Financial Commandments

On this episode, we present you with five commandments that are worth of being written on stone tablets in your retirement plan.

Important Links

Website: http://www.yourplanningpros.com

Call: 844-707-7381

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Transcript Of Today's Show:

Speaker 1: Hey, everybody. Welcome into this edition of Plan with the Tax Man. Thanks for tuning into the podcast. We always appreciate your time, Tony and myself, and what is going on my friend, how you doing?

 

Tony: I'm doing well thank you. Just on my way out of town and going to take a little R&R on a vacation.

 

Speaker 1: You know we were chatting about that just before we got started and we'll let the folks in on it as well. It kind of tripped me out, I didn't even think that it might be open, but you're heading to the danger zone if you will, right?

 

Tony: We're heading to the danger zone, we're going to go out to Napa Valley, which I generally go out to once a year. And it seems like every time I go something crazy is going on out there and so of course recently with the fires that have been going on burning right through the Valley is... But they say that the places we're going to visit are open. And of course they're starving for tourism as most places are. But there's a lot of destruction out there. There's some wineries that have been destroyed and it's sad to see.

 

Speaker 1: It really is. It really is. It's kind of a weird spot to be in, right? Because these places, they need help, but at the same time people are kind of afraid to go and there's just all these different things going on. So kudos to you for going out and supporting them. And hopefully you guys will have a good time, but be safe for sure.

 

Tony: Yes. Yeah. It's weird too, though. I've talked to some of the wineries, I really kind of told them, I don't want to feel bad, I feel bad for you guys that I'm coming out to enjoy myself in the midst of all this misery. And I don't know how I feel about that, but they want tourists. If they can do it they're-

 

Speaker 1: Right. They're like, no, no, come on. They might want the welcome distraction too. So yeah, you never know. Well this week we're going to talk about something a little interesting. We're going to have a little fun here in hopefully a good way, but kind of following the financial commandments, if you will. We'll present you with five, for lack of a better term, really just commandments that are worth being a written in stone, if you will, from a financial or retirement standpoint and we'll let you dive into those and see what you can think of to do some sort of analogy or correlation for us. And so let's just jump in and get rolling. If you think about these in context it's kind of interesting. So you might see or read something on one of these tablets that might say thou shall not compare your investments to the stock market without the proper context. And that's a lot of it, we tend to look at things in a bubble we don't tend to look at it, I think, in the right frame. What do you think?

 

Tony: Exactly. I think that is exactly on point and I'll start out with an example. So my father, who is retired, and every day, he loves watching CNN, every day he comes in, "Oh, the market's up, the market's down. Why can't we look at what the market's doing? Am I invested in this?" And of course we do his planning and so he looks at that and he sees the Dow Jones jumping all over the place and I always have to remind him that for you in retirement, it is in the market. However, you don't have to be worried about that because you're not in it for growth, you're in it for the income and that we're not looking to get what the market's getting. We're conservatively invested and we have a lot less risk.

 

Tony: And so I think people just look at the news and compare their investments up or down. And even younger people, everybody always says, "I want to get what the S&P 500 is getting." Okay, well, so does everybody. And you certainly could do that with ETFs and all kinds of things, but if you're not willing to accept that risk and that volatility, maybe that's not for you. So I think you need to take a look at that.

 

Speaker 1: Yeah. It's all about understanding what your investments are supposed to be doing for you at that time. And that's a good point. So whether if you're 35 versus your dad there's a totally different set of parameters you're trying to accomplish with your exposure in the market. So again, proper context goes a long way. All right. Thou shall not give up on your strategy before it has enough time to play out. I think that's another one, right? The fast food world we've been living in for a number of years now, Tony, it's like everything's fast food, right? Relationships have gotten to be fast food. People toss those away like they're nothing. It's food, it's this, that, and the other, everything is just disposable it seems like. And so when things don't go as planned, we tend to just immediately want to swap it out for something else.

 

Tony: That's it. And it is amazing to me when I ask people what do you view as long term? And they'll say two years or something really in my mind short term.

 

Speaker 1: That's short term, right?

