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Retire Eyes Wide Open: Season 2 Episode 3

REWO S2E3: COVID-19 and your Financial Portfolio

Today we're talking about COVID-19 and your Financial Portfolio. The pandemic continues to impact every aspect of our lives.

What can you expect going forward?
What should you do differently with your money is the worst over?
What concrete things can you do to prepare for more uncertainty?

To hear more episodes, CLICK HERE.


Welcome to Season 2 Episode 3 of Retire Eyes Wide Open. I'm Scot Landborg. Today we're talking about COVID-19 and your Financial Portfolio. The pandemic continues to impact every aspect of our lives.
What can you expect going forward?
What should you do differently with your money is the worst over?
What concrete things can you do to prepare for more uncertainty?

We'll talk about the week's news in the Money Rundown. We'll talk about annuities in the world of COVID. And we'll take your questions.

This is Retire Eyes Wide Open!

Money Monologue:

COVID-19 is one of those world events that most of us never saw coming. We've had pandemics before but nothing like this. Nothing that shakes the core of everything we hold dear. Can't go to school, can't go to work, can't go to church, mask required everywhere, and FEAR as people cancel trips and travel. The 4th of July cancelled. Political rallies before an election are non-existent. This is not a “normal” any of us want. And yet it is the world as we face it.

Just yesterday, my wife told me of a co-worker pulling his hair out trying to get a Kindergartener to do remote school. Trying to teach a Kindergartener how to use a computer - to stay in front of it for hours every day. This is not “normal.” Not a “normal” any of us want. And yet, despite crazy market volatility in March, this market has surged. Making up most of it, if not all the ground it lost in just a few short months.

People forget that recessions on average, last 15 to 18 months. If you invested in 2008, it took you five years to get back to where you were. Invested in 1999, it took you 10 years to get back to where you were. In 1929, The Great Depression, it took over 15 years to get back to where you were.

Recessions can last a while and so can the recovery. So why not here? Why not this time? Is the market rally that we're seeing is enduring.

Here are some observations:

  1. Be careful about bear market rallies.
    If you look at 2001, 2002, 2008, 2009, and even 1929, the markets experienced strong rallies in the middle of a downward trajectory. 1929 the markets went up 50% then down 50% and then they ended the following year down 85% from the high. In 2001 and 2002, you retested the lows, 4-5 different times. So be careful to understand the potential risks and know that it takes time for a recession to work itself through.
  2. It is important to be picky.
    The S&P 500 growth indexes up over 20% on the year, while the value index is down 10% over the same period of time. There are winners and there are losers in this market. There are companies that do very well in this environment, companies that are winning because of this pandemic. And there are ones on the other side that are losing and are going bankrupt. Look for opportunities in this market.
  3. Be ready to be nimble.
    This market is starting to feel like 1999. PE ratios are reaching stratospheric levels. The data shows that higher price to earnings ratios means lower potential performance in the decade ahead of us. Lower profitability also means more volatility potential, so be careful.
  4. Instead of burying your head in the sand, ask more questions!
    Times like these require being more informed. For the past decade, investors have been rewarded for doing nothing as the S&P 500 rallied over 400% from the market lows of 2008. The next decade might require more knowledge to navigate. Some of the winners of the past might not be the same winners of the economy of the future. The most important thing is to have your eyes open to the world around you and ask your advisor how much risk you're exposed to. If you have international or small-cap holdings or complex financial instruments, ask why. Any strategy, any investment, or any advisor should welcome questions and be willing to help communicate through these challenging times. Sometimes staying the course with a long-term strategy makes sense. But it is important to consistently evaluate your options and stay informed of the changing landscape.
  5. Take advantage of lower tax rates now.
    The federal government spent an overwhelming amount of money during the first and second quarters of this year to support the economy. The federal debt has ballooned at $26.5 trillion and counting, finding a way to repay that debt. Finding a way to repay that debt and the decades ahead, it's going to be challenging. One obvious way to repay that debt is through higher taxes, and it could include higher income taxes and higher capital gains taxes. It might make sense to harvest some of the gains that you have in your non-IRA accounts. Resetting your tax base allows you to take advantage of historically low capital gains tax rates, and the after-tax asset could produce advantages in the long-term income plan that you've put together. You also may want to consider a Roth conversion with assets that have been negatively impacted by volatility. Consider paying taxes on a portion of your IRA now if that account is lower, and when that position recovers, you can enjoy the tax-free benefits of the Roth down the road.
  6. Embrace a different phase of your retirement.
    I spoke with a client recently who just retired, and she mentioned how much the social distancing and the restrictions have taken the joy out of what she's been planning. She's been planning trips, vacations, and more time with friends. And now all that is all on hold. As disappointing as these adjustments have been. Push yourself to try something new. Find new ways to enjoy the world around you. Try renting an electric bicycle go for a ride on the beach boardwalk. Organize a virtual game night via Zoom. Rent an RV and take that road trip you've always wanted. This is a unique phase in your life. Try to find as much joy as you can during this craziness.

