Worried About Volatility? Here are Some Options!

Hey, welcome to this segment on “Worried About Market Volatility?”. Here are some options you must know about. I’m going to start with a quick little story. I was out in the community just doing normal life stuff. And this person kind of knew but not really kind of came up to me. And they they kind of pulled me aside and said, hey, I heard you doing some investing stuff. I have $100,000. Should I invest with you? And I started to laugh a little bit. I was like, I, I don’t know, what’s the purpose of your 100,000? How do you want it to behave? You know? And so we started kind of going back and forth a little bit. And some of the questions that I was asking is, and what it was really centered around is what is the purpose of that of those funds, you know, what are the tax accounts and ramifications of those accounts? Is this 100,000 in a tax deferred 401(k) or IRA? Is this 100,000 in a Roth IRA? Is it a taxable brokerage account? What’s the purpose? When do you want to use it? How do you want it to behave? And as we were unpacking those different questions, you know, one of the cool things that we get to do here at Centennial Wealth is we get to educate our clients and prospective clients to the point of a decision, and that’s one of the best missions I think you could possibly have in this career. We don’t really care what the, what you decide, but we do very much care about your education and how we’re going to be partners in that, in that ever evolving landscape of change, we get to educate you to the point of a decision. So as we were going through a lot of these layers, it kind of it was a it was a taxable, account brokerage account. But they just did not want market volatility. This was money that was going to be used in the next 2 to 5 years, a little bit of unknown. So I said, okay, well let’s go through what those options look like. And here’s what, you’re how your money can behave okay. So you basically have four different ways your money can behave. The first way everybody’s familiar with it’s at the bank. It’s at a credit union. This would be no market risk. It’s going to be liquid. You’re going to be able to get at it really quickly. A lot of times you see people making maybe around 1%, you know, if the bank or credit union are paying that, there’s money market accounts that are going to have a better yield. You know, right now those are roughly 4%. Okay. Maybe use that as a is a high watermark. So if you’re close to that I think you’re right on track with letting that money that’s just going to kind of float around. You’re going to be taking it out, maybe putting some more in emergency fund cash on hand, you know, if you’re, leveraged up and getting the best kind of rate, but stays liquid and safe, that’s a that’s a good spot. Maybe 6 to 9 months of expenses. Okay. The other way that on the far right side of this is the roller coaster of risk. Everybody understands that. Have ever invested what the bond market and stock market roller coaster of risk feels like? You know what it feels like to be going up, and you know what it feels like to then have those negative returns. And so they wanted to steer clear of the volatility of the bond in the stock market. So I said, okay, well here are your options okay. First one let’s just simplify it. Let’s call it escalator money. Basically you give up time and your money will contractually go up over that time. And so most of you are familiar with CDs okay. That would be kind of a behavior. Or you have minus multi year guaranteed annuities. And they go from two years to ten years. So you basically pick your your, your time that you want to put that money in and you can contractually get a certain rate of return. So no market risk behaves like an escalator. And as you understand the pros and cons and you really narrow down the purpose, if you like the returns, cool. You might want to put some over there. The next one is one that is I call stair step money. Okay. So this one we don’t actually know what the growth is because the growth is linked to the market risk bucket, the roller coaster of risk. So let’s just use the S&P 500 index as an example. So what happens with this stair step? Money is for one year. You have no idea what it’s going to do until the stock market. The index that you’re following okay so the S&P 500 if that is positive then you can get a positive gain. You can earn interest. Your interest is linked to the gains in the market okay. That sounds great. Now here’s a really good reason why you might want to look at these. When the stock market goes from here to here. And there’s a big negative. This is where on that indexed annuity you get a 0% return. You have protected your principal okay. The money that you’re going to be using in two or 3 or 4 years, you’ve already locked in, that you can only go up sometimes you go up like an escalator, sometimes you go up like a stair step.