Stock Market Crash - How To Make It Through It Show 64

This concept relates to our finances, in that risk isn’t inherently bad. Taking that risk in a breakaway isn’t inherently bad, but it wasn’t for me. Assuming too much risk may not allow us to stay in the fight to see another day. Incorporating a plan that has the capacity for adjustments is essential. 

Morgan Housel writes in The Psychology of Money, “… Room for error is underappreciated and misunderstood. It’s often viewed as a conservative hedge, used by those who don’t want to take much risk or aren’t confident in their views. But when used appropriately, it’s quite the opposite. Room for error lets you endure a range of potential outcomes, and endurance lets you stick around long enough to lets the odds of benefiting from low-probability outcome fall in your favor."

A way to incorporate room for error in your planning is to create safety nets or guardrails around a portion of your money. One way to do that is having cash on hand like we mentioned above, but after six months of bill paying it becomes unproductive to have more cash. So, what do you do?

Rolling Stone magazine recently had an article addressing the top concerns of the Baby Boomer generation. The article states, “Make sure your investments outpace typical inflation rates. There are many things that have guaranteed rates or at least no risk for loss and higher potential upside. Consider multi-year guaranteed annuities, fixed indexed annuities, and of course, make sure you’re diversified into regular indexed mutual funds. Fixed indexed annuities and multi-year guaranteed annuities are both safe options to consider because they have minimum guaranteed interest rates. Fixed indexed annuities often have lower guaranteed rates; however, they have a high potential yield of return.”

 A fixed annuity not only helps you beat the typical inflation rates, it guarantees you won’t lose money in a market downturn. This type of vehicle should be used as a bond replacement, because most bonds have become unproductive with interest rates being near zero. Plus, it’s actually safer than a bond since it doesn’t carry the interest rate risks that bonds do.

 If you’d like for me to do a webinar on how annuities work, please email us at connect @ clientsexcel.com and let me know. I’ve been considering this, and I value your feedback.

The video mentioned early in podcast is linked here.
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