Tools to Combat Market Volatility


Tools to Combat Market Volatility


Estate Attorney and Advisor Chris Berry of Castle Wealth Group answers questions on retirement and estate planning every Wednesday at 1pm. Register via this link or give our office a call at 844-885-4200.

Castle Wealth Group and Christopher Berry help families with estate planning, elder law, retirement planning, and tax planning from their offices in Brighton, Ann Arbor, Livonia, Bloomfield Hills, and Novi.

Castle Wealth Group helps families with their legal, financial, and tax planning for their retirement and legacy.

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Episode Transcript:

Combat volatility.

I wanted to share just some of the tools that we’re using with clients right now to combat volatility. And talk about how these work. So IBOs have been a, a great tool over the last year or so where they’re based on inflation. There’s certain limitations, but previously they were at over about 9% for six months and then drop to 7% and probably probably gonna drop further as inflation, at least from the government’s perspective.

A slow down a little bit. And there’s some limitations, only $10,000 per person, so it’s not something that’s really gonna move the needle a lot. But it was a great tool and I’m not sure if it’s going to be a great tool moving forward. I think historically ivans have really only offered like a one 2% rate of return historically.

So just given the insane inflation we had recently, that’s really what made the IBOs a good bet. Another option is T-Bills treasury. Free bills. So with interest rates where they’re at right now, especially short term treasury bills are getting four, 5%, so better than leaving the money sitting in cash.

Then we have high interest savings accounts, so these are liquid. You can find some online. We have one right now. It’s a online account savings account, completely liquid at 4.4%. It’s F D I C insured. It’s protected, especially with all the bank questions. That’s been a big concern is making sure everything’s F D I C.

Protected. And so you can look at high yield savings counts, which is a, a liquid option. And right now we have one offering, 4.4%, and it’s not guaranteed it could drop, but you could always move the money somewhere else. Something more. Longer term we have kind of more market based is we have defined outcome ETFs or buffer ETFs.

This is money that’s liquid. It’s in the market. And what happens is there’s a buffer on the downside. So that buffer might be, let’s say 20%. So if the market drops 10%, you wouldn’t lose anything. If the market drops 25%, you would lose 5%. So that’s how the buffer works. Of course, there’s a trade off, and the trade off is there’s a cap.

Let’s say the cap is 12% s and p 500 goes to 15. You would get 12 if it goes to 10. You would get 10. So especially with kinda how sideways people think everything will remain over the next year or so. We’ve had a lot of clients interested in these defined outcome or buffered ETFs. Similarly, structured notes are less liquid than say, defined outcome ETFs.

But there’s some different things that we can do there to build on principle protection where depending on how the markets do, it could act similar to a buffer DTF or it could build a baseline a little more complicated. And then next we have index universal life insurance. For IOLs, we have some short-term ones that for a year where you can get a fixed interest rate at three to 4%, and then you can pull the money out, could be tied to the markets where the markets go up.

You could collect some upside. Or we have index universal life on a longer chassis, like a 10 year chassis where it’s principle protected. You put in money each year in, it grows tax free. And then the other thing, most people are somewhat familiar with these, we have fixed index nods. You’re trading liquidity for.

Principle protection with the opportunity of growth. Some of these, you could get anywhere from a zero to 20% rate of return in any given year. Generally the growth one’s average about 6%. So those are just some of the tools that we’re using to combat volatility. Right now. I bonds probably will be coming off this list as we get interest rates under control.

You have to lock up the money for about a year. Minimum with the I Bond Treasury bills, you’re looking at typically six months to a year. If it’s money, you’re not gonna touch, you might get a four or 5% rate of return. High interest savings accounts, these are completely liquid. You can pull the money out at any time.

Right now you’re getting a lot of 4.4% rate return, at least on the ones that we have defined outcomes, ETFs and structured notes. These are kinda putting the money into the market. But building in some principle protection, typically you wanna leave the money in for at least a year or so. IOLs, we have longer duration IOLs typically on a 10-year chassis, as well as kind of short term IOLs on a a couple year chassis.

Again, you’re building in principle protection. You’re using insurance companies versus the market on these, and then fixed in annuities. Again, you’re using an insurance company instead of a custodian like. T Ameritrade or Al, or Schwab or Fidelity for those things. So it’s really figuring out what the goal is and then figuring out what’s the best tool if we do want combat volatility.

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