Lineweaver Financial Group

Preparing for Market Volatility

Managing your retirement assets in a period of market volatility

If you follow the financial news, it comes as no surprise to you that the Dow Jones Industrial Average and the S&P 500 both have recently hit record levels.  It doesn’t seem that long ago that we were all concerned about the financial crisis, but the market has now seen gains for the last five years.   However, now is not the time to be complacent.

Coupled with market highs, we have recently witnessed increased volatility. A long list of concerns has recently increased ongoing instability in the financial markets. Concerns include a slowdown in China, weakening European economies, the strength of the dollar, border issues between Russia and Ukraine, ISIS, when and how much the Fed will raise interest rates, and Ebola. Financial markets don’t like uncertainty; but let’s face it, uncertainty is not going away. Investors should keep this volatility in perspective. Pullbacks of 5% to 10%, which we saw this past fall, are occurring more frequently. Investors have to understand market volatility is the new norm.

To illustrate, during this past fall the Dow Jones Industrial Average’s 275 point gain on Wednesday, October 8, was the biggest one-day rally in 2014; while the 335 point pullback on Thursday, October 9 was the worst one-day decline in 2014. This was the first time in 17 years that the biggest one-day gain and decline occurred in back-to-back sessions, and spoke volumes about the market’s recent volatility.

When markets become volatile, investors frequently let emotions rule their investment decisions and attempt to head for safe cover. This only increases the problem, which causes additional fear. But the impulse to let emotions rule and sell can make it difficult for investors to meet their investment goals. We believe the recent market volatility is primarily driven by fear, not fundamentals.

Despite recent hiccups, most U.S. economic indicators continue to signal that the economy is expanding. A strong labor market, coupled with a decline in gasoline prices, should provide a boost to consumer income and spending.  However, the recent and ongoing turbulence in the market has investors questioning how they should strategize for the long term.  Rather than reacting emotionally and panicking by running for the door, a better approach might be to think through what one's risk appetite might be and adjust your asset allocation gradually, probably to something more conservative but not giving up the chance for some upside potential.

Now is a great time to revisit the Rule of 100 and make sure you are not assuming too much risk with your deferred compensation and other retirement assets. We have long preached that you need to follow this rule. Take 100 and subtract your age, and the resulting number is the maximum percentage of your assets that should be at risk.  The gains in the markets over the past five years may have increased your percentage of equities in your portfolio higher than you want or need. It might be a great time to consider rebalancing your portfolio, and possibly lock-in some of the gains that until now were just paper gains.

No one knows exactly how this year will play out. But the prudent response for long-term investors is tried and tested: focus on fundamentals and hold a balanced, well-diversified portfolio.  If you haven’t looked at your deferred compensation account recently, now may be the time to ensure you are properly allocated.  If you have questions on how to do this and want to make sure you are prepared for this ongoing period of market volatility, call our office to schedule a complimentary review with one of our advisors.

Lineweaver Financial Group s 9035 Sweet Valley Drive s Valley View, OH 44125 s 216.520.1711


Securities offered through Triad Advisors, Member FINRA/SIPC. Advisory services offered through Lineweaver Wealth Advisors, LLC. Lineweaver Wealth Advisors is not affiliated with Triad Advisors.


Asset allocation does not ensure a profit or guarantee against loss; it is a method used to help manage risk.
Source: Yahoo Finance



The Risk No One Wants to Talk About

Are you going to run out of money?

Most investors perceive risk in terms of the dollar amount they will or have lost over a relatively short period. They also perceive future risk in terms of events they worry could occur, such as a stock market crash, Treasury yields soaring because of the federal debt, or a global war or catastrophe.  It's easy to understand why: These risks are easy to identify and potentially quantify.

What is much tougher for us to wrap our heads around is risk from the standpoint of longevity. This is the possibility of outliving your savings. From a purely financial standpoint, it is the key definition of risk you should be most concerned with.

The good news is that most police officers are able to retire with a strong pension, but will that be enough?  Also, DROP has been added into the picture to create a nice nest egg to be used to supplement your pension in retirement.  When you add DROP to your deferred compensation or other retirement accounts you were able to save on your own, you could be in a good position to have your assets more than last your lifetime.  However, excessive distributions and improper management of your funds can have a negative impact on accomplishing that important feat.

What are you doing to help ensure you have saved enough and managed your portfolio in a manner that provides an adequate level of income on an inflation-adjusted basis in retirement?  The decisions that you make throughout your career—including what you save, how long you work, how you allocate your portfolio and whether or not you panic during times of market turbulence— could help ensure you do not outlive your assets.  In many cases, having professional guidance can really help take the emotion out of investing during turbulent market times.  Too many times we see people in retirement that have too much of their assets at risk, even though they may not need or desire the potential high returns they could get by being solely in the market.

