Echo Wealth Management Financial Adviser Echo Huang joins Yahoo Finance Live to explain the best ways to assess your portfolio for the short- and long-term during the ongoing banking crisis and what she is telling her clients on how to best prepare for continued volatility.
INES FERRE: It’s been a tough week for investors reacting to volatility in the banking system. You may be wondering what the crisis means for your money, short and long-term. Joining us now as part of our Retirement Ready segment brought to you by E-Trade is Echo Huang, Echo Wealth Management Financial Advisor. Echo, I’m curious to what type of calls you have been fielding from clients this week, and how you’re advising them amid the banking turmoil that we’ve seen.
ECHO HUANG: Well, interesting enough, I actually have not received any calls from my clients, perhaps because we have done the planning well. And of course, we– in my opinion, that the government will do their best to work with FDIC to reduce damages. And with our client, we have done planning to have enough emergency fund in one or two banks.
So in the short-term, they won’t run into that issue. Of course, secondly, they always need to pay attention to the short-term cash flow projection. That’s what we review on a regular basis, is where do they get the money to pay the bills for the next three to five years, and that is the money should not be invested in the stock market without any downside protection.
So I have not received calls from clients asking that kind of questions. I manage more than $155 million, 400 clients. So I think the planning ahead to deal with this kind of market crash probably has contributed to, I would say, this is a good situation we are facing at this moment.
SEANA SMITH: Yeah, it sounds like you guys are actually positioned pretty well, and you’ve got a lot of trust here from your clients because I was reading some of the stats. 80% of your clients are in their 50s and 60s. So really not too far from that retirement age. You talk about the fact that a lot of their money is protected because of how you have diversified their portfolio. What do people need to keep in mind in order to not be concerned when an event like this, what we’ve seen over the last couple of days, happens?
ECHO HUANG: Yeah, the process I go through is, first, we need to create a financial roadmap for each client using Echo’s dashboard, meaning that we need to show them cash flow projections to age 55, so they can easily see how much money they need to save for retirement, what does retirement look like in terms of withdrawal when they need to withdraw, and by how much.
And so the secondly, I think it’s really important to use the right tool. We use Riskalyze to assess a client’s willingness to take a risk. So each of them will have a written number. And then I also use the financial planning tool to assess their capacity for risk based on the time horizon and the withdrawal amount, and require rate of return to achieve their goals.
And once we talk about those two risk numbers, then we go through this stress test to look at hypothetical models. You could imagine that we could go very aggressive, 100% in the stock market, or we could go 20% to 30% in the stock market. And we want to show clients what happened if financial crisis, like 2008 and 2009, happened how much this hypothetical model would have lost.
So sometimes people look at that, they are kind of shocked, and say, well, if I don’t do anything or make changes to this model, I could actually tolerate 40% to 50% loss if they were in a bad bear market. So then we tweak the portfolio to the right type of asset allocation. I will go into a little bit of detail so that clients understand that, OK, I cannot tolerate 40% to 50% loss due in a bear market, but potentially, I could tolerate 25% loss or 30% loss.
Then we can show the long-term projected return for this type of portfolio that may not be too aggressive, but still help them outpace inflation, achieve their goals. So I feel like today, it’s a perfect time to talk about whether each person has the right type of risk in their portfolio.
Diversification is the key, but I think a lot of people may not be paying attention to how diversified their portfolios are, and they may be shocked when the markets are very volatile. So that’s what I want to talk about is a few ideas on how to diversify further in client’s portfolio.
SEANA SMITH: OK, Echo, we have about 30 seconds here. What are the quick ideas?
ECHO HUANG: Quick idea is, make sure people who are closer to retirement, like 5 to 10 years, consider a fixed indexed annuity that has a guaranteed income so that they can have a piece of their portfolio generating guaranteed lifetime income. Another idea is, make sure they have real estate allocation and also buffer funds because they also can help you reduce losses. And studies shows that 10% to 20% of uncorrelated assets can reduce the risk in a significant way in your portfolio.
SEANA SMITH: Echo Huang, great advice there. Thanks so much for joining us. Have a good weekend.
ECHO HUANG: Yeah, we’re welcome. Have a great day. Bye bye.