January 13, 2025 • 34 mins
Ready to make 2025 your most financially successful year yet?
This podcast is your guide to achieving your financial goals. We'll cover:
* Budgeting tips & tricks
* Maximizing your retirement savings
* Strategies to crush your debt
* **Planning for the unexpected (emergencies, insurance, estate planning) **
* Essential yearly financial reviews
Join us for practical advice and actionable steps to improve your financial well-being in 2025.
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Transcript
Episode Transcript
Available transcripts are automatically generated. Complete accuracy is not guaranteed.
(00:00):
[Intro/Extro]Welcome to a life well lift. Grow, preserve,
[Intro/Extro]and transfer your wealth with Ken Ouellette, CPM
[Intro/Extro]certified portfolio manager and founder of Orca Wealth
[Intro/Extro]Management. In this podcast, he will provide some
[Intro/Extro]clarity and setting goals needed to build, preserve,
[Intro/Extro]and transfer wealth and overcome some of life's
[Intro/Extro]financial obstacles. Ken provides actionable steps to help
(00:24):
[Intro/Extro]you plan through your financial ups and downs
[Intro/Extro]in a way everyone can understand. Join us
[Intro/Extro]on this journey where Ken will explore many
[Intro/Extro]financial avenues, drawing from his three decades of
[Intro/Extro]experience in helping others avoid risking a lifetime's
[Intro/Extro]worth of work and savings by not having
[Intro/Extro]a plan and a strategy in place. Now
(00:45):
[Intro/Extro]onto the show.
[Don Mespelt]Well, there's no more ho ho ho. It's
[Don Mespelt]gone away, and here we are to stay.
[Don Mespelt]My rhyme for the new year, Ken.
[ken ouellette]Yep. New year, twenty twenty five. New challenges,
[ken ouellette]new opportunities, new. That's the, that's the beauty
[ken ouellette]of a new year. Even though this is
[ken ouellette]just a calendar thing, but, yeah, there's a
(01:07):
[ken ouellette]lot a lot of work to be done
[ken ouellette]in the beginning of the year.
[Don Mespelt]Yeah. There's I mean, the people always, you
[Don Mespelt]know, have their goals and what their plans
[Don Mespelt]are, and, you know, they're gonna work out
[Don Mespelt]and everything else. And a lot of those
[Don Mespelt]don't really stick with people, but, you know,
[Don Mespelt]it's it's a person individual choice. But when
[Don Mespelt]it comes to financials, what are the what
[Don Mespelt]are the what do how do you go
[Don Mespelt]from there? What do you do?
(01:28):
[ken ouellette]Yeah. I think maybe that's a great great,
[ken ouellette]launch board for today's day's talk. I think
[ken ouellette]we're gonna go we'll just talk about some
[ken ouellette]of the things that I impress upon my
[ken ouellette]clients beginning of the year. Put kinda put
[ken ouellette]them in first first, you know, in front
[ken ouellette]of their minds, things to think about, things
[ken ouellette]we wanna check off typically by February. Right?
(01:50):
[ken ouellette]So that kinda just tees us up for
[ken ouellette]the rest of the year. Really, there's nothing
[ken ouellette]that comes as a surprise. I mean, I
[ken ouellette]think if there's anything that we've learned is
[ken ouellette]financial planning is all about eliminating as best
[ken ouellette]you possibly can surprises. Yeah. Right? Nobody likes
[ken ouellette]surprises. And so if we've already talked about
[ken ouellette]them at the beginning of the year, the
(02:12):
[ken ouellette]two most important planning periods in my view
[ken ouellette]is end of the year, beginning of the
[ken ouellette]year.
[Don Mespelt]And I was gonna bring that up because
[Don Mespelt]you just said the beginning of the year
[Don Mespelt]is merely just a calendar thing. But financially,
[Don Mespelt]is it really just a calendar thing? Or
[Don Mespelt]is it actually kind of more? I know
[Don Mespelt]the end of the year, I could see
[Don Mespelt]that with taxes and things like that would
[Don Mespelt]definitely be. But is the beginning of the
(02:33):
[Don Mespelt]year just, you know, it's a year away
[Don Mespelt]from doing your taxes?
[ken ouellette]Well, no. I mean, I think it was
[ken ouellette]more psychological than anything else. You know, in
[ken ouellette]the That's thirty year retirement. Right? You're does
[ken ouellette]does the beginning of the year really make
[ken ouellette]that big of a difference? No. Because you've
[ken ouellette]got thirty of those, hopefully, God willing. But
[ken ouellette]with that said, you wanna prepare each year
(02:54):
[ken ouellette]for what it's so it's it's just a
[ken ouellette]good place to take a pause. Look at
[ken ouellette]where you've been. We kinda do that at
[ken ouellette]the year end stuff. Look at your performance,
[ken ouellette]look at your plan, and then iron out
[ken ouellette]from what happened the previous year, how your
[ken ouellette]plan did versus your goals. Then look at
(03:14):
[ken ouellette]this year's plan, which will be the same
[ken ouellette]as the end of the year's plan, hopefully.
[ken ouellette]It hasn't changed by year end. And then
[ken ouellette]let's say, okay. This is how we did
[ken ouellette]last year. This is what the expectations are
[ken ouellette]for this year. Has anything changed? And we're
[ken ouellette]gonna I think in this podcast, we'll go
[ken ouellette]over some of the main things we wanna
[ken ouellette]cover in that initial meeting at the beginning
(03:35):
[ken ouellette]of the year through January or February to
[ken ouellette]make sure that nothing has changed on those
[ken ouellette]items and that for this year, we just
[ken ouellette]are set for one year in terms of
[ken ouellette]planning prospects.
[Don Mespelt]So you actually have you have two variables
[Don Mespelt]here. A, the stock market. You're kinda just
[Don Mespelt]gonna say what might happen this year. Right.
[Don Mespelt]And b, your plans. If you haven't changed
(03:57):
[Don Mespelt]any plans and you're just having fun, then
[Don Mespelt]nothing changes there. But if you all of
[Don Mespelt]a sudden, I wanna do a second trip
[Don Mespelt]to Venezuela, you know, then you have to
[Don Mespelt]plan those in. So those are two variables.
[ken ouellette]Yeah. So we know that with the of
[ken ouellette]those two variables, there's only one we can
[ken ouellette]control, and that's the planning. We can't control
[ken ouellette]the market. We try to take what we
[ken ouellette]can't control and minimize it as little as
(04:19):
[ken ouellette]possible to how it's gonna affect the client's
[ken ouellette]relationship for that year with their plan. You
[ken ouellette]know, you and I have spoken offline about
[ken ouellette]investing is really ninety percent mental. If we
[ken ouellette]get the plan in place, we look at
[ken ouellette]alright. Based off of last year and the
[ken ouellette]year before is inflation, which changed a lot
[ken ouellette]of people's expectation for their their need for
(04:42):
[ken ouellette]how much money they're gonna need. So we
[ken ouellette]need to evaluate at the beginning of the
[ken ouellette]year, how does the plan how's it withstood
[ken ouellette]the last couple of years? How are you
[ken ouellette]positioned now? What in your because we wanna
[ken ouellette]make people they're comfortable. Right? So there's nothing,
[ken ouellette]like I said, nothing unexpected that's gonna come
[ken ouellette]up.
[Don Mespelt]Uh-huh.
(05:03):
[ken ouellette]Because we can't control the market. So we
[ken ouellette]have to factor in good markets, bad markets,
[ken ouellette]calamities, because there's gonna be some calamities in
[ken ouellette]twenty twenty five. We just don't know what
[ken ouellette]it is. And when they try to project
[ken ouellette]what the calamities are gonna be, they never
[ken ouellette]get it right. So that's why they're calamities
[ken ouellette]because you you don't know that they're gonna
[ken ouellette]happen. So we try to anticipate what the
(05:25):
[ken ouellette]market reaction will be to varying calamities. Really,
[ken ouellette]really bad, really good, and just ho And
[ken ouellette]then we we stress test it with the
[ken ouellette]portfolio, but we'll kinda get into that when
[ken ouellette]we go over the bullets of what what
[ken ouellette]people need to really address, at the beginning
[ken ouellette]of the year. How's that sound?
[Don Mespelt]That's that's all we just covered half of
[Don Mespelt]it in my head. I'm just thinking, I
[Don Mespelt]don't know what other half is gonna go
(05:47):
[Don Mespelt]Yeah. Other than, dun dun dun.
[ken ouellette]It might be a little bit more than
[ken ouellette]a half here, but so let's start with
[ken ouellette]with number one that, it it's first and
[ken ouellette]foremost in my mind.
