Financial “Strategies” That Just Don’t Work

Let’s talk about some financial planning “strategies” that don’t really work (even though some people, even some financial advisors, believe in them).

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Transcript Of Today's Show:

Speaker 1: Hey everybody, welcome in to another edition of Plan With The Tax Man. Thank you for tuning into the podcast. We appreciate your time. As always, hope that everyone is staying safe and sane out there as we are edging our way back into some levels of normalcy, and with that Tony, welcome in my friend, how are you? You doing okay?

 

Tony: I'm still doing good. How about you?

 

Speaker 1: Hanging in there. We are doing the same thing. We are very close to being set free here in our neck of the woods now that we're into mid May, so hopefully we're seeing much, much more [inaudible 00:00:29] all over the place. I thought this go around... We talked last week, or a couple of weeks ago there, about just kind of the state of things, we had a bit of a hiatus due to the coronavirus, but we are doing our podcast regularly again and I thought we would kind of touch on some strategies this week that just don't work.

 

Speaker 1: A lot of things happening obviously in the world of finance and will continue to happen all through 2020. I think it's just going to be an interesting rocky year of all kinds. I think you and I even talked about that quite a bit last year as the year was winding down. Obviously we did not foresee just how rocky it was going to be thanks to the bug, but we certainly... I think a lot of people just felt like 2020 in general, election year and just a lot of things, it was going to be kind of volatile. So let's talk about a few financial strategies that don't really work, even though they kind of keep finding their way to the forefront of conversations.

 

Speaker 1: We'll start it with the market. Because of what has been going on in March and in April and all the volatility, you hear questions, you hear people saying tell me stuff like, well since it's being so volatile and work's being the way it's been with the coronavirus, maybe I shouldn't be pumping money into my 401k like I normally would if you're still working, or maybe I should get out so that I don't lose any more then I'll jump back in later when it starts to get better.

 

Speaker 1: If you tried to do that in late March when it was down 12% one day and up six the next, then down 10 the next, there's no way.

 

Tony: There's absolutely not. We've been getting a lot of calls on it about just what you said. Everything from, "Well, do you think I should stop contributing to my 401k? Do you think I should move all my money to cash?" I've had clients say I want to open up an investment account and invest in stocks even though that they've never done it before because they feel like the market was way down. Which in theory that's okay, but we've been trying to tell them, well, one, with the 401ks we've been telling people, unless you are in financial dire straights, you need to keep investing in your 401k because obviously you're automatically then buying when things are down because those funds are continuing to buy stocks and bonds and whatnot. So, that's not a good option to try to time that.

 

Tony: I think what's even worse and what I love to catch people on from a planning point of view is when they say they want to put some money in stocks because they want to buy... And they'll actually give me individual stocks. I had a client who was an accounting client who's never invested before, call me and say, "Well I want to put $20,000 in Dow Chemical." And I said, "Well, why?" And he said, "I don't know. It looks like it's down." I said, "That's it?" And I said, "Well, so what if it goes down more instead of up?" They don't have answers to those kinds of questions. When I try to draw them out on that I say, "Timing the market like this generally doesn't work for us individuals very well." Information is happening so fast and just with a few little stocks, especially what they want to do really is they want to make a very fast gain. I attribute it to almost like go and throw a couple chips out gambling.

 

Speaker 1: Well yeah, because you see some of these... Especially, obviously now here into May, it's stabilized a bit more, but in late March there everything's dropping, there are those folks who can smartly say, "Hey look, it's down. This is a good time to buy." And that's true. It is, it can be. Now, every time horizon is different and if you're getting closer to retirement, all those kinds of things you've got to factor in and you've got to talk with your advisor about how it's going to affect your plan. But a lot of people were kind of doing that, oh well this particular stock is way, way down. But I think that's going to...