 

Tony: Yeah.

 

Speaker 1: Was it Warren Buffet, did he say, "If you're not prepared to be in the market for 10 years, don't be in it for 10 minutes."

 

Tony: Yeah. Don't be on for 10 minutes. And he's exactly right. And you know what, even when you talk to people about that and they say, "Okay, I get it. I can take a long term view." I think with our instant access, and we have access to things like you're talking about so fast, that people do tend to push the panic button a little quick and they allow that fear of, "Oh my God, I'm going to lose everything," to basically do the exact wrong thing and that's jumping in and out of the market based on current news. And those decisions mostly are emotional. And over the long term if you just stay put you're generally going to be much better off. And I got to give my own clients a lot of credit, during this crazy volatility since COVID started some of the younger, or not the younger, but the older people, we've moved a little bit to cash but for the most part we've been fully invested. And the market's gyrated around, but it really isn't that much far off from where it was in March.

 

Speaker 1: No, the S&P, you brought that up a minute ago, at the time we're taping this podcast it's higher than pre-COVID numbers and the Dow is experiencing a couple of good days here in a row at the time we're taping this. It's just, what, maybe about 1,000 points off the all-time high.

 

Tony: It looks like it. Yeah. It turned around there but yeah, I would say it's up 70 points as we speak right today and yeah, we're right near a high.

 

Speaker 1: Yeah, exactly. I think the Dow at the total peak was 29, I don't know, 400 and some change. And I think we're at 28, 300 and some change. So yeah. So again, at the time of this podcast, but that's, to your point, it's been obviously a super volatile year to be that high in February, take the 30 some percent plunge and then be gradually building its way back. But this gradual build back has also come with several days in a row of, or weeks in a row, of dropping and then weeks in a row of climbing. And I know that can be... it puts some stress on the ticker there if you don't feel like your strategy is correct, and you're nervous, you start making moves that maybe just cost you more money in the long run.

 

Speaker 1: So let that strategy play out. That's why you get a plan. The plan is going to evolve and it should evolve just like we are going to evolve through retirement, but you don't just make those knee jerk reactions. And of course if you're working with an advisor a great benefit to that is not only getting a good plan in place when you're working with Tony and you're talking with his great team, but it's also to be that sounding board, or maybe talk you off the ledge sometimes too. You guys got to sometimes go, "Calm down."

 

Tony: And we had that just recently with a client, she's an older woman and she really wants to, and this really didn't have anything to do with the market, but we kind of talked her down a little bit off the ledge. She wanted to pull a lot of money out of her retirement because she was really into remodeling her home. She's just got this passion for it.

 

Speaker 1: Sure, that's a big thing for people.

 

Tony: And we just had a good conversation about, well, I understand what you want to do and it's always nice to have a nice house, but at her age, and she's advanced in age, really do you really want to go all out on this? So maybe you just need to upgrade a little bit and get some nicer things. I think I at least provided a different perspective, she can at least think about it.

 

Speaker 1: That's a great point. Yeah.

 

Tony: Maybe I can do a compromise of some kind.

 

Speaker 1: Yeah. I mean, at the end of the day it's her money, do what you want, but your role is to advise her, okay, here's some pros, here's some cons, this is some cons that I see that you might not. So exactly. All right. So kind of keeping with that theme of later in life, thou shall not chase big returns too late in life. I am getting close to 50. Next year in 2021, I will be 50 and I have to start, and I am already starting now at 49, I'm starting to think about things a little differently, not just from an investing standpoint, but lots of things in life. I think once we hit 50 and over we start to view things a bit different. And so I don't want to continue to look at my portfolio the way I did when I was 30.

 

Tony: Exactly. And that's a big point and I'm 53 so I've been thinking that way for a few years for sure and I don't know why we all of a sudden start thinking about, well, how long of time we have left maybe to work and earn money, but let alone live.

 

Speaker 1: Probably that 65 number that's just been ingrained. We go, "Oh man, that's only 15 years away."

 

Tony: Only 15 years. And so with the nest egg you have, wherever you're at, it's important that you don't get too, maybe greedy, especially if you're behind a little bit, and chase high returns for potential high risks.

