[00:00:00] Speaker A: Any examples used are for illustrative purposes only and do not take into account your particular investment objectives, financial situation, or needs and may not be suitable for all investors. It is not intended to predict the performance of any specific investment and is not a solicitation or recommendation of any investment strategy. Welcome to all Things Financial, the show that helps upgrade your financial literacy. Trey Peterson and Yellow Se Coutts are retirement planning specialists here to provide a unique and conservative approach to managing your money. Now here are your hosts, Trey Peterson and Yellow Se Koots.
All right, hello. Hello from all things Financial. My name is Ryan Moffat and with me is Yellow say cuts coming in with episode 23 just keeps flying by. Yelsey. I know I say that every single night. Wow, we're already on this episode. We're already on that episode, but episode 23. So we got a lot of great information today. Yellow say, let's dive in. The number of things that we've got to talk about, especially with what's going on in the market right now. It's a pretty good sized list. So before we dive into the meat and potatoes of it, I do want to do just a quick listener call out. Of course, we're here in Burnsville, Minnesota, so if you're listening locally, whether it's Burnsville, Lakeville, Savage, Bloomington, Egan, Invergro, Groatsmont, anywhere in the area, kind of south of the river, so to speak, we'd love to meet with you. What we specialize in is retirement planning, is a risk analysis, is tax planning for your retirement and coming up with a spend down plan. This is the area that we focus in most. It is our niche and we would love to meet with you. If you've not gone through any type of retirement planning or spend down plan, etcetera, we'd love to meet with you. You can reach out to us. Our phone number is 612-286-0580 you can email us, give us a call in. You'll probably get a hold of Jessica or Lisa. They'd be happy to get you on our calendars. We'd be happy to go through that complimentary conversation, even if it's just a second opinion to say, hey, you know what? I'm in a good position or I'm pretty confident, but I want to just get an outside perspective. We always are big fans of outside perspectives and getting second opinions. And when it comes to your retirement, it's one of the biggest things that you'll want to get right in life. Wouldn't you say? Yellowstone?
[00:02:23] Speaker B: Yeah, we spent a lot of time on last week's podcast talking about peace of mind and how important that is. And I think a lot of times that second opinion is exactly what, what brings some peace into your retirement plan. You know, just getting a second set of eyes. You know, there's nothing wrong with that. Maybe you've been, maybe had the same advisor for a very, very long time and you're comfortable with that person. You trust that person.
I don't know. Sometimes people feel like it's almost as if they're cheating on their advisor to get a second opinion. We've even had some folks tell us that their advisors have encouraged them not to get a second opinion.
I can't tell you how many times I've heard Trey mention this. Getting a second opinion is fantastic. It's good for you. It's good for us. Maybe you'll come back with some ideas. Maybe you'll challenge some of the things you're doing. If anything, you'll have a greater understanding as to why we're doing Wolfram. And occasionally, sometimes, you know, it's, you know, we don't have a monopoly and all the best ideas. So it's good to hear what others might have to say. And, yeah, I think it's good overall for everyone.
[00:03:23] Speaker A: Yeah. I mean, honestly, if someone's encouraging you not to get a second opinion, seems a little bit red flag.
[00:03:29] Speaker B: Yeah. Get two or three second opinions.
[00:03:32] Speaker A: Two or three, right. Well, we'll talk about a number of things today. Risk really is going to be a big part of our conversation, kind of segueing right off of last podcast, talking about peace of mind, but diving in. We're going to start with our quote of the week like always. And this is a quote from Dave Ramsey. Many of you probably are familiar with Dave Ramsey. Maybe you've gone through his financial peace university or have gone through and worked on getting out of debt via the debt snowball. And I think a lot of what he has to say foundationally is really good stuff when you're learning to and you're structuring your personal finances and learning how to save, et cetera. But his quote, I think, is spot on because it says a good financial planner is going to do much more than simply pick your funds. And I think that's a huge component to it. Oftentimes people will think and they'll say, hey, well, I can pick this fund or I can pick that fund. Or even Dave Ramsey says, hey, get a large cap and get a small cap and maybe an international, and you should be in good shape. Well, you know, really what he's talking about there is you have limited options in your 401K or your 403 B. And if you have limited options, he wants to try and give you some general guidance. But I think ultimately, when you look at it, hiring a professional to focus on these things daily, especially that team that focuses on your stage of life. We talk about stage of life and we talk about the transition from your work and save years into your preservation years. And hey, we're now in our go go years where we're going to have some fun. And we went from five working days, one Saturday and a Sunday, and now we've got six Saturdays and a Sunday. So we're probably going to spend some of that money that we've worked so hard for and have trained ourselves not to touch. But coming up with a plan with somebody who focuses on that time of life and that area specifically and somebody who constructs portfolios and investments specifically to that time of life really is where the value is. So Dave Ramsey says a good financial planner is going to do more than pick your fund.
