market-down-questions

The market has been off so badly. Last week, China had to start halting trading. They were off by over 7% on January 4 that caused a ripple effect across the globe and our markets just had triple digit losses for multiple days on that week. I even did a video address just about that.

Week of Jan. 11 is no different. Jan.13 was over 300 points off. All the major indices were off by one to two percent. Oil is down again. What does this all mean?

We need to take control. Now more than ever, education should be a priority. Make sure you know what you have and how it affects your first. You should never go and make investment choices and decisions without educating yourself on what you have first so that you can understand what you like and you don’t like. You need to understand what you’re comfortable with or you’re not comfortable with. By then can you only make educated decisions because you want to make sure that you’re with an advisor who’s not just got a one-trick pony or one off silver bullet investment tool to use, but they actually have multiple tools to use that you don’t get narrowed in an investment thinking that it’s going to solve all the world’s problems. You have to get educated. Let’s talk some of that.

With the market down like it is, you might be one foot in the door of retirement and one foot out of the door retirement. Or, maybe you are already retired and you have investments. A lot of folks have 401(k)’s, 403(b)’s; if you’re a government employee you have a 457 plan. A lot of those plans are invested in mutual funds. When we’re working or accumulating money, we’re squirreling as much money away that we possibly can, we’re not thinking necessarily about the investments. We’re thinking about just plowing the money away and maybe we’re saving money on tax while investing. Those mutual funds, when not monitored by you or a financial advisor, you may wake up one day very disappointed—just like a lot of folks did in 2008. We saw over 50% drop over a 24-month time period where people lost 30, 40, 50 percent of what took them 20, 30 or 40 years to accumulate. You don’t want to be that person. You need to make sure that you look into your accounts, cash is not the worst thing to go to if you need to temporarily park something somewhere while you’re figuring out what you want to do. In a market like this, you need to make sure that you understand how much riskyou’re taking, are you comfortable where in the world or economy you’re invested in, and if you’re growing at a rate that you want to. You need to take a look at those three things because it is very important. If you have variable annuities, those have mutual funds in them. If you have 401(k)’s, those have mutual funds in them. If you have a broker to count or a broker is managing for you, or an investment advisor is managing for you, make sure those advisors explain to you exactly what kind of impact this market is having on your money. They need to be able to explain to you how much interest rate risk you might be taking unknowingly or unnecessarily.

This isn’t a scary thing. It’s just a reality thing, folks. The market is literally going down by hundreds of points in one day. Since the beginning of 2016, we erased all the little gain that the entire 2015 accumulated in the broader market. That’s a reason for you to make sure you take a look at what you have, how it works, and how it affects you.

Here at East Coast Tax and Financial Planning, we do an x-ray report. What that does is it peels back the onion of any of those mutual funds. It takes a look at the investments inside of your variable annuities and we make sure that you’re now unknowingly or unnecessarily taking on more risk than you’re comfortable with. We also make sure that you’re comfortable with where you’re invested. People are always surprised we run these reports and say, “Really I have that much that much money in China, Russia or Eastern Europe”? You need to know that. You may be fine with that, but you need to at least know it. I’m not saying there’s anything wrong with it. I’m just saying you need to be comfortable with it. Know where your money’s at and where it’s invested, as well as the kind of risk that you may be taking.

If you take a look at just the rising interest rates alone, we went up quarter percent just at the end of last year for the first time in six years, look at the pressure on this economy and on this market right now. This is important for you to keep an eye on and look at. Read the Wall Street Journal, get online, read blogs, and read our articles here. Do whatever you need to do to get educated on how products work, how investments work, and make sure that you’re truly on the front line so you can make decisions that protect yourself accordingly.

Let’s take a look at the major pressures on the market. Oil is extremely low right now. We have destabilized Middle East. We have Russia flexing their muscles and doing things to make their influence in the world. We have the Chinese market and Chinese economy, which is undoubtedly intertwined with our economy. It doesn’t matter how many empty cities that they build, it doesn’t matter how much stock that the government buys from its own stock market… no matter what they do, they can’t seem to get their boat back on the water. That is a big one.

We have rising interest rates for the first time in six years, a quarter percent increase. So what is that creating? We’ve been at an all-time high for a couple years now. That’s creating bubble, and the bigger the bubble the bigger the mess it creates when it pops. When you look at the national debt, the trillion upon trillions of dollars that we see in national debt: if we look at the fact that the taxes are still on sale if you really think about it compared to previous decades, taxes are low. If we’re at an all-time high in national debt, and we got student default rates through the roof of student loans, and we have all of these pressure on the government, then that’s a recipe for rising income taxes.

So we have rising interest rates, rising income taxes, government stopped pumping billions of dollars into the market, China halting trading on their major exchanges whenever the fear selling gets out of hand… we have got a lot of pressure on this market.

You need to ask this risk versus reward question to yourself. The question I usually ask my clients is this, “Look I know you want to make money, you want to take more risk, right? So if you were to make 30% out of a million dollars, then that means all of a sudden you have 300,000 more in your retirement accounts. Does your lifestyle change? Do you change your life? Do you sleep different at night”? The answer almost is always no because that’s your estate. You’re just building it and hopefully you don’t have to use it all.

What’s at the other side of the coin? What’s the other question? The question is “what if you woke up one day and you lost 30%”? You lost $300,000, or if you have a hundred grand, would your life change? That’s a risk and reward question that you have to ask yourself. What kind of life impact will it have if this market goes one way or another?