 

Speaker 1: And that might be that panic button as well then. Right, Tony? You're panicking, "Oh, I don't have enough and so I'm chasing," and a lot of times, I know that you find this often, people come in for the first time and that's the thought, and you're like, "Let me do the review, let me do the process and you're actually in better shape than you think."

 

Tony: Exactly. And once we take a look at things and kind of lay it out and let them know they're really not in as bad of shape as they thought. That they don't have to get that aggressive that late in life and still be able to, if we can play it out and make some assumptions and some estimates, have a pretty good retirement. And so I definitely think people in their fifties and sixties really should make sure they're taking a look at that because you don't want to be overly aggressive, I guess I should say. Unless really that's just in your makeup and even then I wouldn't potentially recommend that.

 

Speaker 1: Yeah. Well, you're talking percentages, right?

 

Tony: Percentages, yeah.

 

Speaker 1: Yeah take some percentages. If that's your mindset and that's just really what kind of gets your blood flowing then have a plan in place that allows you to carve out a bit for that to kind of satisfy that itch if you will, but obviously we don't want to sacrifice your retirement. And again, that's the whole point. I mean, you can stress test this thing. That's the whole point of working with an advisor is you can stress test different scenarios and different types of situations where you can say, "Okay, this is what it might look like if you live to 85 and this is what it might look like if you live to 95 and this is what it might look like if there's a downturn," or whatever the case is.

 

Speaker 1: So there's ways to go through that, there's a risk analysis basically. And just that way you don't feel like you have to chase those big returns. So all good advice here, following these financial commandments. A couple more I think we can squeeze in for this podcast, thou shall not ignore the costs and fees, which we wind up doing. We all talk about wanting to save money on cost and fees, but a lot of times you're surprised and shocked exactly what you are paying.

 

Tony: Yeah, that's right. And this is one where most people know that no investment, no matter what, is totally free. Some people get kind of confused as well, I'm doing my own planning therefore I have no cost, and that's not true everything's got a cost.

 

Speaker 1: I think breathing even costs money if you break it down.

 

Tony: But it can vary and if you're working with an advisor, and we're no different, obviously it's just like your accountant or your attorney, we have to make money for our advice. However, it's important to know exactly how much you're paying for that advice. And/or if you're not using an advisor, it's important to know how much, say for mutual funds example, what their expenses are because that's a fee. And a lot of times, and you gave an example that, which is better, basically, I'm getting an eight and a half percent return and I'm paying a 1% fee or I'm getting a 10% return but I'm paying a 3% fee.

 

Tony: And everybody spouts off their gross percent returns, but nobody talks about the net. And that's what's important because that's what you get to keep and add to your portfolio. So I think you need to get all the information, you need to be able to understand how your fees or expenses are being calculated and know what percent they are so you can digest that. Because you take that out over 10, 20, 30 years, and the difference in fees can add up. And so obviously you want to try to keep them at a minimum, but you'll never escape them completely.

 

Speaker 1: Yeah. And there's no free lunches. Everything has a fee. And a lot of times folks will say, "Well, I'm only paying 1% to that point because that's what my advisor is charging me." And it's like, well, that's just the advisor's fee. Again, to your point there's mutual fund fees, there's all these little hidden things that are in there. And sometimes you might wind up adding this up and to that illustration, you might be saying, "Well, I'm getting 10%. That's awesome." But by the time you add everything up, you're paying almost four in fees, well then you're only making six.

 

Tony: You make six.

 

Speaker 1: Which still six is pretty good, but understand that. Just understand it so you're like, "Wait a minute, why am I not up 10%? Shouldn't I have 10% more money." No, you only have 6% more money.

 

Tony: And sometimes the lower number can be achieved with less risk and less fees. And so therefore it, for a lot of people, makes them feel a little more comfortable at night.

