6 Principles for a Solid Investing Plan

How do you forgive the debt, particularly when he's a grandfather.

My name is Brian Dolan post of the brand-new podcast called the grandfather effect. This podcast is five years in the making, contains interviews, ponderings, and restless with my family, faith in what forgiveness really looks like in the face of generations. If you listen carefully you'll hear more than a story about my family, you'll hear a story about yours streaming out on the Moody radio app and anywhere you listen to podcasts 21 5000 steady plodding brings prosperity, hasty speculation brings poverty. That's one of the most is about investing with good reason, lays the foundation for a successful investing plan today I will talk with Mark Miller about six principles to help you get there minutes of your calls at 800-525-7000 805 five 7000. This is moneywise live investing where they've had their noses to the grindstone, trying to keep track of today's highly volatile market today. Well, another one of those days.

Mark welcome back to the program back with you so mark to say that folks are a bit antsy about stocks and bonds these days is an understatement, but the SMI newsletter has an article with six principles to help us keep a level head in turbulent times. We certainly need that right about now and you start out with a great analogy about investing.

So would you share that with us to begin absolutely saw this article begins with the idea that investing is like riding a roller coaster while wearing a blindfold so you can't really tell when a steady incline is about to give way to a big decline and while my kids seem to actually enjoy writing real roller coasters. There are very few investors who have enjoyed the type of volatility and ups and downs that the markets thrown at us. So far this year. Now, unfortunately, there really is no way to make volatility completely disappear. It's just an unavoidable part of investing. For most people, but you can stay steady through those ups and downs by using a well defined and disciplined investing strategy.

Now there's knocking to be one magic bullet. No silver bullet here a single strategy that's going to be right for absolutely everybody by every good long-term strategy incorporates six core principles and that's what were covering in this article. Looking forward to that because we always need to be grounded. I love the idea of a well defined and disciplined investing strategy and six principles are something we can all grab hold of. So when you want to start yeah well the first principle Rob is that success doesn't come from hoping for the best but rather knowing how you're going to handle the worst and what we mean by that is that since these market downturns are an inevitable part of investing.

Your plan needs to account for that in the best way to do that is through diversification that simply means that were purposely selecting a range of investments that march to the beat of different drummers when we do that when we hold these different types of investments that tend to respond differently to economic events and help smooth out the overall volatility of the portfolio.

So the hope is that while some of your investment to investment their zigging others are going to be zagging and a lot of the modern investment business is built on research that shows that there actually are ways that you can combine these various types of assets in in ways that reduce risk without sacrificing a lot in the way of returns certainly encouraging wide to greater risk than you have to accomplish your goals and objectives are.

It was principle number two. Yeah, it's that our investing plans need to have clear cut easy to understand rules and the more specific and actionable. Those rules are, the better because what happens is if your rules are not very well defined. It's hard to make decisions quickly and with a lot of confidence. So for example if your plan calls for say significant investments in small company stocks. While we would say it might be better to find that a little more clearly.

Maybe it should say 30% of my portfolio will be invested in small company stocks. That's really straightforward. It's very measurable.

The others kinda wishy-washy and open to interpretation so that that's the next principal. There yeah that's really helpful and we need to have a plan that brings definition to what were trying to accomplish. And when things get turbulent like they are right now that's a whole lot just to go back to the planets okay doing this because it's well thought out. It's in line with our goals and objectives and we can ride this out in mind you don't have a loss to you sell something otherwise is just a loss will continue on these principles just around the corner with executive editor of sound mind investing good friend Mark Miller will stick around and then later your phone calls on investing 525 moneywise live by God's wisdom to your financial decisions joining us today. Our good friend Mark.

Sound mind investing in looking at a recent SMI newsletter article around six principles to keep us levelheaded in turbulent times. Another roller coaster of the stock market today. The Dow Jones ending positive around 50 points a big selloff again in the NASDAQ though down over 2% on the day led by a lot of the social media stock selling off the wake of a warning about earnings related to Snapchat.

