WILL THE MARKET SELL OFF?  It’s not a matter of if, rather when will a market sell off occur. Historically, markets do sell off and it typically takes many years to recover..the market took over 25 years to recover from the Great Depression!

Note, when you lose 50% of your investment, you need to recover 100% to break even.

The chart below highlights some of the major market selloffs and and their recovery times:

Are We In a Market Bubble Today?

The Federal Reserve’s expansionary policy (i.e., quantitative easing) has probably created the largest market bubble in history. We all know what bubbles do, right? Eventually, they pop!

During the recent coronavirus pandemic, the Federal Reserve injected nearly 3 TRILLION dollars and see how that impacted the stock market. The correlation between the stock market gains and money supply expansion is higher than 90%!

How large will the next major market selloff be? YOU be the Judge!

We could easily experience a 40% to 60% stock market correction. .

How much risk is in your portfolio and how much can you afford to lose?

Most people have NO idea how much risk they have in their investment portfolio and certainly do NOT know how much they would lose when this next market correction occurs.

Find out today! Our complimentary report will tell you exactly how much risk is in your current investment portfolio.

The post Is a Bear Market Coming for Stocks? first appeared on West Coast Financial Services.

Annuities can be confusing and especially when you hear people telling you, “they are bad” or “You should hate annuities” as Ken Fisher advises with his advertising.

The important point you have to understand is what annuity should you hate and why. The logic they are proposing is one annuity is bad so all annuities are bad. So let’s get to the bottom of this and take a deeper dive into annuities.

What is important to realize is there are four types of annuities that are commonly used today. Let’s take a look at each and go over the pro’s and con’s to determine if they are a good fit in retirement planning.

Immediate Annuities

An immediate annuity is where a lump sum has been turned into an income stream. The lump sum is no longer available, but instead a guaranteed income is being received that can payout over a person’s life expectancy. Overall the returns credited to an immediate annuity are very low, but the income guarantee is the real benefit.

The immediate annuity has its place in income planning, such as providing a window of guaranteed income maybe before a pension or social security starts, or it can also serve as a guaranteed lifetime income as well. It pays to shop before choosing an immediate annuity, as some companies will offer higher payouts than others.

Fixed Annuities

A fixed annuity is the simplest annuity for consumers to understand. You simply receive a rate of return determined ahead of time. Many present the fixed annuity as a CD alternative.  It is in the guaranteed principle category of investments, and is one of the safest investments for consumers available today.

With bank rates so low today a fixed annuity is a good alternative with higher rates, and it also builds tax deferred until funds are withdrawn. Depending upon one’s tax bracket, this can be  very beneficial to the client, unlike a CD that is taxable each year even if the interest isn’t withdrawn.

Fixed Index Annuities

A fixed index annuity is really just a variation of a fixed annuity, so it has all of the same safety features. What the insurance company is doing is instead of offering a fixed rate, they use those funds to purchase call options on various stock indexes, with the S&P 500 being the most common.

Each anniversary date the annuity will either capture a gain if the index it is tracking is positive, or a zero return if the index is negative. If any gains are captured they are “locked in” and added to the account value.

The returns within an index annuity will vary dramatically depending upon the design, and it is very important to make sure it is a competitive product that has solid growth potential. Working with a skilled advisor that understands index annuities is extremely important.

The FIA is a safe investment that helps to bring balance to an overall portfolio. It has been one of the best performing safe investments over the past decade and has proven itself as a solid choice for the right investor.

Variable Annuities

The variable annuity is really just an option to use mutual fund type of investments within an annuity. Depending upon the choices used within the annuity, the account value can be very risky, if stock mutual funds are used or fairly conservative if bonds funds are used.

There is no doubt variable annuities (VA’s) can have high fees and this has raised a lot of red flags throughout the financial services industry today. When you hear annuities have high fees this is the annuity they are referring to. Normally all VA’s have an annuity fee that ranges from 1 to 1.5% per year, with around 1.25% being the average.

Also the majority of VA’s will also add riders of some type, either death benefit or income riders, which can add an additional .75% to 1.5% per year as well.  Add the typical mutual fund fee of 1% or more, and you can see that a VA fee can very quickly run 3 to 4% per year. This can really diminish the growth potential of a Variable Annuity.

The VA really doesn’t have a lot to offer for the investor. If they want maximum growth, mutual funds will save the investor a significant amount with much lower fees.

The post The 4 Types of Annuities first appeared on West Coast Financial Services.

There are ways to protect your investment portfolio against a bear market and its a must go beyond the traditional “BUY AND HOLD” strategies.

