CIO on retirement planning: 'Liquidity really comes into play primarily when a person is in distribution mode'

Robert Wyrick, Jr., CIO of Post Oak Private Wealth Advisors, joins The Final Round to discuss what he's seeing from clients experiencing "pandemic panic" and how to navigate market volatility with your retirement planning.

Video Transcript

MYLES UDLAND: Hi, welcome back to The Final Round here on Yahoo Finance. Myles Udland with you in New York. Time now for Retirement Ready brought to you by Fidelity Investments to talk about the pandemic panic and how you can stop that process if it is indeed still going on for you. We're joined now by Robert Wyrick. He's managing member and CIO at Post Oak Private Wealth Advisors.

So Robert, let's kind of start with this idea of a pandemic panic. What you've seen maybe in your conversations with clients, because I think, you know, our view is watching markets every day is, oh, yeah, everyone's got to figure it out. But I think folks who are living normal lives, like private citizens, are still maybe remembering what March and April were like and still kind of acting on that basis, perhaps, when it comes to their finances.

ROBERT WYRICK: Yeah, I think you're right, and thank you, Myles. But I believe that, you know, people are more dialed into the market I think today than maybe ever before. You know, we all hear about the Robin Hood traders and the folks that are trading a lot of the dot-coms and Teslas. But folks are dialed in. And what we're guiding people to do is just to make sure your portfolio is aligned with your objectives.

And what we've seen in a lot of cases are folks are being forced into early retirement or laid off. And so, you know, having a certain level of liquidity available in their portfolios. And we guide people to, you know, one of the better books ever written. I think on investment philosophy was Peter Lynch's "One Up on Wall Street."

And, you know, my industry, I think that's such a good job of kind of shrouding this process in mystery when really in fact it's not that difficult. And so we sort of our first line of research sort of look around. You know, where are you spending your money? Where are your neighbor spending money? And what's going on in the economy?

It wasn't hard to sort of understand what to avoid kind of at the beginning of a pandemic if you go to the office building and the parking lots empty. Or you see no airplanes overhead, and nobody has travel plans. But at the same time, folks are increasing their broadband. Companies are spending money on hardware, 5G, and these sorts of things.

So it's obvious that to sort of determine where the trends are in the economy. So we've got people to do is just to make sure that you are avoiding-- so, for example, if you own the S&P 500, you by default have energy. You by default have real estate. And they're other sectors that you may not want own in this markets.

We're saying, just be a little bit more specific. Again, make sure your portfolio is aligned with your goals and make sure that you have the liquidity to fund any future or any near-term liquidity needs that you don't have to sell in a down market. And so the report could not interrupt.

But, of course, we are advocate of maintaining some sort of a hedge. In our industry, it seems like the investment process has been completely standardized among the big custodians and fund companies. And not that asset allocation or sort of a 60-40 blend is a bad thing. But it hasn't done a lot to protect investors in a down market.

MYLES UDLAND: Well, and speaking of that liquidity, you know, it seems like you are suggesting that folks need to make sure they do have some cash on hand. But we've also kind of heard this trend of in the last 10 years people having too much cash on hand.

So as you kind of work through that process, you know, with investors, is it really just about the cash balance within the portfolio? Or is it really about making sure there are things you know are easily saleable if it were to come to that and don't put you at a tax disadvantage that people need to be keeping in mind.

ROBERT WYRICK: Yeah, that's a good question. From my perspective, liquidity really comes into play primarily when a person is in distribution mode. And so if, in fact, sort of the standard thinking, I believe, is that a person would sort of liquidate for retirement liquidate assets kind of the opposite of the way they avarice into the market that they would systematically sell over time. And that can create a real toxic environment in a falling market.

And so for me, liquidity comes into play in terms of having two or three years of cash on hand to fund the first two or three years of income is terms of having cash on a normal basis not really such an advocate of that. We, again, employ a hedging strategy. And so when the market falls, like it has for the last couple of weeks, a hedge increases in value exponentially and creates a cash event, kind of a liquidity event for the portfolio that allows folks to kind of come in and buy when things are beaten up. But to have cash for the sake of-- you know, that kind of delves into the world of timing the market, which can be difficult, obviously.

MYLES UDLAND: Yeah, I think there's certainly a sense, at least, from my peers that, you know, maybe everyone remembers the financial crisis. And so everyone just seems you have to have cash on hand all the time. But just quickly before I let you go, you know, we are wrapping up the third quarter. Only a couple of months left in 2020.

And you mentioned there are a lot of folks who do pay close attention to the markets. But there's some folks who are going to pick up their statement, January 10 or whatever and say, hmm, I guess that was OK. How do you maybe talk through the process as someone who really only wants to check in or does check in every six months or 12 months? And how do you put in context maybe a year that we've seen for a saver or an investor like that?

ROBERT WYRICK: Yeah, no, they're excellent. I think a couple of points. One is that normally when you see a correction like we saw in Q1, it takes about 3 and 1/2 years to recover from that type of a dip. And so the first thing I would encourage people to do is to not get overly exuberant about the rebound that we've had because this is a bit out of the norm in my opinion.

Beyond that, I think making sure that they understand the various sectors. And, for example, if you look at the S&P for the year, it's gone up to 2.7% or so versus the Q's. That's up, what, I think 25% or so. And so, again, just making sure that their portfolios are aligned, not just with their goals in terms of their risk management and making sure that they have the proper protection in place, but in terms of where the economy is. I mean, these last couple of weeks notwithstanding that there are sectors and parts of the economy that certainly make more sense to own.