 

Speaker 1: Yeah. Well, again, it's a plan. What do you need? Like you specifically because everybody's different. What do you need to make things work for you? And a lot of times as Americans, as people, we always want more and there's nothing wrong with that. We want to try to get as much as we can in places but there comes a time, I think, in life, Tony, where, and talking retirement, where, hey, if you've got it in the bag, if you're pretty close to winning the game, then maybe stop playing or at least not playing as hard. There's no reason to risk it if you don't need to. If you're basically there, then hey, take the lower number but if it's the safer number, because then you know that you're cruising at this point. Now you're just enjoying, now you're jumping in the car and just taking a ride in the country because you can if that makes sense. All right. Well, good. You're taking a ride to Napa because you want to.

 

Tony: That's right. Because I want it. I enjoy it. And yeah, exactly.

 

Speaker 1: All right. Well, let's do one more here, thou shall not overlook the importance of rebalancing and diversifying. And boy 2020 has been a hello moment for balancing and diversifying, right? Because if you were diversified enough, you maybe didn't take a 30% hit in March.

 

Tony: Exactly. And with the people we work with we stress this and I think most advisors do these days because I think this is the importance and the value of having someone help you. And basically, I don't want to say explaining the value of the fee we charge, but maybe what we're worth so to speak. But if you just choose some investments and just say, I'm going to set them on a shelf for 20 years and never rebalance or never diversify you may or may not be okay. And the importance of diversifying and of course rebalancing it every year is some asset classes go up a lot more than others in a particular year and then you're over weighted in those. And then you start the new year kind of lopsided a little bit based on, again, your overall plan.

 

Tony: And you want to rebalance that and keep those asset classes, the exact percentages are very close to what your plan is. And then if your plan changes, you change those. But beyond that though, you want to make sure that whatever you're doing you want to be diversified over a lot of asset classes. Some people talk, no that's going to lower your return and that you can get better returns by just staying in one asset class, for example, pretty aggressive. But most people don't have the stomach for that and they just as soon re-diversify so at least you know when we do have these crazy fluctuations, something that you own is doing well. You may have a few that aren't, but that helps level out the volatility. So I just think you've got to make adjustments along the way and you've got to hopefully have somebody in your corner helping you with this because I think this is where more do it yourselfers don't pay attention.

 

Speaker 1: We were talking about fees as a second ago and then you mentioned the word value. There's nothing wrong with fees if you're getting value for the fee that you're paying. I use the cheeseburger analogy all the time. If you're hankering for a cheeseburger and you can go to McDonald's and get a cheap one, just understand that you're getting a cheap one. It's not costing you a lot and you're getting a cheap burger. Or you can go to your favorite mom and pop or something where they make this extravagant burger that maybe cost you $8 or $9 versus the $2 McDonald's one. Are you getting value for that $8 cheeseburger? If you are, then it's worth it to you, right?

 

Tony: Yes, exactly.

 

Speaker 1: So that's the same kind of idea when it comes to working with an advisor, are they bringing value to you? Is it helping you in the long run? Yes, there's costing you fees, but there's costing you fees in everything. So do the fees justify the value that you're getting, the advice that you're getting, the support that you're getting? And sometimes it's more than just picking a few things in the market, obviously. A complete planning review process like Tony goes through, all the things that he does, it's more than just as an EA and a CFP you're not just a stock broker, you're not just picking stocks. If you want that you can do that on your own. It's easy enough to do.

 

Tony: Yeah, in today's world.

 

Speaker 1: Especially, yeah. You're getting that holistic advice that's kind of the A to Z, if you will. And to your point, sometimes it's that sounding board advice like that story with the lady earlier. You're not going to be able to call up your robo advisor and ask, "Hey, should I remodel my kitchen?"

 

Tony: Yeah. And I tell prospective clients a lot when we sit down, because I take them through a series of interviews to determine if we're the right fit. But if I hear somebody saying, "Well, I expect to have returns at or better than the S&P every year." And what I tell them is, "You know what? You don't need me because I can tell you very easily how to go do that and you can just go buy a fund and you'll have that. You're going to have 500 stocks of which 20 will do very well, the others won't and you'll get whatever the S&P gets." But if you've got some things in your life and you want more than just that then I think that's where the value of an advisor is going to come into play.

