Insights from Leaders at a Conference in the Big Apple

Sandra Moeller |

By Matt Ahrens, CIMA® 

Former Prime Minister Tony Blair headlined a JP Morgan event in New York City earlier this month. He discussed a range of topics including continued globalization, the continued rise of China as a world leader, and the optimistic outlook of those in emerging countries. We were fortunate to hear from several leaders at this 2-day conference including portfolio managers and retirement plan specialists.

This conference focused on retirement plans, and how we as advisors can help businesses create better plans and better retirement outcomes for their employees.  As usual, JP Morgan does a great job in providing education that we can use with our own clients.  Below are just a few highlights that I think are relevant for you.


Usually these conversations are with young professionals, but I am often asked where should someone put extra money.  The above picture does a nice job in organizing these priorities beginning with creating an emergency account.  We typically recommend a six-month emergency saving account, although when I was in sales I maintained a 12-month emergency account, because sales positions can disappear quickly with a change in management. 

One item to point out in the above lineup is the Health Savings Account (HSA).  Many individuals who sign up for high deductible plans never fund their HSA, or they fund it only for potential costs for that year.  Given an expectation that healthcare costs will continue to rise in retirement between 5% and 7% annually, it is important to begin planning ahead if you are eligible and have the cash flow to do so.


The above table documents the expected amount of retirement savings you should have saved by the given ages.  As an example, a 40 year-old with a gross household income of $150,000 should have $465,000 saved for retirement ($150,000 x 3.1 from the chart above).  As an example, a 40-year-old with a gross household income of $150,000 should have $465,000saved for retirement ($150,000 x 3.1 from the chart above).  These numbers are meant to be a wake-up call to those that have not been diligent in saving for retirement.


As people approach retirement, one of the biggest questions is how much income will that individual require?  The above graph does a nice job in illustrating where income replacement comes from, and how much of your retirement income should be derived from your own retirement funds.  This chart starts with a household earning $150,000 per year, and because they are now retired they are no longer contributing the 9% of their earnings that they were previously contributing.  There is an expected slight dip in expenses of 5%, and with less income an expected decrease in income taxes of 14%.  This means that we need to replace 72% of their earnings with Social Security and income from their retirement accounts. 

At this particular couple’s earnings level, they are receiving enough Social Security benefits to replace 27% of their income which leaves 45% of prior earnings that must be replaced by income from retirement savings. 


This is perhaps my favorite slide of the entire presentation.  For months, it feels like everyone is waiting for the correction shoe to drop.  We have many clients that have expressed this concern to us, but as you can see intra-year drops (outlined in blue) are normal, and no indication that the year itself will be a negative one.  Often-times these drops are followed by quick bounce backs in the equity market, and trying to time them are like swerving to avoid a stick in the road.  Sometimes the act of avoidance does more damage than driving right over the stick in the first place.

The time periods I have outlined in red are the real dips we want to avoid.  To continue our analogy, these are tree trunks that can do real damage if we are not prepared.  Yes, the market rebounds, but their psychological impact often leads to poor decisions, and sometimes the time required to make up the losses is more than we can bear. 


Dr. David Kelly is the Global Chief Strategist at JP Morgan Asset Management, and he always has great insight into opportunities and threats in the markets.  Dr. Kelly is not alone in his feeling that US equities are fully valued.  This does not mean that valuations could not stretch higher, but doing so would put us beyond fair market value.  Many of the economists I follow would agree that equity opportunities are brighter overseas, both from a current valuation perspective, and from a currency perspective.  This serves to reinforce our overweight position in international equities. 

Dr. Kelly expects domestic equities will return roughly 3% per year based upon growth in our economy, and adds 2% for dividends, for a total return of roughly 5% per year over the next few years.  In fixed income, given the belief that the Federal Reserve will raise rates faster than initially expected by the market, he expects roughly 2% per year in total return from bonds.

None of these predictions are particularly rosy, and even with a passage of tax cuts, he expects the economy to slow down at the end of 2018, and possibly slip into a recession shortly thereafter.


For months, we have been repositioning portfolios.  Some have been due to opportunities we have seen like being overweight international and technology.  Others have been attempts to hedge prior to rising interest rates.  If you have high exposure to bonds, then you’ll likely see a floating rate fund right next to them.  Floating rate funds are negatively correlated to interest rates, and will help us in a rising interest rate environment.  Bonds have historically been used to reduce portfolio volatility, but you will see us use more long/short funds or multi-strategy funds instead of bonds for this purpose.

If you have ten plus years until retirement, then market volatility is actually an opportunity to dollar-cost-average into positions as you grow your retirement portfolio.  If you are close to retirement, then feel free to contact us if you would like us to take a second look at your 401(k) allocation or meet with you to reevaluate your risk tolerance.  If you are already in retirement, then we have already taken steps to reposition your portfolio, and we will do our best to overcommunicate our decision-making process and the actions that follow.


The information listed in this commentary is a compilation of various publicly available sources and is for information purposes only. It is not a recommendation or solicitation of any investment or strategy. A risk of loss is involved with investments in the stock and bond markets.

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