The possible economic fallout of COVID-19 has already been compared to that of the financial crisis of 2008. This time, however, I believe it’s different because during the financial crisis, it was really just the financial industry that was affected.
It started with people thinking that subprime mortgages were going to cause the real estate industry, and maybe the financial industry, some pain. Then, we realized that so many financial institutions had irrevocably tied themselves together with insurance contracts known as credit default swaps. As a result, the subprime mortgage crisis affected the financial industry more than the overall economy.
In contrast, what we’re experiencing today is a true economic stoppage that’s impacting most sectors of our economy. Because it’s unprecedented, it is very difficult for anyone to forecast or predict. Perhaps the closest thing we’ve experienced in the past that might be comparable is The Great Depression.
Some analysts have forecast that unemployment rates could possibly go as high as what we experienced during the Great Depression. Goldman Sachs recently forecast a possible 24% decrease in GDP in the second quarter of 2020. As unsettling as that might be, I don’t think it’s outrageous. Sure, it could end up being less, but it also could be worse.
DAVID J. SCRANTON, Founder of The Retirement Income Store® and Sound Income Strategies
A topic that regularly comes up on my show, The Income Generation1 is the Federal Reserve’s use of quantitative easing and other stimulus tools to help keep our economy and financial markets moving forward. Today, a question I’ve been asked frequently is if I think the current stimulus efforts by Congress will be enough to offset the possible economic and financial impacts of the coronavirus pandemic.
Unfortunately, I do not believe the approach congress is taking will be effective in this situation. I’d like to go back to the American Revolutionary War to illustrate why.
Back then, the British army was considered the most well-trained and disciplined army in the world. This training led them to follow certain rules of engagement that spelled out how they were to fight in battle.
Their approach had served them well up until this point. However, when they had to fight the Americans, who used an unorthodox approach to battle, and would hide behind objects to shoot at them, the British didn’t know what to do. Their traditional model of how to handle a war was rendered ineffective.
I’m afraid the same might be true today with the approach Congress has taken thus far to make cash available for Americans as emergency aid. Under normal circumstances, it might work. But, because of the all the uncertainty about how long the economic stoppage might last, many Americans are scared about losing their jobs and how the coronavirus might impact their personal finances.
As long as people have those kinds of concerns, they’re more likely to hold on to the cash they receive instead of spending it to stimulate the economy. Therefore, jobs will probably not be protected, and people will continue to feel insecure. It’s a vicious cycle.
The reason I tell you this is that I want you to be aware that it’s possible things could get worse before they get better, which means you still have the chance to try to protect your retirement savings.
If you’re hearing the same old tired Wall Street clichés from your advisor like, “you have to buy and hold” or “it’s not about timing the market, it’s about time in the market”, then it might be time to get a second opinion—especially if you’re retired, or close to retirement age
To say March 2020 was a volatile month for the stock market would be quite an understatement. During the course of the month, the market’s fluctuations have resulted in substantial losses for many Americans.
With so much uncertainty about the potential economic impacts of COVID-19, many economists are concerned that a recession might be imminent, if not already underway.
Our new report, Pandemics, Market Free Falls and the Assault on Retirement Savings explains how you can put your money to work using the same purpose-based methods used by institutional investors—to significantly reduce, and possibly eliminate, your exposure to stock market risk.
or Visit https://theretirementincomestore.com/wp-content/uploads/
Pandemics-and-the-Stock-Market-4.2.20_SS.pdf to download.
DAVID J. SCRANTON
Why Current Stimulus Tools Might Not Be Effective
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Not long ago, I was interviewed by a newspaper reporter who asked me what I’m most proud of in my career. The answer was quite simple. In the late 1990s, while many on Wall Street believed the sky was the limit for the stock market, my study of stock market history led me to believe that the tech bubble was about to burst, and that we would soon be heading into a long-term secular bear market.
While most financial advisors were sitting on their hands and sticking to their outdated business models, I had the courage to make the switch to a business model focused primarily on non-stock market, income generating investments, or what I call Investing for Income. By doing so, I was able to help many of my clients avoid damaging losses during the bursting of the Tech Bubble and again during the Financial Crisis.
One reason I believe that Investing for Income is a viable solution for today’s retirees and near retirees is because often, when you participate in fixed income investments, you are investing by contract.
For example, investing in individual bonds is one way you can invest by contract. When you buy a bond, the issuer of that bond guarantees
you a certain rate of interest for the life of the bond, and, when the bond matures, they guarantee that they will pay you back the par value. All you have to worry about is that the issuer of that bond has good credit and they’re going to stay solvent.
In my opinion, that is much easier to do than trying to predict the fickle whims of Wall Street and the stock market—where there could be little to no risk of a corporate bankruptcy, and the stock could still drop by a big percentage.
When the tech bubble burst, the stock market fell by about 50%. Then, during the financial crisis, the market dropped by about 56%. Since today we’re talking about a true economic stoppage that’s impacting most areas of our economy, this time it could be worse.
The bottom line is that if you are retired, or hoping to retire soon, I urge you to consider reducing your exposure to stock market risk and to start enjoying the greater sense of consistency that investing for income can offer.
Each month, we recommend a book or other educational resource to our readers. April’s selection is Your Retirement Playbook, by Jim Lineweaver.
Advisors’ Academy Press is pleased to announce the upcoming publication of James Lineweaver’s new book, Your Retirement Playbook: Ohio’s Guide to a Successful Retirement.
The book explains that as the financial world becomes increasingly complex, households are finding themselves working with a team of professionals that might include a lawyer, accountant, insurance agent, and a financial advisor.
Often, what ends up happening is that there’s little coordination between this team of professionals. Although each member of your financial team might be a strong player, a lack of teamwork could prevent you from achieving your goals for retirement.
Your Retirement Playbook provides the tools and understanding you need to become your own financial quarterback and lead your team to financial success. If you don’t think you are the right person for the job, the book explains how to find the person who is.
Jim Lineweaver says: “I wrote this book with an emphasis on Ohio state public employees, but anyone looking for a plan to avoid finding themselves stuck and wondering what happened will discover, within these covers, solid advice they can use today.”
Jim Lineweaver, CFP®, AIP® is the Founder and CEO of Lineweaver Financial Group (LFG), one of Northeastern Ohio’s leading independent financial advisory firms that has been providing intelligent financial strategies and solutions to clients in or near retirement since 1993.
Jim is also the Founder of the Lineweaver WealthWATCHSM Center, a comprehensive resource center that brings independent financial, tax, legal, and insurance professionals together – under one roof – to objectively analyze and fulfill the needs of LFG clients.
Your Retirement Playbook will be available for preorder soon!
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