In Practice September 22, 2008

Giving Clients a Safety Net

If clients have a safety net of one to five years of retirement income, they wouldn’t be worried in this environment, according to CNBC’s resident retirement expert.
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So pointed out Bill Losey, talking to PLANADVISER.com about his strategy for ensuring that clients can still retire, even in a downmarket. As an adviser, Losey said he makes sure his clients have a reserve of money in a low-earning “safe money” investment, such as money markets funds, a CD account, or an FDIC-protected bank account. The author of Retire In A Weekend and head of advisory firm Bill Losey Retirement Solutions, LLC, calls this strategy the “safe money benchmarking strategy.”

Every time a client’s portfolio reaches a predetermined benchmark, the excess amount is liquidated into a safe money investment, thereby positioning it on standby for times like this so they can withdraw retirement income without dipping into their principal.

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“It’s almost like you’re creating your own annuity without having to lock up your money with an insurance company,” Losey said. He rarely if ever uses annuities with his clients (he says about 10% of his client base—which is mostly in the 55 to 65 age range—has 10% of annuities in their portfolio).

The people who should be worried about retirement right now are those close to retirement with 80% invested in equities, Losey said. “Frankly, being that close to retirement and being that aggressive just does not make sense,” he said. “You just don’t have the time to make it up unless you get really lucky.” After this market, some people will likely be working longer for that very reason.

Keeping Cool

In the ups and downs of the stock market of late, Losey said the best thing an adviser can do is remain calm and confident amid the volatility. “First thing I’ve been saying to my clients is actually just to take a breath and to realize that we’ve planned for bad times,’ he said. He said people often make financial decision based on emotions, and an adviser can help by taking the emotion out of the equation.

The media might be blasting with stories of the financial crisis on Wall Street, but “most people on Main Street need to tune out that white noise,” Losey said. He added that as unfortunate as the situation might seem, there is a silver lining. The turmoil has given sleepy-headed investors an impetus to ask about their risk allocation, the safety of their investments, and their financial well-being. “This whole episode last week has actually been the best thing for our entire industry as well as consumers in general—it’s woken consumers up out of their sleep… Now they are starting to ask questions,” Losey said.

IMHO September 20, 2008

IMHO: Pay “Back″?

It was an interesting week, to say the least—all the more so since I spent it surrounded by financial advisers.
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The downs and—eventually—ups of the market, the absorption of storied brands, and the likely disappearance of others were, as you might imagine, fodder for a lot of cocktail banter and the occasional moment of financial gallows humor. But, after what is surely one of the most momentous weeks in memory, the question for most is—now what?

IMHO, most investors realize that stock markets will go up and down—even, as was the case this week, when those movements are deep and largely unanticipated. Those who rode out the tumult are doubtless relieved that they did (having the wisdom to “stay the course’ is a time-honored rationalization for inertia). As one adviser told me, the only person that gets hurt on a rollercoaster is the one who tries to get off in the middle of the ride.

On the other hand, when malfeasance and/or malevolence seem to underlie those dramatic swings—and there are rumored culprits aplenty for this current mess—we should not be surprised that their confidence in our free market system of investment, their trust in those “stay the course’ assurances, is shaken.

It’s not just that loans were made to people who couldn’t afford them—by people who shouldn’t have made them in the first place. Nor that those loans’ increasingly generous terms were encouraged by politicians pandering to constituents and “constituencies’ and—let’s face it—driven by the greed of both lenders and borrowers willing to believe that there really was a free lunch. That that “free’ lunch fed on itself, fueling prices that no one ever thought were sustainable over the long term—but that just about everyone thought could go on for just a bit longer—wasn’t the real issue…though that, of course, provided the impetus for even more bad loans that wound up being “packaged’ in bundles that purported to provide diversity, even as they served to obscure just how tainted the underlying bundle had become (and just as surely, in some cases, served to rationalize a suspension of prudent evaluation).

That those chickens eventually came home to roost—and with a vengeance exacerbated by short-selling “vultures’ (doubtless cousins of the speculators that have driven gasoline prices to record highs with little or no market justification)—should have surprised no one, for we have seen this cycle repeated time and again.

What may be different this time—at least in terms of its visibility—is the actions and “leadership’ of those who will, despite their complicity in the debacle, walk away with more money than most Americans will see in their entire lives.

That, and the pervasive sense that “we’ are paying for those exorbitant exit packages—with our retirement savings. IMHO, my love for our free markets notwithstanding, it’s time some of “them’ paid for what they’ve done to the rest of us.

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