Well, it's just another day in the markets right now Marco Bill are taking us back to God's word to sound biblical thinking so we can weather the storms with a well thought out strategy that's intentional and disciplined work, just before the break, you shared that first principle, which means which says that success doesn't come from hoping for the best but necessarily but also knowing how to handle the worst and that's really key as you build your portfolio. You also took us into principle number two is that we need to have clear cut easy to understand rules and if we have those rules in place, like how much work and invest in small company stocks versus large-company. Well, it helps us to stay the course in the midst of the turbulence tell us what the third principle is now principle number three is that your investing plan needs to reflect your financial limitations. It's really important to never ignore the words higher risk because those mean something very important that there is a greater likelihood that you could lose money and every day. People who think it'll never happen to me. Find out that it can indeed happen to you. You know big picture Rob investing isn't some kind of a game where the gains and losses are just a way that we keep score in a money is not an abstract thing for most people. For most of us it represents years of working hard and saving our hopes and dreams and having unexpected financial losses can be devastating. So a good investing plan is going to help ground us and discourage us from taking risks that we can't afford, so getting really practical here because I know it's something that both SMI and moneywise focus on your top financial priorities need to be getting debt-free and building an emergency savings reserve because those steps are going to build the appropriate foundation that make you financially strong enough to be able to bear the risk of loss that always present when you're investing now course, there are some exceptions to that, possibly contributing to the workplace retirement account, especially if your employer is matching your contributions course most people are going be working on paying off their mortgage while they're starting their investment journey, but it's really important to get the steps in the right order and reflect those financial limitations in such great advice and clearly you mentioned that the employer match. You don't want to turn away what is essentially free money.

You want to take full advantage of that.

If you can forget the principle number four. Let me just remind you we got some phone lines open today Mark Miller here and can take your calls and questions on your investing. What are you thinking about related to your portfolio.

Are you concerned about the decline's considering repositioning your assets. You want to talk about the economy. I will take questions on those topics here in the next segment we love to hear from you. 800 525 7000s of recall. That's 800-525-7000 questions for Mark Miller, Mark principle number four yes number four is that your investment plan needs to keep you within your emotional comfort zone so you know on take on a strategy that's gonna rob you of your peace or take you past that good night sleep level because if you do, you're likely going to bail out on that strategy. Eventually, and likely at the worst possible time. So the amount of risk you take needs to be consistent with what we call your investing temperament. Your season of life and that's really why some sort of risk assessment process is usually part of the startup or onboarding process when you're working with an advisor or with a service like what SMI provides. Now that's really helpful. Losing sleep over your investment account leads to bad decisions. I principle number five yes number five is that a solid investment plan needs to be realistic regarding the level of returns that you can reasonably expect you over the years we've occasionally had people ask us to recommend safe investments that will give them annual returns of 10% or 12% or more than that, sometimes.

And you know, if I say they mean that there is little chance of losing money on those investments. There just really aren't many if any investments like that investments that are safe in that sense typically pay a lot less than 10 to 12%. Now you and I Rob have talked recently about how the recent spike in inflation has actually created a rare exception, and that I bonds, which are currently yielding close to 10%, but that is a rare exception. Indeed, because return and risk are usually very closely linked in investments that offer higher rates of return typically do so because they have to they have to offer these higher rates return to entice investors to take on higher levels of risk, so the principle here is you want to incur the least amount of risk that's going to get you to your financial destination safely. Obviously, we see when you talk about high risk investments that brings up the topic of these really speculative investments. The most recent flavor of which is crypto currencies.

I recently read Mark the majority over 50% of people who I currently hold them or holding the metal loss because so many have rushed in the last two years and obviously we've seen a recent selloff, but that would fit into this category would absolutely yeah that really is the tip of the spear when you're talking about risky investments right now but would like you mentioned just a moment ago Rob, you know you can go a little bit down the risk ladder and hit these tech stocks and a lot of these text Onyx are down 40, 50, even some 70 and 80% so it's not just in the super risky crypto staff were actually saying that was some of the more speculative stocks as well yeah Mark when we think about this kind of their market testing your portfolio finding percentage at which you would be able to weather it without losing sleep or making a dramatic change for the typical 70% stock 30% bond portfolio.

What level of downside. Do you need to be willing to weather is 2530% more.

What is it you know your investment time horizon.

That's going to have you invested for a decade or longer than history tells us that you're pretty likely to run into one of these bear markets.