Remember, a bear market is when a market (e.g., S&P 500) experiences prolonged price declines, price typically fall 20% or more from recent highs amid widespread pessimism and negative investor sentiment. A bear market may also accompany general economic downturns. Examples include, The Depression of 1929, the Dot-Com crash, The Great Recession and the recent COVID-19 Pandemic.

There are a multitude of causes for a bear market, several of the more common economic indicators are inflation and/or anemic economic growth coupled with investor sentiment.

Fortunately, strategies have been developed to defend against a bear market. The most common strategy is to diversify the investment portfolio – in other words, don’t put all of your eggs in one basket. To further mitigate risk, however, implement sound tactical and dynamic investment strategies rather than the traditional “BUY AND HOLD” strategies. Tactical strategies can add stability and predictability to your investment portfolio – reduce exposure to market downturns and preserve your wealth.

The post Bear Market Protection Pt. 1 first appeared on West Coast Financial Services.

1. Taxpapers that have favorable tax features, such as a high basis ratio, charitable deduction carry-forwards, investment tax credit, etc. This is because these attributed reduce the effective tax rate of the conversion.

2. Suspension of the minimum distribution rules at age 72 provides a substantial advantage to the Roth IRA Holder. This allows for an additional tax-free deferral.

3. Taxpayers benefit from paying income tax before estate tax (when a Roth IRA election is made) compared to the income tax deduction obtained, when a traditional IRA is subject to estate tax. This is because the IRC § 691(c) deduction is inefficient.

4. Taxpayers who can pay the income tax on the IRA from non IRA funds benefit from the Roth IRA. This is due to the ability to enjoy greater tax-free yields. This is because of the ability to move funds from a “taxable” to a “tax-free” tax asset class.

5. Taxpayers who need to use IRA assets to fund their Unified Credit bypass trust, are well advised to consider making a Roth IRA election for that portion of their overall IRA funds. This is because the exemption is funded on an after-tax basis.

6. Taxpayers making the Roth IRA election during their lifetime reduce their overall estate, which lowers the effect of higher estate tax rates.

7. Because federal tax brackets are more favorable for married couples filing joint returns than for single individuals, Roth IRA distributions won’t cause an increase in tax rates for the surviving spouse when one spouse is deceased. This is because the distributions are tax-free.

8. Post-death distributions to beneficiaries are tax-free. This is possibly the most advantageous aspect of a Roth IRA conversion.

9. Tax rates could increase in the future. Higher tax rates in the future means more tax will be paid on taxable IRA distributions than the tax that would be paid on a conversion at a lower rate.

10. By converting traditional IRA’s to a Roth this can have a positive effect on your future tax rates.  By lowering your RMD’s after age 72, it can reduce not only your overall taxes, but also it may reduce your tax on Social Security, as well as your Medicare surtax.

In Summary…

Making use of these strategies allows you to leverage the most out of your IRA from a tax, benefits, and exemption standpoint which boosts the efficiency of your overall portfolio.

The post 10 Reasons to Convert to a Roth IRA first appeared on West Coast Financial Services.

Of course when most people answer this question they will usually say,
“I can’t afford to lose any of it!”

So, with a retirement portfolio that has exposure to the stock market in the form of individual stocks or stock mutual funds, let’s first define a loss.  The easiest way would be when you receive your next month’s statement and you see that your portfolio value has dropped from the previous month.  You may say, “Well, that is normal,” and not have a lot of concern, until the losses really start to pile up as they did in 2008, where many portfolios dropped nearly 50%.

Of course at that point most people will have a strong emotional feeling of panic and realize that at that moment they really have lost a good part of their portfolio and now they are hoping and praying that the market goes back up to recoup what they have lost.

Now the common response by the brokerage industry is “These are just paper losses and not to panic, historically the market always comes back”. Hmm, well ok there is some truth to this as when we look back in history so far, every decline has eventually worked its way back up. The big question now becomes.. “Ok how long should I expect to wait to get my money back.”

Let’s take a look at history for a moment and see how long it actually took for selloffs to recoup losses. Let’s just talk stock prices to returning to their original amount, as some will make the case that when you add in dividends or deflation that the nominal value will increase sooner.

The 1929 crash, which was the largest in US history took more than 25 years to get back to even. Wow, that’s nearly a third of one’s life today and in those days nearly half on one’s life expectancy.

The recent crash in 2008 to 2009 took nearly 5 years to recover back to their values before the decline.  That is still 5 years of waiting just to get back to even.

Other crashes such as the 1987 decline just took 15 months to recover. How about this one, it took 17 years to recover from the tech bubble crash in 2000!!

Whichever market loss we want to explore, if you asked most investors if they had a choice to go through that or not, what do you think they would all say? “Well sure I’ll play the game hope to make money in the stock market but if it goes down it may take many years of my life just to recoup my losses?”  My guess is virtually every investor would have rather avoided these losses and for many it actually became very catastrophic they sold their portfolios either because they needed the money or just lost complete faith in a market recovery.

