“There has to be some source of base income, like Social Security, a pension or an annuity, to provide for them no matter what,” Weilert says. “Then we build up some cash reserves—the combination of cash plus guaranteed income is a firewall against market downturns, because they can go three, four, five or six years without touching their investments.”
Weilert argues that his strategy nullifies some of the income-dampening effects of low interest rate policies.
Planning for income distribution instead of growth also alters the way Weilert’s clients react to volatility and downturns, he says.
“I think two-thirds of the calls we’ve gotten over the past few weeks have come from people asking if they should put more of their cash reserves into the market,” Weilert says. “Only a third of them were anxious.”
Advisors are also building reliable income streams outside of annuity products—Kineke is recommending preferred equities and some short-term bonds to her income-dependent clients.
“I’m a big fan of the bond ladder, but low rates are making it difficult,” Kineke says. “So I’m making sure that my clients’ ladders are intact and searching for opportunities. There’s a Bank of America bond right now that you can get for 2 percent for 1.5 years; that’s pretty good. I also look for kicker bonds in the municipal world, something that’s callable in a year.”
Kineke is also investing clients in stocks from D.A. Davidson’s list of “dividend achievers” like McDonald’s, AT&T and Kimberly-Clark.
Finfrock says that bear markets give fiduciaries the opportunity to prove their worth.
“It gives guys like me a platform,” Finfrock says. “We’re someone to talk to, and we’re the ones who are going to remind them that this too shall pass. As long as we look deeply at what we’re invested in and what our long-term goals are, we’re fine. We don’t need to make any rash decisions.”
Finfrock is positive that the markets will right themselves in 2016.