[Don Mespelt]Okay. What's that?
[ken ouellette]We wanna update the financial plan. Right? Any
[ken ouellette]changes, goals, work, family life, are you still
[ken ouellette]on track? If not, why, and what needs
(06:09):
[ken ouellette]to change? So there If I
[Don Mespelt]can right there, don't you have that really
[Don Mespelt]cool thing that you put all the numbers
[Don Mespelt]in that says you got a hundred percent
[Don Mespelt]chance of achieving your goal?
[ken ouellette]Exactly. So why do you think we do
[ken ouellette]that?
[Don Mespelt]Well, just that reason. I mean, to to
[Don Mespelt]to put some reality into the thing, if
[Don Mespelt]if if I have a fifty percent chance
[Don Mespelt]to achieve my goal, then we gotta reevaluate.
(06:29):
[ken ouellette]Right. And, also, I think more importantly than
[ken ouellette]that, then that's an important aspect because if
[ken ouellette]you are at a fifty, you there's gotta
[ken ouellette]be some pretty long conversations. So we know
[ken ouellette]the beauty of financial planning, we've talked about
[ken ouellette]this in the past and doing these financial
[ken ouellette]plans, is that there's only really two variables
[ken ouellette]there. There's the performance of the portfolio, and
[ken ouellette]then there's the client's actions.
(06:51):
[Don Mespelt]Expectations?
[ken ouellette]Well, not expectation, but did they Oh,
[Don Mespelt]they gotta do their part.
[ken ouellette]Did they do their part? Did they withdraw
[ken ouellette]the amount that we've agreed upon and stress
[ken ouellette]test that with the portfolio? Mhmm. So if
[ken ouellette]if we're if somebody's at a fifty and
[ken ouellette]we were at an eighty or ninety percentile,
[ken ouellette]in the plan, which we wanna be between
(07:12):
[ken ouellette]seventy and ninety, that's kind of the sweet
[ken ouellette]spot. So if somebody's at a fifty, either
[ken ouellette]the adviser failed miserably in the performance last
[ken ouellette]year and upset the plan or the client
[ken ouellette]withdrew more than that what they agreed to
[ken ouellette]withdraw. Something in life created a problem where
[ken ouellette]they had to take out more that wasn't
[ken ouellette]anticipated for.
(07:32):
[Don Mespelt]Uh-huh.
[ken ouellette]To find out, okay, what what could happen?
[Don Mespelt]Uh-huh. Alright. Well And and it's just like
[Don Mespelt]if I didn't tell you that I was
[Don Mespelt]planning that trip to Venezuela and I took
[Don Mespelt]out an extra thirty grand, you'd be a
[Don Mespelt]little upset.
[ken ouellette]Yeah. And I had a you know, in
[ken ouellette]the past, I had I had, like for
[ken ouellette]instance, I had a client, many years ago.
(07:54):
[ken ouellette]Great plan. Really was a the numbers were
[ken ouellette]were very good year of year over year.
[ken ouellette]And then in March, the client comes to
[ken ouellette]me and says, listen. My daughter's getting married
[ken ouellette]again, and we want to take out forty
[ken ouellette]five thousand dollars for the wedding. That's an
[ken ouellette]expensive wedding.
[Don Mespelt]I wasn't my my I still get my
(08:16):
[Don Mespelt]jaw off there at forty five.
[ken ouellette]And it's a second wedding. Alright.
[Don Mespelt]So It's yeah. But forty five for any
[Don Mespelt]wedding. Good golly.
[ken ouellette]Right. And so I had to have a
[ken ouellette]hard conversation with a client that, yes, you
[ken ouellette]can do that. But you have to realize
[ken ouellette]that when you're eighty, that daughter has to
[ken ouellette]give you some of that money back, or
[ken ouellette]otherwise, your plan is is going to fail.
(08:41):
[ken ouellette]Right? So there's you know, that's why we
[ken ouellette]plan because there's there's a repercussion for every
[ken ouellette]action you do in the plan. The the
[ken ouellette]client can do that. You know, we're we're
[ken ouellette]just they're the owner. We, as advisors are
[ken ouellette]the CFO, but the owner has the final
[ken ouellette]decision. But we as the the the chief
(09:04):
[ken ouellette]financial officer for that client, we have to
[ken ouellette]tell them, okay. You can do that. Yeah.
[ken ouellette]But Here's here's what that is here's gonna
[ken ouellette]be the ramifications of doing that.
[Don Mespelt]Now with that, I mean, don't you you
[Don Mespelt]have your emergency fund, which you probably should
[Don Mespelt]make sure that's an online too. But, don't
[Don Mespelt]you put money aside saying I have, you
[Don Mespelt]know, she's gonna get married soon, so I
(09:25):
[Don Mespelt]wanna put money there with don't you I
[Don Mespelt]mean, isn't that part of the planning? I
[Don Mespelt]mean, you just don't come out and say
[Don Mespelt]that. Right?
[ken ouellette]It should be, but it it not always
[ken ouellette]the case. And let let's define emergency fund.
[ken ouellette]Okay? Okay. So what is your understanding of
[ken ouellette]emergency fund?
[Don Mespelt]Your total bills that you're gonna have for,
[Don Mespelt]like, three or four months, and some people
[Don Mespelt]say up to six months. So that way,
(09:45):
[Don Mespelt]if everything went south, you can just live
[Don Mespelt]off your savings for at least that long
[Don Mespelt]a time without having to do anything.
[ken ouellette]That's that's a pretty good definition, Don.
[Don Mespelt]Wow. Thanks. But, yeah, the big caveat is
[Don Mespelt]some people some experts say six, some say
[Don Mespelt]three, and it's really I think as you
[Don Mespelt]get older, it kinda should go up proportionally
[Don Mespelt]in my opinion. Is that right? Yeah. So
(10:06):
[Don Mespelt]I have starting out as a teen or
[Don Mespelt]as a twenty year old, I mean, having
[Don Mespelt]six months saved up? Right. I barely had
[Don Mespelt]enough Top Rama to live six months.
[ken ouellette]Yeah. So that emergency plan, I like to
[ken ouellette]I'd like to do a minimum of six
[ken ouellette]months. Yeah. I've just found, six months. And
[ken ouellette]when I say emergency fund, I mean, that's
[ken ouellette]that's money that is not market related that
(10:29):
[Don Mespelt]you can
[ken ouellette]get at if you were cut off from
[ken ouellette]everything, and you're not gonna have to force
[ken ouellette]liquidate something at a bad time. So if
[ken ouellette]you only have three months worth of emergency
[ken ouellette]expenses and you're cut off, you lose a
[ken ouellette]job, something happens where you have no income,
[ken ouellette]you you go three months, then you're running
(10:50):
[ken ouellette]out of money, and then you're gonna have
[ken ouellette]to make the markets down, let's say, twenty
[ken ouellette]five percent, then you have to go in
[ken ouellette]and sell things at an inopportune time.
[Don Mespelt]Uh-huh.
[ken ouellette]So I try to do six months. At
[ken ouellette]best, I encourage some clients to go as
[ken ouellette]far as a year just so that gives
[ken ouellette]us the flexibility. Right now, it's not so
[ken ouellette]penal. Right? Because Yeah. You can get four
(11:10):
[ken ouellette]point five percent in treasuries and money markets
[ken ouellette]at the current time. So you're earning something
[ken ouellette]on those those short term monies that you
[ken ouellette]you don't you can take it out, and
[ken ouellette]you're not gonna have to worry about where
[ken ouellette]the market's at, what's going on with the
[ken ouellette]economy. Uh-huh. That that creates a a sense
[ken ouellette]of, comfort. Now when the when the interest
(11:30):
[ken ouellette]rates were at less than one percent, it
[ken ouellette]was a stretch to go six months because
[ken ouellette]your six months you were earning not what
[ken ouellette]inflation was. That created a a major issue
[ken ouellette]for for people. But now I think you
[ken ouellette]can you can look at it. You can
[ken ouellette]have a conversation with your adviser. You know,
[ken ouellette]how much do we have in the emergency
[ken ouellette]fund, and what what is that earning?
(11:52):
[Don Mespelt]Uh-huh. And the high yield accounts aren't as
[Don Mespelt]high yield anymore, but they're still there.
[ken ouellette]Yeah. They're still not bad. I mean, historically
[ken ouellette]speaking, if you can get four and a
[ken ouellette]half percent on short term emergency funds money,
[ken ouellette]that that's you know, we're set to spread
[ken ouellette]one percent above inflation right now. I'm comfortable
[ken ouellette]with that.
