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VOL. 45 | NO. 24 | Friday, June 11, 2021

Lessons learned from scary 2020

Plunge a shock to investors used to an ever-rising market

By Hollie Deese

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Much of the fear that struck the country in early 2020 had more to do with the financial effects of COVID-19 than the medical. It began in late February and continued into March with record-setting Dow plunges March 9 (2,013 points), 12 (2,352 points) and 16 (2,997 points).

Seven of the worst 10 days in Dow history occurred between Feb. 24 and March 18, 2020.

“We’ve just been through a wild and crazy year,” says Bill Decker of Decker Wealth Management. “Last March, we had the worst three weeks of investment performance of my lifetime, and I have been doing this for 30 years.”

And while Decker says those few weeks in 2020 at the start of the pandemic were a very scary blip in what turned out to be an unexpectedly good year, it was enough of a shake-up to get people really thinking about what they have always considered to be safe and sound investments in a post-pandemic landscape.

“A lot of people had gotten used to thinking their investment portfolios were pretty safe but found out that there can be news that affects everything and you can lose a 30-year net worth,” Decker adds.

And in March 2020, it didn’t matter if you were invested in gold or municipal bonds, or even whether you had a diversified stock portfolio that included Apple and Tesla. Everyone was losing money.

“It got scary,” he recalls. “And a lot of people got a taste that things could be scary. Thankfully, the market turned around in a phenomenal way. But I feel like I just drove over a small, curvy mountain road, and I stopped and looked back at the last year, and am just glad it turned out as well as it did.

Put yourself first, not kids

But just because this year turned out great for a lot of people’s portfolios, it felt like it could have gone another way, and that has people looking for answers on how to achieve some key life goals. And for many people that means seeking financial advice on how to concentrate on a few things at once, like a retirement fund and a child’s college tuition.

“Clients probably appreciate having an informed, wise, steady hand. Hopefully that’s what we provide,” Decker says. “I mean, investment and portfolio management is a lot of fun when everything’s going right. And they say it is easy to confuse genius with a rising tide.

“So there are some people out there that have decided that maybe they’re not a genius and they’d rather have somebody do this for them.”

The Federal Reserve reports almost a third of non-retirees have no savings earmarked for retirement. At the same time, the average student graduating from college today has taken on almost $38,000 in debt.

No parent wants their children to start life in debt, but it does them no good to have less debt but having to worry about caring for their adult parents.

“The greatest gift you can give your children is never having to be in a financial position where you have to move in with them,” Decker points out.

So, helping the children now at the expense of a stable retirement is not a good idea, and he warns parents against overfunding a college savings account at the risk of their own financial security.

“It’s a balance,” Decker acknowledges. “You got to get all the numbers in there. At the end of the day, a huge part of what we do is planning the ‘what-if scenarios,’ but you have got to make sure you’re not providing a life to your kids that is so high – and paid for – that you cannot provide for yourself what you need later on in life.”

Decker, who has four children himself, the youngest a year from college graduation, says there’s some great tax-advantaged methods to save for education, including 529 savings plans.

A 529 plan is a savings plan meant to encourage families to save for future education costs. Also known as qualified tuition plans, they are authorized by Section 529 of the Internal Revenue Code and come in two types – prepaid tuition plans or education savings plans. Any extra money a child receives can go directly to a 529 account and that can add up over time.

“So the government’s motivated people with tax codes, but the cost of tuition is crazy high and has grown, and will grow. And so there’s motivation there,” Decker says. “But I think people need to know there’s a lot of money available too, if you work the system. All four of my children got some academic scholarship money. Just be aware that you don’t have to be a star athlete to get money from a college to go to college.”

What they don’t get in scholarships could always be borrowed, but that also requires some balance – and maybe some hard conversations about cost versus benefit.

“If your child says they are not willing to borrow $250,000 to go to school and major in something because they will never be able to get a job with that, that’s a healthy discussion to have. Because if they are not willing to borrow the money, why are you going to spend your money? That provides a good economic analysis of the actual cost benefit.”

On the other hand, now is a good time to put some money toward retirement savings, especially if there is some extra lying around from a canceled trip to Europe. Putting extra into an IRA might make sense especially if there is no employer-boosted 401(k) plan in play.

Both IRAs and 401(k)s are retirement savings accounts, and both offer tax breaks as an incentive to save. But 401(k)s are available only through an employer while an IRA can be set up by any individual.

“I like to think of myself as an optimist,” Decker says. “But I also like to know what would I do if the pessimist was right. And I think a lot of people are going to be thinking through that now, wondering if they do have enough money if they’re nearing retirement.

“Because the point of retirement is the scariest time - you’re earning an income and then you voluntarily turn that off because you think you’ve made it and you’ve got enough.

“And then something bad happens those first couple of years.”

So if anything, the pandemic taught us that planning for a sound financial future can sometimes not turn out like you expect. And to boost a retirement fund when the money is available is not going to be a bad idea, especially the closer to retirement you get.

“If you near a river and there’s a hundred-year flood, it’s pretty unlikely it will happen again right then, but hundred-year floods can still occur four years in a row,” Decker says. “You don’t know it’s not going to happen. So you work that in a mathematically logically appropriate way to your analysis.”

So even the people who got lucky last year and had investments in GameStop and Tesla should not be confused by a period of phenomenal growth when it comes to long-term plans for the future.

“I’m a numbers geek,” he says. “Don’t go and let the warm and fuzzy feelings of how your last week went affect your three-year plan for your portfolio, because the market doesn’t care that you feel warm and fuzzy today.”

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