 

Speaker 1: I don't know, let's just use cruise ships for an example. Right? You know, they're taking a beating so should we get in on them because, I don't know, six months from now or whatever, they'll be killing it when things get back to normal or whatnot. Again, maybe, but that's being speculative. So if you're going to do that, as an advisor, Tony, if somebody is really interested in doing that, is that how you approach the conversation? Do you say, "Look, that's fine if you really have your mind set on it, but let's make sure it's not affecting retirement plans or the overall investment strategy. Let's make that the speculative money and not get too crazy."

 

Tony: Exactly, and that's what we tell them, especially if we haven't worked with them before and we don't have any idea what their real financial situation is. I've actually told clients, I won't work with you. Because if this is a little bit of speculation money and you want to do that, then there's some strict criteria that I'll go through with them to say that, first of all, I want to know what your financial situation is to know that you're not just playing with money you should not be. Number two is, I want to know, if you can't tell me, then I'll tell you what your buy and sell disciplines are because us as financial planners, some people look at us still as the old stock brokers where we're all sitting and we have inside information or we're watching charts that they don't see. All this stuff's public now.

 

Tony: We as advisors are not that role. I certainly am not. I know most advisors aren't, is we're trying to help people get to their end goals. I tell them, for example, I said, "Let's say you put $10,000 into this stock and let's say that it goes up, I don't know, in let's say a year, a hypothetical, and it's now worth $15,000. Nice gain. Very nice gain. But is $5,000 really life changing to you in the big picture? I would say in most cases not. Yeah, it's nice to have, but at the same time, well you lose 5,000 and now you're devastated." I try to get them thinking of the bigger picture and trying to not get them trying to be a stock picker.

 

Speaker 1: And that's another strategy that doesn't work either. Timing the market, picking the stocks. I'm glad you brought that up. That was actually on my list. It doesn't really matter what, I guess, economic era we're in or what's going on, those are some, not tried and true, but those are some believed methods that just continue to permeate and they never really work.

 

Tony: They don't work. I mean, people want to try to pick individual stocks as in my example. I've had a couple clients call and what they were looking at was the airlines. The airline, they're way down, travel's way off. Airlines are volatile industry and they always are. I try to stress to them and tell them that may be the case, but I think you're going to have to be really patient and be able to say, I got to give this two, three, four, five years possibly before these things really... And that's assuming that they have good financials and the economy stays good.

 

Tony: There's so much that goes into that. I always like to tell them, if I was an expert stock picker, I certainly wouldn't be working, nor would the guys, I believe sometimes on Wall Street.

 

Speaker 1: You'd be sitting on your island and enjoying all your...

 

Tony: I'd be sitting on a yacht somewhere. It's a slow steady growth. While I think yes, there are some people that can make some fast money, I think for the average person, it's just not going to be that possible. If they do, then that's going to be the one time in a long time. You can't get in that mindset why, geez, this is pretty easy. I can do this every couple of months or every year and I'm going to be set.

 

Speaker 1: It's like, I don't know, it'd be like the lottery or lightening striking, right? If you do happen to get lucky and hit one one time, I imagine that's got to be tough because it could be much like a drug and you're like, I'm going to do that again. But the odds are just astronomical. So, proper planning to ensure that your... It's like anything. It's like making a budget when you first had a family or whatever the case is. You've got all these things that you say, okay Christmas time when you first have a family and you're building your family, you're like, well we can't go overboard on the kids at Christmas because A, we're setting this precedent and B, we want to make sure that we don't mess up our budget for regular life.

 

Speaker 1: We learn as we're going through these things, and so as we get closer to retirement or we're pre-retirees or whatever, and we're doing investing, we want to make sure that we have that good base built that's going to take care of us as we age. But yeah, I get the understanding, the itch to want to speculate a little bit, but just make sure you're doing it responsibly and it's something you can afford to lose.

 

Tony: That's exactly it. And my last story there really, the same client that asked me about Dow Chemical, in the same conversation said he had went out and Googled, if you had bought, of course everybody does this with some of these stocks that I'm talking about. Apple, when it first came out and you still held it today you'd have this many millions of dollars. My first point to him was, "Well, very, very few actually buy something like that and hold it for this long."