[Don Mespelt]Mhmm.
[ken ouellette]So you
[Don Mespelt]got your emergency fund going then, and you
(12:12):
[Don Mespelt]you also talked about, checking, what was it,
[Don Mespelt]your beneficiaries and stuff like that?
[ken ouellette]Yeah. It's a good time to, review beneficiaries
[ken ouellette]because, you know, things change. And, on a
[ken ouellette]yearly basis, we we like to to to
[ken ouellette]have that in that first meeting. You know,
[ken ouellette]has anything changed in your beneficiaries? You know,
(12:32):
[ken ouellette]sometimes oftentimes, we'll have a copy of their
[ken ouellette]beneficiaries to provide them. Uh-huh. That way they
[ken ouellette]can review that and make sure, yeah, that's
[ken ouellette]that's set. So there there you know, you
[ken ouellette]can have a lot of issues with beneficiaries
[ken ouellette]if they're not done correctly. Right? We wanna
[ken ouellette]make sure that and when I say issues,
(12:54):
[ken ouellette]I'm I'm not talking so much as family
[ken ouellette]issues, which those are those that's a whole
[ken ouellette]another podcast, but you'll also have taxation issues,
[ken ouellette]which are important.
[Don Mespelt]Oof.
[ken ouellette]Do you wanna recognize those as much possible?
[Don Mespelt]So Oh, totally. I can see that.
[ken ouellette]Yeah. My name and your like, for instance,
[ken ouellette]I'll give you a good good cases. So
[ken ouellette]it used to be very prevalent for people
(13:15):
[ken ouellette]as their beneficiaries. They would put their estate.
[ken ouellette]They would put this person something happens to
[ken ouellette]that person, their estate. Uh-huh. That creates a
[ken ouellette]tax issue. You wanna name individuals as or
[ken ouellette]charities as beneficiaries when whenever possible. So we
[ken ouellette]we try to we we try to get
[ken ouellette]if we ever see a client that puts
(13:35):
[ken ouellette]their estate as the beneficiary because then it
[ken ouellette]has to go through the estate process. It's
[ken ouellette]just not
[Don Mespelt]Efficient.
[ken ouellette]Efficient, and it's and it creates a tax
[ken ouellette]nightmare. So that's something that we'll look at
[ken ouellette]and and address with the client individually.
[Don Mespelt]And now you schedule these reviews every year
[Don Mespelt]like this in the beginning to get all
[Don Mespelt]this?
[ken ouellette]Yeah. We'll we'll start ramping that up right
[ken ouellette]now. It's a good time because people are
(13:57):
[ken ouellette]they're calling they'll they'll be calling in in
[ken ouellette]probably the second or third week in January
[ken ouellette]because they wanna get their their ten ninety
[ken ouellette]nines and their information. Yeah. So at that
[ken ouellette]point, we say, yeah. That's great. Let's schedule
[ken ouellette]a time to to do our quick review,
[ken ouellette]look at the for the year, and, we
[ken ouellette]can discuss those ten ninety nines and when
[ken ouellette]those are gonna be issued as well. It's
(14:18):
[ken ouellette]a good good good launching point because the
[ken ouellette]clients are, are gonna be reaching out to
[ken ouellette]us because they wanna get their taxes done.
[ken ouellette]Usually, most clients wanna get them done early.
[Don Mespelt]Well, I I assume that would be it.
[Don Mespelt]Yeah. When you stress now I'm bouncing around
[Don Mespelt]a little bit, but I'm thinking of the
[Don Mespelt]things that you mentioned. When you stress test,
[Don Mespelt]you're talking about that's for the year, and
[Don Mespelt]then you also have to do a long
(14:38):
[Don Mespelt]term one too. Right? And that's what I'm
[Don Mespelt]thinking of the test that you've done with
[Don Mespelt]me.
[ken ouellette]Yeah. The the plan itself, does that pretty
[ken ouellette]robustly. It's it's called the Monte Carlo analysis,
[ken ouellette]and I know that sounds like it's gambling,
[ken ouellette]but I don't know what whoever named that.
[ken ouellette]I should probably look that up, but it's
(14:59):
[ken ouellette]it's not a real good name. Right? Monte
[ken ouellette]Carlo. They call it
[Don Mespelt]the gamble with your retirement.
[ken ouellette]The craps table analysis. You know, it's just
[ken ouellette]not real real good. But the the thought
[ken ouellette]behind it, it's very good. So it takes
[ken ouellette]a thousand different market cycles, and it, varying
[ken ouellette]market conditions and back test it with your
[ken ouellette]portfolio and your allocation and tells you what
(15:20):
[ken ouellette]you would do in varying market cycles over
[ken ouellette]a period of time. And then it spits
[ken ouellette]out a probability of successful outcomes or negative
[ken ouellette]outcomes. If you're if you're at a, we
[ken ouellette]talked about that seventy to ninety percent. So
[ken ouellette]if you're at a seventy five, that means
[ken ouellette]if we back test it with seven hundred
[ken ouellette]and fifty different market cycles, mark market scenarios,
(15:42):
[ken ouellette]that the market has gone up down every
[ken ouellette]year, that means seven hundred and fifty out
[ken ouellette]of a thousand you would meet or exceed
[ken ouellette]your goals. That's excellent. Yeah. Yeah. That's that's
[ken ouellette]kind of the gold standard. Right? On two
[ken ouellette]hundred and fifty of those, more than likely
[ken ouellette]you would exceed, but you did there would
[ken ouellette]have to be back to back, like, financial
(16:03):
[ken ouellette]calamities that that that year over year over
[ken ouellette]year, decade over decade before you not do
[ken ouellette]it, which is not really it's not probable.
[ken ouellette]Right? So we're all Yep. Is dealing with
[ken ouellette]probabilities when we do these, but the seven
[ken ouellette]the seventy five, seventy to ninety. No. So
[ken ouellette]if you're at a hundred, right, that means
(16:23):
[ken ouellette]there's no market cycle in history. Even we
[ken ouellette]go back to back bad markets where you
[ken ouellette]would have not met or exceed your goal.
[ken ouellette]So you think, well, well, I wanna be
[ken ouellette]a hundred, right? Well, the probabilities are so
[ken ouellette]stark against that, that you're probably sacrificing a
[ken ouellette]little bit in your life, or you're gonna
[ken ouellette]create an estate problem above ninety unintended circumstances
(16:45):
[ken ouellette]gonna happen. We want people to enjoy their
[ken ouellette]life, and we also don't wanna create a
[ken ouellette]unintended estate planning situation that they don't they
[ken ouellette]don't really want to do or go through,
[ken ouellette]upon their passing to their heirs. We try
[ken ouellette]to keep people between that seventy and ninety
[ken ouellette]because if it gets above ninety, then we
[ken ouellette]have to have different conversations. They're gonna leave
(17:08):
[ken ouellette]more than what they've anticipated to leave, and
[ken ouellette]then we've got to deal with
[Don Mespelt]Or that might be their plan.
[ken ouellette]It could be their plan. Right. But we
[ken ouellette]would plan that in how much they wanna
[ken ouellette]leave. And so we plan that in, and
[ken ouellette]then we get to the seventy to ninety.
[Don Mespelt]Oh, I see. Yeah. That totally.
[ken ouellette]Right? So, but if somebody's at has has
(17:28):
[ken ouellette]planned that in and they're they're at a
[ken ouellette]hundred, well, you've got so much of an
[ken ouellette]overage that maybe, you know, you you can
[ken ouellette]do a little bit more in retirement, spend
[ken ouellette]a little bit more money, retire a little
[ken ouellette]earlier, things of that nature, or just do
[ken ouellette]more of what you wanna do because you've
[ken ouellette]already met or exceeded all your other goals
[ken ouellette]on a favorable probability.
(17:49):
[Don Mespelt]Do you get clients that are, like, give
[Don Mespelt]you okay, Ken. I have a daughter that's
[Don Mespelt]gonna get married potentially. We're looking at buying
[Don Mespelt]this house here for x amount, and, I
[Don Mespelt]also wanna do vacation. What are my odds?
[Don Mespelt]Or, you know, I mean, is that kinda
[Don Mespelt]you just you lay it all out Yeah.
[Don Mespelt]With you. Yeah.
[ken ouellette]And So we'd have scenarios. So these are
(18:09):
[ken ouellette]great. You you you build a plan, and
[ken ouellette]then you can put in a scenario. Hey.
