So, what is the plan when things are not going according to the plan?

Scott Peterson |
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At Peterson Wealth Advisors, we manage the retirements of several retired commercial pilots. As I have discussed these pilots’ careers with them, one of the retired pilots explained that being a pilot can be described as, “hours and hours of boredom punctuated by moments of sheer terror”. Although these moments of sheer terror are rare, pilots will spend countless hours of training throughout their careers preparing for that moment when their flight plan might not go according to plan. 

Just as pilots have a plan, investors also need to have a plan to follow when their investment plan seems to not be going according to plan. The last couple of years have provided investors ample unplanned and unforeseen investment turbulence. A pandemic, a supply chain crisis, the highest inflation rate in our lifetimes, and the prospects of another world war in Europe have certainly rocked the investment world and caused even the best-made investment plans to not go according to plan. 

Investors should always be asking, “what is my plan when things temporarily aren’t going according to plan?” Let me share with you the Peterson Wealth Advisors’ perspective and what we are doing for our clients when it appears that things aren’t going according to plan due to ‘investment turbulence’. 

Embrace the Volatility

First, temporary downturns are not a deviation from the plan. Rather, they are an expected part of the plan. Stock and bond market downturns are always temporary, and historically the duration of almost every major decline is measured in months, not years. The media would have you think that market corrections, “are unexpected events that are shocking in both their occurrence as well as their impact”. As investors with longer-term perspectives, we understand that the price you pay for inflation beating investment returns consist of enduring occasional periods of market volatility. Few of us would pass up a Hawaiian vacation because there will surely be some turbulence in our flight to and from Hawaii. We likewise need to keep temporary market downturns in perspective and remember that turbulence is a planned for event.

Even though the exact timing of a correction is difficult, we should expect and even embrace market volatility. Investors should seize the opportunity to make wise tax moves during declining markets by doing Roth conversions, rebalancing portfolios, tax-loss harvesting, and then be opportunistic by purchasing depreciated equities while they are being sold on discount. 

Protect Gains

We believe that investors should never be in a position where they need to liquidate depleted investments due to a temporary market downturn. This is difficult to do if an investor is not preparing for the downturns before they happen. With the Perennial Income Model™, we proactively attempt to protect our clients from selling investments at a loss by following a rigid, goal-centric, approach to harvesting investment gains once the goal of an investment has been reached. Harvesting is the process of transferring aggressive investments to more conservative investments as goals are achieved.

Navigating retirement with a plan that establishes investment goals and appropriately harvests gains can bring order, discipline, peace of mind, and added security to the retiree.

Maintain Flexibility

If you have the flexibility, you can wait out market downturns and wait for good investment opportunities. The best way to add flexibility, and tip the investment odds in your favor, is by simply increasing your time horizon. The longer you are invested, the better opportunity you have to endure a range of market outcomes. This endurance flexibility lets you stick around long enough to let the odds of benefiting from a positive outcome fall in your favor. 

Additionally, flexibility within an investment portfolio allows Peterson Wealth Advisors to select only positive performing investments within a portfolio to be drawn upon for income. This allows investments within that same portfolio, that may have temporarily dropped in value, to rebound.

Flexibility gives you room for error and giving yourself a margin of error is the only way to safely navigate the world of investing, which is governed by probabilities, not certainties. 

Create a Plan that has Conservative Projections

In other words,  plan for the worst and hope for the best. As the creators of the Perennial Income Model™ we project retirement income streams over decades. This process is unique to our firm. We have concluded that it is in everybody’s best interest to project low. We assume future investment returns 30% less than historical averages in all of our planning and projections. If an acceptable retirement income stream can be created from the conservative assumptions that we use, an actual income stream that spins off more income than originally projected will certainly be welcomed.

Conclusion

Market turbulence has and will continue to afflict investors with regularity. This is why we choose to create retirement income streams by following the goal-based, time-segmented processes of the Perennial Income Model.

A retirement income plan is only successful if it can survive reality, and a future filled with unknowns is everybody’s reality. That is why we feel it is important that retirees understand and embrace volatility, follow a goal-based plan to protect investment gains, maintain investment flexibility, and use conservative estimates as retirement income streams are projected. If retirees understand and embrace these points, they will be prepared to answer the question, “what is my plan when things temporarily aren’t going according to plan?”