It's going to take you down at least 30% in the last 22 years we've had to bear markets that went down 50%. And yet if you look at the long-term chart you up up to the from the lower left of the upper right of the chart.

In spite of these big periodic declines. Stocks have come back but you need to be present to win against standing in the game very, very good. Well will come back and continue to unpack these principles principle number six, just around the corner and you questions for Mark Miller.

What's on your mind related to your portfolio, your investments, your future when it comes to rolling your assets. Talk to you today.

We got some lines of 800 525 $7000 but will be right back with much more just around joining us today and moneywise biblical wisdom for your financial decisions. Rob West today, Mark Miller, executive editor soundbite investing were talking about biblical principles of investing in how we can stay focused on our long-term plans and strategy in the midst of turbulent markets drawing from biblical and sound financial principles.

Lots of calls coming in for Mark Miller related to investing. So before we impact principle number six. Let's add to the phones will begin today in Pompano Beach, Florida, rose any thank you for calling Greta Coley so I know I which an email for any lady for ally 8.5. I just want to know questions that you need to have percent annuity thoughts. It does sound pretty pretty good there is any idea little bit skeptical as well. The thing that you really need to watch out with with annuities typically is that they tend to charge high fees, and so that that's usually the first thing that I caution folks about not that they're inherently bad by any means.

It's just that they tend to be very expensive ways to accomplish whatever it is they're trying to accomplish. So you want to look at that very carefully. 8 1/2 would certainly be higher than I would expect in the current environment.

So I would definitely proceed with caution.

I don't know if you've got some sort of CPA or financial advisor that might be able to look over that with you to help you make sure that that that everything is as it appears there but I would be a little bit cautious Rob what's your take on that yet. I would totally agree. I think what you're looking at. There is a variable annuity.

Perhaps the recording maybe historical averages challenges. Although there may be a downside for to it was some protection to give up on the upside, a portion of this of its variable annuity and that's why to Mark's point.

I'd rather see you keep access to your funds put a well diversified properly allocated portfolio together for your age and risk tolerance and invest that way with wise counsel and investment advisor, but if you want to transfer the risk to an insurance company for either guaranteed return or at least a return where you have a guaranteed limit on the downside, just understand what you're getting into understand what it would take to get access to your money if you need it.

Through the surrender charges and penalties and read the fine print which is why to Mark's point, you need a competent financial advisor looking that over with you and perhaps providing some other alternatives. So I go slowly and get somebody to help you analyze that and make sure that it's the best solution for you rose any thank you for your call today at the Kansas City, Kansas.

Brian Greta had with Mark Miller hi Brian, hello, thanks for the call on all and I'm trying to put away money for my wife little younger than me so we been saving away how the court then my family died in had some inheritance so jump this ahead by quite a bit and so were ready to approximately hundred 50,000 more and was just wondering when would be, should I wait a little while. Let the market drop more or should I go ahead and just jump in.

Yeah Mark, this is a great question is when you're sitting on a lump sum is significant is the amount Brian is talking about. That's essentially all in cash. How's the best way to approach deploying that in good markets or bad, that is a great question, Brian. The other a few different approaches you can take there's no single best way to do this, you know, one would be of course and investment service like SMI has were to have very specific ideas of when is a good time to invest when we are shifting from one asset class to another, from cash to stocks back and forth so were going to be offering very detailed specific advice on that sort of thing, but that type of services and for everybody.

And so for somebody who is just trying to handle this on their own and and wants to. Maybe they're trying to make decisions in their 401(k) were a situation like you've got and I would just encourage them that it doesn't have to be all or nothing.

You don't have to decide to put all that money to work all at once and one way to kinda spread that risk a little bit is to potentially split that amount into smaller pieces and deploy that gradually. That can certainly be a lot easier emotionally now.

Financial aid. Typically, the market tends to go up over time.

So the odds say the sooner that sooner is better to deploy the money but I have always found that for most real people. The emotional side of that is much easier. It's splitting that up into a few different pieces so one idea Brian might be to take that and divide that end, I say 3 to 5 chunks and maybe put in 1/5 of that every other month or something like that.