For more helpful tips and handling COVID-19 go to our website and click on “Request a Report”. We've got a special report on strategies for handling COVID-19. We can also send you a link to my most recent Kiplinger article that talks about COVID-19 and strategies for coping.

And that's my money monologue.

Money Rundown:

Our money rundown segment is where we cover the week's news. There's a lot of media sources out there that are going to give you updated information about the economy in the markets. My job is to summarize and synthesize - help pick out a few stories that are most important for you as a retiree or an investor.

Story Number #1:

Second quarter GDP plunged by the worst ever 32.9% amid virus-induced shutdown. What does it mean for you?

Well, this main street economy is rough. The biggest drop in GDP in the history of the United States and know that it's not over. It's going to take time to see the consequences of some of this stuff. As we continue to work through the ramifications of this virus, there are parts of this economy that are doing great. There are parts that are having a tough time. Take a drive down “Main Street America” and you'll see businesses shut down. Businesses that will not reopen. Restaurants that are having a hard time making it on takeout only or outdoor dining. This is going to be with us for some time, for a significant period of time. Travel will continue to be impacted. So, understand the world that we're living in. You have never seen GDP dropped by this much profitability of companies being impacted. How does that impact your portfolio? How does that impact your financial life? Well, as we talked about previously on today's episode, you have to be a little bit picky. You must be a little bit choosy on what areas of the markets you're getting into, and where there are opportunities to grow your portfolio. So, I think understanding the scale of this thing, the scale of what we've just gone through, and the scale of the challenges ahead.

Story Number #2:

The $600 additional federal unemployment benefits stopped in July, with only some states being approved for the additional $300 per month from the presidential executive order. What does it mean for you?

Well, if you are unemployed, obviously, you are missing that extra $600 a week. You will need to evaluate your financial plan and think about where you might be able to tap. Maybe you need to adjust your retirement plan / when you are going to be retiring. When you are turning on your Social Security and other income sources. You need to take a look at these things. And if you are not collecting unemployment, how does it apply to you? I think you must think about how this might impact the consumer. One of the reasons why the market has done so well, despite all the craziness that has been happening with COVID-19, 10s of millions of people that are on unemployment. 2/3 of them have been making more money on unemployment than they were making working their job. What that means is, more disposable income for those people to buy iPhones, to buy from Amazon, to buy from other retail players, and they've helped support the economy in this challenging time. If that stops for people, it could hurt those consumers.

Story Number #3:

E-commerce is surging. A Bank of America report this week shows that e-commerce accelerated 70% compared to last year. Restaurant delivery saw a 140% increase as the stay-at-home economy continues to be strong. What does it mean for you?

There is no doubt that this economy has changed, and it is not short-term. There are parts of this financial change from COVID-19 that will never go back to “normal.” There is a new “normal.” There are aspects that we all look forward to, like going out to a restaurant indoors. We will look forward to getting on an airplane to go on a trip or maybe a cruise. But there are certain elements that will never change. People have gotten used to working at home. We have noticed efficiencies from working at home. From working remotely, from adding additional people anywhere across the globe. There are things about the city economies that are not going back to the way they were. So, when you think about your portfolio, you think about your wealth plan. How does that impact the type of companies you might invest in? How does that impact the type of life you might want to live? How does that potentially impact real estate prices? And several other issues. So, I think it is important with what we have seen with digital commerce, we've always been moving in that direction. COVID-19 has helped dramatically accelerate it 3, 5, 10 years in the future with where it might have been. How does that change your business? How does that change your retirement? And that's our money rundown for the week.

Scot Strategy Segment:

Annuities in a COVID-19 world.

When people are scared, they often look to safe investments to give them peace of mind. If you are looking more closely at annuities during this pandemic, what should you be keeping in mind? What's different about looking at these strategies now? And what are the risks?

These types of risk management strategies are controversial. Some people love annuities, some hate them. There are some advisors that only recommend annuities. There are some that recommend them for just the conservative part of your portfolio. It is a big, huge topic and we've got a whole episode dedicated to annuities, whether they're good or bad. I encourage you to check it out HERE.

Today, we are talking about annuities in a COVID-19 world. How do these strategies hold up in this type of environment? Are they more relevant? Are they less relevant? Let us talk through the strategy.

