Cynthia de Fazio 00:00
Welcome to Retire Smart Austin. My name is Cynthia De Fazio, joined today by Phil Capriotti Senior of Empower Wealth and Tax and to our viewers at home, the subject of today’s show is market volatility. What can you do? Are you ready? Is your portfolio being actively managed or passively managed? There’s a difference. It’s going to help you weather the storm if you’re in the right hands. Phil, how are you today?
Philip Capriotti 00:53
Bless my friend, and it’s good to be back on the set with you. I absolutely love the shows, and maybe our producer will tell us when we hit 200. I know we’re coming up on it, so maybe we can do kind of like a countdown. I think we’re at 198 or 199.
Cynthia de Fazio 01:10
It’s next week. Randy just whispered in my ear. Thank you Randy! It’s next week! Yay!
Philip Capriotti 01:15
We’ll get the bottle of champagne or something. We’ll have to work on something. Confetti.
Cynthia de Fazio 01:21
Yay. So, market volatility, Phil, we have to talk about that, because it’s all over the news right now, and people are nervous, especially if they have all of their eggs in one basket, and what if that basket is not being managed properly? Let’s talk about that.
Philip Capriotti 01:35
So, let’s start with the definition. Okay, just so everyone understands what we’re talking about, so folks, market volatility. It refers to the rate at which your investments either increase or decrease based on a given set of returns. So, we want to take a look at economic uncertainty, geopolitical risks, and then investor sentiment as well. You know, how comfortable do you feel in the market? So, a lot of folks are kind of running scared, especially if they just retired. Had been retired for a while, or getting ready to retire. You know, we remember 2008, the big sell off, the 2008. A lot of changes came about from that. We had folks who, you know, had 401k’s with 800, 900, a million dollars in them. And after the S&P500 dropped 52% within that stated period, I think it was close to five months or so many folks that were heavily invested in equities in their 401(k)s, they turned their 401(k) into a 201(k) and many folks couldn’t even retire. So, with that being said, we started to implement active or tactical portfolio management. So, let’s go ahead and dive into it. So tactical asset management. Basically, what that does is, you take a look at your portfolio. You’ll have equities, stocks, you’ll have bonds. You may have alternatives. You may have gold. You may have silver, if you’re smart, you may have annuities. If you don’t have a pension, looking for guaranteed income. So, if the market does fluctuate, you know you at least have your Social Security and your guaranteed income piece. Many, many advisors use it as a bond alternative, because it doesn’t have interest rate risk. So, example, many times when we see, like, for instance, this tariff thing that we talked about last week, yes, what we simply would do is look at what is the effect? What effect is it going to have on equities when it gets rolled out? Okay, and so the natural cause and effect is equities are going to significantly drop. It wasn’t like it was a surprise, right? We had 30-40, days warning. Absolutely, Mr. Trump, President Trump was talking about this all through his campaign for goodness sakes, yes. So, with that, we want to, we want to shift into more defensive sectors. Okay, so tactical management means we may be aggressive within our risk tolerance and our suitability, but we might want to change into different sectors. So, for instance, give me an example. It was all the rage in 2023, and 2024, AI technology, you know, we had the marvelous seven. Well, the s and p5 100 had great gains. So did the Dow, so did the NASDAQ. I mean, we saw our portfolios up 3035, 40% some cases even higher, depending on how aggressive both in 2023 and 2024 why? Well, there was a combination, basically seven companies led the way out of the s and p5 100. But what also led the way was government spending, printing and spending. So, we also we. Saw the market shoot up, but we saw inflation shoot up with it because of the additional printing of money. So basically, what we want to do with active management is we want to use things such as stop loss orders. So, I’ll give you an example. What’s a stop loss order. Many of you probably know, but for those of you don’t you may say, I want to own this specific company. We’ll call it ABC. Company makes widgets. Okay, we’ll go with the widget company. If this company, if this particular stock, continues to grow, I want to keep it. But once it drops 10% 15% 20% whatever your drawdown is, whatever we design in your portfolio, I want to just temporarily get rid of that company. Now we’re talking about active management in IRAs and Roth. IRAs Roth 401, K’s, and 401, K’s, okay. We’re not talking about using the strategy in your taxable accounts, because that’s going to trigger a lot of long-term and long-term capital gains. We use tax harvesting. And that’s another topic, another show. Maybe do that next week. Okay, okay, so in your IRA and your Roth IRA, you can do this. So, if you take one particular company, we can say this big war on Tesla. Okay, I think, I think Tesla is a great company. It’s a US company. All of a sudden there’s a war, because Mr. Musk is