The Chris Burns Show

How This Trade War Could Ruin Your Retirement

Episode Summary

When people come into my office, they have lots of concerns about their retirement, but they're rarely worried about the thing happening RIGHT NOW that could cripple their retirement plans.

Episode Notes

First, the president declares tariffs on Chinese goods. Then, China retaliates with tariffs of their own. Unless something changes, we could be in for a huge trade war. This will have a definite impact on business owners in America, especially farmers in the Mid-West who export to China. But, did you know this trade war could also devastate your retirement plans? 

If you're like me and watch the news regularly, you've seen a lot about the recent tariffs the United States has placed on China and the resulting fall out. These tariffs and the reciprocal treatment from China will have a definite impact on our economy, but probably not for the better. So why is this happening?

Part of the reason the president has implemented these tariffs is because of what he calls a "Trade deficit." This essential means we send more money to China in exchange for their goods than they send to us. We spend around $500 billion per year on Chinese goods and China only spends $100 billion on our goods. That's a big difference! But the affect of the tariffs could hurt Americans much more than any trade deficit that may exist and the reason is simple: it's wreaking havoc with our stock market.

Unpredictable Politics Brings Market Volatility

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You probably know this already, but the market is fickle. It doesn't follow rules or patterns. Instead, it's controlled by the people who buy and sell into it, and one of the biggest influence on how people buy and sell is the state of the economy. For the last nine years, our economy, on a whole, has been excellent. We're at the end of a nine year bull market and even with some of the stress earlier this year, we haven't seen a significant drop so far. **Imagine, though, how that may change as tariffs from the US and from China affect businesses and the cost of goods we already use. It doesn't look good does it? **

Even the threat of this trade war has been causing swings in the market in the past week. You may not think that these tariffs will have any affect on you, even if you are a business owner, but the dramatic changes its causing definitely will! 

If you're young, single or newlywed, with no kids, and just beginning to invest, market volatility isn't too bad. It can be stressful but you know you have plenty of time to recover if things turn south. These market swings we've seen recently allow you to easily buy in at a low price, stay in, and later sell with an excellent profit in little time.  

However, if you're close to retirement and you're heavily invested, you are taking a huge risk. If the majority of your retirement income is dependent on how the market is performing, the trade war and resulting volatility could destroy your plans for the future.  To put it simply: your risk level is too aggressive.

Ignorance Is NOT Bliss: Know Your Risk

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More than anything else you read today, remember this: The best way to ruin your chance at retirement is not understanding your level of risk. 

I have a perfect example of this through some new clients of mine. They have saved admirably and are within only two or three years of retirement. They’re definitely ready but didn’t have any guaranteed income beyond social security. 

This isn’t an unusual position to be in anymore, as pension aren’t as common. This is the norm for most of my clients and it’s what I call a market-driven retirement plan. On the surface, it’s a great plan too.

So what was the problem? 

90% of their funds were in equities. 

This is a very aggressive investment plan. 

When I told them this, they didn’t understand. They said they’d had great results in the last few years, so it couldn’t have been too bad. But your risk level is NOT determined by how well your portfolio has performed. Everyone’s portfolio has done well in the last few years because we’ve had an amazing market. 

Your risk level is determined by the percentage of your income that’s dependent on the market. 

How Low Can You Go? Fix Your Risk Level

To really illustrate to this couple how much potential danger their retirement was in, we created a few different future scenarios for them based on their current plan. 

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If everything went as they envisioned and the market continued to grow, they were going to get a solid return for the next few years. They’d be in a great position with plenty of money available to them. 

However, if there was even one significant drop in the market, like the potential drop we can expect is these tariffs go through, it would devastate them. 

All the work they had done over their careers and the excellent savings they’d contributed to would be completely ruined and so would their retirement. 

When it comes down to it, they were too aggressively invested and weren't thinking about the potential dangers of their investments. **They were leaving themselves exposed and didn’t even realize it! **

The good news is, caught this problem in time and could fix it. 

The answer wasn’t that they shouldn't invest at all. Everyone should. It’s just important to know what level of risk your portfolio can handle. 

So, we discussed how much money they were willing to potentially lose through their investments and decide on a level of risk they were most comfortable with from there. **Now, they can continue to invest with peace of mind for their retirement. **

Do you think you’re an aggressive investor? If your answer is no, you’re probably wrong. Make sure you’re not needlessly exposing yourself and ruining your chance at retirement due to political forces outside of your control. Sign up for a free consultation and we'll take a good look at your complete portfolio to help you tangibly see your level of risk. We’ll make sure you have a plan to expect market volatility without risking your future. 

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