by Dave Gardner
In the digital age, retirement planning can become a day-to-day roller coaster ride, but the tactical roots of investment remain firmly imbedded within traditional tactics for wealth management.
During 2020, investors will have the same opportunities that have existed for multiple decades, according to Rich Ramassini, director of strategy and sales performance with PNC Investments. He urges investors to ignore gloomy predictions proclaiming they should limit or even leave the investment markets, and noted anyone who recently exited missed on solid market expansion that has taken place.
“Investors must realize they can control only the ‘controllable’ and must not let the gloom and doom of the 24-hour news cycle and normal market swings get them down,” said Ramassini. “We therefore recommend investors go on a restricted information diet without burying their head in the sand.”
According to Ramassini, the keys to investment success are discipline with participation. Uncle Sam continues to encourage investment and savings, while Roth IRA and 401(k) plans can create sizeable tax and wage match advantages.
He also preaches that all retirement portfolios should be managed with conscious diversity, which is the opposite of playing out emotional hunches. Professionals should select specific investment choices after completing the appropriate due diligence.
“Our job is not the occasional home run,” said Ramassini. “It’s to be slow and steady and create a portfolio that can actually grow after retirement begins.”
Risk adversity is an issue with many investors, and portfolio managers should help their clients understand this. Most risk-adverse investors can be a bit malleable, but fundamentally will not change their belief system.
Wealth managers must also consider the time horizon existing until client retirement. This demands creation of an appropriate portfolio that respects the realities of the client’s situation.
Ramassini emphasized that it is never too late in life to start investing, provided that the client understands the portfolio must be practical. Priorities must match reality and never deny limitations of where the portfolio’s funding will come from.
With many clients, drastic reduction in expenses may be needed in order to provide the financial input for the plan to meet the investor’s goals. This also may include strategic downsizing that has been carefully evaluated for its true consequences.
With federal debt levels now tallying $1 trillion per year and total federal debt exceeding $21 trillion, Ramassini is pragmatic about the debt and its effects on the economy. He noted that Washington has been subsidizing the nation’s economy regularly for many decades by borrowing and spending, but despite this mounting scenario it would be very difficult for Congress to unwind the financial commitment made to retirees for Social Security and Medicare.
Instead of a sudden financial crisis with these programs, Ramassini envisions incrementally reduced benefits for those now with ages of 55 and older. He therefore urges clients to focus on their individual situations, while keeping only an eye on macro-economic trends.
“History clearly proves that fear and worry can create bad decisions,” said Ramassini. “It’s true that we are going to pay a price for all of this government debt, but that day is not here yet and we must not let worry about the future sabotage today.”
Savers before investors
Investment should never become overly complex, according to Lou Ingargiola, president of the Ingargiola Wealth Management Group. He urges potential clients to consciously become savers before becoming investors, and he adds that estate planning and living wills are both key parts of retirement planning.
According to Ingargiola, investors need to live below their financial means, avoid letting the daily “noise” of the media distract them and not react to normal market fluctuations as investment numbers move up and down. With young potential investors, he has noticed many millennials are now buying homes as they become savers.
“Most of these millennial kids have been burdened with heavy school debt they had to get past, and that takes time,” said Ingargiola. “Fortunately, the placement rate for jobs after school has been favorable, and the educational debt pay down finally is producing results.”
He also has noted that millennial investors hold portfolio managers accountable for performance. Within today’s “Amazon world” the youth totally understand they can perform their own investments by simply hitting a button.
Within conservative NEPA, large numbers of people who are extremely risk adverse to investment are a reality, and while Ingargiola understands these clients, he also warns that they will never generate true wealth. Involvement within equity markets is the way to have a client’s money grow beyond inflation, and portfolio managers must help clients avoid “noise” while setting realistic expectations.
“In reality, markets consistently rise over the long haul, but they also can decline day to day,” said Ingargiola. “A portfolio manager worth their salt must educate the clients to worry less during the downtowns.”
He emphasized that it’s never too late to start investing for retirement, even among the 55-plus crowd. For these eventual retirees, he advises that 80% of the portfolio should be placed into the investment market and workplace retirement plans should be maxed.
The investor must then patiently ride out the inevitable ups and downs while steering clear of anything that’s too good to be true.
“If you believe in capitalism, ebbs and flows are normal and there are no promised returns,” said Ingargiola. “You have to experience these changes if you are to reach your retirement expectations.”
In addition, Ingargiola communicates to clients that there are no crystal balls with investments. He refuses to do any predictions of “hot” categories to invest in, and instead advises diversity within a relatively simple portfolio with realistic client expectations, patience and the acceptance of surprises.
“Who could have ever forecast that the nation would have so much oil from shale that we wouldn’t know what to do with it?” said Ingargiola.
In addition, Ingargiola warned about the reality of elder abuse within finance. He therefore requires older investors to provide a trusted contact who can be contacted if evidence of potential predatory activity occurs.
Staring investment early in life is a key to prosperity, according to Edward Scahill, Ph.D., assistant professor of economics at the University of Scranton. He urges every adult, at the earliest possible time, to set money aside every month, thereby creating a savings habit that will compound principle plus interests.
Instigating these types of habits within people is a part of the effort known as “behavioral economics,” and has generated some success. Dr. Scahill noted that savings rates in the U.S. have actually risen, and some employers are offering automatic enrollment within retirement plans that can only be stopped by direct instructions from the employee.
Another area of retirement planning recognizes how $16 trillion of baby boomer money is about to pass to descendants, and must be handled properly through estate planning.
“This should only be done through a professional,” said Dr. Scahill. “There are some concerns that a great deal of this money could wind up being blown.”
He added that any talk of ending Medicare and Social Security, or big cutbacks to the programs, are probably fictional because of the power of retirees as a voting bloc. However, a recent Social Security trustee report said that deep financing trouble will appear with both programs by 2043, and that the national media is dropping the ball in the failure to report about this impending crisis.
A key to wealth planning involves how the nation’s youth must understand the need to pay themselves first, said Justin Matus, Ph.D., associate professor with the Sidhu School of Business and Leadership at Wilkes University. A tool such as a Roth IRA, with as little as $25 a month automatically channeled into it, will produce measurable results as the years pass by.
“I also believe you should own your own home as soon as possible,” said Dr. Matus. “I realize this is old school thinking, but basic fundamentals don’t change.”
He explained there are no profound secrets regarding investment. Simple basic goals, portfolio diversity and regular participation are key.
“Making a behavioral change to invest is somewhat like the story of the obese smoker – he knows what he’s doing is bad, and that he should stop,” said Dr. Matus. “Knowing you should do something, and making it happen, are two different things.”
Dr. Matus also fully recognizes that all is not well with today’s supposed economic miracle economy. The nation is experiencing GDP growth a bit more than 2%, but 5% of the GDP is being borrowed by Washington as it channels this $1 trillion annually into the economy.
This massive economic stimulation is creating many questions with few answers about the real state of the nation’s GDP. This is particularly true with Medicare and Social Security funding, and Dr. Matus forecasts that people may be required to work longer with reduced retirement benefits.
“Medicare is probably going to evolve into segments of various models from around world, and for most retirees it will become some sort of managed care plan,” said Dr. Matus. “There are so many shareholders with these programs, and many unknowns, but changes that occur will undoubtedly occur step by step.”