ahead in the doggy project. Doge. I like to call it doggy, but in either event, okay, what did we expect? We expect what we expected Tesla to go from 450 down to we didn’t know what. So, what we did was we put a sell order in and a certain so maybe we sold at 400, that doesn’t mean we don’t love Tesla. That means we’re off of the bandwagon. We’re off the Tesla for now, until it reaches a bottom. When it reaches a bottom, then we want to actively put it back into the portfolio. So, by actively managing different sectors, different companies, when we’re talking about equities and even bonds, for that matter, what it does is it’s can significantly reduce your drawdown or your market volatility, because you’re what you’re doing is you’re going with the flow in the market, okay, yeah, you’re going with the flow. So, there is no upside limit, as far as I’m concerned, but there is a downside limit, okay, so, and then additionally, you want to rebalance the portfolio, and you want to do it more than just once a year, okay? We want to rebalance the portfolio normally every 60 or 90 days. So, this is also part of active or tactical portfolio management.
Cynthia de Fazio 07:47
Talk a little bit about what it is to actually rebalance a portfolio. If someone in the viewing audience is saying, Wow, I don’t know exactly what that means, how do you balance someone’s portfolio? And most importantly, Phil, how do you know when it’s necessary to take a look?
Philip Capriotti 08:01
So, for instance, if we take a look at- we’ll take technology sector. For instance, when we see technology and AI up 100% 100 some of the companies that we own, that we owned, and I won’t go through them on air, literally, from January 1 until this correction, some of them, like the nuclear power companies, the AR AI companies and so forth, they were up 60, 70, some of them over 100% so what we want to do is we want to take, we want to balance. We want to take some of those profits, and we want to spread it on to other sectors. So, for instance, we may want to, we may want to rebalance, and say, health care. We may want to rebalance in manufacturing. We may want to rebalance in industrials. We may want to take a look so we create balance in the portfolio, and in so doing, we don’t get too heavy in one sector. Why? When that sector, there’s, you know, the market goes up and the market goes down. So, when that sector gets hit hard, like technology got hit hard, we don’t have we have equality, we have equilibrium in the sector, so we’re not getting pummeled. Like a lot of folks that are coming into our office when we run as Morningstar reports, I’ll ask them, How come you’re not rebalancing your technology? What goes up must come down. So active management and rebalancing, this is what we want to do. We really want to keep balance among all of the active sectors that are doing well during a current economic environment like right now, things change. So, let’s look at a sector that got pummeled. For instance, okay? US manufacturing, hollowed out, not even there. How, how is it going? Now? What is go? It’s a resurgence, absolutely, okay. Well, if it’s a resurgence, don’t we want to be don’t we want to have equity positions in this resurgence? Absolutely so we want to add sectors. We want to take and we want to give, give and take. We want to add sectors. We want to eliminate or reduce sectors. This is all part of rebalancing.
Cynthia de Fazio 10:08
Okay, well, Phil, it’s time for us to take a very short commercial break, but I believe that you have a very special offer to the viewers at home today, a message, if you will.
Philip Capriotti 10:17
You know, we have a team of certified financial planners in our home office. I’m very proud of them, many of the portfolio managers. In fact, we have our own proprietary portfolios with BlackRock, which is one of the- and again, I’m not selling BlackRock, I’m just saying it’s one of our portfolio managers. But our group of CFPs actually structure our morning Morningstar report. We used to do them individually ourselves. We no longer do them. I have them. We send them out to our home office. So, we’ll have a team of certified financial planners run your Morningstar report, and then we’ll run a portfolio observation. What’s their observation and what are their recommendations for change? So, this is invaluable. Normally, I won’t put a dollar value on it, but it’s extremely expensive. We do it for all of our clients, and we do it for all of the folks that watch our show or listen to our radio show. So, take advantage of it. Call 888-818-6557, or click the QR code and tell the operator you want to come in to have a portfolio X ray you want, what you want us to run your Morningstar report independently with our team of certified financial planners along with your portfolio observation and recommendations. I’ll explain it to you. I’ll sit with you. You’ll get a much clearer understanding. And if you’ve been watching us for years, you know this show is about educating our clients, or potential clients, educating you. When you come into the office and we run a morning star report, you will certainly have not only be educated, but your eyes will be wide open. You’ll understand your portfolio more now than ever, so take advantage of it. And I think there’s one other thing I love, the tax app.