[00:05:35] Speaker B: Hey, question for you. So do you think that, and I know there's some stats that back this up one way or the other, but when people retire initially, let's say, I don't know, the first year of retirement, are you spending it more or are you spending less in that first year than what you typically spend?
[00:05:52] Speaker A: Yeah, absolutely. More. Yeah.
[00:05:55] Speaker B: Well, I would think so, too, because what I find is I spend more on the weekend.
[00:06:00] Speaker A: I, for sure.
[00:06:01] Speaker B: And part of that is, you know, I'm at work Monday through Friday. So for those, you know, eight to 10 hours per day that I can't spend any money. I feel like, you know, I make up for it on the weekend. I can only imagine in retirement how difficult it must be to restrain yourself when, you know, you're doing, I mean, you're doing leisure, right? You're, you're just enjoying yourself. And I feel like for a lot of people, their budget prior to retirement, at least when you're doing some planning, sometimes that doesn't reflect the reality of what it's going to take to, to stay disciplined in retirement.
[00:06:32] Speaker A: Right. Right. Well, and I know yellow say you're a bit of a do it yourselfer, yard work updates around the house, et cetera. And I'm the same way where it's like, great, I finally have a Saturday and Home Depot or menards or whatever happens to be closer. Calling your name. Exactly. It's calling our name. So, and it's a couple times a week. I don't know if it's 2323, you know, five times a week, whatever it is. I'll have that exact conversation with someone and they'll even suggest that, hey, now, because he's retiring right now, because she's retiring, you know, we'll finally get some of those projects done around the house. Or it's, maybe it's not projects that have been pending, but it's things that you want to get done so that you're not dealing with them well into retirement. Many people like to get the big things done, the updates done, the, you know, maybe let's finally put the railing on the staircase or update the bathroom, replace the heater, roof, whatever it is, big, small projects, because they don't want to be messing it with it into their seventies or into their eighties, right? They want to do it now while they can so that they don't have to worry about it down the road. And that's a big part of it.
[00:07:38] Speaker B: It's a bit of an illusion, I think, you know, getting take, taking care of those big ticket items because if anything, you know, homeownership has taught me that it never ends. There's no such thing as getting something out of the way, you know, setting yourself up for a smooth cruise through retirement for the next 20 years. Projects are always popping up. Its a never ending stream of projects, Trey.
[00:08:00] Speaker A: They absolutely are.
[00:08:01] Speaker B: Im burnt out. Can you tell?
[00:08:05] Speaker A: Youre absolutely right. And my wife and I were just talking about this actually just this morning, and we were talking about just some planning over the next six, eight weeks as we kind of enter the fall season here. And she said, well, I thought you were going to do blank. And I said, I haven't locked that in yet because I'm a little overwhelmed with my list of projects that are still undone. There's still some yard stuff that needs to be done.
Our dryer just went out earlier in the week. So, of course, now we've got to update the washer and dryer and that, of course, added components to it. And so you're right, Yelsey. It does never stop.
[00:08:40] Speaker B: Now, are you somebody, when you start a project, do you see it all the way through to the end or like when you're 80, 90% done, you start to think about the next project and you just kind of move on without finishing. You ever done that?
[00:08:52] Speaker A: Man, that's a terrible question to ask.
I have a lot of guilt about this and I feel like I'm confessing my sins because when it gets to 80, 90%.
[00:09:00] Speaker B: I mean, you're basically done.
[00:09:02] Speaker A: Right when it's, I do the demolition, I do the major construction, I'll do the bulk of the work. But that last five to 10% oftentimes is a, I have to, I have to be disciplined to get it done.
[00:09:17] Speaker B: I'm really good at the demolition. So I have a number of projects where I've only done the demolition, and I've never actually started it.
You know, it's a progress.
[00:09:29] Speaker A: That's so funny. Well, we got rid of that tree or we got rid of that bathroom or those cabinets, and now it's just blank.
[00:09:36] Speaker B: Exactly.
Well, back to Dave Ramsey's quote.
[00:09:42] Speaker A: They don't, you know, I thought we were talking about do it yourself first stuff today, but, yes, let's keep activating they rapseys quote.
[00:09:47] Speaker B: Hes right. Your advisor needs to do more than just pick the funds. I think most people, when you consider the management fee that you have to pay, I think on average, most people probably pay somewhere around 1%.
Thats a lot of money. Thats a lot of money to give somebody if all theyre doing is picking your funds. So, well talk about some of the other things that you might want to ask whenever you do get a second opinion or even whenever youre talking to your advisor. If you come in for your annual or semi annual in person appointment with your advisor, we'll talk about some things that maybe you need to ask just for your own understanding. It's good to know what you're paying your advisor. And I'm always surprised, like, how often people have no idea what they're paying. They have no idea. They have no idea if they're working with a fiduciary, if they're working with a broker, if they're working. There's a lot of questions that are good to ask.
