Will a Recession Happen This Year Episode 86


  • Have you ever wondered about how long-term care works?
  • Have you questioned when the best time to get it is?
  • Do you have 30 to 45 minutes tomorrow to learn more about long-term?
If you answer “yes” to those questions, our webinar tomorrow is for you! On Thursday the 27th at 1:30 or 6:30, I will be hosting a complimentary webinar on the two best ways to obtain long-term care coverage.
I’ll discuss how it has historically been done, and then talk about alternatives to the normal type. Traditional long-term care is typically a use it or lose it scenario like your home or auto insurance. But like most things, this has evolved and there are other options now.
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Amelia got a new bike for her birthday recently.
Amelia on her new bike
The markets have been wild so far this year. On Monday, the market was trading down most of the day and at some points it was down a thousand points. But then at the end of trading the market bounced back. Expect more volatility.
In 2021, the economy experienced record growth. According to the LA Times, the stock market saw 68 record highs. But the burner may have turned on a little too hot and now our proverbial dinner is getting burned by inflation. When our money buys less product, everybody feels it.
When overheating happens, it indicates that the economy is growing too quickly and it normally can’t continue. The Federal Reserve is tasked with a huge decision:
Increase interest rates to tame inflation or keep them as they are. If the Fed doesn’t increase rates, it may prolong the inflationary problem. If they do increase rates, it may create a recession. The Fed is expected to give indication today if they will raise rates in March. When Amelia drives things get really heated up!
Amelia driving
If the Fed decides to hold rates where they are at near zero, the markets will probably bounce even higher and ballooning prices will stay. I read a great analogy that Tarek Mansour gave on Twitter to describe this situation.
He said, “Let’s use a car engine analogy. When you’re going at top speed, there’s a chance that your car engine overheats. A good driver will press the brakes well before the engine overheats and balance between throttle and brakes to keep going at high speed, without overheating.”
He continued, “If the driver screws up and the engine does overheat, just hitting the brakes won’t do it. They will need to stop the car.”
Then he explained it this way, “Stop the car = stop the economy (or severely slow it down) = recession.”
Mansour ended by stating, “Economists often talk about a ‘soft landing.’ It means a slowdown of the economy, without a crash. A soft landing is easier when inflation is controlled.”
“Historically, a soft landing has been impossible once inflation has gone crazy (i.e. once an overheating already happened). In short, if Powell signals that a series of aggressive interest rate hikes are coming, a recession becomes likely. End of 2022: I guess all bubbles have to burst at some point.” The toy below was the best money we’ve spent!
Amelia riding her toy car
What can you do?
It’s always a good idea to assess your allocations to determine how much risk you are taking on. Your risk changes as markets change if you are in equities, you may need to rebalance.
Determine how long you expect to go before you’ll need access to your money. If it’s more than 10 years, you may not need to do anything. However, if you’re within 10 years of needing your money, I suggest removing some risk.
The traditional way to remove risk has been by buying bonds or holding cash. Neither of those is generally a winning proposition in today’s climate. Remember, when interest rates go up, bond values will go down.
Blackrock is the largest money manager in the world, and they recently published a research paper on the value of using a fixed indexed annuity (FIA). Here’s the outline of what they found.
  • “Inclusion of an FIA reduces extreme bad outcomes in balanced portfolios irrespective of funding source, thus acting a natural risk mitigation asset.”
  •  “If the investor’s primary focus is to significantly reduce extreme bad outcomes, it is reasonable to allocate to the FIA in a prorated fashion from stocks and bonds. However, by doing so the investor gives up some upside.”
  • “In a scenario where a portfolio loses 20% each year for the next 7 years (a hypothetical ‘doomsday’ scenario), with no FIA allocation, it ends up with about 200k, if it had an initial investment of 1 million. While a portfolio with a 30% allocation to the FIA ends up at around 450k – saving 45% of the portfolio value even in such adverse market conditions.”
At the end of the day most people will come to find that their income in retirement determined their outcome.
Most people save for years and work hard to hopefully eventually be able to retire and enjoy life. It doesn’t really matter what amount you were earning for 30 years, if at the end your money is reduced and you can’t afford your retirement.
This is what the FIA guards against and that’s why we believe it’s an essential element to a well thought out financial plan.
Until next week,
David C. Treece,
Financial Advisor
PS: Last week I laid the groundwork for the webinar. If you want to be up to speed before the webinar tomorrow, read our newsletter last week by Clicking Here.
Did you miss one of our last newsletters?
How To Use Compounding to Effect Your Life: Click here
You Were Made To Strive: Click here
Don’t Sit on Too Much Cash: Click here
Investment advisory services offered only by duly registered individuals through AE Wealth Management, LLC (AEWM). AEWM and Clients Excel, LLC are not affiliated companies. Investing involves risk, including potential loss of principal. Any references to protection, safety, or lifetime income, generally refer to fixed insurance products, never securities or investments. Insurance guarantees are backed by the financial strength and claims paying abilities of the insuring carrier. This podcast is intended for informational purposes only. It is not intended to be used as the sole basis for financial decisions, nor should it be construed as advice designed to meet particular needs of an individual’s situation. Clients Excel is not permitted to offer and no statement made during this show shall constitute tax or legal advice. Our firm is not affiliated with or endorsed by the U.S. Government or any governmental agency. The information and opinions contained herein provided by third parties have been obtained from sources believed to be reliable, but accuracy and completeness cannot be guaranteed by Clients Excel.

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