Perception is not always reality: You have not lost control

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Facebook Live: Perception is not always reality: You have not lost control Hosted Jim Daniello, CFP - Hi, everyone. My name is Jim Daniello. I'm a Wealth Management Director and Certified Financial Planner here at TIAA. I'm really excited to be joining you here from Facebook Live. It's another channel for us to be communicating and really making sure we're conveying relevant and timely information information during these really uncertain times of social distancing. We at TIAA are focused on making sure our clients are continuing to receive the information, knowledge, and practical wisdom needed during these unusual times. Today's discussions center around the emotional challenges many of us may be experiencing as we're bombarded around all of this new information, and the information that's incredibly fluid in this environment that's changing markets on a day-by-day basis, specifically the challenges of deciphering perception versus reality and the sense of being overwhelmed and paralyzed with inaction at a time when taking key planning actions may be really critical to your planning for the long term. I recently posted a podcast called "Take Action, But Stay the Course," and I'd like to continue today on that theme because many of you are receiving that sage, old advice of stay the course. And that's really important advice because staying the course is critical. But it's important we translate it appropriately. Staying the course is important because we don't want to make emotional decisions. But it also doesn't mean sit still and do nothing. The impact of losses weighs twice as heavily as the impact of gains. So in environments where your accounts may have lost significantly in value in a short period of time cause by risks that were unforeseeable and uncontrollable, it's really easy to surrender yourself to panic and fear and then act with emotions instead of logic and science and academics. Look, right now, in healthcare, the pandemic is definitely something called COVID-19. But in financial services, we're dealing with a different pandemic, and it's called fear. And the good news here is the pandemic of fear is easily controlled with education, planning, and logical action. Our advisors right now at TIAA are conducting over 30% more meetings and phone calls than prior to the onset of COVID-19. We're working through virtual meetings, coaching clients on their concerns and helping them make their way through certain actions, most importantly helping them take control with financial planning. We've always said at TIAA, "We lead with financial planning." And we're leading through this crisis with financial planning. And we're operating, more importantly, with a heightened level of compassion and empathy for how you are feeling. The impacts of this pandemic are widespread, from healthcare impacts, financial impacts, lifestyle impacts, and emotional impacts. You may feel at risk, at a loss, disconnected, alone, depressed, fearful, and even worse, panicked. All of this adds up to a feeling like you've completely lost control. We've all felt the same way, myself, my colleagues, my clients, everyone. You know, my son was diagnosed with Coronavirus back on March 16th, and at that time, I found myself personally stricken with panic, fear, total loss of control. But then, I settled down. And at that point, I developed a plan, a plan for my wife and I to really prepare for us to get sick and to prepare for the household to be taken care of, for food deliveries to occur, for the bills to be paid, for my son, who at that point had fully recovered, to take control of the household. I anticipated what would happen, and I protected ourselves with a plan for any of the anticipated risks that were ahead of us. Now, in that process of planning, I felt control again. I felt like I had planned and was ready for anything I could possibly prepare for. Now, certainly my actions didn't protect me from the risks ahead, but they did offset any surprises and any risks that I was able to anticipate in advance. Now, let me share what we found. Through thousands of meetings and phone calls that my team and I have held with clients over the past eight weeks, we've observed a difference between behaviors of those who have a financial plan or are in the process of putting a financial plan in place and those who have not. Those who went into this pandemic having fully outlined their specific life goals, collected a full inventory of their assets, assessed their risk tolerance for market volatility, and adjusted their asset allocation accordingly, those who have diversified their investments and relocated their accounts based on their purpose and their tax exposure, and especially those who have stress tested their ability to achieve their goals through various market scenarios just like the ones we've recently endured, those are the clients that feel more in control and much less stressful and much less emotional than the ones who have not. Bottom line, planning is your way to take back control. And more importantly, it is never too late to plan, not even in the middle of this storm. The actions that come from planning are your way of offsetting anticipated risks while taking advantage of opportunities that may present themselves during this crisis. The three steps to take back control during this emotional time are as follows. First, stay positive by focusing on your goals. Second, take advantage of opportunities presented by market volatility. And third, empower yourself by taking action. Now, I want to get into these three categories. And let's start with staying positive by focusing on your goals. Now, Yogi Berra once said, "If you don't know "where you're going, you'll end up somewhere else." Now, even though we think we know where we want to go in life, we really have to take the time. We really have to take the time to know where we want to go and define it and plot and have a well-planned course of action. I know that this is a time of social distancing, and all of the events we would normally be going to have probably been canceled, and we're not really going anywhere, and a lot of the space on my calendar has been pretty much cleared off. It's been giving me a lot of time back. And this pandemic has, at the same time, put things in a new perspective for so many of us. Perhaps our view on life has