“Only liars manage to always be out [of the market] during bad times and in during good times.” -Bernard Baruch, Market Spectator, Statesmen
In 1998 a really smart businessman and stock investor told me the market is going to crash. He was right! It did, over 2 years later! So, what happens in the meantime? Do you stay in cash? Buy low interest investments that are literally paying near nothing in yield, while inflation reduces the value of your money? Will you invest when the market hits bottom or stay scared until it recovers and the opportunity is gone?
Successful investing involves 3 principals:
⦁ Diversify
⦁ Buy and Hold
⦁ Have A Plan
Like the Great Depression, 2008 was a true, never to be forgotten moment for investors. Many had to delay retirement or change their lifestyle completely due to the devastating losses. The Great Depression caused investors to frame the way they invest against what if it happens again, for decades. Likewise, many investors have the same concern today.
The important thing to remember is the markets and the economy have recovered from every downturn, every time!
• Going to cash to avoid the next crash seldom works.
• Selling after a drop usually locks in your losses.
• Market timing seldom works.
At Toro Bravo, we manage our client’s investments through a mix of ETFs, stocks, mutual funds, and cash.3 This meets our diversification objective. While we generally hold investments with occasional rebalancing, at times we liquidate a portion of our portfolio for valuation or market risk. Our intention is to redeploy the cash back into investments at a later time and at a reduced price.4
“Do not take yearly results too seriously. Instead, focus on four or five-year averages.” -Warren Buffett Legendary Investor
A buy & hold strategy could see losses when the market goes through a downturn. If your hold time period is 3-10 years then your chances of success rise. Not panicking over every drop is important. When drops happen, it is good to invest, then your overall return will rise when markets go up again. ETF’s are diversified and protect you from single stock risk.
What if you can’t take a serious decline in your portfolio due to retirement? This where a plan comes in. By taking in account your goals and what risk you can take. In many situations, we can secure your income in low principal risk investments (like Annuities, see disclosures on page 2) which free up your liquid portfolio to invest in equities. The S&P 500 has averaged 13.6% for the last 10 years. This is why advisors normally recommend exposure to equities.
We caution against panicking on whether the market is too high or too rich. Work out a plan that will cover your goals and risk tolerance. It doesn’t violate buy and hold to take a little off the table.
Certified Financial Fiduciaries
Last month, Subhani and I completed our requirements to become CF2’s or Certified Financial Fiduciaries. What is a CF2? Allow me to let the National Association of CF2 explain.
“CF2 is a professional designation for financial professionals, namely, those who have successfully completed a rigorous certification and training process established by NACFF and The American Financial Education Alliance (AFEA), and who agree to uphold the highest moral, ethical and fiduciary standards of service when providing advice to potential or existing clients.
Financial professionals who have earned the Certified Financial Fiduciary® (CFF) designation can immediately and clearly demonstrate how they practice a fundamental obligation to always put their client’s best interest first. Additionally, CFF designees are bound by the CFF code of conduct which holds them to the highest standards of professionalism in the financial services industry.”
We decided to earn this designation as a best practice and to show our commitment to doing what is right for our clients whether they fall under ‘legal fiduciary’ or not.
Social Security Hacks
Social Security Cost of Living Increase
In May the Consumer Price Index Urban Wage Earners and Clerical Workers (CPI-W) rose 5%. The Senior Citizens League, an advocacy group, raised its 2022 Social Security COLA estimate to 5.3%.7
“So what”, you ask? The official COLA is based on third-quarter inflation data, and will be announced in mid-October. Last year, the COLA was +1.3%. This number is what is used to increase Social Security checks. If the estimates for inflation hold then retirees will receive the first over +5% increase since 2008 (+5.8%) or previously in 1990 (+5.4%).8
In my Social Security workshops, I always illustrate the Social Security cost of living adjustment like getting a raise from a boss who also rents you the house you live in. He gives you a pay raise and also raises the rent.
Why is Social Security increases like that you ask? Your Medicare part B also goes up annually. The low inflation increases over the years have been eaten up by increasing Medicare part B.
In July 1st of this year, Congressman John Garamendi (D-CA) introduced the “Fair COLA for Seniors Act of 2021” (H.R.4315). This bill would require Social Security to use the Consumer Price Index for the Elderly (CPI-E)9 to calculate a ‘fairer’ COLA, for seniors.10 CPI-E has risen faster than the CPI-W being used in cola calculations.
Frankly, that sounds pretty good but it’s congress so the devil will be in the details. So, that probably means that some provision that totally tics off the other side will be slipped in and it will die. I hope I am just being cynical.
Sources Citations Bibliography:
⦁ Bracketed comment was added by us for clarity.
⦁ 1870 – 1965 see Wikipedia. https://en.wikipedia.org/wiki/Bernard_Baruch
⦁ ETF is exchange traded fund. These investments are usually a passively managed basket of securities (usually stocks or bonds). Mutual Funds are not core to our portfolios and are purchased without sales charges or 12b-1 fees. There are fees charged by the custodian and not received by TBIA on buy/sale of securities.
⦁ Our efforts may not always be profitable and could cause losses and/or portfolio underperformance.
⦁ Business Insider June 14th 2021. “The Average Stock Market Return over the past 10 years. (No cost was included.)
⦁ Quote from the National Association of Certified Financial Fiduciaries.
⦁ COLA -cost of living adjustment. The amount added to your social security check each year to adjust for inflation.
⦁ SSA(⦁ www.ssa.gov/OACT/COLC/colaseries.html)
⦁ For full definition of CPI-E go to ⦁ www.bls.gov/cpi/research-series/r-cpi-e-home.html
www.congress.gov/bill/117th-congress/house
Supplemental Disclaimers:
This article is informational only and is not investment advice. This is not an offer to buy, hold, or sell investments like securities or insurance products.
Securities and Investment Advisory Services are offered though Toro Bravo Investment Advisors, LLC. Life Insurance and Annuities sold as an insurance broker are not a fiduciary relationship and are not offered by Toro Bravo Investment Advisors, LLC.
Securities or Insurance are not FDIC/SIPC insured and investments contain risk plus could be subject to loss.
Losses could be short term or permanent. Numbers and figures illustrated are hypothetical in nature and past performance is not a guarantee or indication of future results/performance.
We are not affiliated with the Social Security Administration (SSA), Internal Revenue Service (IRS), or any Governmental Agency.
Do not rely solely on the Legal, Tax, or Financial information presented for it may not be suitable for your individual situation.
Consult your legal, tax, and/or financial professional before acting on any strategy or recommendation (i.e. major changes or before initiating the purchase, hold, or sale of any investment or investment strategy).
Every individual’s strategy can differ depending on current circumstances and goals.