And really, we talk about fees a lot. Fees aren't the end all, be all risk, you know, it's important to manage risk. Diversification is really important. We'll talk about some of that, too, but it's good to know exactly what you're paying for. And we'll talk about some of that here in just a moment. But I wanted to touch on August 5.
I know a lot has changed since August 5, but August 5, we saw our largest one day sell off in two years, since 2022.
And it was a result of a number of things. The disappointing jobs report, fears of a recession. But it was kind of a wake up call for some people. And I think that sometimes were kind of lulled into this, I dont know, this feeling like the market cant ever go down. We feel like things are good and theyre going to stay that way. Its not necessarily the case. On August 5, the Dow dropped about 2.6%, Nasdaq three point four s and P three percent.
Weve reached a lot of new heights. The indices, Weve had record days for a lot of the major indices this year, and a lot of those were led by companies like Nvidia, Apple, other tech companies have really led the charge when it came to some of the new ikes that we reached with the S and P, the Dow, the Nasdaq, and really a lot of those companies were among the worst performers. On Monday, August 5, I look at Nvidia, they dropped 6% Apple. And I know Apple. Theres other circumstances. I think, like Warren Buffett, he cut his stake in the company by about half. And I think that that also led maybe an additional loss that day. But its important to make sure that youre looking at your portfolio, youre looking to see how well are you insulated, because the correction, we talked about this in the last podcast. Trey asked me, hey, do you think that is a correction coming? Is it imminent? Is it something that we need to be concerned about? The answer is yes. I dont know if its going to happen this week, tomorrow, next month, but its going to happen at some point. And it's going to happen probably during your retirement more than once. Right. Most of us will probably have to live through several corrections.
And I think that in a week like August 5, it wasn't just August 5. A lot of those major indices posted their worst three day loss since 2022.
So a lot of people are thinking, hey, the market's whistling past the graveyard and we need to do something. And everybody was, you don't want to be in a place where you're vulnerable to a correction in a way that it takes you five to ten years to recover.
So that's something we're going to talk about as well.
[00:13:13] Speaker A: Yeah. Well, and you had made the comment about, it's possible that even in retirement a person could see multiple downturns or, and I guess maybe expand on that a little bit for me because there are some older stats as far as, hey, on average, the, the market has a correction every seven years or so, which hasn't exactly been the case more recently in the past number of years. But maybe you could dive into that a little bit for our listeners. And what do you mean? How many recessions or how many downturns.
[00:13:48] Speaker B: Are going to be, well, it's difficult to predict. Anybody can open a textbook and you can look up the business cycle and you can see, hey, this is where the expansion happens. This is the peak. This is how a recession looks. And we can typically expect that every seven years. But how often does that play out in reality? So we know about the lost decade where we had two corrections in its period. You had the.com bubble, you had 2008.
So it's not like it's cyclical to the point where you could actually pencil it in your calendar.
It's not like that. We had 13 years. We had a 13 year bull market following the lost decade. So it's a little bit more difficult than what the business cycle might show.
[00:14:39] Speaker A: Well, I think what's important and what's good for people to know is because you and I and Trey and many others out there, this is what we focus on and this is our career. It's our job to know these things.
But I think whats good for people to understand and know is that these things do happen. And when you focus on the business cycle, there is an expectation of these things. Not frequently, but there is an expectation. And the reason I wanted to communicate that is because I think its important to tie this into the conversation of what your portfolio is today and what your risk level is today and what youre comfortable with. Because if you look and you know, there's a study out there, but if you look, the number one fear of retirees is running out of money, more so than death, more so than, you know, I'll make a joke here, public speaking, but the fear is of running out of money. And when you, when you think about that and saying, okay, if I know that the market isn't going to go up every day of every year and that it's going to fluctuate and that it's going to be volatile, especially in certain times of climates, in election years, always more volatile.
What can we do? And where do I stand right now? What conversations have my advisor and I had, or have I had any of these conversations with my advisor about my risk level? One of the things that we look at very frequently is just saying, hey, what's a good gold standard? What are you comparing yourself to? And coming up with a plan surrounding that? So asking yourself a question, saying, what is my risk level? Am I still comfortable with that as I'm making this shift from my work and save years to my preservation and my spending years? And if you don't know what that risk level is if you can't tell me and say, hey, on my portfolio, I fall within this area. That's worth a conversation. It's worth looking more into, whether it's with your advisor or with a retirement planning specialist firm like we are.
[00:16:41] Speaker B: Yeah. And the crazy thing is, looking at, from August 5 until today, the market almost fully recovered.
[00:16:49] Speaker A: Right fast.