changed a bit. Perhaps our goals have changed. Now is the time to sit down and really define what matters in our life. We've got the time back. We've got the perspective back. Write down your goals, define them, prioritize them. Your journey to and through retirement has so many stops along the way. It's important to understand each stop, what it means to you, how important those stops really are to you. You need a GPS that sets the right expectations and gives you a number of alternatives and detours should traffic jams and road closures exist ahead. A goals-based planning process first begins by defining your personal objectives in life and then categorizing them and prioritizes them in the form of needs, wants, and wishes. Needs, wants, and wishes are essentially all the stops along the way in your journey. Now, let me define needs, wants, and wishes. Needs are the things that make you feel secure in life. They're the non-negotiables, the must-haves, food, shelter, clothing. Wishes are the things that make, I'm sorry, wants are the things that make you feel happy. And wishes are the things that make you feel complete. Now with goals-based planning, you're going to basically have to take an inventory of your assets. This, the inventory of assets, is the fuel that's going to get you through the journey. Based on your personalized risk tolerance and an assessment, your goals-based planning will provide a methodology of your asset allocation, your diversification, your ongoing monitoring. All of this will help assess confidence in achieving all of your needs, your wants, and your wishes. Most importantly, goals-based planning will stress test your ability through hundreds of market scenarios, including markets like we've seen recently. And perhaps this is why those who have planned in advance of COVID-19 are experiencing less stress today and more confidence. Now of course, there's never any guarantees of success, but planning certainly gives us the perspective we need to feel more confident and more in control. And additionally, it'll allow you to dynamically test for other unforeseen scenarios to demonstrate the impact of higher than expected inflation or unexpected healthcare events. So let's go to the next category that's going to give back control when you feel like you've lost control. And that's taking advantage of opportunities that are presented by market volatility. Now, planning through goals-based planning is a critical starting point, but the most important step that you can take right now, as I highlighted in a recent article on tiaa.org is to do an asset location review. Asset location is the action plan that goes in lockstep with your goals-based planning. When conducting an asset location review, you'll be able to take action on a number of key opportunities that market volatility is presenting to you now. Now, let me emphasize, the asset location is different from asset allocation. Asset allocation refers to the general mix of assets that you're investing in. Asset location is the process of collecting and organizing your assets all on one page and categorizing each count by how they will be used and when they will be taxed. Let me walk you through the three steps. The first step is picture a page with three columns. The first column is labeled taxable or tax now. Now, these accounts would include anything that is currently taxed, for example, your bank account or your brokerage account. They're currently taxed, so they land under the tax now or taxable account column. The second column is the tax later column. Now, these would include accounts such as your 403b or your 401k. They're currently tax-deferred, and they'll be taxed later when you take withdrawals from them. And the third column are accounts that are tax exempt or tax never. They would include accounts such as your Roth IRA or maybe a 529 plan. They're accounts that, if used according to IRS guidelines, will never be taxed. Now, in step two, we actually look very closely at these accounts, and we assign a purpose to them, essentially tying your goals to each account listed. And the third and final step is the analysis and the action, the mobilization side of it. And we question, is there a more advantageous account where we may be able to take advantage of existing new opportunities that have presented themselves in today's volatile markets. There are several opportunities that come to mind, and I'm gonna walk you through six of them right now. The first one is, for those who are retired right now and actively taking required minimum distributions, the newly-enacted CARES Act allows you to avoid taking your required minimum distribution in the year 2020. Now, you have an opportunity to preserve you 2020 RMD by not taking it and allowing it to stay within your qualified plan. In doing so, if your qualified plan has been impacted negatively by market volatility, you're able to give that account time to recover and not impact it more negatively by taking another withdrawal from it. In that sense, we're hoping it will have time to recover. No promises, hoping. Are there other accounts that we can look to through the asset location review to pull from, accounts that have not been impacted from a negative downturn in the market? For example, your emergency account. This is an environment that we would say is an asset emergency. The reason you have an emergency account is for this very event. Can we pull from an emergency account in order to get more time for other accounts to recover? It is the perfect time to leverage an emergency account for that reason. So, working with your tax advisor and your wealth management advisor, you'll have an opportunity to talk through these strategies. Another opportunity: Roth conversions. The markets have been trading at similar levels as they've been trading back in 2017. This is like being able to take a time machine back two years ago and look at converting those account levels back then to a Roth IRA. The great silver lining here is your depressed account value and converting it, depressed account value now, is going to give you a lower tax liability today. Also, normally you would have had to have taken an RMD prior to being able to convert into a Roth. You don't have to do that this year in 2020. So this is a great opportunity to again work with your tax consultant and your financial advisor to explore if this is a good opportunity for you. Number three, securing income. Through