Here’s the problem today. Most investors and especially retirees, when asked this question of how much of their portfolios they can afford dot lose or watch  go down, would still say, “No I don’t really want to play that game!”

Guess what?

Most folks ARE playing this game with their portfolios! 

There are many reasons as to why, everything from I really hadn’t thought about that to the fault of one’s broker who invested their portfolios in mostly stock investments.

With the current bull market now over 9 years in length and with the Federal Reserve now raising rates, the next recession will come sooner then later, and with it the next major stock market decline.  The question is DO YOU WANT TO GO THROUGH THIS?  If the answer is no then you need to do a portfolio checkup and look for ways to add defense.  This is where we can help!  Fill out the request for a free portfolio crash test.

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The post How Much of Your Retirement Savings Can You Afford to Lose? first appeared on West Coast Financial Services.

What’s interesting to note about this graph is that both portfolios earned 8.03% and both Ron and Barb withdrew the same percentage for income on an annual basis. Notice that Ron’s portfolio lasted only 15 years while Barb’s lasted a lifetime . What caused this was not that loses did  occur, but when  they occurred. For Ron, the declines that occurred early in his retirement had a greater negative impact on his retirement savings than did the declines experienced by Barb that occurred later in her retirement years.

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The post Order of Returns Risks Within an Income Portfolio first appeared on West Coast Financial Services.

Buckets Create Tax Choices

Retirees can be affected by a variety of taxes — state income taxes, estate taxes and Social Security taxes, to name a few. But the most common tax — the one that all retirees will deal with — is the federal income tax. For this reason, we’ll focus primarily on the federal income tax and its effect on individuals planning for retirement, but be aware that all potential taxes need to be understood and planned for by those who hope to have a financially comfortable retirement. 

The post E-Book: Tax Strategies first appeared on West Coast Financial Services.

The Social Security Decisions

The biggest story in Social Security today concerns the large number of baby boomers set to retire over the next 15 years and the relatively smaller younger generations feeding Social Security payroll taxes into the system. Adding additional stress to the system is the reality that, on average, today’s seniors are living longer than any previous generation. While that’s good news, it presents challenges to the Social Security system, and in other areas as well. Living longer increases the potential for increased medical and long-term care expenses while in retirement. This may be particularly true for those who have been active all their lives and had relatively few medical expenses prior to retirement. 

Furthermore, the value of your nest egg could be more significantly impacted by increases in the cost of living over a longer term. Quite simply, you could outlive your savings. When you consider all of these factors, it is important to make informed decisions about when to begin receiving Social Security benefits within the context of your overall retirement income strategy. 

There are strategies a financial professional could help you implement that may identify income gaps and help reduce the risk of outliving your money, including insurance products, such as annuities. 

The post E-Book: Social Security first appeared on West Coast Financial Services.

Here’s an interesting part of investing that most investors get wrong. In fact, if most investors understood this they probably would fire their broker. It has to do with how much it takes in percentage terms for a portfolio to recoup losses after a market correction.

So let’s look at this.  If you claim to be a conservative investor, and can handle a 10% loss, then I would agree that is very tolerable for a market investment, as it only takes a gain of 11% to get back to even. No problem. This happens all the time, the market may drop for a bit with a 10% or less loss just to quickly recover.

IF you claim to be a moderate investor and think that you can withstand a 25% loss, it will take a little more to get back to even.  This is starting to get a bit more ominous as it now would take a 33% recovery to get back the 25% loss.  This could take quite a bit longer because as a moderate investor you’re normally only getting about half of what the market returns as it recovers.

So what if you’re an aggressive investor and say, “I want all of the market returns and invest in a S&P 500 index fund,” as most financial experts will tell you to do. Let’s say you experience a 50% market correction. Guess what? You now have to make 100% to get your money back.  “Wait a minute I don’t like this game”, you might say.  Well this is the stark reality of gains and losses. The more you lose the more you have to make to get your money back!

Here’s where it really gets ugly. 

Let’s say your broker recommends an individual stock with the hope of a large gain.  Unfortunately, the stock goes the other way and losses 70% of its values. I hate to say it but this happens a lot. Now, you have to make 233% just to get back to even.  “Wow I never would have done that if I would have known!” many would say.

You see, large losses are killers to growing a market portfolio over time.  Large endowments such as Yale and Harvard and high net worth investors know this and invest very differently than the retail investor.

Here’s the bottom line, if you want to be a successful investor you need to find out “How to limit your losses and still capture gains”.  If you want to find out how to do this, click our contact information below and take control of your portfolio!

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The post The Math of Gains and Losses first appeared on West Coast Financial Services.

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