Keeping it in Context

Welcome to another edition of Mr. Stillman's opus oversold here with you this week alongside the man of the hour or maybe the next 10 to 15 minutes. Really, I was more must be you worthy of being a man of a full hour.

Well that's what I came up with 15 minutes of fame is just good to have it like every other week. Perfect for your time were talking on this week's podcasts about keeping things in context. In particular, your accounts, keeping them in context and the idea behind this podcast is to make sure that were not kind of getting fooled by what our accounts might be doing keeping in mind of like why were doing what were doing one were investing Johnston to make that picture clear for so as an example, a lot of people right now could not be more pleased with their 401(k). They check maybe online every couple days and now they get those monthly statements in the mail things could not be going better check line once a week. You know I probably should do it on a consistent day but I kind of just you know whenever I get a couple of free minutes. Usually it's once a week out checking to see what they're doing last couple months it's been like every day.

Let me just check and see.

And so what happens is when the market is doing wonderfully, as it has for the last three months or so people trick themselves into thinking you know what really have this investing thing figured out I'm a genius now-I'm really gotten the hang of this.

At age 61.

Well, the problem is two things with your 401(k). If you are indeed invested in a way that's sort of mirroring what the markets doing then yes your accounts way up right now, you probably are tickled pink at the same time. Also keep in mind you're putting money in that account and so a lot of times you're just looking at the total dollar amount growing blood so you're maxing out a 401(k) that's $2000 a month.

If you're over the age of 50 Cuba $24,000 a year and that accounts of your maxing out if you got an account balance of $500,000. Let's say in your adding $24,000 a year plus getting growth.

Yet, it really does look like your account is skyrocketing, but let's keep in mind was going on there. If you're really seeing that significant growth in your tickled pink right now. What that actually indicates it was… Kind of counterintuitive, but that could indicate that you have a problem because it it could indicate that your your account is behaving as the market as a whole was doing. It probably shows that that's how you're invested and so if your way up. When the market is also way up. If you're in your late 50s early 60s. Let's say that could be a sign that you have way too much risk in that particular accountant doesn't have to be your 401(k).

It can be an IRA, or any other investment that you have that could be problematic if your way up because the markets with all the other hand, there are people who come in and they're really unhappy with their account, whether it's a 401(k) or maybe they're working with some other advisor and there's a lot you know this. This just isn't getting any good return. Right now, and I don't understand how you doing poorly with the markets doing great well again we have to keep in context, if you're 63 and you're retiring next year and you need that money for income. The day you retire. We don't want that account. Following the bargain right so the fact that you only got three or 4% on it last year is a good sign because that means it's not correlated to the market.

So if and when we have a market crash and want to be the guy who says it's coming tomorrow, it could it could come next week. It could come to 1/2 years from now.

I don't know. But the point is you need to think less about when is the next market crash going to be and how do I position myself against it. It's more a question of okay the market crash could come at any point based on the timeline until I need this money.

How should I be invested if you need the money in a year or even five years. We pretty much want to pretend like there's a market crash coming tomorrow whether he does or not and if you need the money in 15 years. Who cares what the market by tomorrow. It's okay to come to be in account this behaving that way whenever that's where I was going to take this in a while were keeping things in context is let's not view and I think this would permit me. I would identify is a common problem for a lot of people with my vast knowledge of the financial world being your interviewer. Of course each and every year on the show but I would identify this in.

That's people often view their investments. You know whether you've got a bunch of 401(k)s or IRAs were lots of both, all combined you view your million dollars, save for retirement. All the same people never are really able to segment out the fact that they should be invested differently. So one of your accounts. I think this is what you were driving at. You can be jumping up and down excited about maybe that IRA because that's allocated for something you're going to do 15 years from now whereas your 401(k) you're planning to use that money as soon as you retire. So that's the thing that you should be almost disappointed that you're not keeping pace with the market right now, but you should also be happy with that. So let's use a real-life example, a couple of real-life examples actually set a client about a month ago who got his end of 2016 end of year performance statement for his IRA that we manage. He got like a 3.2% return for the year on that account and he's comparing it to his 401(k) and he sent out. I don't understand how you can only get 3.2%. Look at the market did in 2016.