That way if the market does keep following you feel like you're taking advantage of those better prices and you haven't put it all in. Right before something bad happens to the market so that that would be my suggestion there just from an emotional comfort standpoint to actually take action because that's really the most important thing that you're not sitting here a year from now with the same decision not having done anything just 30 seconds before the next break I think the big idea what you just said and I totally agree. As you have kind of a rules-based approach to how you going to deploy as opposed to trying to pick the entry points based on when the market hit its low point right really try to pick the low is really exactly right.

By the way, if you want to learn more about SMI go to soundbite investing.org about all the market is asking to stick around for one more segment is open 800-525-7000. This is moneywise live right. If you dealing with this today. I moneywise live with talking with Mark Miller about six principles of successful investing. Plus your questions.

Let's have right back to the Lewiston Idaho patients you're on with Mark Miller and learning more about corporate bond and if you think they would be a good investment. Yeah Mark your thought on corporate bonds. Yeah. So corporate bonds are definitely one of the asset classes that we are vested in really all of the time as part of our our portfolios. It it's hard to say that a particular investment is as good or bad, because they all tend to go through cycles right so that particular investments at particular points in time summer to be better than others. What we've had so far this year. Shirley is we've had interest rates really spiking higher in a rapid fashion as investors have finally started to believe the Federal Reserve when the Federal Reserve has been saying we are going to raise interest rates to fight this inflation problem. So the first rule of bond investing Shirley is that when interest rates rise. Bond prices fall.

So what we've had so far this year is rising interest rates, which is led to falling bond prices and as a result all types of bonds, including corporate bonds have had a miserable first half of this year. One of the worst and several decades actually now the question is, of course. From here, what is likely to be the path for corporate bonds and that nobody knows the future so you can't give a firm answer to that by I would say that in the paradoxical way that risk works in the markets. With all of the bad news that has been priced into bonds so far this year that actually some of the risk in bonds has actually now decreased relative to where they were at the beginning of the year and that's natural they fallen in price and as a result, they are less risky now than they were at the beginning of the year. Does that mean that they can't fall further. Absolutely not. They certainly can, but I am personally feeling better about bonds today than I was, say, a few months ago and that is largely because they've already corrected now quite a bit so within corporate bond. Shirley will find that there's another big distinction and that is the length of the bond so long-term bonds are going to be quite a bit more risky than shorter term bonds and typically the way that we handle all of this risk in these various risks is that we diversify through bond mutual funds, so there are any number of those we like Vanguard's bond fund simply because they are there. There well diversified their low costs of the expenses are very low on those and so we will typically mix short-term bonds with intermediate term bonds as part of our bond allocation and then we add to that through some of our actively managed rules-based strategies so I would say Shirley that corporate bonds overall great choice typically can be fairly safe. Now course, there riskier ones and safer one so you want to pay attention to the credit quality there as well. But if you're looking at a mainstream bond fund like Vanguard short-term bond fund under short-term intermediate-term bond fund. Those are usually going to be pretty good options pretty safe options. Rob, what would yet that I know I think you're exactly right question for you Mark, you mentioned bond funds. Obviously with a bond fund, you can't hold to maturity like you can. If you own an individual bond if you can hold to maturity.

It takes the really falling bond price out of the equation because if you're willing to hold it to the end, you're guaranteed that coupon. How should folks think about that piece of you're exactly right. And for somebody who feels comfortable selecting individual bonds.

That is a great option. A lot of folks are nervous about doing that because of course it's hard to get good diversification. A lot of folks are stuck holding just a handful of corporate bonds in that situation and then if something happens to one of those companies. They got a problem on their hands, but that is a good option if you feel comfortable, you know, selecting those bonds yourself yet. Of course, making sure you're not too highly concentrated in any one particular bonds of very good counsel Shirley thank you for your call to Nashville, Tennessee Bruce, you're next on the program blitzer. Third, thank you, gentlemen, good afternoon. Can you hear me yes or yes okay I've been investing in the rock IRA pretty much since it inception, and I have a lot of cash in there and I'm planning to invest in different instrument. I'm over 59 1/2 and then in the rock for over five years. So my question is is dying, invest in, get dividends and interest in capital gains. Is there any tax liability.

