SEQUIM — Investment advisers on the North Olympic Peninsula are together in their prediction: The nation’s financial picture will improve.
But for the newly retired and those approaching retirement, that doesn’t necessarily mean the oft-repeated advice of “stay the course” applies.
The five to eight years just before and just after retirement are the “red zone,” said Matt Ferrin, co-owner of Advocate Wealth Management in Sequim.
“That’s when you need to be the most careful. If you were aggressively invested and the market went down,” as it has in recent weeks, “that can be detrimental.”
That may be putting it mildly.
Ferrin and his colleagues are counseling clients who’ve seen their portfolios’ value fall 30 to 50 percent in recent weeks.
In some cases, Ferrin advises transferring funds into U.S. Treasury bills, government-insured Ginnie Mae bonds and other relatively safe securities.
“U.S. Treasuries are considered risk-free,” Ferrin said. And though the interest rates on such options are low, they can provide valuable peace of mind for investors.
“‘Just hold on’ is bad advice, especially during the red zone,” Ferrin added.
Independent adviser Pamela Caldero agreed, saying too many retirees have heard that too-simple riposte.
Be proactive
“In a volatile, unstable market, people really do need to be proactive,” said Caldero, who opened Caldero Financial Consulting of Sequim five years ago after some 15 years with a large brokerage firm.
“I’m an estate planner, so I look at portfolios in a totally different way,” than a brokerage firm might.
And while she understands that people have long-standing relationships with their brokers, Caldero believes it won’t hurt to seek a second opinion on investment choices.
Two types of retirees live on the north Peninsula, added Jay Patton of Edward Jones Investments, which has offices in Clallam and Jefferson counties.
“There are those who have good quality investments and are used to watching them go up and down,” he said.
And there are also people who had too much in stocks and not enough in bonds.
Seek balance
Patton advises clients to seek balance: 60 percent in equities and stocks and 40 percent in bonds, for an average return of 6 percent to 8 percent over time.
If you’re a retiree, you can draw 3.5 percent, or at the very most 5 percent of that return each year, “and theoretically, you won’t run out of money,” he said.
But when the financial markets are riding high, retirees may be tempted to draw more than 5 percent — which can get them into trouble during a downturn.
Patton urges his clients to resist that temptation, while “pruning the tree,” as he puts it.
In good times when your fruit ¬– stocks — are ripe, that’s the time to harvest, as in sell, some. Don’t wait until the apples fall.
For example, when your Starbucks shares are at $50, that’s the time to pick a portion, sell them and redistribute your money, he said.
That way you won’t be stuck with too much Starbucks stock if and when it drops to $10 a share.
Too many people risk being seduced by stocks whose yields are soaring at a given moment — but that aren’t sustainable.
“Focus on quality,” Patton advised, “instead of chasing yield.”
Follow a plan
Ideally, retirees made retirement plans and set their personal investment policy before the markets went south.
For nearly 22 years, James Hallett of Hallett Advisors in Port Angeles has been encouraging his clients to do both.
Financial decisions are emotional, especially in stressful times like these, Hallett said.
So it’s wise to refer to a plan you made back when the economic waters, national and personal, were fairly calm.
And like his colleagues in the financial planning profession, Hallett calls the current economic picture unusual, but not unprecedented.
Investors can look forward to better times — and further fluctuations.
Many of his retired clients live on Social Security while maintaining nest eggs of investments.
If a nest egg took a hit from fluctuating markets, Hallett suggests a reconsideration of spending habits.
“Look back and say, ‘What are my essential expenses?'” he advised. “Most people find they can make some adjustments.”
Hallett knows many people hadn’t made comprehensive plans and policies before this fall’s wild swings. His office is busier than ever with new clients.
“It’s never too late to plan,” Hallett believes.
And when you have your financial needs, timeline and strategy in place, you’ll be well-prepared to navigate the next period of volatility, he said.
To investors who’ve watched their stocks dive in recent weeks, Hallett says, “It’s not hopeless. There is usually some positive alternative, some temporary adjustments to get them through the tough times.”
Hallett said his years as a financial adviser have taught him also that markets and economies recover.
“I don’t say that as a Pollyanna or to put a spin on a challenging time,” he added. The current climate is hard on retirees, and “you feel for your clients.”
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Sequim-Dungeness Valley Editor Diane Urbani de la Paz can be reached at 360-681-2391 or at diane.urbani@peninsuladailynews.com.
