What if there were a way to make money when the stock market was down as well as when it was up? There are two-sided, bi-dimensional portfolio models doing exactly that, and Decker Retirement Planning uses them for some of our clients in the portion of their retirement portfolio they will access in 20+ years, or pass on to family members in the future.
Here is a quick outline of how we utilize bi-dimensional growth models.
1. Diversification
It’s a generally-accepted principal that diversification is good. It goes without saying that you shouldn’t have your whole portfolio in Apple stock, Amazon stock, or in any one single investment.
But, the bi-dimensional models we use at Decker Retirement Planning go beyond the standard asset-class diversification you might be familiar with, like stocks, bonds, mid-cap, large cap, etc. Our bi-dimensional models diversify by sector. For instance, gold, silver, oil, treasuries, the S&P, the Dow, etc.
The bottom line is that, after building strategies to provide income for the first 20+ years of retirement, we diversify the rest of the retirement portfolio in uncorrelated sectors, so that if one sector is flat or down, the other ones could be up.
2. Computer Algorithms
Most people do not know there are computer algorithms making “logical” (meaning no personalities or emotions involved) decisions about what to buy, when to buy, and when to sell. These algorithms have been in existence for years, and each one is a sector-specific model.
If you’d like to research them, search the term “absolute return models,” or read the book What Works on Wall Street. According to research, these algorithms outperform all other strategies.
Money-managing algorithms have actually been around since computers became indispensable; Decker Retirement Planning didn’t invent them. But, not all of the algorithm managers are superstars, so we comb through the database that measures performance as part of the due diligence we conduct for our clients as a fiduciary. Then, we utilize what we believe to be the best ones as part of some of our clients’ customized retirement plans.
As true fiduciaries, our goal is always to do what’s best for you in every circumstance. We do not make commissions on securities; in fact, we are focused on minimizing risk for retirees. When you succeed, we succeed. We use these bi-dimensional growth models to help protect our clients, and we have seen clients’ retirement portfolios grow through up markets, but more importantly, lose very little, stay even, or even grow slightly during downturns.
3. How do the Computer Algorithms Work?
Computer algorithms find the trends applicable to their sector based on the market internals as well as past performance, such as the 50-day moving average, the 200-day moving average, and so forth.
Independently, they’re able to make decisions on factors which indicate that this one is going up, so it’s time to buy, or this one just crossed another metric indicating it should be sold.
All the metrics they use are publicly available, but the algorithms are programmed to use the mathematical signals and data to make decisions and invest in a timely, logical fashion. As a whole, roughly speaking, the bi-dimensional growth models have averaged a 16 to 16.5% return since the year 2000.
4. Common Investing Strategies Don’t Work for Retirement
Most of the portfolio strategies used today are not particularly good, but can be downright awful for the retirement phase of life. The most popular ones include:
Buy and Hold
Modern portfolio theory or the efficient frontier would suggest that, overall, stocks should go up over time. Sure, if you’re young, and you have an investing time horizon of 30 or 40 years, why not? Find low-fee ETFs, and ride the markets up and down. That could work.
The trouble is, retirees don’t have that kind of timeline. You need to draw income out of your portfolio, which means you’re consistently removing money from fluctuating accounts. This can derail your retirement completely and cause you to go broke, which we saw happen to millions of retirees in 2008.
Dividends
With the low rates being paid today, it’s pretty impossible to live on dividends in retirement. And it’s not realistic to expect that dividends will continue to be paid out when debt is at all-time highs. Do you think that when a company is squeezed for cash that they’re going to keep paying their nice dividends, or is that going to be the first thing to go? Think about it.
Timing the Market
Some people like timing the market. It’s full of emotional highs and lows, kind of like an addiction. But, greed keeps you in the market longer than you should, and fear keeps you out of the market longer than you should.
Timing the market is impossible because no one has a crystal ball. It just can’t be done. And, option trading is just an expensive way to get nowhere. It never works in the long-term, and it can be fatal to your retirement.
5. If they’re that good, why isn’t everyone using bi-dimensional growth models?
You need to understand that most financial advisors are not independent. They are working for someone, usually a big bank or a big brand-name stock brokerage. They are usually Series 7 licensed, which means they’re compensated like a salesperson—on commission. They have an agenda to push what their boss wants them to sell and to make money from stock market trades, fees, bonuses, and commissions.
Other types of advisors might actually just be licensed as insurance salespeople, and simply don’t have access to all the investment strategies available.
True fiduciaries, like Decker Retirement Planning, are extremely rare. We’re not just your normal, run-of-the-mill advisors. As Tony Robbins says, only 1.6% of all financial professionals are fiduciaries. We can’t accept security commissions, so there’s a lot of pressure on us to perform well. We’re okay with that. In fact, that’s our client retention plan.
Using bi-dimensional growth models, when the stock market was down from September to December last year, our clients actually made money.
6. A Safer Approach to Retirement
We don’t believe people close to retirement should be holding their whole portfolio in a pie chart of stocks and bonds/bond funds completely subject to stock market risk. We don’t think a retirement plan should be deciding what percentage you should draw out—whether it’s 4%, 2%, or whatever percent. That kind of non-strategy is completely flawed and downright dangerous in our opinion. We are well overdue for a cyclical stock market crash; yet, most advisors are still using it. Why? They’re not actual fiduciaries, that’s why.
When you are planning to retire—to take that final paycheck in five or 10 years down the road—you need a fiduciary to create a complete road map of how to optimize your Social Security benefits, how to take your assets and generate guaranteed income for yourself, how to pay the minimal amount of income taxes, how to plan ahead for inflation, how to plan ahead for health care expenses, how to budget for the fun parts of retirement like travel, and much, much more.
At Decker Retirement Planning, we create a customized spreadsheet for each client—a road map detailing your whole retirement journey up to age 100. It all starts with you. Let’s talk.