 

Tony: And I said, "But if it goes to prove though, if you are and do have the discipline to do that, that's how you're rewarded." But many, many don't. As soon as they make a little money, boom, they're out and then they're onto something new and then that one, they lose money and then longterm instead of having a lot of money basically have what you started with or worse.

 

Speaker 1: Well, investing is a marathon, right? Not a sprint.

 

Tony: A marathon. That's exactly it.

 

Speaker 1: Yeah, exactly. So those are two strategies right off the bat Tony, that are again, they show up all the time, they just really don't work. Timing the market, picking the right stocks. Another one is the whole... And we're going to continue on through, we won't focus on just the investment, we won't focus on some other things as well, some other strategies.

 

Speaker 1: The whole taking care of each other thing. So my wife, I'm 50, my wife's just a couple of years behind me. We have the conversation every now and again. But you have these people who will say, "Well we're not going to have to worry about a nursing home because we're going to care for one another, our kids are all help out," whatever that kind of scenario looks like. I don't know if that's just fear of talking about or dealing with the potential to think the term "nursing home," which, and that might not even be a nursing home, it might just be a longterm care event in general. Or if it's just the mortality thing or what it might be, but that seems to be a really shortsighted way of looking at things because...

 

Speaker 1: My wife will say to me now, she's like, "There's no way I can..." I've got a bad back and she's like, "I can't pick you up when you're on the ground now when I'm 45 and healthy, how could I do it when I'm 70."

 

Tony: That's right. And we get a lot of people that I think for some they'll immediately when you start talking about it, they want to not talk about it because they're denying the fact that they're ever going to need this. But if they can get past that, then a lot of them immediately look to longterm care insurance. I've heard of that. I cringe. It's too expensive and I'm never going to use it. Then to others, really that may not make sense, but you need to at least have a plan in place of what you'll do if one or both of you need some kind of care and be able to have that plan and have it shared with others as you age and whatnot.

 

Tony: Because I think for a certain segment of the population, I think it comes down to income in a lot of situations. I think people at the lower end of the income spectrum probably don't need longterm care insurance. A, they can't afford it and B, if they need care, they're probably going to be on Medicaid if it's longer term. The problem with that though is many people don't need that long longterm care, they can just need in home care, they need care of some kind and that they have to plan for that somehow. Whether it's federal assistance, whether it's some kind of reduced policy. Then there's people on the other end of the spectrum that have a lot of assets and a lot of money, probably can self-insure most of the time. If you're above a certain amount then maybe you don't have that need, but you still have to have a plan.

 

Tony: Here's how it's going to work, here's what's going to happen, here's how it's going to happen. But it's everybody in between, which is the bulk of us. It is, well I probably am not going to qualify for Medicaid. I don't maybe have enough to self-insure for five years. I need to have a policy just like I do on my home or my auto and I just have to live with it. I just bought one on myself and my wife and I'm just now going to be 53 this June. I had put that out there, but it's still relatively inexpensive and it's just something we felt we had to have watching my wife's mom go through it without any insurance. Basically the kids trying to take care of her and it was five years of... And anybody that's been through it will tell you, torture, mental torture and it's tough to watch.

 

Speaker 1: No, it's definitely tough to watch that. The same analogy, if you break that down to saying well, the kids are going to help take care of us. I mean that's putting a lot on family strain and individual. So again, that's a strategy that just doesn't work. Really take the time to talk with your advisor. It's not a pleasant conversation but a little forethought can just stave off a lot of heartache later on to discuss what you're going to do in the event of some form of longterm care requirement. The reality is it's one in three people I think. So, it's something you just have to discuss. We'll hit one more here on our episode this week, and it kind of falls into that same line Tony a little bit.

