How to Prepare for a Potential Flat Market

“Hey Mike, I heard that the market may not make much money over the next 10 years. Is that true?” Discover unconventional ways to try and grow your assets during a flat-market, which we define as 10 years of basically no growth in the stock market. 

Text your questions to 913-363-1234.

Request Your Wealth Analysis by going to www.yourwealthanalysis.com.

What is How to Retire on Time?

Welcome to How to Retire on Time, a show that answers your retirement questions. Say goodbye to the oversimplified advice you've heard hundreds of times. This show is about getting into the nitty-gritty so you can make better decisions as you prepare for retirement. Text your questions to 913-363-1234 and we'll feature them on the show. Don't forget to grab a copy of the book, How to Retire on Time, or check out our resources by going to www.retireontime.com.

Mike: 00:05

Welcome to How to Retire on Time, a show that answers your questions about all things retirement, including income, taxes, social security, health care and more. This show is an extension of the book, How to Retire on Time, which you can grab on Amazon or by going to www.how to retire on time.com. My name is Mike Decker. I'm the author of the book, How to Retire on Time, but I'm also a licensed financial adviser, insurance agent, and tax professional, which means when it comes to financial topics, we can pretty much talk about it all. Now that said, please remember, this is just a show.

Mike: 00:35

Everything you hear should be considered informational. That's it. It's not financial advice. If you want personalized financial advice, then you can request your wealth analysis from my team today by going to www.yourwealthanalysis.com. With me in the studio today is my esteemed colleague, mister David Fransen.

Mike: 00:53

Thanks for being here.

David: 00:53

Yes. I'm glad to be here.

Mike: 00:55

And David's gonna be reading your questions as they're submitted, and I'm gonna do my best to answer them. Now you can send your questions in by either texting them to 913-363-1234. Text them anytime during the week. 913-363-1234. Or you can email them to [e-mail].

Mike: 01:16

Let's begin.

David: 01:18

Hey, Mike. I heard that the market may not make much money over the next 10 years. Is that true?

Mike: 01:23

Yeah. It is. Goldman Sachs just released the report actually on this, which is so nice when Goldman Sachs agrees with me.

David: 01:32

Yeah. Right.

Mike: 01:33

And I can time stamp that because I wrote about the dangers of flat market cycles last year in Kiplinger.

David: 01:38

Uh-huh. Right.

Mike: 01:39

They even did an article, I think it was June 2023 where I'm in the magazine. So online contributors don't usually end up in the magazine. I ended up in the magazine because of this very topic.

David: 01:50

Wow.

Mike: 01:51

First off, most people don't realize this even is a possibility. And second off, they're not planning for it. So let me give you some history about this. The markets tend to go flat. So roughly zero returns for 10 plus period of time.

Mike: 02:08

And they typically do this every 20 years or so. So the last flat market we had was 2000 to 2012. Before that it was around 1965, 1966. Around there is when it started. And that went for about 13, 14 years.

Mike: 02:25

Then 1929, the great depression. That was a 24 year flat market. And then you've got 1906 with another 19 year flat market. Now it's really hard to stay retired if you're not growing your money for several years. If you put a proper plan together and the markets crash 1 or 2 years and they recover, that's really not the end of the world.

Mike: 02:47

If you did your planning correctly. If you read my book and you've got the reservoir strategy properly implemented, I wouldn't be concerned about the market crashes. But flat markets can suffocate you financially speaking. Because it's not just a flat market you're dealing with. Inflation is eating away at something that's really not growing over the long term period of time.

Mike: 03:12

And then you've also got tax potential increases. Maybe they maybe they decrease over time but we don't know. We don't know the future. But flat markets are often not prepared for in a plan like they should. In my opinion, based on the last 10 years of putting plans together and seeing this.

Mike: 03:32

Now does that shock you, David? A flat market cycle could exist. I mean, we just think the stock markets where you make money.

David: 03:39

Before I started working here, I'd never even heard that phrase flat market, if that says anything. Yeah. So, yeah, it does shock me. Yeah. I I just did well, I I think of oh, yeah.

David: 03:48

Markets are bull or bears, all we hear about, but never flat.

Mike: 03:51

But they trend. Right? Oh, markets trend if you hold long enough. Well, Warren Buffett holds. Warren Buffett manages a mutual fund and he tries to grow his assets.

Mike: 04:00

And he's a brilliant manager. But he's not retired. This is not intended to go against what Warren Buffett suggests. I think he's a brilliant investor. He does great things with money.

Mike: 04:14

But if you're invested in the market and you're trying to generate income from your assets and the markets are overall struggling, It can be rough. Yeah. It can be rough. So, David, let me tell you an actual story that happened.

David: 04:29

Okay.

Mike: 04:29

I had recommended for one client. They put some of their assets in CDs, treasuries and fixed indexed annuities as just a way to kind of protect part of their portfolio. Why? Because CDs, they grow at a fixed rate. Treasuries, they grow at a fixed rate, not treasury funds, but treasuries themselves.

