Gabriel Sadek - Financial Advisor

There is a lot going on right now internationally and domestically. Inevitably, you will have to transition to safer dollars as you get closer to retirement. Volatility favors younger investors and works adversely to those nearing the end of their income earning years. As you transition to safe dollars, the contractual guarantees provided by insurance vehicles combined with the overall tax-favorability, provide a better alternative to taxable fixed income investments.

It'll buff out.

Collectively, you can expect inflation and taxes to eat into 4% of your compounded rate of return. This means two things:

1. You NEED to be invested properly to get an adequate rate of return in order to keep up with this.

2. If you can shave off EVEN JUST 1% of that 4% that you are losing every year, that is 25% more alpha that you are keeping for yourself!

The work of an advisor is to identify those parts in your plan where you are not properly invested and where you are paying taxes, and fees, unnecessarily. That is where the real alpha is generated. Maxing out 401(k)'s and IRA's, and throwing the rest in a non-qualified account is not enough. You are losing money. And it's important to maximize every tax loophole that you can.

DJIA January 1897 - December 2021
While exposure to the markets has historically provided the most favorable returns over the long term, the unknown of how the market will perform throughout your retirement, and how it will affect your nest egg along the way, makes retirement income planning challenging. An increasing market at the beginning of retirement likely means your investments are better positioned to maintain income throughout. Alternatively, there is a greater risk of running out of money during retirement if there is a prolonged flat or decreasing market at the beginning. The timing of market fluctuations, also known as sequence of returns, can have a profound impact on your wealth and the ability for your savings to last as long as needed. History has shown that the market moves in cycles. Investment strategies that work in bull markets may not be effective in flat or bear markets. Similarly, income distribution strategies (like the 4% rule) that work in bull markets may not be effective in flat or bear markets.

A 60/40 portfolio is not a retirement plan, it's an asset allocation. If your advisor has convinced you that there will be no volatility inside your portfolios in retirement, they are factually incorrect. Investments by actual definition, are volatile assets that cannot be guaranteed. Questions to ask your advisor: where are we taking distributions from during down markets? What are the financial repercussions for taking distributions from investible assets when the market is down? In addition to insuring you, cash value life insurance provides a reservoir of money that you can pull from in down markets. Because of the floor created by your insurance policies, you can be more aggressive in your investments. It gives you more options to utilize to fill the gap between your retirement income need and what you have coming in regularly. An investment only approach is not the way.

Comparing US Equities to International, there has generally been an inverse relationship between the two going all the way back to the 1970's. This highlights the importance of having exposure to both of these, so you can capture the ups and downs across multiple market cycles. In case it isn't blatantly obvious, there's a war on the opposite side of the world; this has created a heavily depressed international market. No saying when this war ends, or if this trend extends indefinitely into the future--however, it has never been unwise to have exposure to both US Equities and International. A great advisor would help you determine how much exposure you should have in each asset class and when to strategically rebalance.

A great advisors job is to get you the highest return relative to the risk you are willing to take. It's not to pick the next winner, it's not to convince you of their 10 best ideas...if your advisor is selecting individual stocks for you and trying to sell you on his/her view of what will happen in the short term, they are blurring the lines between their hopes and what will actually materialize in the markets. Even if you lump everything by asset class, there is no saying what will happen in the short-term (see illustration)--and within each of those assets classes are thousands of different securities--I promise you, they're not that smart. Having exposure to all asset classes will allow you to capture the volatility in ALL corners of the market. And meeting with your advisor periodically to strategically rebalance your portfolio when something is performing above average adds more alpha. The market will coalesce around whatever it wills, don't play the game of picking when and where.