[00:16:51] Speaker B: And it's crazy on August 5, you get all the fear mongering, and then today everybody's talking about how the fears of recession are so overblown. Right.
So it's just depending on what's happening in the market today. And I think that that's kind of short sighted if that's all you're looking at.
I expect that there's going to be a lot of volatility. It's going to remain high probably for the rest of the year.
My take on it is the economy. It is slowing a little bit. Probably we're going to get a mix of conflicting economic data points over the next couple of months, whether it's the jobs report or whatever that is. I think that's going to continue to fuel this recessionary debate that we're having, whether or not, you know, the recession is imminent or when its going to happen, I think thats going to be something thats top of mind probably for the rest of the year. We do have the Jackson Hole economic symposium thats taking place tomorrow, actually. Tomorrow? Yeah, the 22nd through the 24th.
Over nearly 50 years. Thats been an important conference. And its an economic event that brings in all types of academics, policymakers, and, and there's going to be a number of federal Reserve officials that are going to be there at the conference. And I think that it's really important because you look at if Jerome Powell even slightly indicates that there's not going to be a rate drop, or maybe he suggests that whatever he says, the ripple effect is huge. He doesn't even have to be, he doesn't have to be blunt about it.
Even if it's a small suggestion. I feel like the ripple effect in the market is huge. If there's even a small degree of hesitancy in terms of having a rate cut in September, I think that could potentially set the market in a spiral, a downward spiral.
[00:18:48] Speaker A: Let's dive into that for just a moment, because I think it is a really good conversation to have.
For those of you that are, you know, more in tune with this, that are listing than others. You kind of have an idea of what we're talking about. But for those of you that maybe don't quite grab what we're saying here is that the market does respond really, really quickly and it can respond to a large degree depending on what is suggested or depending on what's interpreted. Right. So Jerome Powell, as he's speaking to the symposium, if somebody gets a hint of I think this is what he's trying to communicate, as opposed to what he's actually trying to communicate, different people's interpretation can impact that. Right.
[00:19:34] Speaker B: Yellow say yeah, and I think everybody has their expectations set, at least a 50 basis point rate cut in September.
But you look at certain economic indicators that come out like July's unemployment report, it was at 4.3% compared to 4.1% in June. And you look at the effect that that had on the market. And really, I think it's really tough to strike the right balance. If you're the Federal Reserve, you're responsible for helping to cultivate sustainable economic growth, but also you have to do it without high inflation and somehow you have to support full employment to the best of your abilities. So I think that the rate cut in September is pretty forthcoming. It probably, if it doesn't happen, I mean, that could really introduce a tantrum effect in the market.
But I think the rate cuts are probably going to happen. And really there's a number of people who are suggesting that if they do happen, probably that the market hasn't even priced in some of the benefits or the impact fully. Right? Maybe not after the first rate cut. But if we get a number of rate cuts, do you have to think that there's a lot of pent up demand maybe lurking beneath the surface and that could actually improve some of the market conditions overall? Because I know even in real estate, we talked about this in the last, last podcast, I think that a lot of sales, sales have gone down, pending sales have gone down. The number of homes that are under contract have gone down here in Minnesota.
I think it's more broadly than that. But part of that is if you know that current rates are around 7% on a 30 year mortgage and you're anticipating that the Fed is going to lower rates, why would you lock yourself into a 30 year mortgage today if just a few short months? Potentially rates could be substantially lower. So I think there could be a little bit of pent up demand that could actually improve conditions in the market if we do have a few substantial rate cuts. But obviously economic data should be what's driving that and we'll see what happens.
[00:21:34] Speaker A: Yeah, no, I agree. Well, and I think that's one of the biggest, the big things that's hot topic right now, as far as they've been talking about rates all year and what it should be after all the rate hikes last year, and we haven't seen a ton of change yet this year, but we expect some changes here coming through the fall. I think a couple of things that are worth thinking about and talking through is I had mentioned where is your risk level at?
I think sometimes what we see at least, and the people that we meet with is that they will have used their retirement calculator at their 401K provider online, or maybe they're talking with their broker and their broker is using a Monte Carlo simulation and saying, hey, you've got a 75% chance of likelihood that you'll succeed or a 81% chance, etcetera. I think one of the things that's worth knowing and understanding is saying, hey, I appreciate and it's good to know that an 81% chance of success here, but I had a conversation recently and in that conversation the person just kind of paused and said 81% feels good. But I actually don't know if it should feel good. I don't know what it's off of. I don't know what it means. What are we comparing this to? Right. And I think having some type of benchmark comparison of, hey, where am I at today? Compared to something that I do know and understand, it's something that I am familiar with.
[00:23:04] Speaker B: With.
[00:23:04] Speaker A: Right. So we look at all the different out there and you always hear about the Dow Jones P 500, the Nasdaq, et cetera. And have you looked to see what your portfolio is risk and return wise, compared to one of those indices as a standard, the S and P 500, for example, one of the most common out there, right. Top 500 companies.
