Wealth Management Advisor Aaron Boyce Helps Investors Navigate Election Year Volatility

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A new blog from Aaron Boyce of Lake Point Advisory Group examines the potential impact of election year market volatility on retirement portfolios. Boyce says that planning and strategizing are key to helping baby boomers and retirees protect their nest eggs through the volatile months ahead.

retirement planning, baby boomers, retirement portfolio, financial planning, wealth management

Aaron Boyce, Lake Point Advisory Group

Anticipation over whether a new party will win the presidential election can impact market volatility.

Lake Point Advisory Group Wealth Management Advisor Aaron Boyce says pre-retirees and retirees are already worried out about outliving their nest egg savings, and fears about election year market volatility aren’t helping matters. In a recent blog Boyce published titled, “3 Steps to Helping Pre-retirees and Retirees Achieve Financial Peace of Mind Despite Election Year Volatility,” he looks at historical patterns in election year volatility and offers practical strategies for investors to stay above the fray.

According to Boyce, a number of baby boomers and retirees worry about whether their savings will last throughout retirement, and their concerns are valid. In any election year, it is common for volatility angst to rise among investors, particularly people nearing or in retirement who fear that the race to the executive office will trigger enough market volatility to negatively impact their savings.

2016 has already been a year of volatility, with a market that has fluctuated up and down sharply in short-term swings over extended periods of time. Many investors, already concerned with current volatility say their fears are compounded by the general belief that the market tends to fall during presidential election cycles, Boyce says. There are plenty of theories regarding the election cycle/market volatility connection, but Boyce focuses on one study from the UBS Chief Investment Office Wealth Management Research (CIO WMR) organization, which addresses three consistent historical factors:

  • U.S. presidential election years bring about more investor uncertainty than non-election years.
  • Since 1900, the S&P 500 has dropped an average of 1.2 percent in the final year of a two-term president’s second term.
  • Anticipation over whether a new party will win the presidential election can impact market volatility.

“Three areas of concern that I address with each client portfolio include protecting principle in times of volatility, establishing a realistic withdrawal schedule and income stream that will last throughout retirement, and uncovering hidden fees that can potentially eat away at retirement savings,” Boyce says.

“Rooting out any real risks associated with a client’s portfolio, and helping them make good decisions about how their long term investments fare regardless of the election’s outcome, can go a long way in easing investors’ fears.”

For starters, he says, it is important to take into account the investor’s goals, time horizons, risk tolerance and uncertainties regarding what the election could mean for their retirement funds, in order to make sure their portfolio is positioned in a way that is appropriate for their unique situation and needs, in order to achieve their retirement lifestyle vision. By providing a practical approach to examining client portfolios, Boyce says he can find ways to protect his clients’ savings, cut unnecessary expenses, and provide some valuable peace of mind.

In any election year, it is common for volatility concerns to rise among investors, particularly retirees and pre-retirees who fear that the race to the executive office will negatively impact their income stream.

“Since a wide variety of events can impact a portfolio from day to day, month-to-month, it’s important to reevaluate your portfolio for volatility risk, whether it’s an election year, an interest rate increase, or any other triggering event,” he says.

Establishing an individual income stream for retirement can get complicated, as retirees are tapping into a variety of assets—from personal savings to pensions, IRAs and 401(k)s. The process is further complicated by a laundry list of distribution requirements, potential penalties and tax liabilities that can seem overwhelming to the uninitiated or unprepared.

“I help clients establish some basic steps to determine how much cash can be withdrawn without running the risk of running out of money in retirement, finding ways to turn assets into income, categorizing assets into three distinct buckets—the taxable bucket, the tax-deferred accounts bucket such as a traditional IRAs or 401(k)s, and the tax-free accounts bucket, such as a Roth IRA—to help put one’s nest egg into perspective,” he says. “Then we determine the most advantageous way and time to begin drawing Social Security.”

In developing a sustainable retirement strategy, age, life expectancy, living expenses and rate of return on investments are all taken into consideration. For individuals who retire after age 65 with adequate savings and in generally good health, historically the rule of thumb has been to draw down 3-4 percent of their portfolio each year, gradually adjusting that rate to account for inflation.

Boyce says that one of the most important services he offers is providing a well-structured and sustainable retirement income strategy that allows his clients to confidently spend during retirement, and be able to handle unplanned expenditures when they come up.

“When you consider that 99 percent of people won’t be able to live off their interest alone without touching principal, it’s also nice to know that some annuities can offer a guaranteed* income stream, even if the investor’s principal is exhausted over time,” he says.

Hidden fees, Boyce says, can significantly drain retirement funds, and many investors are unaware of the price they’re paying in hidden fees—some of which may not even show up on account statements or are obscurely titled in a fund prospectus. For that reason, he scrutinizes client portfolios to identify unnecessary fund fees, trading fees and sales loads (a commission paid to the salesperson of a fund) that many investors don’t even realize they are paying.

Even a difference in cost of less than 1 percent can have an immense effect on an investor’s returns over time.

“Hypothetically, an investor with a $100,000 portfolio that earns an average annual return of 6 percent would have $532,899 after 30 years when paying an annual fees cost of 0.25 percent,” Boyce says. “However, if those annual fees add up to 0.9 percent, the investor will have earned nearly $100,000 less, for a total of $438,976.”

Protecting one’s retirement savings from market volatility has never been more important. Most retirees today cannot count on a predictable income stream from a defined-benefit pension once they leave the workplace like past generations have enjoyed. Today’s retirees spend a lifetime saving for their retirement, and if the market takes a wrong turn at the wrong time, it could mean losing years of hard-earned savings and financial security.

Smart planning, and working with a trusted fiduciary portfolio advisor who has a duty to work in the client’s best interests while keeping an eye on the client’s portfolio—especially when risk comes along—can be the most beneficial strategy for achieving peace of mind in one’s golden years.

  • Annuity guarantees rely on the financial strength and claims-paying ability of the associated carrier. Some fixed index annuities may have a lifetime income guarantee as part of the base policy; others may have riders available for an additional premium that provide this benefit. Annuity riders may also be available for an additional annual premium that may provide additional benefits. See your annuity contract for terms, exclusions and limitations.

For more information on election year market volatility and other retirement savings issues, visit the Lake Point Advisory Group website, email info(at)lakepointadvisorygroup(dot)com, or call 214.771.3363.

About Lake Point Advisory Group:

Established in 2000 by President Reid Johnson, Lake Point Advisory Group is committed to helping clients meet their financial needs. By evaluating and assessing their clients’ financial situations, the firm’s wealth management team provides suitable recommendations to improve each client’s portfolio, and they do so with integrity and transparency. Lake Point Advisory Group’s experienced professionals are not only knowledgeable about finances, they also understand the importance of priorities, family and confidence in the client’s financial future.

Lake Point Advisory’s wealth management team employs members of the Financial Planning Association (FPA®), the largest membership organization for personal financial planning professionals in the United States. FPA members are those who commit to the highest standards of professional competence, ethical conduct and clear, complete disclosure to those they serve. They deliver advice using an objective, client-centered, ethical process.

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