With news this week of the United States officially entering a recession, many individuals have begun to question their investment behavior.  Until recently, we’ve been in an “everything bubble.”  Stock market valuations have been at levels never seen before except for the very top of the dot-com bubble. Interest rates have been at all-time lows, which conversely means that bonds have been at all-time highs as well. The real estate boom following the great resignation that occurred in tandem with the global pandemic has also created wealth at a rate rarely seen in residential real estate.  Fortunes have been made for many in the cryptocurrency and NFT spaces as well.  As a result, many investors have become lazy with their risk management after getting used to watching the rising tide lift all boats for so long.  They have bought the dips and shifted assets away from safe investments because that behavior has been handsomely rewarded in recent history.  But, as Warren Buffet is famously quoted as saying, “only when the tide goes out do you discover who’s been swimming naked.”

The thing is, you only lose if you sell.  Many still question the real value of newer investments like crypto and digital assets, but over long periods of time, the value of stocks will rise as companies generate greater value to growing populations, real estate appreciates as land becomes scarce, and bonds return value via interest payments regardless of changes in their market value.  Alternative investments such as commodities have similarly risen and should do so with inflation and increased scarcity.  Over a long enough period of time, you have traditionally made money in all of these major asset classes.  Knowing that they fluctuate in value over time (for example, stocks have lost value almost 1 out of every 4 years over the last 100 years), one should not be concerned with short-term moves in markets unless they need to sell.  Needing to sell is generally not an issue for someone who is employed and savings money into their retirement plan that won’t be touched for many years.  This is why retirement investors are generally encouraged to take on a lot of stock market exposure, because over time that has been the best creator of wealth.

As one gets closer to retirement, the common advice has been to diversify away from stocks toward bonds, because you might need to sell.  As interest rates have consistently fallen for 40 years, this strategy has worked well because falling rates have caused bonds to do well.  In almost all cases where stocks lost value, bond investors either gained or maintained value.  Therefore, the traditional 60/40 portfolio for a retiree made a lot of sense and back-testing showed it’s strength as a diversified investment strategy.  However, many have recently been saying that the 60/40 portfolio is dead.  It’s dead, they say, because one cannot expect bonds to act remotely close to how they have in the past given the current interest rate environment.  When rates rise like they have dramatically this year, bonds suffer, as we’re all seeing today.  And they can suffer at the same time as everything else, meaning investors requiring income from that portfolio will have to sell and lock in losses.

What if there was a vehicle that was guaranteed to go up in value, the only question being how fast?  What if that vehicle would also perform even better when interest rates rise and threaten bonds?  If that asset could give you bond-like returns over time and guarantee away any volatility, that could give you a better risk-adjusted return on the 40% of your portfolio that’s supposed to work when stocks don’t.  The 60/40 portfolio is not dead.  You’re just thinking about the 40% wrong.  We are now at a point in time where bonds aren’t good enough – you need a conservative vehicle that will rise no matter what to diversify that interest rate risk.

NOW is the time to remind your clients how a limited-pay, participating whole life insurance policy can be the perfect addition to their strategy so they’re never forced to sell. Also don’t forget that unlike retirement accounts, you can access whole life whenever you want and not owe income taxes on gains.  Stop being shy, and get out the way of your own success.  Clients value new ideas and your leadership – that’s why they hired you.