Here’s how investors near retirement can protect their retirement savings while taking advantage of market opportunities.
00:00:00 — Introduction
00:00:28 — Investing Near Market Highs
00:01:02 — Stay Invested or Step Aside?
00:01:54 — Managing Risk While Staying Invested
00:02:49 — Protection in Market Crashes
00:03:57 — Adding Upside Without Overrisking
00:04:56 — Growth Exposure Near Retirement
00:05:48 — Defined Risk vs. Nasdaq 100
00:06:41 — Key Portfolio Check for Retirees
00:07:55 — Where to Move Cash Safely
Transcript:
Caroline Woods
If you’re close to retirement, listen up. My next guest will walk you through how to stay invested, but also how to manage risk. Clark Allen is Head of Product at Horizon, and he joins us now. Clark, thanks so much for being here.
Clark Allen
Thanks. Happy to be here.
Caroline Woods
So, Clark, when markets are so close to record highs, a lot of investors near retirement might feel a little bit stuck. They don’t want to miss out, but they’re also nervous about giving back anything all of their gains. Is that what you’re seeing?
Clark Allen
Yeah absolutely. It’s it’s it’s hard to not want to participate. But obviously with valuations at all time highs and markets continue to scream higher. It can be difficult to figure out what to do. And so, you know, we find investors looking for alternative solutions. They don’t want to go to cash. They don’t necessarily want fixed income because of the experience of 2022.
And so they’re looking for an alternative that’s going to give them some risk management but still give them the opportunity for upside participation.
Caroline Woods
So for someone close to retirement, what’s riskier staying invested right now or stepping aside.
Clark Allen
That is a that is a loaded question that any time an advisor comes to talk to us, I always ask client comes to you, is looking to retire and says, I want to take all my money and put it into short term treasuries. Is that a safe or risky thing for that investor? Reality is, is is for some some investor that’s thinks about volatility.
That’s the safest thing they could do. But when you have a 30 year problem of trying to make sure you don’t outlive your money, investing in short term treasuries is very risky. And so we we believe and we preach that folks still need to stay invested. They need market participation because it’s the only way you solve a 20 or 30 year retirement problem.
But they need to do it in a risk managed way to make sure that over the long term, that they’re not blowing up their portfolios with sequence of return risk or other potential risks that come with volatility that, that, that they frankly need in order to actually be able to stay retired.
Caroline Woods
So walk us through how people can stay invested. But in this risk managed way.
Clark Allen
Yeah, absolutely. That’s a and we’ve got a couple different approaches. One of the ones you know, we tend to lean into a lot is a tactical risk management approach. It looks to get market participation when it’s available when the markets are trending and doing well. And we know that there’s 5 or 10% pullbacks. And those are natural and normal and needed to be trained not just as an advisor, as an end client, to understand that a 5 or 10% pullback is not something we’re looking to protect from or will never stay invested.
And so this particular tactical risk management approach focuses more on catastrophic markets as the 2008 type scenario or 2020, where you can really blow up 30 or 40% of your portfolio. And so we have a tactical risk management approach around equity exposure, looking to get market participation. It’s going to have some volatility and shallow drawdowns, but it’s going to protect from that catastrophic market, which we believe is the biggest thing to try to protect from for these clients in retirement.
Caroline Woods
Tell us how it actually protects you from that. And what are some of the holdings in that?
Clark Allen
Yeah. So the overall exposure of the portfolio is looking to be a sort of systematic multifactor portfolio. So, you know, the underlying exposure is an equity portfolio looking to get market participation when it’s available. If the market begins to get into a catastrophic situation, it will begin to sell that equity portfolio and de-risk the portfolio into short term treasuries.
It’s not going to do it 100% to zero. It’s going to do it in 10% chunks, because we’re going to sort of lag down in similarly, as the market begins to recover, it’s going to reinvest. So this gives, again the comfort for an advisor or client that in a catastrophic situation, you’re going to have somebody doing something on your behalf and helping protect your portfolio.
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