[ken ouellette]I wanna buy a hundred and fifty thousand
[ken ouellette]dollar RV and travel the country. Great. Let's
[ken ouellette]plug that cost of that that variable into
[ken ouellette]the plan as a scenario. How does it
[ken ouellette]affect your overall retirement plan goals? What does
[ken ouellette]that do to your probabilities? That's what we
(18:29):
[ken ouellette]did with the person that was having the
[ken ouellette]client that was having the daughter, second marriage,
[ken ouellette]forty five dollars.
[Don Mespelt]We plugged it in and had
[ken ouellette]a very negative consequence on their plan. So
[ken ouellette]at that point, the client has to decide.
[ken ouellette]Okay. Is it worth doing? Can I downsize
[ken ouellette]the wedding to make it where I can
[ken ouellette]fit this in and not have to worry
(18:50):
[ken ouellette]about my retirement? Otherwise, they're going to have
[ken ouellette]a consequence down the road, and they just
[ken ouellette]it's our job to make them aware of
[ken ouellette]that. Not to tell them not to tell
[ken ouellette]them no, not to tell them yes, but
[ken ouellette]to say, okay. Based off the planning that
[ken ouellette]we've done for you, this is the consequence
[ken ouellette]of that action.
(19:10):
[Don Mespelt]Wow. When you lay it out like that,
[Don Mespelt]that's totally you know? Do you find that
[Don Mespelt]they still go ahead sometimes? Or
[ken ouellette]Yes. Wow. Some do. I mean, some do.
[ken ouellette]And so then then the tough conversation has
[ken ouellette]to be that I I have to explain
[ken ouellette]to them that we have to downsize the
[ken ouellette]amount that they're gonna receive in retirement to
(19:31):
[ken ouellette]still be successful.
[Don Mespelt]Uh-huh.
[ken ouellette]But that's the client's choice. Totally. Yeah. Wow.
[ken ouellette]We make recommendations. They make decisions.
[Don Mespelt]That's,
[ken ouellette]you can't make those decisions unless you have
[ken ouellette]a plan.
[Don Mespelt]Oh, yeah.
[ken ouellette]Otherwise, you're just flying by the handle, and
[ken ouellette]you're just at a whim of whatever happens.
(19:52):
[ken ouellette]Plan, plan, plan, and that's why these early,
[ken ouellette]plan meetings are important.
[Don Mespelt]So how about the end of the year
[Don Mespelt]as we bring this up before taxes and
[Don Mespelt]everything like that? Because you're probably doing some
[Don Mespelt]of those now too.
[ken ouellette]Yeah. That's that's more just to your point,
[ken ouellette]that's that's more tax related. So we we
[ken ouellette]assess their tax situation, their gains for the
[ken ouellette]year. Is there any losses that they can
(20:14):
[ken ouellette]take to reduce their tax situation, things of
[ken ouellette]that nature. So that that's that's more dollars
[ken ouellette]and cents balance sheet stuff that is just
[ken ouellette]tax related. Uh-huh. We try to take care
[ken ouellette]of the most of the tax related stuff
[ken ouellette]in November, late October.
[Don Mespelt]Okay. Okay. The the, the year round issue
(20:35):
[Don Mespelt]is always, debt in general. How do you
[Don Mespelt]Yeah. I mean
[ken ouellette]Yeah. So In that meeting, in that initial
[ken ouellette]meeting, we you know, you got the financial
[ken ouellette]plan, and then you've got the budget budgetary
[ken ouellette]process. So for some clients, they like us
[ken ouellette]to do, work on their budgets with them.
[ken ouellette]And and the budget and the budget is
[ken ouellette]where you, you know, you iron out the
(20:56):
[ken ouellette]emergency funds, what their expenses look like, where
[ken ouellette]can we reduce some expenses, where can we
[ken ouellette]well, you know, how how do those fit?
[ken ouellette]Do do does your budget actually fit with
[ken ouellette]the outlay of what the plan's gonna provide?
[ken ouellette]Yeah. Know, that gives us a real good
[ken ouellette]sign. You know, if their budget if they're
[ken ouellette]if they need eight thousand a month because
(21:17):
[ken ouellette]they're they live in Florida and their homeowners
[ken ouellette]insurances went from six thousand to fourteen thousand,
[ken ouellette]and that's a budgetary item. We need to
[ken ouellette]put that into the plan and see, okay.
[ken ouellette]Well, how how right. Now you're we know
[ken ouellette]you've said you wanted this much, and we've
[ken ouellette]planned for this much, but now your budget's
[ken ouellette]showing us you're gonna need this much. So
[ken ouellette]we need to get realistic on that and
[ken ouellette]see when we start need to start doing
(21:39):
[ken ouellette]our scenarios.
[Don Mespelt]With the the end of the year stuff,
[Don Mespelt]I know we're talking about budgeting and things
[Don Mespelt]like that. How do you I mean, do
[Don Mespelt]you just do you evaluate midyear saying, okay.
[Don Mespelt]You you have to take out this much,
[Don Mespelt]and so, you know, we should start doing
[Don Mespelt]it now. Or is that the conversation you
[Don Mespelt]have at the beginning as well? Yeah. Yeah.
(21:59):
[Don Mespelt]We do it in the beginning and then
[Don Mespelt]What do I'm not there yet. What's it
[Don Mespelt]called? The the the you recommend, your your
[Don Mespelt]mandatory withdrawals. What's those called?
[ken ouellette]Yes. Yes. For those that are seventy three
[ken ouellette]and above, there there's something called the required
[ken ouellette]minimum distribution.
[Don Mespelt]RMDs. Dang it.
[ken ouellette]RMDs. Yeah. And so they have to take
[ken ouellette]that out during the year, in that calendar
[ken ouellette]year. And sometimes it's advantageous to take the
(22:21):
[ken ouellette]RMD early, and sometimes it's advantageous to take
[ken ouellette]the RMD later. What what do you think
[ken ouellette]would be the variable there, Don?
[Don Mespelt]You're gonna die?
[ken ouellette]Well, yeah. That's good. Yeah. That's that's definitely
[ken ouellette]a very
[Don Mespelt]when you're late on
[ken ouellette]come out. Even if you pass away, your
[ken ouellette]heirs have to take the RMD out in
(22:42):
[ken ouellette]that year.
[Don Mespelt]For that year?
[ken ouellette]Yeah. Yeah. So the RMD is gonna come
[ken ouellette]care of it. What I That's crazy. So
[ken ouellette]if the market I do this basically on
[ken ouellette]valuation. So I look at the historical valuation
[ken ouellette]of the market. And if the market is
[ken ouellette]at an historically high valuation and we're going
[ken ouellette]into the new year, I encourage clients to
[ken ouellette]take their RMD early because we wanna liquidate
(23:04):
[ken ouellette]a a a higher value. Yeah. Right? We
[ken ouellette]wanna sell when it's high and and and,
[ken ouellette]you know, if anything, not sell when it's
[ken ouellette]low. So if the market like, this is
[ken ouellette]a great year of an example. I will
[ken ouellette]be recommending to my clients to take their
[ken ouellette]RMDs in January, February of this year because
[ken ouellette]the market is at an historically high valuation.
(23:26):
[ken ouellette]The probability is not a known, but the
[ken ouellette]market could be fifteen percent less at the
[ken ouellette]end of the year because historically, we're at
[ken ouellette]a high valuation. I don't wanna have to
[ken ouellette]sell something to get their RMD out of
[ken ouellette]their IRA, at a lesser value. So at
[ken ouellette]the very least, if they don't wanna take
[ken ouellette]it now, they wanna take it to the
[ken ouellette]end of the year for whatever reason, we
(23:47):
[ken ouellette]will we will liquidate enough to cover that
[ken ouellette]RMD and just keep it in the kind
[ken ouellette]of a a liquid money market or something
[ken ouellette]of that nature. But I like to distribute
[ken ouellette]it out at the beginning of the year.
[ken ouellette]That way they'd have those funds. And, you
[ken ouellette]know, if the clients are are diligent and
[ken ouellette]they're responsible with their plan, they they'll take
[ken ouellette]that money and they'll use that throughout the
(24:09):
[ken ouellette]year and not just, wow. You know, I've
[ken ouellette]got a big huge lump sum. Let's go
[ken ouellette]spend it in January.
[Don Mespelt]Yeah. And then, you know, then we got
[ken ouellette]we got stress on the plan the latter
[ken ouellette]part of the year. It depends on the
[ken ouellette]case by case analysis of the client. You
[ken ouellette]get to know, you know, how that's gonna
[ken ouellette]work. But by and large, the rule of
[ken ouellette]thumb is high valuation at the
[Don Mespelt]end of the year, beginning of
(24:29):
[ken ouellette]the year, we take the I I encourage
[ken ouellette]people to take the RMD early.
