During the recent market volatility, it’s hard to comprehend how much wealth was unnecessarily lost or how quickly. Through our complacency as advisors, our clients lost an astonishing amount of wealth that currently makes 2014 a nearly lost year. Due to inaction, we chose (yes, it was a choice not to have the conversations with our clients) to take them back to January 2014, when the S&P 500 was in a similar position.
Without a doubt, risks exist with equity investments. Up until the third quarter, investors were rewarded with better-than-average returns. However, we spoke earlier this year about the potential for a correction, or at least volatility. Once again, we failed to take gains off the table and protect our wealth.
Making clients aware of their options is paramount during bull markets. They never know how much risk to take … until they’ve taken too much. We run the risk of repeating the mistakes and greed associated with the financial crisis of 2008-09.
In the 22 trading days since Sept. 18 – when the S&P 500 saw an all-time high of 2,011.36 – $787.3 billion of wealth has been lost. The U.S. Treasury’s interest expense for debt payments was only $415 billion for all of 2013. In other words, we failed to protect more than 1.8 times the interest payment of the U.S. government.
Our clients should be appalled and question what they could have done differently. This time, let’s have meaningful conversations about mechanisms that protect clients and minimize risk. An optimized retirement income isn’t always dependent on the highest return or best asset allocation. An optimized retirement maximizes after-tax income, makes sure there are guarantees in place and places emphasis on protecting what we earn. Let’s have the right conversations in the next bull market.
The Bottom Line: In the last month, clients lost more than a year’s worth of national interest debt payments. In the future, we need to place more emphasis on protecting wealth.
© 2018 Ash Brokerage LLC.