  1. Know that they can be complicated.
    Annuities are complicated instruments. There are good, there are bad. And even a good one might not be appropriate for you. So, make sure you take the time to understand it. There are ones with high fees. There are ones with low fees. There are ones with no fees They're ones that give you principle protection. There are ones that are very aggressive. They are ones that are very conservative. There are fixed annuities, there is a whole wide gamut. So, understand it is a complicated exercise that might be worth it for you, but go into it, and take your time to understand it.
  2. Know the different types.
    There are immediate annuities, where you give up your principal and exchange for an income stream. There are indexed annuities tied to an index typically offered some sort of minimal protection, some sort of cap on the upside, some sort of participation rate. There are variable annuities, which allow you to have market exposure, but give some sort of income guarantee. To understand what the different types of annuities are that are out there, how they might be relevant for you, and which ones might make sense in this COVID-19 world.
  3. Know the market you are in.
    This stock market is up over four 100% from the bottom and we are living in one of the biggest longer-term bull markets that we have seen. So, if you are scared, if you are afraid, I think the right annuity for you, in a market where you think you're at a peak, is probably different than one that you would buy at a market bottom. If you feel like we are at a market peak, you are going to want an annuity, potentially, that helps you lock in some of those gains. That helps you take some risk potentially off the table. If we are at a market low if we see another March type event and the market tanks, that is not necessarily the right timing to get really conservative. In that case, you might want to look at a variable annuity that has the potential to not only to give you some of the guarantees or riders that you might want but one that gives you more upside potential as well. So, know that the market you are in the market environment you are in can help guide that decision.
  4. Know their purpose in your plan.
    If you are going to have an annuity as part of your plan first know that you can't have too much in an annuity. You have to be careful because often you give up some liquidity features with having an annuity but know the purpose in your plan. Is the purpose income? Is the purpose growth? Is the purpose risk management? What is their purpose? And how much of it is part of your plan - Is it 10%? Is it 30%? Is it 50%? How big of a part of your plan is it? And what is their overall purpose?
  5. Ask how much will be left?
    When you are talking to an advisor about an annuity that you are looking to potentially purchase, it is an important question - how much money is going to be left at the end of the day? Now you're going to want to look at the worst-case scenario but you're also going to want to look at historical scenarios and look at if the worst happens, how much is going to be left? Often with annuities, there's less money left in that account that might normally be left in a managed account. However, there might be some reasons you are okay with that. If they provide, for example more income, predictability, more security, or risk management in other ways. So, make sure you understand their purpose and your plan, and how much is going to be left at the end of the day.
  6. Know investment options and hidden restrictions.
    If you are looking at an annuity, it is not only important to understand the income component behind it, what guarantees may be associated with it, but also to understand what are the investment options inside the annuity? If you are in an index annuity, what are those investment choices? If you are in a variable annuity, what are those investment choices? And what are the restrictions that the annuity carrier is putting on your ability to make money inside of it? In variable annuities, the question is how it can we be inside of it? How much equity exposure can we have? Someone annuity carriers will let you be as aggressive as you want, you can have 100% of the market, others will restrict you. They will say, oh, you can only have 70% of the market, only 50% of the market. But they may add additional features where they reserve the right to be able to move you more conservatively if conditions warranted. Often, those restrictions are the benefit of the insurer, not necessarily to your benefit. If you want an index annuity, what indexes are available? What is their past performance look like? What does their outlook look like for the future? Make sure you are analyzing those investment options as frequently as possible.
  7. Explore structured product types.
    There are new types of annuities out there that you might want to explore, that offer lower fees, offer a buffer of protection, while still offering you a lot of upside in the market itself. Of course, every investment product has its risks, you want to make sure you are aware of those and make sure you are aware of any potential hidden fees. But this new world of structured product type annuities is a very interesting risk/reward that might be worth exploring in further detail.
  8. Do not be too conservative.
    It is easy to get fearful when the market starts getting volatile. It is easy to want to lock in what you have earned. And as important as it is to trust that instinct, and maybe be a little more conservative at this stage of your life, you have to understand there is another big risk that you might not be thinking about. That is inflation. With the amount of debt that this government has been adding, it could be an issue, years down the road. So not only do you need to be concerned about protecting your money but be protecting about what your money can buy in the future. So, look at strategies that helped give you the peace of mind that you want, but also strategies that can give you upside potential. or potential pay raises.
  9. Look at rising income options.
    When you are looking at annuities, sometimes it is tempting to look at the one that is going to give you the highest income potential. But that is not the only factor to consider. I would encourage you to ask your advisor, are there annuities that offer me an opportunity to have rising income potential while getting the most income today? Sounds interesting. It is important to understand how that income is going to be impacted by inflation in the future. And there are different strategies, which offer you an opportunity to have a rising income potential over time, you want to explore those.
    Those are top strategies related to a new with ease in a COVID-19 world. They are strategies that could work well for a portion of your portfolio, but go into it with your eyes open, knowing if it is the right strategy for you.

If you want to talk about if an annuity may or may not be a good solution for you. I encourage you to go to our website And click on “Book a Meeting.” I would be happy to talk to you one-on-one about if an annuity strategy makes sense for you or not.

