Welcome to another edition of Financial Fitness Fridays – my blog where I share a few words of financial wisdom to help put YOU back in the driver’s seat of YOUR financial future.
Today is Friday, October 16th, and it’s part 2 of the series Election 2020 – Prepare for Economic Dangers & Opportunity.
Last week we talked about the uncertainty surrounding this year’s election, and how it could be the most fiercely contested election of our lifetime, with accusations of voter fraud, voter suppression, and on and on. Read last week’s blog here!
We pointed out that when future conditions are uncertain, both institutional and retail investors tend to flee the market. And when that happens, equities, commodities, and other assets can drop 
unexpectedly or experience wild swings.
I shared some thoughts from Kim Butler, an economic & financial thought leader over at Partners For Prosperity. She mentioned that there are 4 things that you can do to prepare for this potential crisis, to help protect you from participating in all of the drama:
- Prepare Your Mindset – this will help you make important decisions with clarity
- Prepare Your Body – a healthy mind resides in a healthy body. Having abundant energy and the absence of health problems is a huge help when making decisions, and having the mental acuity to take advantage of opportunities
- Prepare For Opportunity – the wealthy tend to get wealthier by positioning a portion of their assets in cash, cash equivalents, access to capital or equity, so that they can take advantage of opportunities, such as when the prices of stocks, real estate, commodities, or businesses become depressed.
- Prepare Your Assets – this is where Kim advises you to get a C.L.U.E. – Control, Liquidity, Use, and Equity. This is where we left off, and where we’ll pick the discussion up this week.
Here are 4 things to consider when preparing for volatility – get a C.L.U.E!
Control: Are your assets at risk? Do they earn predictable returns, or are they at the mercy of the financial markets? Do you control your assets, or are they subject to governmental rules, regulations, potential penalties, and taxation?
There are many ways to increase control over your assets; one way is investing in non-correlated assets.
These are assets that do not fall with the stock market. There are things like bridge loans, mineral right leases, and private lending, among others.
Personally, I especially love forms of insurance contracts such as fixed indexed annuities and properly structured, high cash value life insurance contracts.
If you own assets such as appreciated stocks, whether inside or outside your 401k or IRA, this may be an excellent opportunity to reposition and lock in your profits BEFORE we’re in the middle of a contested election or constitutional crisis.
For example, moving some of your 401k assets to a non-correlated asset class such as a fixed indexed annuity will completely protect you from market losses, while still giving you upside potential.
Just know that if you decide to sell or move assets, it could trigger potential taxes, so please don’t do this yourself. Make sure you’re working with a knowledgeable financial professional like myself.
Liquidity: Do you have plenty of cash on hand – or assets that can easily be converted to cash? Or guaranteed access to equity or capital? During the great recession, many people discovered that their emergency funds didn’t go very far, let alone give them extra resources for the opportunity.
You may want to keep a healthy portion of your assets in cash or cash equivalents. These include savings accounts, life insurance cash values, and money markets. People think of stocks as “liquid” because usually they can be easily sold, but they aren’t practical as liquidity in this discussion because they are too volatile – and costly – to sell when the market is down.
Use: Having ample savings and liquidity is important – but don’t let your cash just sit around. The point in saving it is to USE it when the right opportunity comes along! Is your money locked up, or can you use it when you need it?
Too often, people save and invest in different accounts than can ONLY be used for specific purposes (retirement, health care, college, etc.) which severely limits access, and can have unintended tax consequences and penalties if needed for other reasons.
That’s why we suggest building a multi-purpose financial fund that can be used for any purpose, to provide that financial flexibility.
Some call it a Wealth Maximization Account, some call it Cash Flow Insurance, and on and on.
Regardless, it’s designed to put YOU back in control of your money.
Equity: Owning assets is the key to building prosperity.
And you want the ability to borrow against those assets to tackle emergencies or take advantage of opportunities– even if you never actually do.
Real estate may be the asset most commonly borrowed against. However, it’s worth noting that it is somewhat more difficult today than it was in the past.
Many are finding out (the hard way) that you can’t just go down to the bank and get a HELOC / equity line of credit in a recession – especially if they’ve suffered a financial hardship such as a hit to their credit score, a job loss, etc.
That’s another reason to own a good amount of cash value life insurance.
Many think of it as a bond substitute in their portfolio because while it is stable, it has many more benefits than bonds – including a guaranteed loan provision against your cash value.
Gratefully, there is no need to qualify for this type of loan from an insurance company – no application, no income documentation, no job verification, and no credit check.
Once you borrow against your cash value, there’s not even a mandatory repayment schedule! You are in control of this “line of credit.”
In Summary, it is always good to be prepared for volatile times.
Prepare your mind and body for the inevitable challenges that lie ahead.
Prepare your money for protection and profit: Control, Liquidity, Use, and Equity.
And prepare yourself for the opportunity that will arise, especially if you are ready for them!
At Retirement Wealth Advisors, we are experts at getting the very most out of your investments to help you meet your goals.
If you’d like to talk about any of the topics discussed, please give me a call at 248-241-6826 or message me directly here on social media.
Thank you for taking the time to read this blog post!
P.S. If you haven’t checked it out yet, please stop by my mini online seminar How Retirees and Pre-Retirees Can Potentially Avoid Going Broke While Keeping Their Nest-Egg Secure! Tons of great information and bonus is it is 100% COMPLIMENTARY!
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