Unfortunately, whether our money will last our lifetimes isn’t always top of mind.  Our minds don't do well with big numbers that are far out in the future.  We think in the short-term and we don't do well with big, uncertain events. We certainly don't like thinking about exactly how many years we'll spend in retirement before the grim reaper comes or what our medical expenses might be like.  It's simply easier to focus on potential risks that are currently more identifiable.

Having a properly allocated, diversified retirement portfolio could help prevent you from outliving your assets.  Do you need help in crunching the numbers based on your pension, living expenses, age and retirement assets?  If so, feel free to give us a call so we can help you get a better feeling on the longevity of your money.

Lineweaver Financial Group • 9035 Sweet Valley Drive, Valley View, OH 44125
216.520.1711 • OhioRetire.com

Securities offered through Sigma Financial Corporation, member FINRA/SIPC. Lineweaver Financial Group is independently owned and operated. Diversification does not guarantee against loss or ensure a profit; it is a method used to help manage risk.


Planning for your Retirement

Planning for retirement can be a very complex task, especially for those that are ill prepared.  There are many things you should address prior to punching your final ticket to retirement, and many police officers may not know what those are.

At Lineweaver Financial Group, we feel it is best to be informed and educated about your pension system and the decisions you will need to make.  Too many times, we have met with a police officer AFTER they have already retired, only to find out they made choices that weren’t best for themselves and their family.  In many cases, these decisions are irrevocable and there is nothing we can do to change them, only try to help them in their future.  We prefer to meet with employees BEFORE they retire and provide them complimentary advice to help them address the necessary hurdles of retirement planning.  This way they can confidently head into retirement knowing they are making informed decisions based on their specific situation.

Following is a helpful retirement checklist that will help get you started in your preparation:

  1. Do you know when you should visit the pension board?
  2. Do you know what your approximate monthly pension will be?
  3. Do you know what pension options are available and which one is best for your family?
  4. How can you get the most from your pension yet still leave assets to your heirs?
  5. Is there a cost effective way to bridge health insurance gaps between retirement and Medicare?
  6. Will the pension option you choose support your current lifestyle?
  7. Are you planning on working after retirement?
  8. Will your social security payments be reduced in retirement?
  9. Do you have all your legal documents updated and accounts titled properly?
  10. Are you aware of the tax restrictions of rolling over your deferred compensation and DROP in retirement?
  11. Have you met with a financial consultant who focuses on helping public employees plan for a successful retirement?

While this checklist won’t fully prepare you for the choices and decisions you need to make to have a successful retirement, it will definitely help.  We also host complimentary retirement dinners, exclusively for public employees, where we develop these and other topics in greater detail.  If you are interested in attending one or simply learning more about our company, feel free to visit our website at www.ohioretire.com or call our office to schedule a complimentary, no obligation retirement consultation with one of our advisors.

Lineweaver Financial Group s 9035 Sweet Valley Drive s Valley View, OH 44125 s 216.520.1711


Securities offered through Sigma Financial Corporation. Member FINRA/SIPC.

Lineweaver Financial Group is independently owned and operated.


Understanding Annuities Life is confusing…and so are annuities!

The complexity of modern day life seems to add to confusion, and annuities are no exception. There are many types of annuities and the variations of them continually evolve, making them even more confusing.  Before you consider using an annuity in your deferred compensation plan or other retirement planning, make sure you understand the benefits, costs, and surrender charge period. Not all annuities are created equal. Annuities can provide valuable benefits, but there are typically costs associated with these benefits. As with any investment decision, you need to make certain it is appropriate for your unique circumstances.

There are basically two types of annuities: deferred annuities and immediate annuities. A deferred annuity defers payment, while an immediate annuity begins payment immediately. While this is pretty simple, from this point, annuities get very complex. There are many variations, and they are changing all the time.

If a concern of yours is to help manage your principal from potential losses associated with downturns in the market, annuities can be used to help manage risk. We tend to think that principal protection is always a financial goal that should be considered, but it is even more important as you enter into retirement.

If providing yourself with an income stream is a goal, an immediate annuity might fit into your plan. When you buy an immediate income annuity you are buying an insurance product in which you exchange a lump sum for guaranteed payments for life or a period of time. This may help you manage two big retirement risks: a down market or outliving your money.

Have you used an annuity in your retirement planning, or are you considering using one in the future?  If you have further questions on the various types and features of annuities, feel free to give us a call.

Lineweaver Financial Group w 9035 Sweet Valley DrivewValley View, OH 44125w216.520.1711

Securities offered through Sigma Financial Corporation. Member FINRA/SIPC. Lineweaver Financial Group is independent of Sigma Financial Corporation.

