Contrarian Grill Conversations- Summer Ingredients for your Retirement Plan

A favorite summer activity of mine is grilling! My wife and I enjoy cooking, especially with our friends and family. One of the best aspects of outdoor cookouts is that it is a “social” activity. There are many opportunities for conversation and laughter.

Often with a spatula in one hand and a cold beverage in the other, I’ll often get asked about the markets. This summer is no different except the questions seem so much more important now for some reason.

Maybe it’s the volatility but most of the questions are surrounding what feels like a dismal news flow. The negativity surrounding high inflation, recession concerns, and political news has put people in a defensive mood.

Even despite matching my optimistic views with the readouts from my indicators, pessimism is very high. A lot of people I talk to don’t believe the markets will turn around.

As I open the hood to check on the food, I remind myself that the markets often run counter to the mood of the masses. When you throw in the towel the market makes its move.

The contrarian may have the upper hand with the markets here in the summer of 2023. Most people appear preoccupied with inflation and rough market conditions. They may be losing sight of the bigger picture like their retirement plan.

The retirement plan helps keep the investment strategy together. In an odd sense like the ingredients which help bind a crabcake together!

If the retirement plan changes which can and likely will, then that may change the investment strategy. But if the retirement plan is in place and isn’t likely to change, keep to the investment goals. Sure, the goals don’t look as achievable now, but the markets will change.

Who knows, in a couple of summers I’ll likely have people coming up to me to discuss how to retire early! Times could be so good friends will bring over their rare bourbons and wines!

Here’s a story… with a flaming hot grill and the Bratwurst getting close to temperature… A friend of mine in the cyber industry thought it might be a good idea to change the inflation rate to 10% and adjust his savings. He explained that he and his wife (who is the CEO of a FinTech company here in Annapolis, MD.) were talking the other night about the high inflation numbers.

Their concern was that while they were in their 40s the money, they were saving now wouldn’t support their retirement expenses. So, their solution is to jack up the inflation rate to stress test their retirement plan… to 10%!

After refreshing his cocktail, I explained that I will often tinker with the many different inputs of a retirement plan. There are many variables such as investment rate of return, savings rate, tax rates, and even inflation rates. But 10%? While I currently don’t see how inflation gets this high, this is an exercise to test the limits. If the reality is inflation stays at its current levels the plan should be fine.

If the inflation rate drops, the plan will be on a solid foundation.

You see, time is the great equalizer. Your retirement plan or your portfolios should work their way to the historical averages. Boring yes. Boring like smoking pulled pork, it takes way too long but so good when it’s finally done!

I agree that historical averages for investment returns are being challenged. With 2 bear markets in 2020 & 2022, with a major correction in 2018, the last few years have not been kind. Multi-year volatility can often bring long stretches of more positive-performing markets. Maybe, like the post-2009 Great Financial Crisis…

As far as inflation, yes, when I look through retirement plans, I’m uncomfortable with keeping inflation rate projections at 2.5% or even 3%. As I mentioned before I’ll play with these numbers and test them out over 5%. Or if a client is dead set on putting the rate higher I will.

Inflation may be a new hurdle with retirement projections, but it is not unsolvable. There a still a few asset classes that generally keep pace with inflation, one of which is equities. For this reason, it may be more important to not overreact to market volatility and put your portfolio into cash.

Enjoy your summer and take care!
James S. Gibbons CPFA
Alpha Pointe Capital-Founder/Wealth Manager

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Registered Representative of Thurston Springer Financial and Investment Advisor Representative of Thurston Springer Advisors. Securities are offered through Thurston Springer Financial, Member FINRA, and SIPC. Advisory services are offered through Thurston Springer Advisors, an SEC Registered Investment Advisor. Alpha Pointe Capital is a DBA of Thurston Springer Financial and Thurston Springer Advisors.

Registered Representative of Thurston Springer Financial and Investment Advisor Representative of Thurston Springer Advisors. Securities are offered through Thurston Springer Financial, Member FINRA, and SIPC. Advisory services are offered through Thurston Springer Advisors, an SEC Registered Investment Advisor. Alpha Pointe Capital is a DBA of Thurston Springer Financial and Thurston Springer Advisors.