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Retirement: Financial adviser explains why it's a good time to review your portfolio

Echo Wealth Management Financial Adviser Echo Huang joins Yahoo Finance Live to discuss what investors should consider when evaluating their retirement portfolios.

Video transcript

JULIE HYMAN: It is a new month for markets, a new quarter, too. But the recent performance of major equity markets may still worry the folks among us seeking retirement anytime soon. Let's take a look at your portfolio spending patterns-- how to recognize your investing biases and oversights.

And we've got your FA corner for you. We have Echo Huang, who is Echo Wealth Management president and founder. Echo, thank you for being here. And I imagine that this time is, indeed, particularly stressful for people who have been preparing to retire imminently, right, in the next year or two. So how should people be thinking about their retirement timelines, given what we've been seeing in this market?

ECHO HUANG: Well, thank you for having me here. And losses feels a lot more painful than gains, psychologically. So this is really the good time to test your own judgment. And if you work with a financial planner, this is a perfect time to do a more thorough reveal, especially on withdrawal plans for people who are closer to retirement.

So assume that you have done some cash flow projection to know whether you have enough money to retire right now because the market has been down year to date significantly. It's time to look at it and ask a few questions to get a better understanding if your plan is working for you, questions like the first one I would imagine, do I need to make any changes to make sure my money will not-- I mean, will last in my lifetime?

And also, in terms of budgeting, I think definitely take a closer look at cutting out some discretionary expenses and also maybe delays on major purchases. I think also this is the time to manage emotions because we really feel that we should do something to reduce losses, but we do not control the stock and bond market.

What we can do is focus on something we can control. There are a few things you can control. One is obviously the spending and try to reduce withdrawals from your portfolio in the next two or three years and waiting for the market to recover.

And the second thing is asset allocation. Your financial planner may have designed a asset allocation plan for you based on your risk and your goals. It's a great time to look at it and see-- and ask if your goals have changed. So they may need some adjustments at this time because the markets are, as you know, high inflation environment and also rising interest rate environment.

BRAD SMITH: Echo, on that thought, there's often-- and of course, it's different. The number is different for everyone in how much they should have saved for retirement. But if there is perhaps a percentage that you guide people towards in relation to how much they're planning to spend or how much their expenses actually come in at, what is that ballpark figure?

ECHO HUANG: Yeah, of course, everyone is different. And there are some general rules to make sure your money lasts more than 30 years during retirement. So the traditional models normally show 60% in stocks and 30-- 40% in bonds can potentially provide 4% withdrawal.

So if you have a million dollars to start at retirement, 4% would be $40,000 a year. However, we are living right now in the environment that the bond portfolio doesn't really provide the traditional rate of return. And we foresee that could come down. And the same thing with the equity market.

So for many clients, I guide them, in a way, a little bit conservative than the traditional 4% withdrawal rate. So for certain people, it may be 3% or 3 and 1/2%. If they don't have a lot of flexibility in terms of going back to work, and their expenses are mostly fixed, that would be more challenging. But for a lot of people closer to retirement, I would say focus on-- because you may live much longer than 75 or 78--

BRAD SMITH: I hope so.

ECHO HUANG: --so 30 years. Yeah, 30 years of retirement is a long time for many people. So I would say, based this high inflation that may not come down to 3% very soon, I would definitely suggest people looking at it and say, hey, right now, it's probably not a good time to make major purchases, especially like cars and major big homes.

And be very diligent in terms of creating a monthly budget and stick with it and cut out the fat. And be very disciplined in terms of not to make rash judgment in terms of trading, try to time the market, and you may make a long-term mistake that you are making the temporary losses on paper permanent. That's very difficult for a lot of people to recover.

BRIAN SOZZI: Echo, if one is inclined to take on more risk in this environment, what alternative investments could they use?

ECHO HUANG: I would suggest people considering adding more quality stocks. And of course, we could also add REIT ETF because the market right now, I think as of last month end, year to date, the stock market lost probably 24%. And it's good for the people who have money, the time, and also, risk number is higher. So what they can do is they can actually buy the stock at much lower prices, a more attractive valuation. So I'd definitely consider adding more quality stocks.

And some alternative investments can be considered. Instead of buying bonds, I would suggest people buy in some alternative investment like a hedge equity ETF. And there are some target outcome ETFs that are tied to S&P 500, but it has downside risk protection, could be to 15% loss protection. That would reduce your stock portfolio volatility without overweighting in fixed income when you don't need to withdraw. And also, you have the time on your side, and you're willing to take on a little bit more risk right now to get potentially higher returns.

BRAD SMITH: Echo, really great advice and insights. Echo Huang, who is the Echo Wealth Management president and founder, thanks for taking the time with us today.