Oct 28, 2022
BRT – WFL: Accumulation vs. Distribution & Why Wall Street only sells Accumulation, plus Recovery thru Options Strategies
BRT S03 EP54 (153) 10-28-2022 – Wealth for Life
Things We Learned This Week
- Accumulation - easier for Wall St to sell, just buy stocks in your 401K, Market goes up over time
- Distribution - income planning, market risk (Sequence of Returns Risk), and life all make this phase more complicated for advisors to talk about
- Avoid the ‘One Thing Retirement Plan’ – if this one thing goes right (market goes up), I will be fine
- NEW 60/40 Split - Bonds out, Option Strategies in, adjust your portfolio with assets that produce income, and have no market risk
- Income Planning – setup long before retirement, to have income bucket grow with principal protection and option to lock in gains
Co-Host: Denver Nowicz, President - Wealth For Life
https://wealthforlife.net/brt/
https://twitter.com/denvernowicz
Denver is an advisor with nearly 20 years experience working with clients in investments and insurance, designing retirement plans with a combo of both. He takes us through different strategies for clients to get the best allocations for their money over the long term. It is the Combo Strategy of both Offense and Defense, the synergy of the mix, not ‘All or Nothing’.
Notes:
Get away from timing the market and learn about accumulation versus distribution
Financial advisors talk a lot about accumulation because it’s easy to sell this idea. Just discuss the thesis that the market goes up over time so invest your money, wait, earn interest and watch it compound
Real life can throw you a curve. When you retire, the process and unexpected expenses in life from family to health can throw off a financial plan. The market does always help your plan with recessions to inflation.
Distribution is messy and complicated, it’s all about taking income when you retire, and if you do it wrong, it can eat away at your savings. Have to be careful of sequence of returns risk, what to do when you take money while the market is going down
Sequence of Returns Risk: "Sequence" refers to the fact that the order and timing of poor investment returns can have a big impact on how long your retirement savings last.
60/40 split of equities & bonds no longer works. Bonds have been OK in the past and down markets but recently have been poor. You need to diversify your assets, have different assets that can with all different market conditions.
Avoid the one thing retirement plan where you hope that the market goes up, if this one thing happens I’ll be fine. We are told to not be emotional about investing, especially in a down market, but very difficult.
The market can be a emotional roller coaster, up, then down. When do you sell stocks to take profits and lock in the gains?
You want to harvest profits, and stocks are good for appreciating, but not for capturing the gains. Options strategies have principal protection (protect vs downside risk), no market risk, and the ability to lock in gains so you can harvest profits. With a 0% floor, and caps, you capture the market upside.
Set up your income planning strategy long before retirement. Start thinking about this in your mid 40s or by the time you’re in your 50s. This is an accumulation annuity that uses advanced options to capture profits. They have a very high participation rate on the index, a par rate of 265%
If an index goes up 5%, can earn 13% (with the 265% par rate). Normal market investment vehicle is 100 % par rate = market goes up 5%, you get 5% credited to your account
Traditional investment portfolio – 60 / 40 split of stocks and bonds. Breakdown of a portfolio case study, use annuities to replace bonds, 20 - 40% in accumulation annuities.
Further examples of an asset breakdown could be business income (20%), insurance products like life insurance (20%), annuities would be replacing bonds (20%), stocks (20%), balance of real estate, cash, and alternative investments – 20%.
Case study in detail, you have $10,000 in monthly expenses, Social Security will cover $2000, now you need $8000 to fill. With the right income strategy as you can get at least $6000 of it.
Insurance companies use options in annuity strategy with a 0% floor, and they are able to do this because they generate money in their fixed income accounts, then buy options with the ability to lock in market gains. The money is never invested in the market. Insurance companies are the only industry that can guarantee principal protection.
Careful using pension type annuities as they have limitations, and are more complicated, and rates can change Traditional annuities are for income, but you are locked in. We want flexibility, and know the potential upside, while also being able to walk away with your money.
Accumulation Strategy using Options – contracted thru Major insurance companies like Allianz with their PIMCO structure are used for investments
Upside potential with these types of strategies. Link to the market for upside, but no downside risk. Going to cash and pulling your money from the market is not a good strategy.
This is a ten year strategy, so better to start in your 40s. Rates can be locked in for 5 years to maximize the market gains. If you believe the markets can earn 5% / year next 5 years, then this strategy can earn you double digit returns. The market history is average of about 8% / year, but not always consistent.
More on these topics:
Learn about Accumulation Annuities: https://wealthforlife.net/recovery/
Does the 60/40 Split Still Work in Investing? Bonds Portion Needs Help
- What is the 60/40 Split in Investing? Equities 60% for Growth/ Bonds 40% for Income
- Bonds Returns have been going down for 2 decades, hurting Retirements
- Sequence of Returns Risk – When you retire matters, if the Market is down, your income can take a big hit
- Annuities - Bonds Replacement for Income, w/ Inflation increases & Income for Life
Full Show: HERE
Beware Taxes! Defense is What You Need vs Offense in Your Investment Gameplan
Synergy of Offense / Defense – diversification of income streams, lessen market risk
Full Show: HERE
Assets – Appreciating vs. Harvesting
Assets: Appreciating vs. Harvesting
There are many different Assets you can invest in. Common asset classes are Stocks, Bonds, Gold & Real Estate. There are Alternative assets like Crypto, Art, Private Equity, etc.
Full Show: HERE
You Need to Control 3 Things in Investing – Taxes, Capital & Assets
Investing plan for Top 10% of income earners ($150K +) or top 5% ($250K +)
Need different strategies, not just 401K or stocks, not like other 90% of population
Wealthy diversify their assets / investments, stock market is just 25% of their investing
Control taxes – protect money from taxes
Control Capital - access to capital – use leverage properly at 4:1
Control Assets – acquire assets to create passive income streams
Wealthy does not put all their money in the stock market.
Full Show: HERE
More Info on WFL and Tax Free Matching: HERE
Learn about Accumulation Annuities: https://wealthforlife.net/recovery/
Wealth For Life Topic: https://brt-show.libsyn.com/category/Wealth+For+Life
Link to Taxes Show on 10/31/2021 w/ Denver: Here
Link to Offense / Defense Show on 6/6/2021 w/ Denver: Here
Link to Shows, Denver was a Guest: Here
Investing Topic: https://brt-show.libsyn.com/category/investing
More - BRT Best of: https://brt-show.libsyn.com/category/Best+Of
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