Thoughts from a recent Lifetime Income Series podcast, which you can listen to in full at Financial Sense Newshour here or on iTunes here.
The fall season can often be a scary one for investors. Many succumb to the temptation to sell any security fluctuating in price, especially when the conventional media fans the flames of fear and panic to get ratings.
Jim Puplava, host of Financial Sense Newshour and Chief Investment Strategist at PFS Group, cautions investors to remain calm and approach the market with a plan. Jim also speaks with Yolanda York about important details regarding Social Security benefits and Medicare in a recent podcast interview.
Odds of US Recession Still Low
First, in discussing the market outlook, even though the S&P 500 has experienced its first 10% correction in four years, Jim states the one thing most often associated with protracted stock market weakness, namely a recession, is nowhere in sight:
“The ISM service index is at a 10 year high; we have housing rebounding at its strongest levels since 2006; [and] you just had four back-to-back months of strong auto sales—the best automobile sales going back to 2006... Since World War II, 75% of all bear markets have occurred during recessions. Now I’m not saying we can’t have one [a bear market], but it is highly unlikely… We have economic growth over 3%, with the second quarter revised higher to 3.7%...the odds of a recession are very remote at this point.”
Jim adds that since the lows in 2009 and during the entire bull market, market participants have been worrying about one event to the next, using news headlines to drive their investment decisions.
“I can guarantee you,” says Jim, “that next year we will be worrying about something else… but what really worries me is what I see investors doing to themselves” when they panic. “Going to cash based on fear is damaging emotionally and they are putting their finances at risk more than they realize.”
Investors often fail to step back, take a breath and realize that selling out of everything they own, going to 100% cash—or worse, loading up on gold—not only locks in losses, but can inflict large capital gain taxes on a portfolio.
In addition, many investors psychologically will not be able to get back into the market after they watch stocks reverse trend and go higher—as Jim has seen with those investors who got completely out of the markets in 2011.
Market Correction Checklist
Jim then reviews for investors a checklist for when the markets go into correction mode. As Jim often says, the best investors—like Benjamin Graham (author of the Intelligent Investor—a must read in Jim’s library), or the legendary Warren Buffett—understand why they own what they own and never do more than trim around their long term, core positions. Being able to sit on your hands and avoid the urge to act out emotionally when markets behave irrationally is an important skill for building wealth.
Jim goes on to discuss how his firm approaches the markets by following models:
“We have 19 leading economic indicators here domestically and four or five internationally; we have a financial stress index, because knowing what is occurring in the bond market is your key to any crisis in terms of its severity; we have a recession indicator; and of course we have technical indicators… In the month of August we did raise some cash [based on the data] but we would never, ever go to 100% cash… I don’t believe in market timing.”
With the help of a financial planner, it is often easier to mitigate the emotional swings that might lead people to jump in and out of a market—which rarely works. Creating successful income streams in retirement requires much patience, as well as a long-term perspective.
Major Boost in Medicare Costs
In the third part of the program, Jim speaks with Yolanda York of the Social Security Administration. They discuss the possibility of a 52% increase in Medicare Part B for those who have filed for Medicare, but who are not yet taking Social Security. Jim wonders if Washington won’t step in soon to mitigate the extent of this health insurance increase for millions of Americans over age 65. It is also not clear if the potential increase in health premiums outweighs the benefits of waiting to file for retirement benefits.
Jim and Yolanda also go over whether or not to delay filing for Medicare if you have a company plan. There are scenarios where company insurance can actually be a better value than Medicare. However, Yolanda reminds listeners that if you or your spouse keep company insurance after age 65, documentation of coverage is needed to avoid penalties whenever you do decide to retire.
Jim and Yolanda then review several scenarios regarding when to “file and suspend” retirement benefits—an important way for a spouse to collect partial payments while the primary recipients’ Social Security entitlement increases until he or she is 70. Yolanda encourages women in particular to download the free publication, “What Every Woman Should Know about Social Security.”
Many women may also do not realize how much money they could receive from an ex-spouse, assuming that the marriage lasted at least ten years. Jim and Yolanda emphasize how important it is for all workers—husbands, wives, young and old—to educate themselves about Social Security planning by creating a “My Social Security Account” at socialsecurity.gov. It is never too early to learn as much as possible about this important source of retirement income, especially at a time when many retirees do not have defined benefit plans.
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