Seasons of Investment Diversification

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I'm really interested to see where this all goes the title of it is seasons of investment diversification so that pretty big words but nonetheless if we could think about that.

I've been a member of the Christian business men's committee, which is now difficulty BMC all over the place for probably 25 years and one of the first things that they taught us come in is that every man needs to have a diversity of friends are specifically three entities, interesting to friendly talk about three different kinds of investment diversification today, but serve the other diversification of friends. They said every man needs a Paul meaning somebody that's more mature in the faith somebody that you know has phenomenal biblical understanding of those kind of thing so it's nice to have upon your life.

You and I said every man needs of Barnabas which you know you might know Barnabas was the son of encouragement and somebody that simply eat you do life with them and in their no kind of your counterpart or whatever the iron sharpens iron County guy and then the third person that they felt like would be good and diversification for us would be a Timothy another word somebody that we could disciple somebody that we could pour into see had some. It was little bit younger than you in the face. I made it was about where you are in the faith in somebody that was more mature but as interesting as I was thinking about the today show how over the years there were different seasons of that right. So when when I became a Christian and 91.

I didn't know they want a lot of Timothy's.

It could get a lot from me because I had next to no biblical understanding and I'd done life really poorly kept it set in.

I wasn't just ready to do a lot of this hyperlink is and then a lot of discipling myself. I had a great deal more neat by Paul in my Barnabas was was good, but as is life is changed and and I've gotten older and older and all the sudden my Paul's new note they go into a different phase of life for their no longer pouring in the knees quite so much. But more just friends, but all the sudden know in this season, Timothy's are really nice to have around, to share, you know, things that you went through and things that you have learned in the Bible in your relationship with Christ in prayer and almost anything, so I would've thought of somebody asked me when is 31 yeah this can stay the same but it doesn't even come close to staying the same and such, it is with your investments right your management of them. How you manage your goals with your investments.

All that stuff changes over time. I was telling you the story about my youngest son is 22 and I really admire that he's got an interest in investing studying to become an engineer or she wants to start playing around a little bit in stocks and crates of investments and he asked me, and I'm very encouraging with S&E. He really like a lot of young folks. He's got a small amount of money and he's really putting a lot of energy into like what should I invest in it that's good is a smart kid will probably Monday.

If you be telling me how to do this stuff. John just thinking about it and I didn't really tell him this, I did the research gave him some encouragement. Appointment direction put in with some of the younger people that work with me in the business who he knows and just really thinking is it really doesn't matter what he puts again because the real effect for him and 22 is that he actually puts his $2000 into investments and he puts it into diversified investment. You can do that through mutual fund essays can be diversified right away is not can be diversified amongst his types of investments because he's not even really want to talk about bonds regional and spend two minutes.

Learning what bonds are anything that doesn't have the chance to going way up and probably shouldn't. 22.

He's got a lot of years to save this money and invest this money and enjoy the returns of the market.

So I really started to think about what is he let's say puts us $2000 and some growth stocks. What if he lost 10% going and what if he went down to 1800 bucks on losing 10% when you only got 20 g mature box and still big money to him. What is Starbucks what that's done is it's opened up the door that he can now buy stocks that used to be 2000 for 1800 bucks so that's almost a good thing for him because if next year's got $4000 to invest in all of his new job he can buy you can invest more money at lower rates is ultimately this money is going to be where it is 20, 30 years from now and it's can be, and the lower he can buy the stuff that you can almost make a case of reset here and talk law that would be a good thing for him to lose 200 bucks in the next year so right in that many other things going on since his young man. He's continued to contribute is what did that that that that's the key to the whole thing is the contributions over time.

And so when we talk about diversification just within stocks.

What were doing here is were saying units, like the old thing your mother, your grandmother told just don't put all your eggs in one basket.