Have you looked to see, hey, the S and P 500 is a risk level, x and Im a risk level. Why? So if the S and P drops xyz points, if the S and P drops ten points or five points or three points like it did earlier this month, what does that then look like for me in my portfolio? Because knowing your own personal risk versus reward tolerance really is an important key. And if you havent gone through that with a fine tooth comb to really understand and really come up with and say, hey, how do I feel about this? And if my risk level where its at today, means that in a large economic downturn, I could lose 10% of my portfolio, 15% of my portfolio, whatever the number is, take that pretty what is the actual dollar amount that youll lose, what is the dollar amount that youll gain and you have to go through quite specifically, I would suggest, to come up with how do I feel about that? Because ultimately, uh, you know, we can talk loosely about it and uh, you know, but people oftentimes don't know what they're comparing it to to say, am I doing well or not? And how should I think about this? At least that's what I hear often.
[00:24:40] Speaker B: Times yellow say, yeah, and I want to circle back to the quote from Dave Ramsey. Yeah, we talked about, you know, your advisor should be doing more than simply picking the funds. I want to talk about something that maybe isn't the most exciting thing, but I think it's an important thing to discuss. I think there's, we all kind of have an idea of what maybe it means, but maybe we don't fully understand or appreciate what's happening when your advisor rebalances your portfolio. Why there might be a need to rebalance your portfolio and that's part of what you're paying your advisor to do.
[00:25:15] Speaker A: Great topic.
[00:25:16] Speaker B: Yeah. So I know, like I said, it's not the most exciting thing, right? But it's an important thing because, you know, changes in the market and we're seeing a lot of changes in the market, right. We're living through a period of high volatility in the market, but volatility can cause your portfolio to drift from your target asset allocation. And what do I mean by that? So like here at Guardian, we basically have ten portfolios. Now we have a number of custom portfolios and customizations that we've made for any number of clients. But for the most part weve created ten portfolios and they have varying levels of risk, right? They represent certain levels of risk and in the most simplistic way, you can basically define these portfolios as a split between equities and bonds. So for instance, our g 50 would have 50% equities and 50% bonds. But as the market performs in certain areas, certain sectors they do well, the target asset allocation can change. So like for instance, if some assets perform well, they become a larger part or a larger portion or percentage of your portfolio. And then other assets or other positions that you might have, maybe they perform poorly or maybe they just simply don't grow at the same rate. What happens is those assets or those positions will shrink as a percentage of your total investments. So when a portfolio drifts away from the target asset allocation, what ends up happening? If you look at your portfolio on any given day and you look at what you have, you might look at that and say, hey, that's more risk than I would want, or that's more risk than when I initially communicated with you. When you guys came on board, you guys became our clients. You communicated to us that you wanted to be in the G 50 or the G 60, whatever portfolio. The Guardian 50. Guardian 60, the G stands for. That's what you communicated to us. But based on conditions of the market, youre no longer in the G 50. Youre no longer in the G 60. Youre no longer as conservative as you hope to be. Or maybe youre more risky than you want to be. Rebalancing. What youre doing is youre realigning your portfolio with your risk tolerance, an overall investment strategy, what you initially wanted to have, what was appropriate for you based on where you are, the assets that you have, how close you are to retirement, what sources of income you have. Whenever we have that conversation and we initially determine the appropriate risk portfolio for your risk profile, rebalancing allows us to return to that. So lets say you started out with a mix of, I dont know, 60 40, 60% stocks, 40% bonds, historically pretty common portfolio, attractive risk adjusted returns for the most part.
Imagine the market value of your stocks grows, but your bonds dont. And over time, you ended up with 70% of your portfolio and stocks and 30% bonds. Well, to rebalance, we would sell some of those stocks and we would buy more bonds, enough to bring the percentage back to 60 40. And I can't tell you how many times we talk about that. There's any number of studies that show that overall rebalancing has a positive effect in your portfolio. But just intuitively, people look at that and they say, well, what do you mean? Why are you selling off the positions that have done so well? We've got a number of people that have just called in, even in the last couple of weeks, like, I, you know, I can name a number of people, a handful of them, that have said, hey, like, what are you doing? That's the one position that's growing in my portfolio, and you just sold it to buy the one position that hasn't been growing in our, in our portfolio. And, and I think that there's just, I don't know if it's just a disconnect of what it means to rebalance or maybe just there isn't enough faith in that process where sometimes we're chasing certain returns or, you know, based on what's happening, happening in the market today, you see a lot of advisors that are chasing trends. And what we dont want to do is chase trends. We want to make sure that whenever you make a decision, especially if youre in retirement or getting close to retirement and youve made a decision, youve determined that, hey, based on what I have, based on my goals and objectives, this is the most appropriate choice for me in terms of the split between equities and bonds. If weve determined that, then our job is to course correct whatever our portfolios is misaligned. I think its important to consider that. Ryan, any thoughts there?