 

Speaker 1: My mom is kind of guilty of this. I'm guilty of this a little bit as well. But, basing or guessing, I suppose, at your retirement planning process, your longterm care needs around the assumption that your life will mirror your parents or your family history, the hereditary of it. Most of the men in my family do pass away before 70 so I tend to ride this thought that I will probably die a little earlier, maybe in my seventies. Maybe I'm kind of giving myself the medical advances and saying well I'll probably get into my seventies, but I don't foresee 80 coming down the pike. But with that being said, I'm trying to plan as though I will make it to a 100.

 

Tony: Yes. I think that's a good assumption is to plan that you are going to live into your mid to late eighties and even beyond because that's, I don't want to say worst case scenario, because usually that's a good thing depending on the quality of life you have. But, from a financial standpoint is a good thing because you want to make sure that you don't run out of money, and that's every retirees fear is just getting up into those ages and maybe you do run out of money and you can't work at that point. I think that some of us tend to look at this too literally and just mirror that and say, "Well, I'm only going to live this long so I'll go ahead and my retirement should be okay because I'm going to spend this much."

 

Tony: Then they outlive that guess, and they end up with a different type of lifestyle. I think on the flip side too, this is just a personal opinion, I'd love to live into my mid to late eighties which should be great. But obviously, and I think we all want the same thing, we want that quality of life that we have in forties fifties. For a lot of us that just isn't going to be there. It's not anything we've done. The body is going to potentially fall apart, who knows? Are we coming down with some chronic disease? The lifestyle may not be what you had hoped for. So I do think there's a delicate balance there, that you obviously you want to live in the moment while planning for that old age to make sure you don't run out of money.

 

Speaker 1: Yeah. I think that's a good point. I imagine from multiple standpoints, whether it's health or wealth, I imagine you don't have too many people calling you and saying, "I want to work on a retirement plan where my lifestyle is less in retirement than what it was going into it." So you do have to kind of plan your way through those things. From a health side, obviously we've got this interesting new element that we were all dealing with here this last six, seven weeks, but it's still one of those things where we have to focus on that as well. Being active and all the things, and overall societally we are. We are living longer. We are living better for the most part prior to this thing happening. For the most part, everybody is doing a little bit better in a lot of cases.

 

Speaker 1: Sure there are markers, there are hereditary markers that can, I guess, impact your health, but it's not the be all end all. The medicine that and the treatments that my grandfather and my father got is not the same that I'm getting. So you got to bear that in mind.

 

Tony: Exactly.

 

Speaker 1: Yeah. All right. I think that's a good podcast to kind of leave people with some thoughts to think about. It's easy to kind of get pulled into these conversation pieces, these financial strategies that just kind of continue to hang around that people talk about a lot. Timing the market, picking stocks, putting your head in the sand when it comes to the longevity of life or the lifestyle, but they're never a good strategy.

 

Speaker 1: Do yourself a favor. Do your retirement a favor. Talk with your advisor, work with an advisor, and talk with yourselves as well. A great place to go is having an initial conversation about some of these things with your loved ones and making sure you're on the same page and then planning through that with an advisor like Tony Mauro, which is why we call the show Plan With The Tax Man. So, if you need some help, you got some questions, at this point you should know what to do, but if you don't, I'll tell you again, it's (844) 707-7381. That's how you can call him and let him know you want to chat. That's (844) 707-7381. With everything going on, you can have a phone conversation, you could have a virtual meeting. There's lots of things happening so you can still take some action.

 

Speaker 1: But if you are working with Tony or you know someone who might benefit from the message and you have not yet subscribed to the show, we would certainly appreciate it. You can just simply go to yourplanningpros.com. You'll see the podcast page there. You can check out Tony's website, a lot of good tools, tips, and resources. And of course, while you're there, you could subscribe to the show. You could also just search Plan With The Tax Man on Apple or Google or Spotify or whatever platform you choose. We would certainly appreciate it. And with that, Tony, I'm going to let you go this week, but have a safe, sane week and I will talk to you real soon.

 

Tony: All right, you the same and take care until next time.

 

Speaker 1: We'll see you next time right here on Plan With The Tax Man with Tony Mauro.