Some fixed annuities come with high guaranteed interest rates that can decrease after a set number of years to a much lower minimum interest rate determined by law.

Investors can lose principal if an indexed annuity is terminated prior to the end of the surrender period.

The principal guarantee and income for life guarantee features of fixed annuities are subject to the claims-paying ability of the issuing company.

If you take an early distribution from an annuity you may be subject to a surrender charge which could result in a loss of principal.  You may also be subject to a tax penalty if you make a withdrawal before age 59.5.



Monitoring Risk in a Volatile Market

Determine Your Need for Risk

Many individuals will claim they are adverse to a high level of risk, while others embrace it and feel that a long-term strategy can make up for any short-term losses.  However, it is still prudent to try to mitigate and control risk at all stages in an attempt to manage your long-term returns.  I think "risk" is the most widely misunderstood investment concept. The consequences can be dire—running out of money before you run out of time. My favorite framework for thinking about risk looks at risk in three ways: your willingness, your ability, and your need to take risk.  Most individuals can measure their willingness and ability for risk, but few factor their actual need to take on an appropriate level of risk.

Risk is often defined as the odds of losing money or the chance of getting a return different from that which you expect. Against this backdrop many individuals—understandably—focus on their willingness to endure "risk." Others will focus on their ability to take risk. These investors will ask themselves if, given their age, income or profession, they have enough time, future earnings or job stability to stomach risk.

But the question that I don't hear asked nearly enough is whether or not one needs to take risk. For example, take a 65-year-old retired police officer with an investment portfolio and no debt maintaining an all-equity portfolio.  His living expenses are more than fully covered by his pension, required minimum distributions, and his reduced Social Security benefit. In this case the "need" to take excessive risk is not there even if the willingness is. On the other end of the spectrum is the 22-year-old new hire Patrolman who elects to put his entire 457(b) in a stable or fixed fund. In this case, the willingness to take risk is absent but the need for "risk," in the face of potential long run inflation, would be high.  In both scenarios, they did not consider what their need for risk should be.

Everyone’s comfort level of risk can be different, and the outcome of performance is likely to be affected by that level.  However, with proper diversification and active management of your portfolio, there are ways to control and alleviate your level of risk, while still allowing for potential returns that can meet your long-term goals.  Having a well structured, diversified portfolio is a prudent way to help manage your risk level.  Some people prefer to have professionals manage their account for them, so it takes the emotion out of the decision making. This can help prevent the “panic sell”, which may turn into a “buy high and sell low strategy”.

Potential Returns

So how does the typical investor’s returns compare to some of the major market indices over the past 20 years?  To make it very simple, the S&P 500 averaged 7.8% per year, while the Barclays Capital US Aggregate Bond Index returned 6.5% per year over the same time period. A 50/50 blend of these two asset classes would have yielded a nominal annualized return of 7.2%.

However, the average investor's 20 year annualized return is dismal compared to those figures. According to an analysis by Dalbar, the average investor earned 2.1% over the twenty year period ended Dec. 31, 2011. But wait, it gets even worse.  After including inflation, the average investor actually got a negative real return. Inflation (CPI) grew at an annualized rate of 2.5% during that same period. So the average investors' net real return was -0.4%. The average investor is not very good at capturing the market return of a simple balanced portfolio, never mind outperforming it.

As you can see, many investors make decisions based on “short-term concerns, crowding out longer-term, more rational strategies,”  and are overly influenced by the daily noise about stocks in the media.  By taking emotion out of the equation, you are more likely to benefit from a "Buy low, sell high” strategy.   Note that that phrase does not call for buying at the "lowest" or selling at the "highest," which is, of course, impossible to do on a consistent basis. It simply recommends a process of harvesting those holdings that have done well, and reseeding a portfolio with holdings that have underperformed. This, essentially, is what rebalancing a portfolio is all about: a prudent strategy for managing an investor's overall risk. Most people think that "buying low and selling high" is the magic formula for above-average returns, but in fact it is a strategy for managing portfolio risk and many individuals aren’t able to do this by themselves.

While risk and reward go hand in hand, it's important to think about all three elements of risk—your willingness, ability, and need to take risk—before making investment decisions. If after reviewing your current portfolio or level of risk you have questions, feel free to give us a call.

Lineweaver Financial Group s 9035 Sweet Valley Drive s Valley View, OH 44125 s 216.520.1711

Securities offered through Sigma Financial Corporation. Member FINRA/SIPC.

Lineweaver Financial Group is independently owned and operated.

It is not possible to invest directly in an index. Diversification and asset allocation does not guarantee against loss or ensure a profit. They are methods used to help manage risk.



More Articles...