In this month’s edition of “Money Matters,” Scott discusses key strategies and tactics for managing your money in volatile (pandemic!) markets.

Money Matters: Managing Money in Volatile Markets Transcript

0:00:00.2 Mark: WTIP's Money Matters, a new monthly feature intended to help us understand more about managing our finances. Scott Oeth is a certified financial planner and adjunct professor. He's taught hundreds of financial professionals about retirement planning and wealth management strategies. Scott joins us now by phone. Scott, so good to talk to you this morning.

0:00:19.1 Scott Oeth: Thanks, Mark. Glad to be here.

0:00:21.0 Mark: Alright. Well, what a difference a month makes. Tell us about financial planning strategies in a down market. I think they call it a bear market, right?

0:00:33.7 SO: Oh yeah. It's definitely a bear market. Yeah. No April Fools joke here, but there is potentially the chance to make some lemonade out of lemons here. And I think if we take a look at the landscape, yes, stocks have been beaten up. We are very likely facing a recession, but what can we do? And I think if we look not just at the asset side of our balance sheet, but also look at the liabilities, look at our cash flow, and we'll see interest rates are also way down. And we're probably very likely in a period of low tax rates, and that gives us some room if we're looking not at just this point in time and focused on assets, but looking across probably a spectrum of time and thinking about our cash flow and our overall balance sheet. I think there are some steps people could consider. Some of these get a little bit tricky and definitely require your own detailed analysis or expert advice, but some points to consider, I think.

0:01:31.6 Mark: Now I know, mortgage company has been contacting and wondering if we wanted to refinance right now, and can you talk about mortgage debt refinancing?

0:01:41.8 SO: Yeah. I think this is a big one that a lot of folks could look at. Mortgages or just other debt that they may have. They say the cost of money, the cost to borrow is very, very low right now. Especially given that, unfortunately, a lot of folks are probably feeling a cash crunch coming up. Seeing what you can do to lower the rate on those liabilities that you might be carrying by doing a balance transfer or refinancing your mortgage, repackaging debt that you may have, that could be something that could help just in terms of your payments. And also another step up is what are lines of credit or freeing up cash? There is a trap, I hate to say it, where a lot of personal finance people have really been advocating that folks pay down their mortgage aggressively. Having a paid off home is a wonderful thing, but you can get stuck unless you're all the way there. If you lose your job or your business cash flow dries up, you still have to keep meeting those next payments down the road. It might make sense to actually draw out some equity. Don't spend it. Don't blow it on fun stuff, but put it in a lock box and have it set aside to help you meet those future payments that might be coming up.

0:02:53.2 Mark: Some folks have what are called Roth IRAs. And talk about those.

0:03:00.7 SO: Sure. So there's traditional IRAS or 401Ks where you're putting dollars in, you get a tax deduction, they grow tax deferred. It's a wonderful thing. The hitch is the government wants the money on the back end. You pay income taxes when you take the dollars out. Roth IRAs have been around for quite a while now. Very popular strategy. You fund those with after-tax dollars, but the great thing is the dollars can be invested, they can grow tax deferred and the gains will be tax free when they come out. So this is not new. It's been around for quite a while and the idea that you can actually convert those pre-tax IRA or 401K dollars to Roth IRAs is also not new.

0:03:38.2 SO: But given that we're at a point where we have compressed asset values, and if we take a long-term mindset, realize that they've always come back in the past, even from very terrible financial and economic situations, it's a matter of time, there may be a potential here to do a jack-in-the-box scenario. Pay income taxes on a compressed value, transfer them to a Roth IRA and let them recapture those gains in the tax-free environment. Added to that, there's some extra stimulus here. There was the SECURE Act that came into play January 1st, and that took away what was called a stretch IRA for beneficiaries. For folks who are in the position where they're thinking about legacy and passing on assets potentially to their kids or grandkids, this is a big deal. Dollars now have to be paid out of regular IRA over 10 years. Roth IRAs get different treatment. So, that gets pretty detailed. Folks who get their own expert advice, but it is extra emphasis on why a Roth conversion might make sense.

0:04:40.6 Mark: Talk about the market then. Buying low instead of getting rid of everything because the value has gotten so low. Talk about what that means.

0:04:52.2 SO: Well, yeah. Basic law, Mark, we want to buy low and sell high. The problem is in real life, when we get to a point where things are low and everyone's selling, it never feels like it's the right time. It feels scary. It's uncertain. People are selling out of things. And you say, "What? You're crazy. Buy into the market now?" We're looking at a recession. If you have extra dollars, if you truly have long-term funds to be able to set aside, this could be a great time to invest. I think if we look back at 2008, 2002, most folks probably say, "Gee, I wish I had more dollars", or, "I wish I had put more money into the market." And if you do have excess funds, buying low, now is as good a time as any to take a serious look at that. I love market history. It gives me a lot of perspective on things. And I just pulled off a book with Sir John Templeton's biography. He's regarded as one of the greatest investors of all time. And he got his start in the Great Depression buying companies that were trading for less than a dollar. And that was the beginning of his road to becoming a billionaire, really.

0:06:01.4 Mark: Well, many are sheltering in place at home, and maybe it's time to update those financial plans and estate plans, etcetera.

0:06:10.9 SO: That's right. That's right. I think this could be a great time. So one of the things I see is even folks who are affluent, making good money, might be in a comfortable financial position, time poverty is almost universal. And now could really be the time. If you have extra time on your hands and you're bored, some of those tasks that might not have seemed as serious or timely in the past, take a look at your financial plan, your investment policy statement, your estate plan. This will mean different things for different folks. For a lot of people, it might be a simple one-pager and kinda taking out pencil and paper and thinking about their budget and their assets and doing a careful analysis and looking at beneficiary designations on IRAs or 401K or life insurance. For other people, it could mean engaging professionals and doing some detailed work. But the biggest questions I'm getting now are, yes, about the markets, but it's a lot more about, "Am I okay? Do I need to make some changes? Where are we at?" And doing good financial planning work is... That's really what it's all about.

0:07:11.5 Mark: We're talking with Scott Oeth. We'll be talking finances with Scott on the first Wednesdays of the month on North Shore Morning. Scott, do you have a mantra to help get through these interesting times right now to share with us?

0:07:22.5 SO: Oh, boy, a mantra. Well, maybe a philosophy, and that is, looking to history as a guide. Every situation is different. The circumstances, the details are different, but what has happened historically, like say, Great Depression, 2008, the tech wreck. Things do get better over time. And the key is making prudent decisions, having a plan, sticking with the plan, and give it time.

0:07:53.5 Mark: Thank you so much for talking with us today, Scott.

0:07:56.8 SO: Thank you.

0:07:57.3 Mark: Alright.

0:07:57.3 SO: Pleasure, Mark.