Mike: 04:46

And fixed indexed annuities because if they grow, they participate with the upside. If the markets go down, they don't go down. Right? And there are some that are good with income, but bad with cash growth. I don't really use those.

Mike: 04:58

There are some that are good with cash growth with protection, but they're not really good with income. That was what I was recommending. And this group, a very large firm, if I said the name, you would know exactly who they are. Okay. K?

Mike: 05:13

They're on every block.

David: 05:14

Alright.

Mike: 05:16

Said, well, you know, that fixed index annuity could make 0 money over 10 years. And I said to the client, I said, do you believe that? He says, I don't know. It's what they said. I said, got it.

Mike: 05:29

Did they tell you that the market can go flat for over 10 years? They said, no. Do you think there's a conflict of interest of them pointing out a flaw of a small part of your overall portfolio that I recommended for the protection that you asked for? Yeah. And instead, they're saying they're giving you fear into your eyes.

Mike: 05:46

They're they're fearmongering saying, oh, don't do that to try and put all of your assets in the market because that's how they get paid. And they they had no idea that the markets went flat. 1 of the biggest firms in the country. Mhmm. And I I should be very careful of saying that the representative of this very large firm was saying this.

Mike: 06:06

I'm sure people in this company are aware of flat market cycles. K? But you see my point. And by the way, at the end of that story, that company started looking into the fixed index notice that was good for cash growth that I had recommended and then turned around and made the same recommendation to him and tried to get the commission from that. And that's fine.

Mike: 06:25

You know, whatever. What I care about is what is right for the plan and does it follow principles? Does it follow rules? Is it built for an up market, a down market, and a flat market? That's all I care about.

Mike: 06:35

Anyway, so here here are the ways that I have found you can better prepare for a flat market. So first off, fixed products. If you buy a CD, it's gonna make what the CD promises regardless of market conditions.

David: 06:49

If you

Mike: 06:49

buy a treasury, it's gonna make money regardless of market conditions. So having a portion of your assets in fixed products might be good. That can help offset that. Not bond funds, but actual bonds.

David: 07:03

Okay.

Mike: 07:03

Another another part of it is fixed indexed products. So this is where you're looking at. I'm gonna go down a very extensive list, but you're looking at fixed indexed annuities. You're looking at buffered ETFs. You're looking at structured notes.

Mike: 07:18

There's a whole list of categories where if the market go up, you participate with it. If the market goes down, there's some sort of protection. But be extremely careful with this category because many of them overpromise and don't tell you about the dangers. I can't tell you how many times people unstructured notes and say, well, you know, if this happened, then I'd I'd lose everything. You'd have no risk.

Mike: 07:36

There's no protection. But that'll never happen. Anytime someone says that'll never happen, it'll probably happen. At some point, it will probably happen.

David: 07:46

Sounds like an absolute

Mike: 07:47

Who doesn't pay their mortgage? Yeah. Well, a lot of people in 2,008. So you have to proceed with extreme caution and not get greedy. You gotta reign yourself back.

Mike: 07:57

And then the other strategy that I find can be effective in flat markets are trend following models. The other term is absolute return models, which do not do well when the markets are very volatile. It's a lot of ups and downs and very quick turns. It's called whipsaw. But if the market overall is trending up a little bit in the flat market and then trending down in the flat market, Trend following models can be effective.

Mike: 08:21

These are momentum models, tactical models, absolute return models. There's a whole series of them that are out there, but they may be actually pretty effective overall in a flat market. Now, no one can promise returns. You know, past performance isn't indicative of future performance. But these are strategies that are not commonly talked about because the buy and hold in the market is what's commonly talked about.

Mike: 08:42

But there are other ways you could strategically prepare for a potential flat market for the next 10 years because retirees or near retirees, listen up. If the markets go flat or even average, let's say 3% over the next 10 years, that is probably going to hurt. And the answer is not to panic. Buy an income annuity, turn on the income at a flat rate, and hope everything works out. It is the details that matter.

Mike: 09:09

Dive into the details. Put a plan together. Explore strategies, and then put together an effective growth portfolio that can implement those strategies and ultimately help support the plan. That's all the time we've got for the show today. If you enjoyed the show, consider subscribing to it wherever you get your podcast.

Mike: 09:30

Just search for how to retire on time. Discover if your portfolio is built to weather flat market cycles or if you're missing tax minimization opportunities that you may not even know exist. Explore strategies that may be able to help you lower your overall risk while potentially increasing your overall growth and lifestyle flexibility. This is not your ordinary financial analysis. Learn more about Your Wealth Analysis and what it could do for you regardless of your age, asset, or target retirement date.

Mike: 09:58

Go to www.yourwealthanalysis.com today to learn more and get started.