Cynthia de Fazio 12:02
Well, we got to do the QR code for the tax app. I’ll take that, if you don’t mind, I’ll run with it to the viewers at home. If you’re curious about tax planning for the future, perhaps you want to know what your tax implications or burdens are today, you can visit the website of empowertaxbill.com empowertaxbill.com, put in a little bit of information about yourself, choose the tax bracket, and you can see what the tax implications would be and what they could be if you make a few changes. Again, 888-818-6557, or, as Phil mentioned, you can click on the QR code at the bottom corner of your screen. We’ll be right back momentarily with more about market volatility.
Philip Capriotti 12:39
Hello. My name is Philip Capriotti. If you’ve already filed for Social Security and would like us to fast track you straight to a licensed fiduciary to create your tax efficient retirement income plan, we’ll be happy to accommodate you. You know, one of the most important priorities to ensure that you do not become tax poor in retirement is to number one, structure a tax efficient retirement income plan as well as a comprehensive Morningstar report. This will ensure that you understand three major variables. Number one, how much risk are you taking? Number two, how much return Are you receiving? And number three, how much are your internal and external fees? To fast track your meeting with one of our licensed and experienced team members, just click on the link below, complete the form attached so we can provide you with an accurate and detailed plan. Let’s start empowering your retirement right now.
Cynthia de Fazio 13:47
Welcome back to Retire Smart Austin. My name is Cynthia De Fazio, joined today by Phil Capriotti Senior of Empower Wealth and Tax and we’re talking all about market volatility and how there is a difference when you’re working with the right financial advisor who specializes in actively managing versus passively managing your portfolio. Phil, this is such a very important topic to so many people right now in the Austin and surrounding areas, because they’re concerned. They’re concerned about what they’re seeing and what they’re hearing. And talk to me a little bit about something that’s coming up next sector rotation, if you will.
Philip Capriotti 14:20
Yeah. So, what we want to take a look at, and this is part of risk mitigation, what we want to do is we really would want to rotate into and out of sectors that are doing well. So, for instance, if a technology sector is doing well, we want to rotate into it, and we may even go heavier in it. When technology experience is a sell off. What do we want to do? We want to rotate out of it. For instance, the real estate sector was a great sector. Back when interest rates, you know, the prime was down to like, two and a half percent, okay, so the houses were flying off the market. What did we see? We saw interest rates. down. We saw prices of homes increase. Pardon me, the real estate sector was extremely hot. We did very well as interest rates increased by the Federal Reserve up to six, six and a half. Gosh, I understand some of these mortgages, 30-year mortgages were up over seven. Oh, they were right. So, the real estate sector started to recede. So, as it recedes, we want out of it. So, sector rotation means we want to be in sectors that are doing extremely well now, and we want to back out of it. This is part of active portfolio management. What it does is it helps mitigate our risk and it helps increase our return without adding additional risk. Okay, so what I want to do is, I want to, I want to implement sector rotation, one of the other things when the market’s down like now, and it will probably be for a while, is we want to do opportunistic investing, okay, all right. And what that means fancy word, but all it means is, I want to buy quality companies while they’re low. Smart thing is, everybody says, Buy the dip. Yes, buy the dip. But don’t just buy the entire, you know, S&P500. Per se, I want to look at specific companies. If a Tesla, let’s say, I’m going to use that as an example, was at 450 we know it’s a quality company. We know what they do. We also know the owner, and he’s in, he’s rockets and all kinds of things. So, if it’s trading now at 250 bucks. We want to buy it. Okay, so this is called opportunistic. I like to look at large cap companies that pay high dividends. Okay, we have portfolios that are designed specifically around that real strong mid cap and large cap and large cap, mid cap folks. All that means is their capitalization is large. They’re huge companies. Well, we may have some of these companies, and some of them refer to them as blue chips, pardon me, spinning off dividends every year of 4 or 5, 6, 7, percent, many times, folks won’t sell these companies, even in a down market. Why? Because they love the dividend so many of these companies and the sectors that they’re in, like energy and so forth, are we can get the best return for the least amount of risk. This is also part of that tactical and/or active portfolio management. Yes, you know, I learned a lot over the last 40 years. Of course, years ago, when we first started, it was all about passive management. And the reason it was all about passive management is because most of our savings accounts were taxable. So, to buy and sell with trips, short term and long-term capital gains, your taxes would go up. But ever since the government opened up the 401(k) savings for our retirement, where we’re all in pretax, or the Roth IRA, where we’ve done contributions and or conversions, active management is a no brainer. So, if for those clients. For those of you who are sitting out there that have significant assets in IRAs and Roth IRAs, if your current portfolio manager, investment advisor, whether it’s yourself or someone else, okay, if they’re not actively managing, maybe you want to come in and get a second opinion and understand all of the positive nuances, folks. It’s not timing the market. It’s using the knowledge that we have to pick sectors and companies that give us a better degree or a better chance of doing well. It’s your money, okay, manage it the way you want to.