The last thing I would mention with annuities is to be careful who is advising you. As important as it is to make the right decision about if an annuity is right for you or not. It is just as important is to understand who is the advisor that's going to sit across the table from you year after year and help you think through your investment options help you think through how this fits into your overall plan.

It is not just about picking the perfect strategy for now. It is also about making sure that you continue to maintain that strategy in the future to optimize all the potential benefits.

Listener Questions:

[Scot] If you want your questions answered during the show, go to our website and click on “Ask a Question”. Joining us today with some of those questions is Christian Whalen, one of our Client Service Associates here at Sterling Wealth Partners. Hi Christian!

[Christian] Hi, Scot. Thanks for having me. Our first question comes from Alan in Newport Beach.

I'm 65 and going to retire next year, with the election approaching November, should I hold off on retirement for another year? How will the election affect the market?

[Scot] Well, Alan, thank you so much for the question. If retirement is that close a year or less, you got to make sure that you have a strong plan. If you are going to stay as fully engaged in the market, it could make sense to be a little more conservative. Considering the things that we are facing. We are facing one of the biggest drops in GDP in the history of the United States. We are facing a pandemic at a level we have never seen in this country in about 100 years. You are facing an incredibly toxic political climate. With things like unemployment insurance funding for the state's PPP loans, that still must be negotiated and come to an agreement on. So, I think it would make sense to be a little extra conservative in this environment. I have spent my whole career talking to clients about how elections often matter a little less than they might normally think. But this one is very challenging because of the other financial components tied to it, not just the election. But how it might impact tax policy and fiscal policy. If people can go in and out of their houses. If people can go to businesses. There is a lot of things on the table. So, it could make sense to be a little more conservative than you might normally be, especially considering how close retirement is for you.

[Christian] Our next question comes from Mike in Fullerton.

I lost my job in April, right before turning 55. How will the uncertainty of continued unemployment benefits affect the market and how will inflation be in the future?

[Scot] Mike, thanks for your question. I am sorry you lost your job. It is a really tough job market out there for a lot of people. So, I am hopeful that the sides will be able to come together in getting some more sustained additional unemployment, through the end of the year. The President passed executive action in order to extend unemployment benefits beyond July. The State of California is still working through the details of that, but I would anticipate they'll come to some sort of solution over the weeks ahead. That being said, I think without unemployment, I think you may have to re-evaluate your plan. Can you take your investment withdrawals earlier? Can you turn on other income sources? Can you get some part-time work to make up the gap? All things that you could be looking at. You also asked me about inflation. I do think it is a potential risk. As governments across the globe have been injecting money into the system. Everyone has an interest in stock market prices going up, house prices going up. Because one of the ways you get out of a $26 trillion debt, is by having those dollars not be worth quite as much. So, I think there is a lot of people that have an interest in their being summoned down the road. So, you want to be prepared for that by making sure you have enough exposure to the equity market to the real estate market to help try to keep up with inflation. Mike, good luck in finding a job and then navigating this world, and if we can help you, feel free to reach out to our office.

[Christian] And our final question comes from Nancy in Irvine.

How is this pandemic different from previous epidemics?

[Scot] Nancy, thank you so much for the question. It is incredibly different than previous epidemics. And I am sure you are aware of some of the biggest was we had stay-at-home orders across this country, which you have never seen before. School closures, over a billion kids out of school across the globe. Major travel restrictions. Events cancelled. Historic government action, $2 trillion plus in relief packages. Record high unemployment. We have never seen anything like this pandemic before. With previous epidemics. we have not seen the level of government and business response to it. And we are going to be debating whether our response to this was the right response for decades to come. And we continue to debate daily, what business should be open, what should be closed, what safety measures are being taken, and were the changes and adjustments worth it? What impact did they have? But regarding you and your retirement, I think it is important to keep that end in mind. Keep focused on the end goal and make sure you have got a strategy that can weather whatever curveballs come your way. This year, it was a pandemic. Next year, who knows what it could be. You want to make sure that your financial plan, your investments, your income strategy has endurance, and it can weather whatever curveballs might come your way.

For more information about COVID-19 and how it might impact you and your portfolio and your outlook. I encourage you to go to our website That's and click on “Request a Report”. Our team will send you our COVID-19 Whitepaper, as well as a link to my recent article in Kiplinger on COVID-19. All great resources that I think you will love.

That is our show for this week. If you want your questions answered during the show, go to our website and click on “Ask a Question”. If you want to sit down and talk more about your situation one on one, go to our website and click on “Schedule a Consult.” I would be happy to help!

Go like this on Facebook to get our most up to date content. Subscribe to our podcast on iTunes or Google Play. We will see you next time where I'll show you more how to Retire with your Eyes Wide Open.

Don't go into retirement with your eyes closed, go into it with your eyes wide open. I'm Scot Landborg. See you soon!

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