[Don Mespelt]So the biggest takeaways that I'm getting from
[Don Mespelt]this, the first one is just schedule your
[Don Mespelt]your your meeting with your financial adviser.
[ken ouellette]Yeah.
[Don Mespelt]Because if you don't do anything else, your
[Don Mespelt]financial adviser, they're a good one. They're gonna
[Don Mespelt]bring up all these things for you. So
[Don Mespelt]if you don't if you're brain dead, if
(24:50):
[Don Mespelt]you schedule a meeting, you should be okay.
[ken ouellette]Yeah. That's the that's the main but there
[ken ouellette]is a couple of the points that they
[ken ouellette]need to to look at in the in
[ken ouellette]that initial meeting.
[Don Mespelt]Remember, I said the brain dead part. So
[Don Mespelt]that's where you come in and help me.
[ken ouellette]Yeah. Let me cover a couple more points
[ken ouellette]that I think are important, just for just
[ken ouellette]just to kinda round out this part of
(25:11):
[ken ouellette]the planning process. Okay. We wanna look at
[ken ouellette]does your allocation look good for twenty twenty
[ken ouellette]five? Okay. Because we just talked about the
[ken ouellette]market had a really good year out last
[ken ouellette]year. The previous year had a really good
[ken ouellette]year. The valuations are high. So sometimes your
[ken ouellette]allocation gets skewed. And the beginning of the
[ken ouellette]year is a good time to look at
[ken ouellette]your evaluate your your allocation and see that
(25:33):
[ken ouellette]it does it match the plan? Right? So
[ken ouellette]giving it give you a good example. If
[ken ouellette]you're if the plan is looked at the
[ken ouellette]historical number on the assets, whether it be
[ken ouellette]bonds, cash, stocks, commodities, and one of those
[ken ouellette]groups has done very, very well. You could
[ken ouellette]get out of skew on your value on
(25:54):
[ken ouellette]your, allocation. Right? That let's say, to make
[ken ouellette]it real simple, let's say you're at a
[ken ouellette]seventy twenty ten. Seventy percent equities, twenty percent
[ken ouellette]fixed income, and ten percent cash. Say make
[ken ouellette]it simple. The market's really good. What does
[ken ouellette]that do to your allocation?
[Don Mespelt]Well, I guess I mean, you know, you
[Don Mespelt]said we're at seventy twenty ten. I mean
[Don Mespelt]but what if, you know, if it's been
(26:15):
[Don Mespelt]really good and it might have been went
[Don Mespelt]up to eighty even instead of the
[ken ouellette]Exactly. Exactly. You've gotten you've gotten over allocated
[ken ouellette]on the equity side. Right? And so discipline
[ken ouellette]in investing is having your allocation meet your
[ken ouellette]plan. What happens when equities go to eighty
[ken ouellette]percent and the bonds have gone down in
(26:38):
[ken ouellette]the portfolio and and cash has stayed stagnant,
[ken ouellette]it's a hard conversation to tell somebody, hey.
[ken ouellette]These things have done really well. We wanna
[ken ouellette]curve back that thing that has done really
[ken ouellette]well for you. Yeah. Clients don't like to
[ken ouellette]do it. They don't like it.
[Don Mespelt]Well, no. They just wanna ride the wave
[Don Mespelt]as long as they can.
(26:59):
[ken ouellette]Right. But the allocation protects you from the
[ken ouellette]wave when the tide comes out. So it
[ken ouellette]forces you to buy the things that are
[ken ouellette]out of favor. And allocation can go really
[ken ouellette]deep. Right? You can go mid cap, small
[ken ouellette]cap, international stocks, domestic stocks, emerging markets. So
(27:21):
[ken ouellette]we're talking the macro, but we take it
[ken ouellette]to the to the to the real to
[ken ouellette]the real surgical side of each slice of
[ken ouellette]the equities, each slice of the fixed income.
[ken ouellette]So I'll give you a good example here.
[ken ouellette]Okay. Emerging markets, I tend to like about
[ken ouellette]ten percent in emerging markets. Why? Because emerging
[ken ouellette]markets historically emerging markets for the listener are
(27:43):
[ken ouellette]markets that are like Brazil, smaller European countries,
[ken ouellette]Asian countries that are that are not as
[ken ouellette]as large, and they're growing at a typically
[ken ouellette]at a larger rate because they're smaller. They're
[ken ouellette]smaller economies, so they grow a little bit
[ken ouellette]quicker. Larger economies like ours, Europe, they grow
(28:05):
[ken ouellette]at a slower clip. Okay. Emerging markets have
[ken ouellette]done atrociously bad versus the the more mature
[ken ouellette]markets over the last three to five years.
[ken ouellette]So it's difficult conversation to have with the
[ken ouellette]client. Hey. We're our emerging markets, what we
[ken ouellette]started at ten is now at five, but
[ken ouellette]we really need to be at ten. They're
(28:27):
[ken ouellette]rightly so, they're gonna say, well, why would
[ken ouellette]we throw money after some at something that's
[ken ouellette]done so poorly? Well, because that cycle is
[ken ouellette]going to change. I don't know when. I
[ken ouellette]know the allocation historically has done so well
[ken ouellette]that we need to buy things that we
[ken ouellette]don't wanna buy when they're low and reduce
[ken ouellette]things that we don't wanna sell when they're
[ken ouellette]high. Make sense?
(28:50):
[Don Mespelt]Buy low, sell high.
[ken ouellette]Yeah. That it and reallocation forces you to
[ken ouellette]do that. It forces it protects your plan,
[ken ouellette]and then it also allows you to be
[ken ouellette]able to buy things that are out of
[ken ouellette]favor when nobody else likes them. That's how
[ken ouellette]money is really generated on a consistent basis
(29:10):
[ken ouellette]by buying things that are out of favor
[ken ouellette]until they come in favor, reducing them and
[ken ouellette]buying more of the other things that's out
[ken ouellette]of favor and just doing that every year
[ken ouellette]looking at that. Now you have to take
[ken ouellette]into tax considerations. So, you know, so those
[ken ouellette]things that have gone up a high, you
[ken ouellette]have to look at it. Where is it
[ken ouellette]in a tax deferred account such as an
[ken ouellette]IRA versus a tax Uh-huh. What's gonna be
(29:31):
[ken ouellette]the tax consequence of doing this? So we
[ken ouellette]we need to intermix in there where we
[ken ouellette]make those changes so it's most, you know,
[ken ouellette]so it's not too too harmful on a
[ken ouellette]taxation basis. So that's another sliver in there.
[Don Mespelt]That's a big sliver, Ken.
[ken ouellette]It's big. I mean and it's those are
[ken ouellette]those are tough conversations to have, but they're
[ken ouellette]so important because the next point to the
(29:53):
[ken ouellette]plan is doing your your fireboat drills. Right?
[ken ouellette]So
[Don Mespelt]Okay. We
[ken ouellette]want that that's the stress testing of the
[ken ouellette]portfolio. If the market's down twenty five percent,
[ken ouellette]what's our allocation? How does it look? How
[ken ouellette]will our portfolio respond? How and more importantly,
[ken ouellette]how do you feel emotionally when that happens?
(30:15):
[ken ouellette]Because, yeah, that's the the real real struggle
[ken ouellette]and to to be as a successful investor.
[ken ouellette]So the price we pay the average the
[ken ouellette]average annual return on equities is ten percent
[ken ouellette]per annum. It's been like that forever. We've
[ken ouellette]talked about that in past podcast. The price
[ken ouellette]you pay for that ten percent is every
(30:37):
[ken ouellette]three to five years, you gotta be down
[ken ouellette]thirty. That's the price of admission. You can't
[ken ouellette]get to ten without facing down being down
[ken ouellette]twenty five or twenty at at some point.
[ken ouellette]Yeah. It's just that is what you have
[ken ouellette]to pay, and you have to weather that
[ken ouellette]and do the right things at the bottom
[ken ouellette]to be able to get that average annual
[ken ouellette]return. So we do the fire drills more
(30:58):
[ken ouellette]just to show the client. So that way
[ken ouellette]we can see, okay. If the market's down,
[ken ouellette]has a real bad year and it's down
[ken ouellette]forty, you're down twenty. How are you gonna
[ken ouellette]feel? The plan says you're gonna be fine,
[ken ouellette]but how are you gonna feel emotionally? And
[ken ouellette]we give them the dollar value. Right? Because
[ken ouellette]everybody monetizes the law the high level the
(31:21):
[ken ouellette]highest level they've ever hit on the on
[ken ouellette]in the their value of their portfolio. Uh-huh.