market volatility, we're recognizing that many of our clients are questioning the security of income and coming to us with questions regarding do I have enough secure income. This is an opportunity to explore options beyond social security and any pension income. This is an opportunity to look towards lifetime income options that are available to you and to really look towards your risk tolerance and understand how much secure income is needed. Your advisors have the tools to explore that with you and to look towards your options. Definitely explore and get educated on this topic. Fourth, tax loss harvesting. This is an opportunity to take advantage of losses today without exiting the market, lock in some losses for tax benefits this year. You don't have to leave the market in doing this. Tax loss harvesting is selling a security, locking in a loss for tax purposes, but still staying invested in a similar security that is correlated in the same way with market movements and being able to lock in those losses for tax purposes. Talk to your tax consultant and to your wealth management advisor about opportunities there. Fifth, rebalancing. Rebalancing is typically done on a scheduled basis, quarterly or annually. But the market movements we've seen recently have moved on a daily basis in some cases in the same pace that we've seen the market move on an annual basis in a normal market. This may be an opportunity to look more frequently towards rebalancing, come up with a different process. Your wealth management advisors may have a better approach to rebalancing to make sure you stay within your target allocation and don't veer off too far from what your risk tolerance is and what your portfolio is currently demonstrating. And then finally, interest rates. Interest rates are again at a historical low. This may be an opportunity to manage the other side of your balance sheet by possibly refinancing. Again, something to explore for the liability side of your balance sheet. It looks like we have some questions coming in. The first question, "How can I control my emotions "with regard to my money?" Great question. This is where what we call advisor alpha comes into play. Emotions are where the consultation with your wealth management advisor is most important. The value that the wealth management advisor is most demonstrated is with walking through, talking through the emotions that you feel. I would say we play more of a role of a psychologist these days than anything else. And just talking through those emotions, walking through the logic, demonstrating the logic of history, but really, feeling that connection and understanding what you're feeling and then helping you through that. You are incredibly emotionally connected to your money. And that can oftentimes be very dangerous as you look to make moves that you really should be seeking advice and assistance from an expert on instead who's not emotionally connected to your money. So the best way you can remove your emotions is to seek professional guidance. And again, we are playing the role of a psychologist these days more than anything else. Another question just came in. "I was planning on retiring next year. "How do I decide if that's still viable?" So, good news on this front. We do have this question come in often. This is where we can model this out for you. Meet with your wealth management advisor. Go through that planning process. Bring the inventory of assets that are available, that fuel that's gonna bring your through retirement. We can model out all of the scenarios available to bring you through retirement. We need to identify what the goals are. We need to understand what your income expectations are and what your needs, wants, and wishes are. We can model everything out. We can stress test it. We can even test against scenarios of concerns around healthcare events, inflation concerns, and then we can build that out so that you have a confidence level. And we can demonstrate exactly where your confidence level is so that we can give you the advice of whether it makes sense for you to have the ability to retire or not. And then we can also project out the amount of guaranteed income that we can provide you based on what options are available to you as well. Good news is, most people that we meet with don't think they can retire, and then after we model things out, yes, in some cases, we deliver some unfortunate news of maybe there's another year or two that we have to ask you to continue to work, but in many cases, it is really pleasant news that you can continue to move forward with what your original retirement plans were. And a question from Gail: "Does one have to sell in order to harvest taxes?" And the answer is yes. In order to do a tax lost harvesting, you would actually have to sell a depreciated asset. But you would immediately buy a similar security, but not the same security, just one that's similar. And so in a sense of if you sold a tech stock, you may buy an exchange traded fund that has similar attributes to that tech stock, for example. That way, you're not out of the market. But you'd be able to then take a loss on that tech stock, you'd still be in the industry and able to participate in any future growth that may occur there, future fluctuations, and you'd be able to take the loss on that stock in particular. Another question, "Should I stay the course "like everyone says to do?" Okay, like I previously said, the answer is absolutely yes. Stay the course, but take key actions. Stay the course doesn't mean sit still and do nothing. There are key actions that you can take advantage of right now working with your wealth management advisor on what I had just mentioned, the key actions that may benefit you. They're unique to everyone. Definitely meet with your advisor to go through what those are. And as a reminder, you can ask questions through the Facebook app. So, I see a number are still coming through. "Should I be changing my investments "in light of the market volatility?" Great question. Depends. Depends on how your original investments were structured. So this is gonna depend on whether they were properly allocated to your risk tolerance or not. So what you want to do is you want to go through a risk tolerance questionnaire, make sure that your investments are abiding by what your risk tolerance is. If you are out of alignment originally, then the answer is gonna be yes. But if you were perfectly in