Market volatility is ‘a good gut-check’ for being invested: Carson Group partner

Carson Group Managing Partner of Wealth Solutions Jamie Hopkins joins Yahoo Finance Live to discuss the market outlook for investors amid the Russia-Ukraine crisis.

Video Transcript

EMILY MCCORMICK: Stocks rallied for a back-to-back day today, but these moves belie the volatility we’ve witnessed so far this year, with the S&P 500 still down 8% in 2022. With concerns over the geopolitical, economic, and monetary policy outlooks all elevated, our next guest joins us to discuss how to position for uncertainty in your retirement portfolios, as part of our retirement series brought to you by Fidelity Investments.

Here with us now is Jamie Hopkins, Carson Group managing partner of wealth solutions. Jamie, thanks so much for joining us. I think we hear the unofficial advice, do not look at your 401 (k) now when things are volatile, but is there a case for reconsidering your holdings or balances when things do get choppy?

JAMIE HOPKINS: Yeah, thanks for having me on. And that is– it’s great advice, right? I mean, when markets are volatile, we do kind of want to, you know, not always ignore it, but not get so worked up on the day-to-day, as you said, right? This week has been volatile. We might see volatility here for a while. And the markets, you know, we saw a drop down 10% already this year. That’s not all that uncommon. So we do not want to have to set focus on day-to-day moves and then changing your investments all the time.

Now, with a 401 (k), interestingly enough, I often tell people, if you are going to make changes to our investments, the 401 (k) is a decent avenue to do so, really because of the tax benefits. So if you have gains inside of there, you can reallocate without triggering really new income taxes and capital gains taxes, whereas if you had it in a taxable account or a brokerage account, it would not be the same, right? We might reallocate and cause a bunch of taxes. So if we are going to reallocate, it’s not a bad time to do so.

And the other thing is I do think that global events, the pandemic, we’re talking about retirement as you’re nearing retirement, the volatility in the market can also be a good gut check to are you actually just too heavily invested in the market? Are you too heavy in one sector? And actually go back to some of the fundamentals on just why are you investing, what is your own personal risk tolerance, and maybe you do need to take some risk off the table. And that does not mean because we’re worried about the volatility, but this gives us a time to go back and review some of those things.

EMILY MCCORMICK: And to your point about the tax advantages here, potentially reallocating in your 401 (k), what would– who would that reallocation make the most sense for in terms of distance and time till retirement? And what kind of repositioning are you advising right now in terms of sector or style?

JAMIE HOPKINS: Yeah, I’ll go with the retirement one here first, which is, often, what we talk about if you look at, what we say, a sequence of returns risk, which has obviously been talked about on here before, is that five years right before retirement and the first five years in retirement, if you’re planning on taking distributions from your 401 (k) to meet your spending needs in retirement, right?

That’s kind of part of our life, right? We’ve got to learn how to spend this account down. There is a lot of risk that if there are bad market years, bad return years early in retirement, it can really deplete a portfolio fairly quickly because you’re withdrawing from a declining account at that point.

And there’s a lot of risk there. So there’s a good argument that probably the most conservative you should ever really be in your life from an investment standpoint is actually those couple of years right before retirement and the first couple of years in retirement. And then you can actually increase kind of back into some risk a little bit further into retirement.

That feels a little counterintuitive because we’ve kind of been told forever, hey, take your– that old adage of kind of take your 100 and subtract out your age, and that’s your stock to bond portfolio. And I remember there was a bit on TV. Somebody said, yeah, every time a new James Bond movie comes out, buy more bonds. And but that’s actually not necessarily backed by the actual science and methodology that you probably should take less risk right around retirement. We’re going to take those withdrawals early. And you can go back into a little bit more risk once you’re through the first couple of years of retirement.

EMILY MCCORMICK: And where do you see cash fitting into a portfolio right now, given the current market backdrop?

JAMIE HOPKINS: So there’s two ways to look at cash right now. One is cash brings peace of mind to people. So I often talk about a concept, I say return on sleep. Reality is if you’re up every night because all of your money is at risk in the market and you can not sleep, that’s not a good investment strategy either, right? We’re not investing just for the sake of investing. We’re investing to get some outcome, some peace of mind, some enjoyment in life.

Now the flip side is, there’s a little bit of risk with cash right now in this sense, is that I do not see inflation slowing down a whole lot. I know we were talking in the segment right before this, talk about the incursion and invasion going on right now. And, you know, it actually kind of breaks my heart. It’s a tough thing not to just have that human element, but that’s going to cause some kind of fear in people and uncertainty.

And so you might want to hold cash. You might want to say, I want to take some risk off the table and hold cash. But if we have inflation at the numbers that we’ve had before and you’re holding cash, well, you’re, in essence, like, locking in a loss of your purchasing power each and every month. So I do kind of caution people, do not overhold cash.

It does not mean you can not have cash and cash equivalents. Maybe you’re a little bit more in cash right now to just be able to sleep better at night. But kind of going too heavy in cash, we are creating some additional risk there with inflation. If we see more supply chain disruptions, more cost associated with gas and oil, right, inflation might actually go up more than we were expecting. So it’s something to keep an eye on if you do go heavy into cash right now.

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