Do I have to pay taxes on that that free and clear since it's in the raw young once you make the contribution to the raw Spruce you can immediately begin investing that five-year rule only pertains to your ability to take out the earnings without any gains on it. But as you can put it in immediately turn around and invested all that money is going to grow tax free.

Both the dividends as well as the capital gains and as long as you wait at least five years to begin pulling that out in the over 59 1/2. You can do so without any tax on any of the gains or the income so you're in good shape.

I do begin to put that money to work, especially as this market comes down you could begin to systematically move it into the market. Final question for Mark Miller today, but if you're holding like stick around will still have another segment were all take your questions in just a moment, but to Woodridge, Illinois.

Betty Goretti had for Mark Miller question why I transferred my 401(k) to a regular IRA I rolled it over and typically manage and when I noted that there was a great drop in the amount after everything with, and two different time and I'm wondering normal. I mean I would just totally that it dropped significantly when I rolled it out to a managed account and defender.

In January 21 two January 22 fat fat sure market thoughts. Yeah, I think the thing to look at their Betty is the.

The decline in the market during January because you're right, there shouldn't be any decline simply moving it from the 401(k) to the IRA that that should not cost you anything to do that by with the market and especially certain parts of the market peaking last November and falling fairly sharply in the January some of those January losses were fairly deep, so I would I would look at exactly what you're invested in and try to line it up that way you exactly right Betty, I do a little bit more investigation as to whether that came over and cast and then it was deployed and that's what led to the decline or whether the investments came over intact and then you can probably chase the trace the declines back to those actual investments following transfer is probably just market and check it out. Thanks for being with us. My friend, thank you. Some might investing.org wisdom for your financial decisions before we head back to the phones only remind you moneywise live in moneywise media is listener supported.

We rely on your financial support to do what we do every day as we serve you and the moneywise community with principles and content in this radio program or app. Everything we do is made possible by your generous support.

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Thanks in advance. Hard back to the phones we go Tampa, Florida Lisa, you've been incredibly patient, thank you for waiting to read, write, ranking, capital partnered your insight you market or at all.

Yeah, I would you be renting to own with an option to actually buy or would you actually have a lease purchase agreement where you are required to buy it at the end of the agreement option. I okay yeah you know this can be a good thing in the sense that you know if you don't have the down payment. You can essentially have a portion of the rent going toward the down payment so it's a kind of a forced savings you want to understand the terms. Is there any kind upfront cost for this option to be able to rent to buy you one understand how maintenance works. Are you going to split those costs or is the landlord solely responsible.

You need to know that going in.

You need to also recognize that if you decide not to proceed, you're probably going to lose all that you accumulated toward that down payment so you and you need understand. Are you paying above market value for this because of this option to rent to buy so it's not my first choice, but if it allows you to get into a property you really think will meet your needs. One that you like to ultimately have and have a portion of that rent going toward your down payment it's it's something to consider.

I would just make sure you count the cost again.

Are you overpaying what if you don't proceed and you lose that money and that is this really the place that's going to serve your needs. When you're ready to buy it. You also want to know what that how that they're going to determine the fair market value when that time comes. Is that something that's determined in advance or based on some other criteria for determining the value so as long as you do your homework on this and if it's where you're at. I would say it's something worth considering if you read the fine print. Absolutely Lisa, thank you for calling today. God bless you to St. Paul, Minnesota. Pat, thanks for your call. Grid had all but I can't know what might work: I know you covered this topic before, but you do just a quick overall Nobel live on how much I can put in their home and have to keep it in there please yeah be happy to buy the weight that's used. Check out the moneywise app in your app store to search for moneywise biblical finance because you can take the program with you on the go and even listen live.

When you have the time, but if you miss it you can catch it whenever it makes sense for you.

Bonds are great option, especially right now you I stands for inflation. These are inflation bonds issued by the US government backed by the full faith and credit of the United States government so incredibly safe and paying right now if the nominal interest rate of 9.6% because of what were seeing with inflation it's pegged the CPI, the consumer price index. It's reset every six months of this rate that they're paying right now is good it'll adjust again in November probably coming down but I think still going to be elevated for some time. You can put in up to a $10,000 in electronic I bonds a treasury direct.gov that's the treasury's website and then another 5000 in paper bonds using your federal income tax refund. So 10,000 for sure if you use a refund.

