Hegna's Hotseat

TINA is back…


first wrote about TINA a few years ago. I’m not talking about Tina Turner; I’m talking about the acronym TINA, which stands for “there is no alternative.” It is a major reason why the market just seems to keep moving up. Where else can an average investor put their money? Money market funds and CDs are back below 1%. Even the 30-year, U.S. government bond is around 2.5%! There is over $13 trillion invested around the world in NEGATIVE INTEREST RATE products. That means people all over the world are willing to LOSE money in order to preserve their capital—it doesn’t even make sense to most of us. Most people say, “Oil and gas have been falling. So what? The market just keeps climbing.” Hey, I think it probably will climb even further because of TINA...at least for a while.

But just like how trees don’t grow to the sky, markets don’t go straight up either. There WILL be a day of reckoning. When it comes, it is going to hurt a lot of Baby Boomers! See, Millennials and Generation X, Y, and Zers can just hang on and likely be alright. Many of them probably won’t hang on though, and they will get crushed too. But since 10,000 Baby Boomers are retiring every day, they are the ones who are in special jeopardy. This has everything to do with sequence of returns risk.

Despite all of the articles written on this subject, most Boomers have never even heard of this risk. Even most advisors are underestimating the devastation that sequence of returns risk will deliver to the Baby Boom generation. We have all read how losses early in retirement can devastate a retirement, but most people still don’t get it. I have figured out why so many people have minimized this risk in their own heads. Here is why.

See, we have all been taught that markets go up and markets go down, but over time they always go up! That is the reason why people minimize this risk. They just figure, “No big deal, I’ll just wait it out, hang on, and everything will work out fine like it always has in the past. The market will recover, it always has and I’ll be fine.” Well, I’ve got news for you: markets don’t always recover right away, and your entire retirement may be ruined if you think you can just “wait it out.”

Let me ask you a question. How long has the Japanese stock market been down? OVER 30 YEARS! If you remember, back in the ‘70s and ‘80s, all of the talk was how the Japanese were going to dominate the United States. Toyota and Honda were taking over the world in automobile manufacturing. Japan was buying Rockefeller Center and Pebble Beach. The Japanese were buying everything! Their markets seemed invincible. Their retirees were all taught the same thing—markets go up and down, but over time they always go up!

Now think about that poor 65-year-old Japanese guy. He worked his whole life. He invested and saved for 40 years. He had his money in a diversified portfolio. He was entering his dream retirement years…Then WHAM! The stock market plunged. It is still down today. Plus, he would now be 95 years old! How do you think his retirement went? My guess is that he died by age 70 from the stress.

Now, imagine if he had at least covered his basic living expenses with guaranteed lifetime income. He wouldn’t have had to stress out about where he would eat or sleep because those paychecks would have come in every month as long as he or his wife was alive. What if he also had secured some guaranteed playchecks? Now they could have travelled as well. They still would have lost some money in the market, but their retirement would have been much more secure. What if they had gone one step further and put those remaining stock market dollars into a variable annuity? Well, now, even THAT money would have some guarantees—a guaranteed minimum accumulation value, a guaranteed minimum income benefit, or a guaranteed minimum death benefit.

Do you see how these guarantees could have significantly enhanced their retirement? That is what YOU do every day. You have to remind people that after a 10-year bull market, this is the time to lock in some of those gains. Using products that will allow them to continue growing their wealth if the markets go up will protect them from losses when the markets go down.

See, there are only three things you can do with market risk. One, you can RETAIN market risk. You can put your money in a low cost mutual fund or ETF. If the market goes up, you get that. If the market goes down, you get that. You are retaining market risk. Two, you can AVOID market risk. You can put your money in a CD at the bank. There is no market risk and they are happy to pay you 1%. Third, you can transfer market risk to an insurance company for a fee. They are not going to take your downside market risk without a fee. Everyone wants to compare variable annuities with mutual funds and ETFs. Of course, VAs are going to have higher fees than those products. Those products don’t have the guarantees of the annuity.

Additionally, income annuities and most fixed index annuities aren’t even fee products. They are spread products. I am telling you most of your clients and prospects don’t understand these very simple facts. See, I don’t think I’m much different than most of your 55-plus clients. Do you know what I want to do with my money? I want to make as much as I can, 8%, 18%, or 28%, but what’s even more important? I DON’T WANT TO LOSE WHAT I’VE ALREADY GOT! Well, guess what: Vanguard, Fidelity, and Ken Fisher CAN’T do that for me. That is what YOU do. So let’s get out there and share with them WHY these guarantees are so important!

Spread the word,
Tom Hegna

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