[00:29:30] Speaker A: Well, I think one of the things that keeps popping up in mind here is that theres a difference in just your traditional stock broker versus somebody that does more on the planning side. And really, one of the important things to know is that how you invest what your portfolio is, and it really does circle around your risk tolerance. But understanding that, everybody can understand that, hey, as I get older, as I get closer to retirement, as I'm in retirement, I should probably scale back by risk, but not fully understanding what that means or the mechanics of it. Right. Well, a big part of that is that, hey, if you're 30 years old, 40 years old, 50 years old, really all you need and yell, say, you can chime in on this if you have additional thoughts, but really all you need is you need that, hey, my money's invested. It's growing, it's being managed, whether it's in my 401K or retirement plan or otherwise. And I keep contributing to it. That's the big key for success at any public figurehead, whether it's Suzy Orman, Dave Ramsey, Tony Robbins talking about money. Really, any of these public speakers on finances will all say the same thing and they'll give you tons of advice and tons of different ways to do it, all these different ways to budget, et cetera, et cetera. But ultimately, the discipline of saving and contributing is what gets you to the point where you have some of that success in retirement. So I think one of the big keys to know and to understand is that what's tied to that idea of, hey, I got to scale back my risk a little bit because I'm nearing retirement or I just started retirement, but its a different way of investing. Its a different way to construct a portfolio. Theres different ways to do it. Were not focusing on these two single stocks. Ill just use these because you mentioned them earlier. Ill say, im not going to focus just on Apple and Nvidia because theyre huge growth and theyve done me extremely well. We now need to focus on something that carries a lot less risk of volatility, which means different funds and different ways to construct a portfolio. Does that line up with what you're saying?
[00:31:33] Speaker B: And I really like what you said about it kind of all starts with saving and contributing.
We're not spending a lot of time on that in this podcast, but we've certainly talked about contribution limits in a variety of different types of mind.
[00:31:49] Speaker A: I'll say.
[00:31:51] Speaker B: But whether we're talking about IRAs, 401K, Sep, IRa, solo 400, we talked about different contribution limits. And it all starts with saving and investing and being disciplined. And hopefully you have something meaningful that can supplement some of the sources of income you might have in retirement, like pension income or Social Security income. And we know that everybody has pensions, and we've talked about creating a self pension for yourself. A few more things I wanted to add, too, that I don't want to make it sound like it's just stocks and bonds. We have a number of clients that use bond replacements. What do we mean by that? It just simply means that rather than having 50% of your portfolio, if you wanted to 50 50 50% in bonds, maybe part of that allocation that traditionally represents bonds, you've used other investment vehicles to fill that percentage of the pie, if you will.
[00:32:42] Speaker A: Right.
[00:32:42] Speaker B: I know that we're not even just talking about replacements, but even within the equity holdings or stock holdings, your asset allocation is probably on a more of a granular level.
We're not just talking about stocks. We're talking about potentially large cap, mid cap, and emerging market stocks. And rebalancing isn't just necessarily correcting the shift between stocks and bonds, but it could also mean correcting the drift from targets within those subcategories that I just mentioned between large and mid cap and emerging markets. For instance, by the way, if you're talking to your financial advisor, or if you're getting a second opinion, or maybe you're shopping or looking for a financial advisor, one of the things I would ask is, how do you rebalance?
From what I outlined, it might seem very simple, like, hey, of course, bring the portfolio back to my risk profile that I initially said that I wanted to have. But there's a difference in how you rebalance as well. The question to ask is, do you rebalance on a calendar based system or a trigger based system? And what do I mean by that? On a calendar based system? And a lot of advisors do this because it's easier. It's simple, right? You could just simply say, hey, every June 30, we rebalance our portfolio. So maybe you do a quarterly or maybe you do a semiannual whatever it is, you know, the pros there is. It's a lot easier to do that. It's simple to implement. We just have it scheduled. Right. The problem is, between those intervals, your portfolio might be completely out of sync. And the changes that happen between those intervals, that isn't the best way to do it because a lot can happen, especially nowadays in this period of high volatility, we can have significant drifts between intervals. I would say that if someone does a calendar based rebalancing, that wouldn't be my first choice, especially depending on how far apart those intervals are. The biggest problem with calendar based rebalancing is sometimes it's not appropriate. Sometimes you're doing it needlessly. But also you might be triggering unwanted taxable capital gains within your after tax accounts if you simply have it on a calendar schedule.