[ken ouellette]Everybody assumes that that's the that's the value
[ken ouellette]that they're they're gonna always have going forward
[ken ouellette]building upon. So if you got a million,
[ken ouellette]you're down twenty percent. You're now at eight
[ken ouellette]hundred thousand.
[Don Mespelt]How are you gonna sleep that night?
[ken ouellette]How are you gonna sleep? Now the plan
[ken ouellette]says you you should sleep like a baby.
(31:43):
[ken ouellette]Right? Because we we bake this in.
[Don Mespelt]Uh-huh.
[ken ouellette]How are you going to react? You know?
[ken ouellette]Because what it doesn't just go from typically
[ken ouellette]a million to eight hundred. It goes from
[ken ouellette]a million to nine. And then you're like,
[ken ouellette]wow. That's a hundred thousand dollars. Alright. Well,
[ken ouellette]it you just probably got more to go.
(32:03):
[ken ouellette]It goes down to eight hundred, then your
[ken ouellette]mind starts to play little mental gymnastics with
[ken ouellette]you, and you think eight hundred is going
[ken ouellette]to six hundred, then it's going to four
[ken ouellette]hundred, then it's going to zero. Yeah. So
[ken ouellette]that's why we do, the fire drills. And
[ken ouellette]I think that's an important part of of
[ken ouellette]the, the planning process at the beginning of
[ken ouellette]the year. Just it's just reeducation. And, you
(32:26):
[ken ouellette]know, I sent out a nice newsletter to
[ken ouellette]the clients at the beginning of this year,
[ken ouellette]kind of outlining what we do in varying
[ken ouellette]market cycles and why we do it, and,
[ken ouellette]you know, we're not gonna change.
[Don Mespelt]Yeah. Yeah. Plan. You have a plan too.
[ken ouellette]Yep.
[Don Mespelt]Right on. Ken, thank you for this talk.
[ken ouellette]Yeah. We covered a lot in this one.
(32:46):
[Don Mespelt]I thought so. I gotta go back, and
[Don Mespelt]I'm gonna listen to this one twice myself
[Don Mespelt]just to make sure I got everything.
[ken ouellette]Yeah. I'd encourage, you know, the if there's
[ken ouellette]one takeaway, just, plan your meeting. You know,
[ken ouellette]make it make it, you know, I think
[ken ouellette]that people change the batteries in their smoke
[ken ouellette]detectors. You know, they do things every year.
[ken ouellette]You know, put that that financial planning meeting
(33:06):
[ken ouellette]at the forefront. Get it done in the
[ken ouellette]first quarter of the year.
[Don Mespelt]Then if you are brain dead like I
[Don Mespelt]alluded to, you have people like you that
[Don Mespelt]can help you out.
[ken ouellette]Yeah. Yeah. We'll we'll what what will
[Don Mespelt]Shock test it. Yeah.
[ken ouellette]We'll, yeah, we'll shock you back into the
[ken ouellette]reality. So
[Don Mespelt]Right on.
[ken ouellette]Because there's no downside to having that plan
[ken ouellette]that planning meeting in the beginning of the
(33:27):
[ken ouellette]year zero. I wouldn't.
[Don Mespelt]Yeah. Kenolette, a life well lived, grow, preserve,
[Don Mespelt]and transfer your wealth. Love you, man. You
[Don Mespelt]have good knowledge.
[ken ouellette]Well, thank you. And, as always, you know,
[ken ouellette]reach out to us at Orca Wealth, o
[ken ouellette]r c a w e a l t
[ken ouellette]h. We have offices in Tampa and in
[ken ouellette]North Carolina. So, you know, we pretty much
(33:49):
[ken ouellette]cover the south and, and kind of the
[ken ouellette]West Coast for you guys too. Yeah. Seven
[ken ouellette]two seven seven four one six zero seven
[ken ouellette]seven.
[Don Mespelt]Have a great afternoon, sir. You too, Don.
[Intro/Extro]Thank you for listening to a live well
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(34:11):
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[Intro/Extro]represent the views or opinions of Orca Wealth
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(34:32):
[Intro/Extro]professional investing advice. Always seek the advice of
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[Intro/Extro]provider with any questions you may have regarding
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[Intro/Extro]Welcome to a life well lift. Grow, preserve,
[Intro/Extro]and transfer your wealth with Ken Ouellette, CPM
[Intro/Extro]certified portfolio manager and founder of Orca Wealth
[Intro/Extro]Management. In this podcast, he will provide some
[Intro/Extro]clarity and setting goals needed to build, preserve,
[Intro/Extro]and transfer wealth and overcome some of life's
[Intro/Extro]financial obstacles. Ken provides actionable steps to help
(00:24):
[Intro/Extro]you plan through your financial ups and downs
[Intro/Extro]in a way everyone can understand. Join us
[Intro/Extro]on this journey where Ken will explore many
[Intro/Extro]financial avenues, drawing from his three decades of
[Intro/Extro]experience in helping others avoid risking a lifetime's
[Intro/Extro]worth of work and savings by not having
[Intro/Extro]a plan and a strategy in place. Now
(00:45):
[Intro/Extro]onto the show.
[Don Mespelt]Well, there's no more ho ho ho. It's
[Don Mespelt]gone away, and here we are to stay.
[Don Mespelt]My rhyme for the new year, Ken.
[ken ouellette]Yep. New year, twenty twenty five. New challenges,
[ken ouellette]new opportunities, new. That's the, that's the beauty
[ken ouellette]of a new year. Even though this is
[ken ouellette]just a calendar thing, but, yeah, there's a
(01:07):
[ken ouellette]lot a lot of work to be done
[ken ouellette]in the beginning of the year.
[Don Mespelt]Yeah. There's I mean, the people always, you
[Don Mespelt]know, have their goals and what their plans
[Don Mespelt]are, and, you know, they're gonna work out
[Don Mespelt]and everything else. And a lot of those
[Don Mespelt]don't really stick with people, but, you know,
[Don Mespelt]it's it's a person individual choice. But when
[Don Mespelt]it comes to financials, what are the what
[Don Mespelt]are the what do how do you go
[Don Mespelt]from there? What do you do?
(01:28):
[ken ouellette]Yeah. I think maybe that's a great great,
[ken ouellette]launch board for today's day's talk. I think
[ken ouellette]we're gonna go we'll just talk about some
[ken ouellette]of the things that I impress upon my
[ken ouellette]clients beginning of the year. Put kinda put
[ken ouellette]them in first first, you know, in front
[ken ouellette]of their minds, things to think about, things
[ken ouellette]we wanna check off typically by February. Right?
(01:50):
[ken ouellette]So that kinda just tees us up for
[ken ouellette]the rest of the year. Really, there's nothing
[ken ouellette]that comes as a surprise. I mean, I
[ken ouellette]think if there's anything that we've learned is
[ken ouellette]financial planning is all about eliminating as best
[ken ouellette]you possibly can surprises. Yeah. Right? Nobody likes
[ken ouellette]surprises. And so if we've already talked about
[ken ouellette]them at the beginning of the year, the
(02:12):
[ken ouellette]two most important planning periods in my view
[ken ouellette]is end of the year, beginning of the
[ken ouellette]year.
[Don Mespelt]And I was gonna bring that up because
[Don Mespelt]you just said the beginning of the year
[Don Mespelt]is merely just a calendar thing. But financially,
[Don Mespelt]is it really just a calendar thing? Or
[Don Mespelt]is it actually kind of more? I know
[Don Mespelt]the end of the year, I could see
[Don Mespelt]that with taxes and things like that would
[Don Mespelt]definitely be. But is the beginning of the
(02:33):
[Don Mespelt]year just, you know, it's a year away
[Don Mespelt]from doing your taxes?
[ken ouellette]Well, no. I mean, I think it was
[ken ouellette]more psychological than anything else. You know, in
[ken ouellette]the That's thirty year retirement. Right? You're does
[ken ouellette]does the beginning of the year really make
[ken ouellette]that big of a difference? No. Because you've
[ken ouellette]got thirty of those, hopefully, God willing. But
[ken ouellette]with that said, you wanna prepare each year
(02:54):
[ken ouellette]for what it's so it's it's just a
[ken ouellette]good place to take a pause. Look at
[ken ouellette]where you've been. We kinda do that at
[ken ouellette]the year end stuff. Look at your performance,
[ken ouellette]look at your plan, and then iron out
[ken ouellette]from what happened the previous year, how your
[ken ouellette]plan did versus your goals. Then look at
(03:14):
[ken ouellette]this year's plan, which will be the same
[ken ouellette]as the end of the year's plan, hopefully.