alignment and you were staying in alignment with a regular rebalancing and you're currently aligned to what your risk tolerance is, the answer is gonna be no. So, this all comes down to do you have a process in place, do you have a process for investment selection, do you have a due diligence process, do you have a rebalancing process, do you have a process if these assets are outside of retirement plans for managing taxes. If you're in retirement, do you have a process for managing your income strategy? So, it's a loaded answer for a loaded question, but unfortunately, it's gonna depend on what your situation is and how you originally started off. Question from Jennifer: "How long should it take to get a financial plan "after meeting with an advisor?" Our financial plans are turning around fairly quickly right now. Now, we have a team of financial planners that actually do a lot of due diligence behind the scenes. So, it's just not one individual running your financial plan. It is an entire team. We turn those financial plans typically around within a week. But we do that to be absolutely thorough. We collect a lot of information from you. We go through an incredibly thorough process of questioning. Be prepared for that. We want to be thorough. We want to know who you are. The questioning is deep, but the plan is thorough and accurate. So, to be safe, make for a two-week turnaround, but know that the accuracy and the thoroughness is going to be there. And let's jump to the third final point here. And that is to empower yourself by taking action. And I'm gonna get to more questions shortly after that. So, empowering yourself to take action. I just want you to think about the last time you did anything when you were feeling panicked. Sometimes just the action or the movement itself of taking action empowers you. It's really important to remember that as we plan through this pandemic, it's a process, not an event. As we plan for a recover, it's a process, not an event. As we plan for the stops along our way for our plan, it's a process, not an event. This is a journey, and it's always a process, not an event. I couldn't say it enough. There are plenty of actions that need to be taken now, but also throughout the entire experience. So the really first step I could encourage everyone to do is connect with your TIAA advisor. Do it as quickly as you can. Schedule that meeting. Start the planning experience for a more confident and controlled future. The second is avoid throughout this time any emotional decisions by staying positive, staying focused on your goals, using logical tools and coaching, that psychological coaching that your advisor can provide you with. And the third is to not use a set it and forget it approach. That's not what this is about. Your relationship with financial planning is ongoing and should be revisited every single year. Think of it as an annual check-in with your doctor. Your goals will change. Your circumstances will change. Your family will grow. We need to make sure that we're constantly updating that plan. You have a copilot that's on this journey with you, and it's your financial advisor. So, you're not in this alone, and we're here for you the entire way. Couple of more questions here. And I'm just gonna have to scroll here. It looks like we've got "What should I think about "with regard to any positives coming from the environment?" You know, there's a lot of mixed news coming out. And the information, I'll tell you this. The Federal Government has never been more supportive, especially considering the environment we're in. They have infused more support and more stimulus into the United States in the past couple of months than they did throughout the entire financial crisis of 2008 and 2009. So, if you look at the positives, the support from the Federal Government, the Federal Reserve, could not have been any stronger. The support from the community, the healthcare community, the efforts globally, coming together to find a solution on the vaccination side, we're looking at this from a monetary policy side, a fiscal policy side. We're seeing a lot of positives on both of those angles. We can't necessarily say we're seeing a strong positive yet, but we're monitoring on a regular basis on the health and safety side. There are positives coming out on a regular basis. But it's, unfortunately, we're gonna continue to monitor and hope for more. And we've got one last question coming out. "Is the TIAA Real Estate account a good, "relatively safe option for someone looking "to offset equity volatility?" I'm gonna answer this broadly. The answer is it always has been an incredibly great vehicle for diversification. The TIAA Real Estate account has been a uniquely great vehicle for finding a way to diversify away from fixed income, equities. It is not necessarily correlated with other asset classes. So, the answer is not yes, not no, but definitely a diversifier. And with that, I think we can say, I want to thank everyone for joining us for this Facebook Live event. I hope it was helpful, and we certainly look forward to serving you in the coming months. And thank you very much. It was wonderful being here. [END] Jim Daniello is a Registered Representative of TIAA-CREF Individual & Institutional Services, LLC, member FINRA and SIPC. .Advisory services provided by Advice & Planning Services, a division of TIAA-CREF Individual & Institutional Services, LLC, a registered investment adviser. This material is for informational or educational purposes only and does not constitute investment advice under any securities laws. This material does not take into account any specific objectives or circumstances of any particular investor, or suggest any specific course of action. Investment decisions should be made based on the investor’s own objectives and circumstances. Investment, insurance and annuity products are not FDIC insured, are not bank guaranteed, are not bank deposits, are not insured by any federal government agency, are not a condition to any banking service or activity, and may lose value. Any guarantees are backed by the claims-paying ability of the issuing company. The TIAA group of companies does not provide legal or tax advice. Please consult your legal or tax advisor. ©2020 Teachers Insurance and Annuity Association of America-College Retirement Equities Fund, 730 Third Avenue, New York, NY 10017 1173773

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