What we do at Guardian is trigger based rebalancing. We set up certain thresholds. And you can do this at any interval, or, I'm sorry, at any percentage. But for instance, let's say a specific asset class changes by more than 10% relative to its target allocation. Whatever you've determined, right. That's when we would trigger a rebalance. So we're more trigger based, have to have a significant amount of change within your portfolio, and we determine those limits. And we can change those limits, obviously based on what's appropriate for you. But that's what I would recommend. If you're shopping for someone to help you with your investments, whether it's a financial advisor, stock, anybody, and you're asking them how they rebalance, I would encourage you to find somebody who does trigger based rebalancing. Enough on rebalancing. Like I said, not the most interesting topic, but an important one. And obviously, it's more fun to talk about diversification, any number of other topics. But rebalancing is also very important.
[00:35:50] Speaker A: It, uh, you know, we, we find, uh, that a lot of the topics yellow say are like, well, this might not be an exciting, let's talk about taxes. Well, that might not be very exciting.
[00:35:57] Speaker B: Let's talk about, you know, as I said that, I thought to myself, I'm like, I don't know, you know, if we had to pick which of the topics are really all that exciting, I don't know that any of them are.
[00:36:07] Speaker A: You know, the interesting thing about it is that they may not be exciting, but they're the important details, you know? And for whatever reason, you and I and Trey, and we love the not exciting topics for our careers. But, you know, these things do matter and they make a big impact on people's retirement, their investments and their portfolios. But, you know, for our listeners, if you haven't heard from your advisor lately, especially, you know, upcoming on election, etcetera, or if you're nearing retirement and there's different terms for this, et cetera, some people call it the retirement red zone.
I don't know, it sounds a little, you know, cheeky to me, but I.
[00:36:51] Speaker B: Think double I've called it that. Come on, Ryan.
Settle down, Ryan.
[00:36:57] Speaker A: Oh, come on. Well, so here, here's the thing, is that, you know, it depends on, hey, how close am I to retirement or how far am I into retirement? And there's not a right or wrong answer here because somebody might be out there saying, hey, I'm 53 years old, it seems way too early for me, etcetera. But, you know, it all depends on what your situation is. We met with somebody here recently and they retire right at 55. He came in at 54 years old because he's retiring early. He thought, hey, I've really got to look into these things. I'm retiring from my main career. I kind of feel like I should probably keep working. I haven't figured that part out yet. But I know that I need to do something right. So for a lot of people coming in two, three, five years before they think they might retire, absolutely appropriate even, hey, I retired three years ago. I'm already on Social Security. I kind of feel like everything's already set. I've already moved my four hundred one k to an IRA. I feel like everything's kind of in place. Well, again, if you havent gone through to say, hey, whats my personal risk level, whats my reward level? And what is that compared to? How does that look against a benchmark? If you havent gone through those conversations specifically, I would encourage you to do so. I think its an extremely important part of managing your retirements plan. Obviously, you have a planner to help you manage the funds and help you manage when to pull from what account and your spend down plan and working with you to say, hey, you know what? If the market does well your first year or two of retirement, that sets you up really well. But then how do we plan for if the market goes the other way your first year or two in retirement? Right. We need to be able to plan for the expected and the unexpected, which sounds kind of funny to say, but you need to have some contingency plans and know what you're comfortable with and saying, hey, if the market goes south, am I okay losing XYZ percentage or XYZ dollars out of my portfolio? And thats something that is a hard conversation to have. We find that when the markets doing well or even just reasonable. Right. If the markets doing reasonably well, people suddenly get really, really comfortable and, well ask them and say, hey, what type of portfolio are you in? What's your risk tolerance? And they'll say, oh, I'm aggressive. I like to be aggressive. I let it ride. I get the gains. But the moment that we get a downturn and somebody loses a good chunk of money, whether it's on a particular day or any given week, et cetera, suddenly they're not quite as aggressive anymore.
We see that pretty frequently. I don't know if you still see that yell, say, but I know I do when talking with people.
[00:39:46] Speaker B: Yeah. A couple more things I want to add to this real quick.
I don't know if you remember back in 2008, one of the caption of the Star Tribune article, it said three out of five seniors are going back to work or staying in the workforce longer.
We talk a lot about the lost decade, but what do we actually mean by that? A real life example, maybe not a great real life example, but more of a technical example. So the s and P 500 on January 1, 2000, and I could be off by just a little bit. But I know I was trading at around 1469, right? January 1, 13 years later, the s and P 500 is trading at 1460, 913 years, where if you had simply left your money there from January 1 and the year 2000 all the way until 2013, where you wouldnt have had any kind of return on your investment, 13 years. Thats what were talking about when we talk about the last decade. Obviously, back then, you were still working. You were taking advantage of the market being down. You were contributing when the market was down. And youve actually benefited greatly from all the time that the markets recovered.
Thats just the way it works in retirement. When youre no longer contributing, can you afford to live through the lost decade, if you will?
