Sheaff Brock Addresses Angela’s Angst

Sheaff Brock financial planning advice for distribution phase of retirement

Sheaff Brock Addresses Angela’s Angst

Angela isn’t a real person, merely a “fictional amalgam” created by wealth manager Jerry Miccolis, CFP®, CFA, writing in the Journal of Financial Planning. But Angela’s concerns about her financial future, Miccolis claims, are very real indeed, typical of the angst many clients feel as they enter the “distribution” phase of their financial lives.

“Readers of my prior contributions to the Journal will probably know how I would respond if Angela came to me,” Miccolis writes. “What advice would YOU give her?” he asks other financial planning professionals. So we asked Sheaff Brock’s Paul Coan, CFP,® ChFC,® CEA,® and Jim Murphy, CFP,® CAIA, CWS,® Director and National Sales Manager, for their perspectives on Angela’s situation for today’s post.

Background story: Angela, 65 years old and her artist husband, Arnold, are one year into retirement. The couple has accumulated for themselves a nest egg sufficient to finance their lifestyle indefinitely if invested in a moderately aggressive manner (which Miccolis defines as more or less of a 60/40 stock/bond combination). Their children are self-sufficient adults, and there are five grandchildren. Despite this seemingly rosy picture, Miccolis notes, Angela has left the last few quarterly meetings with their financial advisor with a growing sense of unease.

People in Angela’s age group, Miccolis writes, find themselves in an environment unseen in a generation, including artificially low interest rates, upheaval and terrorism threats, and the waning of China’s role as a major contributor to the global economy. “Unfortunately,” the author points out, “that span of time probably exceeds the professional careers of their financial advisors!”

Truth is, Paul Coan remarks, clients should probably not seek guidance from financial advisors their own age, who are likely to be retiring at the same time as they! A 15-20 year age difference between clients and their advisors might prove ideal, Coan suggests.

In Miccolis’ construct, some specific pieces of investment advice Angela has been receiving which are causing her a particular degree of unease include:

  • Committing dollars to an ever-changing array of esoteric “alternative investments.”
    Coan might suggest income-producing real estate rather than other “alternatives.”
  • Reaching for more yield in fixed income.
    Coan suggests that preferred stock be substituted for bond holdings and that an option overlay portfolio be considered.
  • Going more overseas in equities. Angela saw no real risk/return benefits to increasing currency risk in their portfolio.
    Coan would explore index-like ETF’s.
  • Considering non-traditional portfolio construction—“80/20 is the new 60/40.”
    In planning for today’s retirement needs, Sheaff Brock’s Director and National Sales Manager Jim Murphy points out that “the ratio of equities as compared with debt securities in retirement portfolios will be significantly increased.” At the same time, Murphy adds, high-yield dividend stocks, upon which retirees previously relied for generating income, will need to be replaced with stocks that are dividend growers. (Be watching for more on this topic in our January posts.

Year end—any year end—is a time marked by some degree of natural investor angst. For that very reason, Coan reminds Sheaff Brock investors, the most effective strategy involves a comprehensive financial plan that you work on with your advisors year-round.

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