An additional 5000, meaning that you can put in up to 15,000 in a calendar year per person. You've got to keep them in place. You can't take any money out for at least a year. You have to make a 12 month commitment.

If you cash it in before five years will just give up the previous three months worth of interest when you take it out. But apart from that it's a great option for money you have, that's able to be locked up for a year because of that tremendous interest rate of 9.6%, and over the next 12 months. Even if it adjust down in November. The aggregate rate that you realize over a year with basically no risk is is still tremendous payoff. Thank you very much. Our iPad treasury direct.gov's website you're looking for and thanks for your call Tampa Florida. Beverly, thank you for calling the redhead I yes ma'am okay I am looking right off the 15 year okay now whatever� Okay, I'm not sure I'm looking I'm not sure from filing a HELOC right a home equity line of credit. Is that what you're looking for. Okay what are you looking to do with with the money people running my retirement home, but my husband wanted to give him the money and I won't have any way long day so I was trying to buy it in the house that they had bought. But because I'm married to him. If anything Tyco to defend update because the state that I am in sure, sure, what's the value of the home. Beverly is about family could collect alright so if you were to get a mortgage for a house and I wouldn't get a home equity line of credit. I just get a conventional mortgage there be a mortgage of 185,000. Are you able to absorb mortgage of 185,000 into your budget. If you want me okay I am carrying for 80,000, and I never arrived at because someone so that the guarantee would run you about $1400 a month with taxes and insurance added in just probably, on average, so you need to be able to absorb that $1400 a month and it's on sound like you can on your fixed income.

So I think the option here. Beverly is is to sell this home as much as you'd like to hang onto it and take the proceeds you take your half.

He takes his half and then you could turn around and run something, or perhaps by something a little smaller that fits you have the money that you get out of it.

The equity that you pull out. Perhaps you know adding to that a small mortgage, something that fits into your budget.

But you've gotta start with that spending plan to realize how much can you add to your budget. If anything in the form of, you know, a small mortgage and if you really don't have any room for it then you need to be taking that cash out the roughly 1/2 that you're entitled to buying something, perhaps a townhome or something that fits so you don't get in over your head. Does that make sense. You know that you know my mom right now. I'm like the one I want one bedroom I'm looking that nothing will stand in my home even trying to rank so I don't know what I totally understand Beverly the challenges with the court saying that he's entitled to half of it.

You have to figure out how to buy him out.

If you don't have the ability to do that taking on a mortgage is not the answer. Certainly not a home equity line of credit, and so on. I think the only option you have. At this point is really to sell it so that you can satisfy that obligation of giving him at least 50% and then at that point you have to just pray and ask the Lord to provide something perhaps let your church family know what you're looking for, maybe, has somebody has something you know for you.

Perhaps renting for a period of time while home prices stabilize many looking at a different part of town or moving to a different area.

None of these are easy and I realize this is a difficult environment to BN but taking on a mortgage that you can afford deal with a home equity line of credit is just can lead to bigger problems down the road so perhaps connecting with one of her moneywise.

Coaches would be a great option for you somebody to help you think through the different scenarios. If you had to our website moneywise.org and click our community tab, you can connect with one of our coaches free of cost and they can help you navigate this, I realize it's not easy and that love for them to journey with you.

So Oscar moneywise like community be praying for you Beverly and keep us posted on how this turns out. God bless you Dawn is in Moline. Don you'll be her final color we have for just a minute (okay I and I have to take out every year directly to my church and I get that last year and I realized that I was On that amount. I thought we could just get it directly to our church and not me.

And so that's my question I get. I just don't hundred and I didn't. Did you take that money out deposited in your checking account and then write a check to you I directly. I had them lined company send it directly to the church alright and was it through what's called a qualified charitable distribution rights. So that's what you need to do is get the documentation from your investment company and give that to your tax preparer tell him or her what you did and have them look at it could be that you pay tax on it inadvertently. They can get that back for you that you can check it out. Thanks for your call today for us moneywise.

I was a partnership between the radio and moneywise Robert, thank you to Dan and Amy as well come back and join us tomorrow