Tom Hegna inspires me. If you are unfamiliar, Hegna is an author and speaker, and coach of financial planners. I commonly refer my clients to his book Paychecks and Playchecks, or one of his DVDs. His ideas are not particularly controversial or even uncommon, but his ability to articulate the fundamentals of financial planning is what separates him from the pack. Here’s a recent taste of Hegna doing what he does best—setting Financial Advisors straight about how to best serve their clients (he is speaking to financial professionals, but no “insider” knowledge is required to get the gist):
Beware of TINA: The Singing Siren
I want to direct your attention to our current economic status. When the market is having a bad day, I always like to post a quick snapshot to Facebook of the market's downturn. Despite major economic events in 2016 (Brexit, Fed Rates, underwhelming job reports, etc.), the Dow is at an all-time high. During 2016, according to the American Association of Individual Investors, the average portfolio of an active market participant engaged 64% of their portfolio into the stock market, which was an increase from the long-term average allocation of 60%. Back in 2008 when the market took a downturn, a lot of people got the heck out of the stock market and fast. After we saw some balancing and a bounce-back from 2009-2014 and even now in 2016 where the DOW is at all-time highs, a lot of those people are reentering the market.....STOP RIGHT THERE.
Economics 101: Buy Low, Sell High
Consumers Logic/Perception: 2008:The market is big, bad, and scary, get out! 2016: The market is making other people money, let's get the getting while the getting is good!
How does that make any sense? Why is the stock market at all-time highs in 2016? Inflation must be at an all-time high (Hint: It's not). Why are people trying to re-enter the market when it's at all-time highs?
One person comes to mind immediately: TINA, and I'm not talking about Tina Turner. There Is No Alternative (TINA). It is a scary thought that during a time when earnings are down, the economy is slowing, and oil prices have plummeted that people are piling more money into the market. What goes up, must come down. If the stock market is at all-time highs, it means there really isn't another option for stock brokers who want to keep their clients. They are forced to chase after gains for their clients and prove they are doing something for their fees. Many people are chasing after the gains we witnessed in the 1980s and 1990s because TINA. Bond rates are so low that they don't seem like a viable alternative. And if interest rates do rise, bonds will get crushed. CD's and money market funds are paying close to zero. What is an investor to do? Just like the sirens who's singing lured sailors to crash against the rocks, TINA may be doing the same to investors...When I think of all the Americans educated with this fallacy of TINA, I want to tell them, THERE IS ANOTHER ALTERNATIVE FOR EVERYONE!
For people in their accumulation phase, they should put at least a portion of their savings into a whole life or permanent life policy. For people in the distribution phase, I recommend converting a significant portion of their savings into guaranteed lifetime income. While people are riding the emotional roller coaster that is the stock market, you and your clients will be more optimally situated to enjoy life! If the markets continue to grow from TINA, with apprehensive and skeptical growth, stocks are likely to enter a bubble. With life insurance and annuities, there is no bubble! While your neighbors are stressed waiting for the market to open, you will be starting your second round of 18 holes and then heading to happy hour!
Look, the aging demographic in the US is not a joke. The US is getting older and older, which will have a dramatic effect on Americans lifestyles, social interactions, and market opportunities. Also, it will have an unprecedented impact on cross-generational interaction, future medical technologies, and economic influences. Rather than trying to predict the future of the market, stick with guarantees.