Cynthia de Fazio 18:58
And it comes down to buy low, sell high. That’s the philosophy that we’ve always talked about.
Philip Capriotti 19:03
And it’s not about timing the market. It’s about using education. Look at geopolitical events. Okay, if a geopolitical event like the tariffs is going to cause equities to drop significantly, great. Okay, what do you want to do? You want to stay in there? No, the good Lord has given you an opportunity. Get on the sidelines. Let the leaves fall from the tree, and then afterwards, let’s guess, guess what? There’s another spring, all fresh blooms, all over again. Yes. So, with that being said, sector rotation is something we use significantly. In fact, one of the sleeves of our many portfolios when we build them is we may put 10 or 15% of a client’s portfolio into sector rotation. We want to get various different sleeves inside of a portfolio, and then we want to manage it according to the client’s risk tolerance as well. So, sector rotation, extremely important. Want to go based on economic cycles, I want to be in and out of certain sectors that give me a better probability of making money as opposed to losing money.
Cynthia de Fazio 20:09
All right. Well, Phil perfect timing for our next commercial break. Would you agree?
Philip Capriotti 20:13
It is.
Cynthia de Fazio 20:13
All right, to our viewers at home, there’s a number to call on your screen. That number is 888-818-6557, we realize that you’re hearing a lot of really good quality information for perhaps the very first time today, would you like to book a consultation with Phil? That’s what he’s offering to you today. Just call in to 888-818-6557, let him take a look at what you currently have in place for your retirement years. Are you taking too much risk? Is it time to make a change. There will be a difference between active and passive portfolio management. Clearly a difference, 888-818-6557, or you can grab your smartphone, click on the QR code at the bottom corner of your screen. That’ll take you right to the landing page of Empower Wealth and Tax, and you can claim your spot accordingly. We’re going to take a very short commercial break, but don’t go anywhere. We’re talking all about how to deal with a market, volatile situation, if you will, and how you will have peace of mind. Be right back momentarily.
Philip Capriotti 21:10
Are you ready to take control of your financial future? At Empower Wealth and Tax, our tactical portfolio management services are designed to adapt to market conditions by optimizing your investments, we create customized investment portfolios that limit market drawdown with the potential to increase your portfolio’s return. With our experience and expertise, we will actively manage your investments, allowing you to enjoy life without the worry of excessive market volatility. Don’t let market uncertainty hold you back. Schedule a free appointment with us today, and let’s take your investment strategy to the next level.
Cynthia de Fazio 21:56
Welcome back to Retire Smart Austin. My name is Cynthia De Fazio, joined today by Phil Capriotti Senior of Empower Wealth and Tax. And as you can clearly see, we have a lot of fun. Even during the commercial breaks, we come back laughing. And the reason was, we were talking about, obviously, the fact that our anniversary is coming up. Can’t believe it’s been five years.
Philip Capriotti 22:14
God bless us.
Cynthia de Fazio 22:15
But you are so knowledgeable. We were talking about words, what’s coming up in the next segment, I said, Phil, I’m just going to toss it to you. So, let’s keep running with what it means to be an active portfolio manager. You had some tidbits there.