[ken ouellette]It hasn't changed by year end. And then
[ken ouellette]let's say, okay. This is how we did
[ken ouellette]last year. This is what the expectations are
[ken ouellette]for this year. Has anything changed? And we're
[ken ouellette]gonna I think in this podcast, we'll go
[ken ouellette]over some of the main things we wanna
[ken ouellette]cover in that initial meeting at the beginning
(03:35):
[ken ouellette]of the year through January or February to
[ken ouellette]make sure that nothing has changed on those
[ken ouellette]items and that for this year, we just
[ken ouellette]are set for one year in terms of
[ken ouellette]planning prospects.
[Don Mespelt]So you actually have you have two variables
[Don Mespelt]here. A, the stock market. You're kinda just
[Don Mespelt]gonna say what might happen this year. Right.
[Don Mespelt]And b, your plans. If you haven't changed
(03:57):
[Don Mespelt]any plans and you're just having fun, then
[Don Mespelt]nothing changes there. But if you all of
[Don Mespelt]a sudden, I wanna do a second trip
[Don Mespelt]to Venezuela, you know, then you have to
[Don Mespelt]plan those in. So those are two variables.
[ken ouellette]Yeah. So we know that with the of
[ken ouellette]those two variables, there's only one we can
[ken ouellette]control, and that's the planning. We can't control
[ken ouellette]the market. We try to take what we
[ken ouellette]can't control and minimize it as little as
(04:19):
[ken ouellette]possible to how it's gonna affect the client's
[ken ouellette]relationship for that year with their plan. You
[ken ouellette]know, you and I have spoken offline about
[ken ouellette]investing is really ninety percent mental. If we
[ken ouellette]get the plan in place, we look at
[ken ouellette]alright. Based off of last year and the
[ken ouellette]year before is inflation, which changed a lot
[ken ouellette]of people's expectation for their their need for
(04:42):
[ken ouellette]how much money they're gonna need. So we
[ken ouellette]need to evaluate at the beginning of the
[ken ouellette]year, how does the plan how's it withstood
[ken ouellette]the last couple of years? How are you
[ken ouellette]positioned now? What in your because we wanna
[ken ouellette]make people they're comfortable. Right? So there's nothing,
[ken ouellette]like I said, nothing unexpected that's gonna come
[ken ouellette]up.
[Don Mespelt]Uh-huh.
(05:03):
[ken ouellette]Because we can't control the market. So we
[ken ouellette]have to factor in good markets, bad markets,
[ken ouellette]calamities, because there's gonna be some calamities in
[ken ouellette]twenty twenty five. We just don't know what
[ken ouellette]it is. And when they try to project
[ken ouellette]what the calamities are gonna be, they never
[ken ouellette]get it right. So that's why they're calamities
[ken ouellette]because you you don't know that they're gonna
[ken ouellette]happen. So we try to anticipate what the
(05:25):
[ken ouellette]market reaction will be to varying calamities. Really,
[ken ouellette]really bad, really good, and just ho And
[ken ouellette]then we we stress test it with the
[ken ouellette]portfolio, but we'll kinda get into that when
[ken ouellette]we go over the bullets of what what
[ken ouellette]people need to really address, at the beginning
[ken ouellette]of the year. How's that sound?
[Don Mespelt]That's that's all we just covered half of
[Don Mespelt]it in my head. I'm just thinking, I
[Don Mespelt]don't know what other half is gonna go
(05:47):
[Don Mespelt]Yeah. Other than, dun dun dun.
[ken ouellette]It might be a little bit more than
[ken ouellette]a half here, but so let's start with
[ken ouellette]with number one that, it it's first and
[ken ouellette]foremost in my mind.
[Don Mespelt]Okay. What's that?
[ken ouellette]We wanna update the financial plan. Right? Any
[ken ouellette]changes, goals, work, family life, are you still
[ken ouellette]on track? If not, why, and what needs
(06:09):
[ken ouellette]to change? So there If I
[Don Mespelt]can right there, don't you have that really
[Don Mespelt]cool thing that you put all the numbers
[Don Mespelt]in that says you got a hundred percent
[Don Mespelt]chance of achieving your goal?
[ken ouellette]Exactly. So why do you think we do
[ken ouellette]that?
[Don Mespelt]Well, just that reason. I mean, to to
[Don Mespelt]to put some reality into the thing, if
[Don Mespelt]if if I have a fifty percent chance
[Don Mespelt]to achieve my goal, then we gotta reevaluate.
(06:29):
[ken ouellette]Right. And, also, I think more importantly than
[ken ouellette]that, then that's an important aspect because if
[ken ouellette]you are at a fifty, you there's gotta
[ken ouellette]be some pretty long conversations. So we know
[ken ouellette]the beauty of financial planning, we've talked about
[ken ouellette]this in the past and doing these financial
[ken ouellette]plans, is that there's only really two variables
[ken ouellette]there. There's the performance of the portfolio, and
[ken ouellette]then there's the client's actions.
(06:51):
[Don Mespelt]Expectations?
[ken ouellette]Well, not expectation, but did they Oh,
[Don Mespelt]they gotta do their part.
[ken ouellette]Did they do their part? Did they withdraw
[ken ouellette]the amount that we've agreed upon and stress
[ken ouellette]test that with the portfolio? Mhmm. So if
[ken ouellette]if we're if somebody's at a fifty and
[ken ouellette]we were at an eighty or ninety percentile,
[ken ouellette]in the plan, which we wanna be between
(07:12):
[ken ouellette]seventy and ninety, that's kind of the sweet
[ken ouellette]spot. So if somebody's at a fifty, either
[ken ouellette]the adviser failed miserably in the performance last
[ken ouellette]year and upset the plan or the client
[ken ouellette]withdrew more than that what they agreed to
[ken ouellette]withdraw. Something in life created a problem where
[ken ouellette]they had to take out more that wasn't
[ken ouellette]anticipated for.
(07:32):
[Don Mespelt]Uh-huh.
[ken ouellette]To find out, okay, what what could happen?
[Don Mespelt]Uh-huh. Alright. Well And and it's just like
[Don Mespelt]if I didn't tell you that I was
[Don Mespelt]planning that trip to Venezuela and I took
[Don Mespelt]out an extra thirty grand, you'd be a
[Don Mespelt]little upset.
[ken ouellette]Yeah. And I had a you know, in
[ken ouellette]the past, I had I had, like for
[ken ouellette]instance, I had a client, many years ago.
(07:54):
[ken ouellette]Great plan. Really was a the numbers were
[ken ouellette]were very good year of year over year.
[ken ouellette]And then in March, the client comes to
[ken ouellette]me and says, listen. My daughter's getting married
[ken ouellette]again, and we want to take out forty
[ken ouellette]five thousand dollars for the wedding. That's an
[ken ouellette]expensive wedding.
[Don Mespelt]I wasn't my my I still get my
(08:16):
[Don Mespelt]jaw off there at forty five.
[ken ouellette]And it's a second wedding. Alright.
[Don Mespelt]So It's yeah. But forty five for any
[Don Mespelt]wedding. Good golly.
[ken ouellette]Right. And so I had to have a
[ken ouellette]hard conversation with a client that, yes, you
[ken ouellette]can do that. But you have to realize
[ken ouellette]that when you're eighty, that daughter has to
[ken ouellette]give you some of that money back, or
[ken ouellette]otherwise, your plan is is going to fail.
(08:41):
[ken ouellette]Right? So there's you know, that's why we
[ken ouellette]plan because there's there's a repercussion for every
[ken ouellette]action you do in the plan. The the
[ken ouellette]client can do that. You know, we're we're
[ken ouellette]just they're the owner. We, as advisors are
[ken ouellette]the CFO, but the owner has the final
[ken ouellette]decision. But we as the the the chief
(09:04):
[ken ouellette]financial officer for that client, we have to
[ken ouellette]tell them, okay. You can do that. Yeah.
[ken ouellette]But Here's here's what that is here's gonna
[ken ouellette]be the ramifications of doing that.
[Don Mespelt]Now with that, I mean, don't you you
[Don Mespelt]have your emergency fund, which you probably should
[Don Mespelt]make sure that's an online too. But, don't
[Don Mespelt]you put money aside saying I have, you
[Don Mespelt]know, she's gonna get married soon, so I
(09:25):
[Don Mespelt]wanna put money there with don't you I
[Don Mespelt]mean, isn't that part of the planning? I
[Don Mespelt]mean, you just don't come out and say
[Don Mespelt]that. Right?
[ken ouellette]It should be, but it it not always
[ken ouellette]the case. And let let's define emergency fund.
