About the Author: Robert E. Grace, JD, CLU, ChFC, RFC is an Investment Adviser Representative and Master Elite IRA Advisor. As Founder & President of Grace Tax Advisory Group, LLC. , he has helped thousands of clients prepare for retirement through his proprietary planning process. Grace is also a best-selling author and radio show host. Learn more about Bob.
What is the difference between a tornado and a hurricane?
First, a tornado is unexpected. It could be a beautiful day and a few minutes later a storm rolls in, and a tornado is on top of you.
On the other hand, a hurricane is different. It’s expected. We can track it thousands of miles out at sea, we know how wide the eye is, we know how fast the winds are, and we know where it is going. We even give it a name. We all have seen the meteorologists on TV, standing in the pouring rain with 80mph winds saying, “In just five hours the eye of the hurricane is going to hit right here!”
And then of course, the next day you see footage of all the people who either couldn’t escape the hurricane or they made a conscious decision to “ride it out.” Those are the folks generally being rescued from their roofs, wrapped up in Red Cross blankets.
The point is this: a tornado is unpredictable, but we can see a hurricane coming. We feel the same way about the stock market right now.
Here are three facts about the current stock market:
- March 2017 marked the 8 year anniversary of the current bull market. During that time (January 1, 2009 – December 31, 2016) the S&P 500 averaged a 14.93% annual return. Have you come to accept this as “how it should be” and become complacent?
- The Shiller PE ratio right now is 29. If you are not familiar with this, it’s the cyclical price to earnings ratio (P/E ratio) for the S&P 500. And historically that ratio has been closer to 16. Again, right now, it’s at 29. To put this into perspective, over the past 147 years, PE ratios have only been this high three times: 1929, 2000 and today.
- The 10 year treasury interest rate is 2.20% today. Over the same 147 year history we have experienced rates this low 16 times. So this interest rate environment isn’t unprecedented. But what is unprecedented is that we have never had both of these two things happen at the same time. We’ve never seen stock valuations this high with interest rates this low. Every other time in history one was there to balance out the other.
So what does this mean for you? Do these facts about the market guarantee a market correction is on the horizon? I’m not suggesting that we have reached the peak of this market, because no one knows. I’m also not saying you should take all your money and move to cash or gold, as that’s unwise too.
What I am recommending is that if you are retired, or getting closer to retirement, it would be wise to reassess your current risk exposure and make sure it is in-line with your risk comfort level. Simply put, review your financial plans and goals and take steps today to make sure the next financial tornado or hurricane will not derail your retirement dreams.
NOW is the time to gain perspective and take control of your future. Take a deep breath, look at your situation, identify your potential exposure should a market correction occur, and if necessary make adjustments, make an actual plan you can depend on - regardless of any tornados or hurricanes that might be coming – so that you can walk into the future with increased confidence.
The first step is simply knowing what kind of risk you’re currently exposed to – in essence, getting your own “radar” up for what type of “damage” could potentially be done if we were to experience a slight , moderate or a significant market correction. We can help you with that, through a no-obligation Portfolio Risk Analysis in our office.
Now, what is a Portfolio Risk Analysis? It’s a thorough review of your current investments within your overall retirement portfolio. What a Portfolio Risk Analysis does is determine the actual level of risk you’re exposed to as someone either heading into or living in retirement.
But what does that ultimately mean to you? It means you have the opportunity RIGHT NOW – when the “weather” is nice – to make any necessary adjustments to your investment risk exposure so that you can protect those assets from any storms that might arise should we experience a significant market correction like we have before. What this really means is that you can help safeguard yourself now by moving some of your assets to more conservative or sheltered positions.
Again, with a bull run 8 years deep at this point? The likelihood of a correction would be considered a hurricane, not a tornado. In the financial arena, it would be considered foreseeable at some point rather than a complete surprise. Keep in mind no one can determine the timing or the strength or severity of the correction. Why not prepare now, to the best of your ability, rather than waiting to see what might come?
Contact any of our offices today, to schedule a time for your complimentary Portfolio Risk Analysis. You can reach us at 866-481-5550. Or email me at Robert.Grace@gracetax.com.
My team and I will be happy to provide this service at no charge to help you prepare for the hurricane and gain peace of mind.
Robert E. Grace
JD, CLU, ChFC, RFC
Investment Adviser Representative
President of Grace Tax Advisory Group, LLC
Whatever your future, planning is the key. Understanding the factors involved in your decision-making process, working with financial professionals, communicating with family and being flexible both before and during retirement are all important components of planning for retirement. They are the plot devices that help your retirement story have a happy ending.