Bass Financial Solutions, Inc.

The economy is all about cycles: stock market indices rise and fall as if on a roller coaster ride, interest rates cycle in an unpredictable fashion, new industries emerge and old ones die, inflation is always present but constantly waxing and waning, and individual stock prices cycle in response to an incomprehensible number of variables. The only certainty is more change. What’s the average investor and saver to do? Economists and financial pundits are constantly making guesses that are mostly wrong, and brokers are touting the latest hot investment in hopes of generating another commission. Going it alone is even more dangerous. How can you know what is right?

First of all, take only the risk you can afford by asking yourself: “What will I do if the worst case happens?” If you don’t like the answer, then you’ll need to rethink the risk. If you’re speculating in the market with retirement money that has to last you for the next 25 years, you’re in danger of running out of money before your last breath. Ironically, sometimes unsuitable risks yield unaffordable losses which raise stress levels that can shorten your retirement - permanently. Risks sometime lead to good gains and that’s the temptation!

Secondly, acknowledge that no one knows the future direction of markets, interest rates, inflation or any other economic/financial variable, because there are simply too many imponderables that drive them. For instance, what do you suppose would happen to the financial markets if a major American city suffered a catastrophic terrorist attack? Or, if foreign oil supply were shut off? Or, what if China, Europe and/or Asia stopped holding their reserves in US dollars? All of these developments, and others just as severe, are possible at any moment. What can you do to protect your hard earned retirement dollars?

If you currently have money in stocks, bonds, mutual funds, variable annuities and other assets whose value is determined by the “market”, you probably have done well over the past few years. The Dow Jones Industrial Average (”DJIA”) hit its last low point of 7,592 just past mid-year in 2002, and beginning in early 2003 it has been steadily marching upward. Today the index is resting at roughly 13,100.  Will it now turn south and give up some or all of the gain of the last four years, or will it continue north to even higher records? You can make an argument for either because, as is always the case, there are positives and negatives. The fact is that no one knows the future direction of the market, and if you have money there that will be needed for your retirement, you’re at risk. If you’re young or wealthy this should not be a major concern, because in the long-term you’ll probably do just fine; however, if you’ll need your money before the “long-term”, there could be problems. So, what should you do?

One solution would be to start moving your money into safer places - at least move that money which you anticipate using in the first 15 years of your retirement. This does two things: first, it immunizes you from market losses that you probably can’t afford; and second, it allows you to lock in gains that were a gift from a rising market. The gains were due to luck not skill - don’t think otherwise! What are the safe places? There aren’t many - the mattress and money market funds are not going to shelter you from inflation. If you need to lower your taxes, try fixed annuities: safe, good rates of return, some liquidity and tax deferral. If you want absolute safety, there are bank CDs: safe but taxable with so-so returns. If you can tolerate the hassle and are willing to take some interest rate risk, investigate US Government savings bonds. Notice, US Government bonds are not included, because you can suffer losses if interest rates rise after you purchase them and then you need to sell before maturity. If making the transition from risky places to safe places is a hassle for you, call your financial advisor for professional help. Be sure and stress that you don’t want the risk of loss; demand a market rate of interest or a risk-free opportunity to earn above market rates; and lower taxes would be nice as well. Can you do it without a financial advisor? Probably, but that’s a risk you’d be well advised to avoid. In fact, one of the biggest risks you can take is “do-it-yourself” retirement planning.

Most people, even married couples, mistakenly think they’re the only ones that will be using their retirement money. Not true because coming to your retirement party as uninvited guests will be inflation and taxes. Potential market loss can come only if you extend the invitation. Give some thought to the market risk exposure of your retirement money and plot a course to safety while the market is still hot. Tomorrow could be too late!

Feel free to call our office to discuss your retirement options at 888-962-7768 or send your emails to support@bassfinancialsolutions.com.