday, the market was down over 300 points. All the major industries were off one to two percent. Oil is down. It has just been a really rough ride since we started 2016.

We talked about this on our radio show toward the end of last year. 2015’s last couple weeks we even talked about all the pressure that’s been facing the stock market. If you look back to 2012-2013 we got really drunk on returns; we made a lot of money. The broader markets did really well. You head into 2014 it wasn’t the greatest year but still did pretty well. However, right at the end of the last quarter of 2014 they stopped the billions and billions of dollars pumping into the market; they stopped the quantitative easing.

Let’s paint the picture of what it was like after 2008 in that crash. The government decided to be intrusive on our economy and our markets, and thus decide to do some financial engineering. They started with stimulus money. We’re going to go out and pump billions of dollars into the economy. We’re going to buy stock in companies and insurance companies. We’re going to try to keep all these major institutions afloat. But then, it didn’t work. So they decided on implementing quantitative easing which basically means that you’re going to start buying bonds in the bond market to increase liquidity. Then they lowered interest rates. They started off with quantitative easing 1; and then once that ran out, they turned to quantitative easing 2. Then lo and behold we had quantitative easing 3 which ended 4th quarter of 2014.

Now look what happened to 2015. They stopped pumping all those billions of dollars in the market. It was epic. It was basically flat, wasn’t it? We hardly see any growth. There was a little bit of growth, but not much at all as far as the broader markets are concerned. Then at the end of last year, for the first time in six years, they raised interest rates. It was only a quarter percent interest rate increase. Don’t get your hopes up because it’s not like CD’s and treasury yields are going through the roof. It’s not like you’re going to be able to start making great interests on your savings accounts right now. In fact, those are the last things to move. Most of the banks are coming out and saying “we’re raising interest rates and borrowing rates, mortgages, credit cards, and more, but don’t expect to see an increase in CD interest rates or money markets anytime soon. It really doesn’t do much for us.

Now that they have raised interest rates by a quarter percent, we have the ripple effect of China, and we have the fact that the market has been at an all-time high which no one normally feels warm and fuzzy about. Just about every investor that comes into my office is not feeling warm and fuzzy as it relates to Main Street. What’s going on for these small to medium-sized business owners? Sure, the banks, Wall Street, and traders are happy because all that liquidity means that it’s easy to make money, but now what’s happening to the market?

The Fed was really afraid to play chicken with rising interest rates. They were afraid to flip that switch because they didn’t know what would happen. This is an experiment that has never taken place before. There’s no economy out there that’s ever actually been in this type of situation that when we go from zero interest rate to a whole whopping quarter percent, they didn’t know how it will affect the economy and the markets.

Wall Street’s reacting in a big way. I don’t think that reaction is only because China has gone to the direction that they are in now. If you listen to my show or read my stuff you probably know that I believe this market has been built on a falsehood. The government has tried to use financial engineering in their attempt to artificially prop the Wall Street up until the economy took off on its own. Some of the weak job numbers that came out that even if they look a little bit better, they still weren’t great. They hang in their hat on the fact that the job numbers look good during Christmas time when places like Macy’s are hiring temporary workers for the season, but it’s not working. If you look into yesterday’s market, again it was another down market.

Now I know I’ve hammering this. I’ve been talking about this for a quite a bit. But this is important, folks! If you are listening to my show, you may have one foot in the door of retirement and one foot out of the door. You may have a 401(k), you may have some IRA’s, 403b’s or thrift savings accounts… whatever your case may be—those accounts have mutual funds in them. In most of those accounts, people aren’t actively managing themselves. Meaning, you’re not making the changes on your 401(k) all the time. More than likely you don’t have an advisor who’s doing anything like that. So maybe you have the set it and forget it type of target mutual fund, meaning you set a date for retirement and the mutual fund slowly but surely switches from equities to bonds and increases a safer approach to the mixture of investments outside of the funds as you get closer to your retirement. However, that doesn’t mean you just need to ignore it. You’re plowing thousands and thousands of dollars a year into these accounts, hoping that it’s going to be there when you retire.

If we look in the rear view mirror, just seven years ago there were people doing the exact same thing in 2008. What they didn’t realize was there will be a 52% down over a 24-month period decline. Surprise when they got to retirement! Lots of people worked 20, 30, 40 years to accumulate what they had only to wake up one day that 30, 40, 50% of it was gone. Some people had to work longer, or they had to go back to work when they already retired, or they had to go on a lifestyle diet because they couldn’t maintain what they couldn’t afford anymore. We also had people who were not even employed who had to rely on their parents or other people to help them out. There were still people who were underemployed and stopped looking for jobs as a result of that one downturn. This can be tremendously dramatic on your life.

What I’m encouraging everybody to do is to get with your financial advisor, get with your 401(k) person at work, get with whoever is managing those funds because if you haven’t had a risk review and taken a look at this stuff, you need to as soon as possible. This market is real. The danger is real. It could go either way.

I’m not saying the market is going to completely crash and take, but there are a lot of reasons why it could. What would 30, 40, 50 percent down mean to you? We have gotten really numb as investors because we’re making such good money over the last couple years. But 2015 was a wake-up call. The broader markets didn’t make a lot of money. In 2012 and 2013, you could put a blindfold on and put a dart board up with stocks on it and throw a dart, you could probably make some money. It’s not like that right now. If you’re retired and haven’t sat down with your financial advisor for a risk review and a look at your investments, then at least get yourself familiarized to make sure you’re not taking more risk than you thought you were. That’s the bell that I’m ringing going into the New Year.