Don't go by one stock or two stocks. Diversification says that in the rules log people written as you need more than 20 in a portfolio to be properly diversified so they can put all the risk factors on they haven't got a get that big. And so if one of these goes way down or goes out of business is not can be devastating to you can make it up with the rest of that's diversification within stocks and you can get that by buying from a fund going into an ETF. And there's lots of ways now is an ETF's are just exchange traded fund okay okay there there actually what we use to buy. There's some comparisons to mutual funds but you're buying a whole basket of stocks you spreading your risk out in getting your investment return of a whole list of stocks in either a mutual fund or an ETF something of the sort within your 401(k), your diversified in your stocks just by the fact that the only I didn't let you buy individual stocks unless it's the company that you own the company you work for sometimes will have a way to buy stock of them, but for the most part you're investing in funds which is diversified because it's across a whole lot of companies and then it's across industries. It's across continents. It's across the US euro. Emerging markets China and six cents. A diversification just means that your in a number of things that are somewhat the same, and they behave differently so it's something that you want to do.

But that's just within stocks and so we start talking about people at retirement differently. Your older arms on the complete opposite of what your son was at that point, not unlike the Timothy thing that you no longer contributing possibly right sure, and so that makes a huge effect, plus you lose 10% and it is no longer 200 bucks. Lou tell you about the typical person, okay oh read no books read my book just however they lead us and then they decide, okay, so where were one to do a financial planner retirement plan help us prepare for retirement say the typical person. Most of their money is still in a 401(k) most of their total financial assets now.

Soon everybody but a lot of them we start adding up what they have in terms of money is still in a 401(k) and most of them have done well without 401(k). Was it would become an end's that may not be several million dollars, but I consider doing well. Somebody's got to three, $400,000 in their 401(k). They've done well and it is certainly welder them in little bit scary. A lot of people are just like that man.

I get that much money you have a 401(k) plan. They pry wouldn't have that much money so most of them has spent little energy doing their 401(k) by design, but really they don't have a good long explanation of how they got to where they get to it really doesn't matter because I'm not looking for that my clients. It just is what it is, just by the nature you coming in here. You now are you are you bringing the decision us in your sand. I want to make this right for my retirement and most of the time they got way too much money in stocks, given the season. What I mean by that. A lot of them are 80% stocks 90%. When I put all I asked questions loves all those bond funds are just paying nothing and I don't want those okay you know and then I see you got some money in the cash account.

Yeah, I try to keep that low. That's pain even worse than the bonds of this. Next to nothing. Now the stocks they been doing great okay and they have an you you know it's it's hard to argue with success and what a lot of these folks forget is they've been contributing this thing every year since they joined the plant number is 2034 years they've been putting in money every year. Substantial money and that's one reason it's gone up and up and up and up and up and then their company matches some of that that's even more money going in has nothing to do with the investment performance and then over the last 12 years made a lot of heroes out of people. A lot of investment pros and me. If you through some money in the market in 2009 which most of you that have had a 401(k). That's 2034 years old you had X amount of money in 2009 and that's grown to one of its double or more so when actually your 401(k) might be 300% more because you've contributed, and then whatever money was in their has grown substantially because the market is just consistently up and up and up and up about five so you coming to me and usually your expectations for investment performance are too high so we really need to got a break here in the sack and so will pick this up, but I want to talk about diversification, stay on the title and it's really diversification and risk management in helping people get to a place that will be good for them so they don't have to live there retirement looking at the TV and newspaper and whatever else and just being with the stockmarkets doing every day and then worrying about bad things from the market. This know where to spend your retirement come back will be have more on right seasons of investment diversification. Now it's all about creating that income. It's all in Johnson's book the complete cargo guide to planning for and living in retirement. Barrett Cardinal guy.com comments and I'll contact Tom and Cardinal guy.com someone come back somewhere fancy farming. Hans and I would love to take our show on the road to your church and Sunday school Christian or civic group.

