One-on-One: An interview with Paul Hummel, chartered financial consultant with Investment Center Advisor Group

Each month, BizWest asks a business leader to participate in a question and answer feature to help shed light on a business topic, an industry or add insight to a field of endeavor. This month, BizWest managing editor Ken Amundson posed questions to Paul Hummel, chartered financial consultant with Investment Center Advisor Group, Loveland, about the advice he’d give during this time of financial uncertainty.

BizWest: Most Americans have or soon will receive funding — $1,200 per adult person — as a means to stimulate the economy and help people who were damaged as a result of the COVID-19 shutdowns. Obviously, many will use the money for food, rent and mortgages. If it’s not needed for that, how should they best invest it for their personal benefit?

Paul Hummel: Being an investment guy always leads me to saving for your long-term goals. For most Americans the primary investment objective they have is to invest for a prosperous retirement. To the extent they have not maxed out their 401(k) or IRAs it would be a good idea to invest for the long term.

BW: If they choose to use it to stimulate the economy, how might they have the most impact?

Hummel: Among the hardest hit sectors are restaurants, hotels and airlines. Revenue lost is revenue that is gone forever. Conversely, if you were going to buy a new car in March you may have elected to defer that purchase but you are still likely to buy that new car once this pandemic is behind us. Therefore the car dealer may miss the revenue now but he will likely get it down the road. Not so with restaurants, hotels and airlines. So, supporting your favorite local eatery by way of purchasing a gift card or buying an airline ticket (very inexpensive right now!) can be viewed as a prudent expenditure.

BW: Investment accounts might have taken a big hit as the stock market has swung wildly in recent weeks. What advice are you giving your clients who are planning to retire in the next 12 months?

Hummel: When our clients are preparing for retirement we always tell them that the market could go down 30-35% during the first year of their retirement. My suggestion is that if you can’t handle that then you are not likely to be properly prepared to retire. After an historic 11-year bull market too many investors forgot what it felt like to see equity prices decline so much so quickly. This is reality and whether it is a terrorist attack, financial crisis, war, natural disaster or whatever the case may be — the stock market responds negatively to major unexpected surprises. History is fraught with crisis after crisis and usually the stock market goes down at the beginning of this but has always climbed out and gone on to set new highs. This has happened 100% of the time if you look back at history. I like those odds.

BW: How about those clients with longer retirement horizons?

Hummel: Those with longer time horizons should have a large portion of their retirement dollars invested in stocks. Of course they need to have the appetite for the natural short-term risk that is associated with equity investing. The long-term benefit you get for putting up with the short-term risk is typically superior returns. Most Americans will not be able to prosperously retire unless their investments achieve stock market-like returns. Too little short-term risk usually results in a much smaller nest egg. There is an old saying in our business that people who don’t understand risk and don’t achieve superior long-term returns run the risk of going broke safely. $1 million in the bank at a guaranteed 1% return will deliver a whopping $10,000 to the saver. That annual income is not enough to pay the bills for the average retiree.

BW: What else should people understand about the current situation as it relates to their investments and financial situations?

Hummel: Another old saying in our business that rings so true are these four words, “It’s different this time.” While this pandemic is new and unique and we haven’t seen something like this in just over 100 years, it is still the crisis of the day and we will get through this and emerge stronger than before. A brief look at history shows us that this is true. Just consider what we have been through since the last pandemic: Great Depression, Pearl Harbor followed by WWII, Korean War, Kennedy assassination, Vietnam War, Watergate and the Nixon resignation, energy crisis/oil embargo of the ‘70s, hyperinflation, Reagan gets shot, 1987 stock market crash, bank and saving & loan failures, Gulf War I, Y2K and the tech wreck coupled with 9/11 and the list goes on. The crisis feels and seems different when you’re in the middle of it but our great country has always emerged the winner and stronger every single time. Keep the faith and the long view and understand that this too shall pass and those who follow the rules tend to retire prosperously. 

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