Scott Schermerhorn has been in financial investing for 30 years. But the managing principal and chief investment officer at Granite Investment Advisors in Concord says the past political season was the first time he recalls, “Clients, both individuals and smaller institutions, calling to ask if they should sell everything and put it all into cash, because if one candidate or another won, the market might go to Hell in a handbasket.”
“The political environment has definitely changed the conversation,” adds Daniel Grossman, principal and founder of Acorn Financial in Nashua. “One thing I’ve noticed is that, depending on your political beliefs, you think this is the best of times or the worst of times.”
For baby boomers nearing retirement, uncertainty looms larger. Yet the resounding advice from wealth managers and professional financial advisors across the state? Step back and breathe.
“The one thing you learn being a professional investor, or any investor, is that the worst time to make a decision is when you’re angry or fearful,” Schermerhorn says. “You’re going to make the wrong decision every time. With all due respect, what does the media know about the market? I think a lot of the uncertainty and fearmongering is really coming from the media, and I don’t view this as a particularly uncertain time at all. All data indicates the U.S. economy is strong and getting stronger, Europe is coming out of its doldrums, unemployment is incredibly low and I don’t view the market as overvalued.”
Still Bud Abbott, vice president of the Fiduciary Trust Company of New England in Manchester, says he sees increased cautiousness among boomer clients. “A big difference right now, that I haven’t seen, is that if you look at cash accounts across the board, there’s so much more cash sitting on the sidelines, technically earning zero return,” he says. And when his older clients call in, he’s consistently hearing CNBC in the background. His advice? “You’re better off not trading too much,” he says. “Stick with it. Don’t babysit it on a month to month or week to week basis. You’ll drive yourself nuts. That’s what you’re paying me for.”
Paul Provost, certified financial planner and president of MillRiver Wealth Management, says of the current challenge: “We have a lot of promises being made [by politicians], but we don’t have any new legislation in place. The tax bill is clearly what investors care about. Absence of a tax cut could be problematic,” for markets and investors. Should a tax cut become a reality, he says to expect it to positively affect corporate earnings, the U.S. economy and the stock market.
Keeping Boomers on Course
With a client base made up of mostly 55-to-65-year-olds with “more well-to-do portfolios,” The Harbor Group in Bedford has found baby boomers staying the course, says Tim Riley, principal and chief compliance officer. “We’re not seeing any real hoarding of cash or over-exuberance in stocks,” he says. However, we may be seeing a shift in the tendency for those nearing retirement to keep a 60 percent stock exposure and a 40 percent fixed income exposure to a slightly reduced, 50 to 60 percent on stock exposure, he says.
“If you’ve ever been on a cruise you know the first thing they do is have you come up on deck, put your life jackets on and show you where the lifeboats are,” says Bob Bonfiglio, a certified financial planner, chartered financial consultant and a managing principal at Rise Private Wealth Management in Bedford, a wealth advisory practice of Ameriprise Financial Services Inc. “I do what I call my lifeboat drills with clients, particularly baby boomers approaching retirement with the market at all-time highs. What’s going to happen if things go down? Because we already know they will go down. If you’re going to jump ship when the ship goes down, then you don’t want to be all in [the stock market].”
His firm advises clients who are within three to four years of retirement, or who are already retired, to have three to four years’ worth of money they can get their hands on like cash, CDs, certificates, municipal bonds, short-term bonds—things that are safer and not going to fluctuate as much, Bonfiglio says. That way they are insulated from a market downturn. “The bulk of their money should remain in a growth portfolio with a moderate, moderate/aggressive or moderate/conservative risk, depending on their goals, timeframes and risk tolerance.
Baby boomers also should be mindful of tax control. “Just like you want to diversify your investments, you also want to diversify your tax strategy,” Bonfiglio says. “A common mistake people make is being focused on saving taxes today by putting all of their money in the pre-tax bucket, so all of their money is taxable when they pull it out.”
Pay attention to asset allocation, avoiding company specific risk through diversification and discipline, says Cydney Shapleigh-Johnson, a certified trust and financial advisor and executive vice president and chief wealth management officer at Bank of NH, headquartered in Laconia. At Acorn Financial, they are also “big believers that you don’t change your allocation—stocks versus bonds versus cash,” Grossman says. It’s all about keeping a balance and an eye on the big picture.
Investing now is affected by a confluence of factors. “Number one, the political environment; number two, rising interest rates and the feds making more concerted moves there, and number three, which is the most pertinent, is that equity markets have reverted to fair values,” says Mark Alaimo, CPA, certified financial planner and managing director of wealth management at Sapers & Wallack Inc. in the greater Boston area.
The conundrum is the baby boomer has less time to get it right. And, for those who lost so much of their portfolios in 2008 or for those who heard stories galore of lost retirements after the Great Recession, not wanting to relive those last great losses is of paramount importance. “It’s been common for years that typically, as people get closer to retirement, they come in and they don’t want to lose a dime,” Abbott says. “They say, ‘I’ve worked my whole life to raise this money. I don’t want to lose a dime, but I want it to grow.’ We can’t guarantee that one way or the other.”
Schermerhorn agrees. “With baby boomers, it’s almost a dual-edged sword,” he says. “On one hand they should be getting more conservative, but a lot of times they haven’t saved enough for retirement. If you’re 60 years old, theoretically you’re going to live another 20-plus years. Let’s say you have half a million dollars. That has to grow.”
As he puts it, “Where does the baby boomer hide? The point is baby boomers, or anyone looking toward retirement, should find a proper balance of growth in their portfolio with reducing risk.” Undoubtedly, assessing risk depends on an individual. “There’s a kind of client filter,” Abbott says. “Like, if you have a million dollars now are you still going to sleep at night if it goes to $900,000? Are you still sleeping at $700,000?”
Alaimo views wealth management as an applied, not pure, science. “The maxims of 60/40 are a starting point,” he says. “But then you have to overlay what’s that particular person’s need, what are their attitudes toward risk and their ‘sleep at night’ factor.” As the 2008 financial crisis affected many of the baby boomers’ older siblings when they were hoping to retire or had just retired, Alaimo says, “There’s a healthy skepticism among baby boomers that it’s been easy living for the last few years, so when’s the other shoe going to drop? When you have something as profound as what happened from 2007 to 2009, it’s more than a financial memory, it’s an emotional traumatic memory.”
Alaimo expects baby boomers increasingly to consider alternatives, “like annuities (though when the interest rate is low this is the worst time to do this), certain types of life insurance products and even reverse mortgages.” Reverse mortgages will meet housing needs and help fund retirement, Alaimo says. “Longevity and health care costs are a tremendous fear, which is why more and more are delaying retirement, or who are defining retirement as hanging up their suit-paying job of $100,000 to $200,000 a year to become a greeter at Walmart to supplement their grocery budget,” he says.
It’s impossible to devise one-size-fits-all investing. “A financial plan includes your current assets, how much you expect to have saved at retirement, any financial obligations you expect to come up, how much you will need to spend in retirement and depreciation and appreciation during that time,” Schermerhorn says. “A plan takes all of that into consideration and comes up with a road map to meet your goals.”
Yet Shapleigh-Johnson says there may be something more important these days. “If we could give one piece of advice to customers, I think it would be to turn off the TV,” she says. “If you’re going to panic, panic with us, not with your friend or your plumber or whomever. Talk with us about what’s making you uncomfortable, and we’ll see if we can work through it.”
Current Issue - May 2024