Here's a chance for you to advance the kingdom through financial resources and leveraging Hahn's expertise and qualified charitable contributions veterans aid and attendance IRA Social Security care and long-term care. Just go to Cardinal guy.com and contact Tom to schedule a live recording of finishing well at your church Christian or civic group.

Contact Tom to Cardinal guy.com that's Cardinal guide.com welcome back to finishing well certified financial planner Hans Schild today show were talking about seasons of investment diversification in you know I let I find it fascinating, really. Some of the things that that I've learned that could happen just within that 401(k) we been talking about for one case here for the last few minutes that really you kinda can get the best of both worlds. When you understand there's other products available and then just cash or bonds or some your typical 401(k). Like I said most people that are in their 60s come to us her late 50s and were to give different advice to the late 50s people that are going to retire for a few years and we are the 60s people than we are. The mid 60s. People are to retire in a month and almost people are going to different advice because we personalize so whenever I generalize. Don't think that you can hear a parroting of that if you come and see us. So the people that are in that general so there there either at retirement or their approaching it and there to show us their money once they hire us and get out all statements and just generally speaking most of their money is in their retirement accounts and then secondly of the most of the money in the retirement accounts. Most of that is in is in stocks and then the other two alternatives are either bonds or bond funds in cash and then a lot of them will have some type of a full fund for alternatives so that if you wanted to put some money in oil or coal you when there's a call for that to put 4 to 7% of your money when you're younger and there are some reasons in management, but let's just stick with bonds, stocks in cash and most of them have more money than they should for a person of their age in stocks and then that also has created high expectations.

So there just thinking you know, 8 to 10% years really what they need to make in some of them are just conservative enough to seven and you know and then there's a lot of places put out financial plans that just show 7% every year from now till your hundred and stock market returns just don't work that way and just what I would just say is, is that for somebody that's been invested mostly in stocks. They've lived through the last 12 years of growth in the market every year and then added to that they've been contributing. Not really doing the math just makes their investment returns. You put those two things together. It just looks like the thing is. But up and up and up and up up up up and that's really what it's done. But now when retirement hands you're going to stop contributing is your be drawn Social Security in maybe delaying that and you're gonna stop contributing and then you might start distributing or pulling out money to live on your retire so it's a whole different picture in it. Also, when you stop contributing and even for this person.

That's 58. This is coming to us in there. In this situation and they tell certain retire at 65 and seven years. Will there just assuming that their account is going to go up from 58 to 65 just like it's been going out and then there have even more money at 65 and that's already there, calculated that and that's with the base and the decision of 65 so a lot of what we need to do with clients coming in is level setting is just working with their expectations and you know showing them how well they've done and then showing them how well they're going to do because this doesn't have an unhappy ending assignment.

They may have high expectations of returns, but they may not understand everything that's available for them.

Retirement like Social Security. When you add up.

If you're married to her to Social Security checks as a base. Maybe if you're lucky enough to have a pension or some other savings or you're gonna do some part-time work coming this retirement savings is not to be like 100% what you live on for most people. First good news than those taxes so what when I really spend time with people and asking a lot of questions.

I really find out is I want to lose nothing on my investments. I want to pay is low taxes as I possibly can and how much I make on my investments. It's kind of important.

I want the people that are managing it.

If it's us to do a good job but you know what we really sit out look at house I can change their life had a windfall stocks and when you slip a lot of retired people not very much so when you get into the season of retirement.