Philip Capriotti 22:26
So, here’s the other thing. A lot of folks will come into our office, and they buy a sector, or they buy an ETF, you know, the S&P, ETF, the Spy, or they may buy the NASDAQ 1000 or 2000 well, they’re owning all of these companies. Well, active managers. What active managers do is, what we want is individual security selection. So, what does that mean? Like in English, Phil? What that means is, instead of writing out an index as wide losses, like we saw in technology and the s and p5 100 because of current economic events, active managers will hand pick certain companies with strong fundamentals that will not only be able to outperform during a downturn, but also, as we said in the previous segment, pay dividends as well. Okay, so I don’t want the whole sector. I don’t want the good, the bad and the ugly. I just want the good, by the way, great movie, good, bad, love it. You know, I only really want the good and an active manager, which is what we specialize in our home office, are amazing, especially even BlackRock, amazing when it comes to this, if you’re not looking at individual companies, this will help you ride out any type of major downturn, and we’re going to see a lot of them as we go on, as we go through our journey in retirement. You know, my life expectancy in retirement, we’ll talk about that. It’s a good 30 years, good Lord willing, and the creek don’t rise. It’s 30 years. A lot is going to happen each year for 30 years, absolutely being passive, being complacent, isn’t where we want to be when it comes to managing, excuse me, an IRA and a Roth IRA and or for one case, we want to look at that individual security selection. And by the way, if you’re over 59 and a half and you have a lot of money in your 401(k), you can do an in-service transfer. You’re allowed to move that money. Let’s say Fidelity is the custodian. I can move it into an IRA from a 401(k), with no negative tax consequences. And then I have a 360-degree range of all investments. I can buy individual stocks, bonds and so forth. So, no excuse. If you say, Well, my money’s in a 401(k), and I can’t move it. No. If you’re 59 and a half, or if you worked with a company and they’re still holding your orphan for 1k we can move it over without any negative. Tax consequences and actively manage it accordingly. Wow. I mean, it’s just something should be said, right? Because some folks think, Man, I wish I could do that, but I can’t do it. My money’s in a 401(k) yeah, oh no, yes, you can. We manage lots of 401(k)’s so and you want to get outside of just those, you know, paint by number picks that they give you. Sometimes they only give you 20, 25, 30 different picks. Why need thousands in order to accurately execute active portfolio management. The other thing, folks is we really want to put build downside protection, and we want to focus on it. You know, for my clients, Cynthia, that do not have pensions. You know, for so long, we’ve had this negative thing on annuities. Oh my gosh, annuities, negative? Well, I gotta tell you, there are 1000s of annuities out there, and there are thousands I wouldn’t touch with the 10-foot pole, with all due respect, right? But there’s a handful that are simply amazing. So, I would send many times if a client doesn’t have a pension, I’ll use an annuity as a bond alternative, okay, so instead of being in a bond, okay, which is really so vanilla, we’ll look at some of these annuities, and what that does is I might get 70,8- 70 80, 90% growth in the market, S and P, NASDAQ, a lot of different indices. But when the market melts down, the worst that happens that year is I make zero. Okay. The other thing is, I can reduce my client’s management fees, because the insurance companies pay us a commission to manage these annuities, year in and year out, and year in and year out doesn’t come out of the client’s money. So, you have zero fees, zero market volatility. You get 70 to 90% of the upside with none of the downside. So, this is another way of helping protect your downside. Yes, and also create a pension. I like to do- I like to move money into certain types of annuities. I won’t name them, then do Roth conversions inside the annuities, then turn on increasing tax-free income. Amazing. So now, once I have your mailbox money, once it’s guaranteed, now I can be more aggressive with your stock portfolio
Cynthia de Fazio 27:23
Phil. There’s such a difference when people pick up the phone and decide to work with you, to the viewers at home, there’s a number to call on your screen, 888-818-6557, again, it’s 888-818-6557, there’s clearly a difference when you choose a financial advisor to work with. Do you want your portfolio to be passively managed or active? Please pick up the phone, call in today or click the QR code, be safe, be happy, and be blessed. We’ll see you next week for our 200th Episode of Retire Smart Austin. Take care.