As Ryan, as you mentioned, one of the first things that we often encourage people to do is make sure you're actually contributing, make sure you're saving for retirement. But once you've done that, there's a couple of things that you need to do. Now. We have a number of clients, people that we run into, where they've been through 2001, they've been through zero, eight Covid in 2020, when the market dipped, they've been through those types of recessions, those types of downturns. When the market retracts, they've been through that and they're not interested in any risk at all whatsoever. Then we have a number of clients. Typically these are people who, maybe they're fixed or guaranteed sources of income between their pension and their Social Security. Maybe that covers all their needs.
And they're a little bit more aggressive in terms of risk. They have it all in red.
So there's a variety of different personalities, different goals, different needs in retirement. My biggest encouragement to you is find somebody who can help you determine the appropriate risk tolerance for you, the risk profile for you. Find somebody who can listen to what your needs, what your goals and objectives are in retirement.
[00:42:16] Speaker A: Totally agree.
[00:42:17] Speaker B: And somebody who could put together a solution that matches that. Right. Because there is a solution that matches you specifically. There is no one glove fits all. And sometimes you find that there's any number of, I don't want to mention any companies or any advisors specifically, but there is no one glove fits all. You can't give everybody the same cookie cutter solution. We're all different. We all have different needs. Not only do we all have different needs and objectives, some of us have different preferences. And you need to make sure that whoever is looking out for you, whoever is helping to manage your specific investments, that they're taking the time to get to know you, and that the solution that they put together matches those preferences, those needs, those objectives in retirement, especially as like if we're going to inevitably have another correction, we're going to. Right. And the difference is you might be a lot closer to retirement or maybe you're already in retirement and that's what, you know, that makes all the difference where you can't contribute during those downturns to take advantage of them.
[00:43:15] Speaker A: Yeah, no, I totally agree. Yellow say. And as we wrap things up here, I just want to encourage you, if you are listening and whether this is your first episode or if you listen to all 23 episodes now, we're happy to dive in with you and we're happy to take a look at your plan, whether it's a second opinion, whether it's a third opinion, or whether it's your first opinion. A lot of you out there, maybe you're just trying to figure out, hey, what are my next steps and what should I, I do? What should I be planning for retirement? I think one of the big keys is always looking ahead to the future. And I dont mean future as in whats happening at the end of this year or next year, etcetera. But what are the things I can do today that can impact me in five and ten plus years? Because ultimately thats what got you to the point youre at today. The decisions that you made financially 20 years ago, 25 years ago, that, hey, I should probably contribute to my savings account, I should make sure im invested, etcetera. Those decisions got you to where you are today, and stewarding that well should absolutely be a priority. So we're happy to dive in with you. If you do want to go through a risk analysis with us, you can give us a call. Our phone number is 612-286-0580 you can email us. It's our first
[email protected]. the letter g, the word wealth.com dot. So ryan wealth.com yellase or treealth.com dot. We're happy to dive in with you and have a conversation. It's complimentary to have that conversation as a podcast listener. And we would be happy to go and look at that and say, hey, where do you land compared to some of these benchmarks and what does your situation look like, etcetera. So with that, as we're getting ready to close here, yellow say, any final thoughts or tips?
[00:45:06] Speaker B: Yeah, so we've actually, we've had a number of listeners who have reached out to us, not necessarily for a second opinion. Of course, we had those as well. But this is actually interesting where a number of people have had some topical requests. They want us to go over a specific topic. And, you know, obviously we're a little bit all across the board sometimes, you know, I don't know if it's just that our inability to keep, you know, focus and stay on track all the fun topics.
[00:45:31] Speaker A: Right.
[00:45:31] Speaker B: But we do have a number of requests that I just want to let you know that if you are listening, we are planning to get to those and possibly some of them.
Some of the requests that we've had, we've already covered those topics. So if you're looking for information on a specific topic, I'd be happy to just afford whatever podcast that addresses those topics. That way we can get the information to you. And also, I would say if you have any requests, keep them coming. We'll get to it. We're going to be doing this for a long time and we want to make sure that we give valuable information in any area that you have an interest in.
[00:46:06] Speaker A: Yeah, perfect. All right. Well, as we wrap up, go out and have a great day today, if you want to schedule a complimentary risk assessment or any of the other topics that we've looked at. Right?
Risk was a big topic for today, but really, we're talking about all the different things at any of our episodes. We're happy to reach out, or we're happy to have you reach out and discuss with us. So 612-286-0580 you can listen to us anywhere. Podcasts are available. You can check us out on our YouTube channel as well. But we thank you for listening and tune in next time. Have a great day. Thanks for listening to all things financial. You deserve to work with retirement planning specialists who care about your money and take a unique approach to your financial and retirement needs. Visit allthingsfinancial.com and set an appointment today.