Especially thing in the year how Julia 3.2%, but then we had to put it in context. Look at your plan you're retiring three years. The first money that we use in retirement is that IRA will use got 3.2% is very bond heavy. All were really trying to do with that account is keep up with inflation and we have a 40% downturn in the market. In order to get in this other account, probably about 3.2%. That's how it structured that's the point of it to be slow and steady on the other hand, when we have that market crash.

He's been going to be very unhappy with his 401(k). So again, you just have to put in context. What is the purpose of this money. When do we need this money. Therefore, how should it be behaving right now and you just can't get too caught up in what's happening in any given moment you look at the bigger picture. Yep, that's really key, really important to remember and it's a great discussion on keeping things in context with your accounts and then the other example was a situation where you basically this was a couple who they're still about 10 years away from retirement different picture than the other guy yeah and so the still of the account that we managing for them is the first money that they're going to use in about a decade, so it's kind of moderately invested right not a huge risk is not following the market volatility is muted a bit compared to her 401(k) that she's managing our own.

It is essentially following the market because the way we set up their plan is.

She needs that money in about 20 years. She's 52.

She doesn't need that money until she 72 so again it's fine if it follows the market in that case well. She was also unhappy with her 2016 performance in the account that were managing because she was comparing it to her 401(k).

So again we just have to step back and look at the plan and this is why we map out the plan so we can see the different silos of money basically and it's you know this is our five-year money. This is our 12 your money. This is our 21 your money once you remind yourself, okay, when do we need this money that then clarifies how should be invested but ill. It's just so easy to get caught up in the moment and interest to play like devils advocate here John I example that you gave the guy that's three years away and is looking at what the market did last year and the fact that he only got 3% in that account, you're kinda miffed that is hindsight's 2020 and you know the contrarians and say well if you had been invested more aggressively look at how much more growth there would've been and how that would've changed lifestyle, but you gotta flip that on its head and say okay great. Whenever faced with the same decision this year nagger two years away from retirement sure week we could have another big run up this year. Do you want to take that risk. Again, it can't look back in the situations you gotta look forward and that's the thing the will putting a plan together. It's based on with the money that you have now and the money that you're going to contribute for the remainder of your working years. If you're still working along with the income that you want to have.

Once you retire. What were trying to do is invest each dollar really with as little risk as possible.

Playing the what if the what if game yet invest with this little risk as possible to get us to the point that were trying to get so if we can invested in an account that's not very volatile that we might get 3 to 5% a year on over the next decade and that's enough to get us where were going to go. What most people are going to want to do that. You take the known commodity right. Go ahead and invest in a way that's not very exciting but again, to go back to the Will Rogers quote that we talk about all the time. At some point in my life.

It's not about the return on my money.

It's about the return of my money. I need to get a poster of that in the office can't say it enough.

It's such an important concept and so you're exactly right. We can't get too caught up in hindsight because that's really the only way to know the right answer. All were trying to do is get from point A to point B with as little risk as possible and inevitably somewhere along the way. That probably means some segment of your money.

Some segment of your portfolio is not doing as well as the market, but that's by design.

Will Rogers also said by the way that everybody is ignorant only on different subjects.

That's also true, worthy of printing out, let's get a whole wall for Will Rogers quote we should over to do. Probably a Will Rogers podcast of these days I'm down will offer a different quote statue and you can tell us what they mean financially that is not all of his are related to financial information, I may really Will Rogers blog post at some point I can't remember. And I'm sure it's minute appearance on a radio show absolutely sucks. It's time to come rent for the podcast one last thing. Will Rogers said was, even if you're on the right track to get run over if you just sit there so this is the information today and if you realize that you're taking too much risk in your portfolio, don't just sit there, you're gonna get run over come and have review with John Stillman, if that's what you need.

Maybe this was our little Rogers podcast and looks like it turned and certainly the telling I will wrap it up and that this is been Mr. Stillman's opus. Thanks for joining us for John Stillman, personal document expedition