What you really want is predictability, safety, security, regular income, you you want to make spending patterns are in such a way that you don't spend your money down so much that you run out of money when you get older you want to make sure you know if you die that your spouse is in a good position with the savings and with the retirement income so people's priorities change. If they don't change then that's a lot of what the process is just as people a lot of questions so we get into diversification. Several houses all tieback to the subject well because bonds are paying such low interest rates now. I don't know if you've even looked at that you look at your 401(k) statement or the part that you do have an bonds go back and look at that and just look at those bond funds and see what can interest their pain and its it's so low and look what you're earning on your cash portion of the members got some cash in there you can find it is you're getting earnings in your 401(k) most of its coming from stocks and that's a lot of reasons that people say what from what you tell me is to diversify my investments and to diversify more bonds that those returns will Like your cash right now is like .03%, 1% is 100 on cash you really got be somebody to get this it's 3030 real .3%. So I'm getting on my cash that the credit union and my wife read that and she said to over get 30% on the solar house was okay. You know what removing this into our life insurance policy which we can put a lot of money in there and it's actually paying 3%, which is wonderful on money that's available but just mean it. It is very low and that's not because you have a bad mutual fund or somebody's bad are the people of the bank is just interest rates are your is close to zero. Is there ever going to be in and I think on some of that federal money that there paying that they loan they are zero. So just an extremely low interest rates, for this is probably the worst time to tell people you know you need you need to get this 85% that you got in stocks. We need to get that down to at least 60% by the time I really explain this to you. You may want to go lower than that for them.

The problem becomes what we diversify into if it's just bonds, but that's the only choice we got together that's what really do sometimes is getting your own money back after a bed.

His plus a teeny bit is maybe not all that bad, and so what we do in our practice is we open up annuities and life insurance cash values is a couple of other alternatives that were not taken all the money was in stocks rolling all over into an annuity, not at all but were were looking at when you need the money.

When looking at the returns that were getting on bonds were finding that we can do better than that in annuities and perhaps several annuities that do different things and were able to get the guarantees that were known to lose money we get the safety and yet we get through promises some returns from the insurance company so we open up more choices to diversify, but nonetheless is just just of your investments. You need to diversify and then run the ad is like the home you're sitting in her living in that's real estate investing diversification like if you own your home outright. You're close to outright arena pay it off at retirement. Then that's a diversification because it's real estate deal that it has a value business can be diversification, so if there's like I own my business that you could make an argument that too much of my money is tied up in my business okay so I I need to diversify away from that. So this applies over over a large area, it does. And it's a different season and you know I think about that even you know, from a farmer when it comes in time for harvest, which is, where you are in retirement you know is no time to pour the water on the crop yield. Mike brought right well yeah and so is no time to throw out there and go global risk of much money because it now you don't have the time to make it back as well as you're not making the contribution so it gets it's a different season from a standpoint of its it's time to harvest and figure out how to maximize the power of what you worked your whole life.

Some of the simple rules of thumb is you take 100 minus your age. What's left. The result is that your investment portfolio to be in stocks so if you're 6500-65 is 35%. Sorry. You know was just one theory.

Somebody like my son is 22. If you take 100-2278% okay and you don't have to stick right exactly to these rules of thumb is pretty smart when somebody's 80 years old. Take 100-8 is 20%. So it's it's designed to start pretty low at retirement and go even lower over time. And that's one of the reasons that party your money into an annuity or strategically into a life insurance policy where you can withdraw the cash values as their guaranteed and are backed up by the insurance company then they have tax edges.

All those things if you just got a cardinal guide.com Re: picked up on his book the complete cardinal guide to planning for and living in retirement course it's at Cardinal guide.com and as always were so grateful that you spent this time with us today and by all means reach out to cardinal guide.com and Ascom to question some you might want us to cover or listen to podcast for lots of previous shows there is we continue to attempt all finish well. Thank you. Thank you. We hope you enjoyed finishing well brought you by Cardinal guide.com visit cardinal guide.com for free downloads of the show previous shows on topics such as Social Security, Medicare and IRAs, long-term care, life insurance, investments and taxes as well as constant best-selling book, the complete cardinal guide to planning for and living in retirement and the workbook once again for dozens of free resources past shows get Hans book go to cardinal guide.com if you have a question, comment or suggestion for future shows. Click on the finishing well radio show on the website and send us a word. Once again, that's cardinal guide.com cardinal guide.com this is the Truth Network. One of our generous sponsors here.

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