 

Speaker 1: If you want some help with social security, the strategy that goes with that, how to do tax planning, not just tax prep, so that you're keeping as much as possible, how it's all going to work at legacy, all these kinds of things then yeah, that's what you're turning to an advisor for. Not just, like you just pointed out, to pick a fund and jump into the S&P. All right. Well, I think that's a good show. I appreciate your time as always. I think hopefully people learned something from that. And if you've got questions as always reach out to Tony at 844-707-7381 before you take any action. Again, you should always check with a qualified professional, like Tony, who is an EA and a CFP of over 20 years. So give him a call at 844-707-7381, or go to yourplanningpros.com and while you're there you can subscribe to the podcast Planning with the Tax Man. There's also a lot of good tools, tips, and resources to be found at yourplanningpros.com. And we'll finish it off with a fun little getting to know you. Tony, what's a habit that some people have that drives you nuts?

 

Tony: I'll tell you my real pet peeve, and maybe you can relate to this, maybe some of the audience can, is I think with all the technology we have, even on our phones, it amazes me in this day and age when you make an appointment with somebody and then they'll call you up or email you like 10 minutes before, "Hey, I can't make it. I forgot about it." Or I find it weird that people tend to... they can't commit. And I'm not talking in professional life at appointments with me, I'm actually talking personal. It drives me crazy when friends of mine they'll commit, "Hey, let's go play golf or something." And they'll call up 15 minutes before, "Hey, I forgot. I got to take my son to soccer league." You didn't know that two days ago? It's like, I just can't-

 

Speaker 1: It's more of a lame excuse to get out of that. I'd rather you call me and say, "Hey, man, I don't want to today. I'm sorry. I should have said something sooner, but I just don't want to." Don't give me a fake excuse.

 

Tony: When I was younger it never really bothered me but I notice it more now that we're all just kind of... sometimes we jump to the next best thing or maybe we committed when we were in the mood, now we're not in the mood. It's just kind of crazy, but I don't know-

 

Speaker 1: And life gets hectic. We get busy. It makes sense. But I think you're right, as we age I think our tolerance for, well our respect for our own time grows.

 

Tony: I think that's probably more it. It's respect for my time. And I try to respect everybody else's time as well. I try not to do that because I know I don't like it.

 

Speaker 1: I'm with you. It's almost like the doctor analogy with that, we get so frustrated, right? Your doctor's appointment's at 10:00, you get there, they ask you to get there 15 minutes early, you do, and you still wait an hour. And you're like, "Well can I bill you for the hour I waited? Because you know darn well if I didn't show up, you'd bill me."

 

Tony: I actually said that once. Because I was there for like an hour and a half and I told him, I have a good relationship with my doctor, but I said, "Doc, you're not valuing my time. I'm busy too." And I told him, I said, "As a business owner to a business owner, it sounds to me like you're overworked and you don't have the staff if you're constantly running an hour and a half behind," I said, "I know that this kind of stuff is different than mine. You might've had an emergency, who knows." But yeah, that is really frustrating.

 

Speaker 1: Yeah. And they're always, "Well we got busier today than we anticipated," or "So-and-so had an issue." And what are you supposed to say? Because it's health. But we all relate to it, we all go, "Oh man, I'm going to start billing my doctor for every time he makes me wait." All right, folks, well there you go. What pet peeve drives you crazy? We all have them, it's part of life, but we do our best to get to them and through them. And of course, if you need help getting to and through retirement, reach out to Tony. And we're going to wrap up here on Plan with the Tax Man, so have yourself a great week, stay safe and sane. Tony, enjoy your trip. And the next time we guys talk to you, we will probably still not know who the president is. Even though we're going to do our next session after the election, but got a feeling that this one might take a while.

 

Tony: This one might take a while and I'm sure there's going to be some good stories and some things to talk about.

 

Speaker 1: Some back and forth. Yeah. All right. Well stay safe and sane folks. We'll see you next time here on the program. Thanks so much for your time. We'll see you later on Plan with the Tax Man with Tony Morrow of Tax Doctor, Inc.