[ken ouellette]Okay? Okay. So what is your understanding of
[ken ouellette]emergency fund?
[Don Mespelt]Your total bills that you're gonna have for,
[Don Mespelt]like, three or four months, and some people
[Don Mespelt]say up to six months. So that way,
(09:45):
[Don Mespelt]if everything went south, you can just live
[Don Mespelt]off your savings for at least that long
[Don Mespelt]a time without having to do anything.
[ken ouellette]That's that's a pretty good definition, Don.
[Don Mespelt]Wow. Thanks. But, yeah, the big caveat is
[Don Mespelt]some people some experts say six, some say
[Don Mespelt]three, and it's really I think as you
[Don Mespelt]get older, it kinda should go up proportionally
[Don Mespelt]in my opinion. Is that right? Yeah. So
(10:06):
[Don Mespelt]I have starting out as a teen or
[Don Mespelt]as a twenty year old, I mean, having
[Don Mespelt]six months saved up? Right. I barely had
[Don Mespelt]enough Top Rama to live six months.
[ken ouellette]Yeah. So that emergency plan, I like to
[ken ouellette]I'd like to do a minimum of six
[ken ouellette]months. Yeah. I've just found, six months. And
[ken ouellette]when I say emergency fund, I mean, that's
[ken ouellette]that's money that is not market related that
(10:29):
[Don Mespelt]you can
[ken ouellette]get at if you were cut off from
[ken ouellette]everything, and you're not gonna have to force
[ken ouellette]liquidate something at a bad time. So if
[ken ouellette]you only have three months worth of emergency
[ken ouellette]expenses and you're cut off, you lose a
[ken ouellette]job, something happens where you have no income,
[ken ouellette]you you go three months, then you're running
(10:50):
[ken ouellette]out of money, and then you're gonna have
[ken ouellette]to make the markets down, let's say, twenty
[ken ouellette]five percent, then you have to go in
[ken ouellette]and sell things at an inopportune time.
[Don Mespelt]Uh-huh.
[ken ouellette]So I try to do six months. At
[ken ouellette]best, I encourage some clients to go as
[ken ouellette]far as a year just so that gives
[ken ouellette]us the flexibility. Right now, it's not so
[ken ouellette]penal. Right? Because Yeah. You can get four
(11:10):
[ken ouellette]point five percent in treasuries and money markets
[ken ouellette]at the current time. So you're earning something
[ken ouellette]on those those short term monies that you
[ken ouellette]you don't you can take it out, and
[ken ouellette]you're not gonna have to worry about where
[ken ouellette]the market's at, what's going on with the
[ken ouellette]economy. Uh-huh. That that creates a a sense
[ken ouellette]of, comfort. Now when the when the interest
(11:30):
[ken ouellette]rates were at less than one percent, it
[ken ouellette]was a stretch to go six months because
[ken ouellette]your six months you were earning not what
[ken ouellette]inflation was. That created a a major issue
[ken ouellette]for for people. But now I think you
[ken ouellette]can you can look at it. You can
[ken ouellette]have a conversation with your adviser. You know,
[ken ouellette]how much do we have in the emergency
[ken ouellette]fund, and what what is that earning?
(11:52):
[Don Mespelt]Uh-huh. And the high yield accounts aren't as
[Don Mespelt]high yield anymore, but they're still there.
[ken ouellette]Yeah. They're still not bad. I mean, historically
[ken ouellette]speaking, if you can get four and a
[ken ouellette]half percent on short term emergency funds money,
[ken ouellette]that that's you know, we're set to spread
[ken ouellette]one percent above inflation right now. I'm comfortable
[ken ouellette]with that.
[Don Mespelt]Mhmm.
[ken ouellette]So you
[Don Mespelt]got your emergency fund going then, and you
(12:12):
[Don Mespelt]you also talked about, checking, what was it,
[Don Mespelt]your beneficiaries and stuff like that?
[ken ouellette]Yeah. It's a good time to, review beneficiaries
[ken ouellette]because, you know, things change. And, on a
[ken ouellette]yearly basis, we we like to to to
[ken ouellette]have that in that first meeting. You know,
[ken ouellette]has anything changed in your beneficiaries? You know,
(12:32):
[ken ouellette]sometimes oftentimes, we'll have a copy of their
[ken ouellette]beneficiaries to provide them. Uh-huh. That way they
[ken ouellette]can review that and make sure, yeah, that's
[ken ouellette]that's set. So there there you know, you
[ken ouellette]can have a lot of issues with beneficiaries
[ken ouellette]if they're not done correctly. Right? We wanna
[ken ouellette]make sure that and when I say issues,
(12:54):
[ken ouellette]I'm I'm not talking so much as family
[ken ouellette]issues, which those are those that's a whole
[ken ouellette]another podcast, but you'll also have taxation issues,
[ken ouellette]which are important.
[Don Mespelt]Oof.
[ken ouellette]Do you wanna recognize those as much possible?
[Don Mespelt]So Oh, totally. I can see that.
[ken ouellette]Yeah. My name and your like, for instance,
[ken ouellette]I'll give you a good good cases. So
[ken ouellette]it used to be very prevalent for people
(13:15):
[ken ouellette]as their beneficiaries. They would put their estate.
[ken ouellette]They would put this person something happens to
[ken ouellette]that person, their estate. Uh-huh. That creates a
[ken ouellette]tax issue. You wanna name individuals as or
[ken ouellette]charities as beneficiaries when whenever possible. So we
[ken ouellette]we try to we we try to get
[ken ouellette]if we ever see a client that puts
(13:35):
[ken ouellette]their estate as the beneficiary because then it
[ken ouellette]has to go through the estate process. It's
[ken ouellette]just not
[Don Mespelt]Efficient.
[ken ouellette]Efficient, and it's and it creates a tax
[ken ouellette]nightmare. So that's something that we'll look at
[ken ouellette]and and address with the client individually.
[Don Mespelt]And now you schedule these reviews every year
[Don Mespelt]like this in the beginning to get all
[Don Mespelt]this?
[ken ouellette]Yeah. We'll we'll start ramping that up right
[ken ouellette]now. It's a good time because people are
(13:57):
[ken ouellette]they're calling they'll they'll be calling in in
[ken ouellette]probably the second or third week in January
[ken ouellette]because they wanna get their their ten ninety
[ken ouellette]nines and their information. Yeah. So at that
[ken ouellette]point, we say, yeah. That's great. Let's schedule
[ken ouellette]a time to to do our quick review,
[ken ouellette]look at the for the year, and, we
[ken ouellette]can discuss those ten ninety nines and when
[ken ouellette]those are gonna be issued as well. It's
(14:18):
[ken ouellette]a good good good launching point because the
[ken ouellette]clients are, are gonna be reaching out to
[ken ouellette]us because they wanna get their taxes done.
[ken ouellette]Usually, most clients wanna get them done early.
[Don Mespelt]Well, I I assume that would be it.
[Don Mespelt]Yeah. When you stress now I'm bouncing around
[Don Mespelt]a little bit, but I'm thinking of the
[Don Mespelt]things that you mentioned. When you stress test,
[Don Mespelt]you're talking about that's for the year, and
[Don Mespelt]then you also have to do a long
(14:38):
[Don Mespelt]term one too. Right? And that's what I'm
[Don Mespelt]thinking of the test that you've done with
[Don Mespelt]me.
[ken ouellette]Yeah. The the plan itself, does that pretty
[ken ouellette]robustly. It's it's called the Monte Carlo analysis,
[ken ouellette]and I know that sounds like it's gambling,
[ken ouellette]but I don't know what whoever named that.
[ken ouellette]I should probably look that up, but it's
(14:59):
[ken ouellette]it's not a real good name. Right? Monte
[ken ouellette]Carlo. They call it
[Don Mespelt]the gamble with your retirement.
[ken ouellette]The craps table analysis. You know, it's just
[ken ouellette]not real real good. But the the thought
[ken ouellette]behind it, it's very good. So it takes
[ken ouellette]a thousand different market cycles, and it, varying
[ken ouellette]market conditions and back test it with your
[ken ouellette]portfolio and your allocation and tells you what
(15:20):
[ken ouellette]you would do in varying market cycles over
[ken ouellette]a period of time. And then it spits
[ken ouellette]out a probability of successful outcomes or negative
[ken ouellette]outcomes. If you're if you're at a, we
[ken ouellette]talked about that seventy to ninety percent. So
[ken ouellette]if you're at a seventy five, that means
[ken ouellette]if we back test it with seven hundred
[ken ouellette]and fifty different market cycles, mark market scenarios,
(15:42):
[ken ouellette]that the market has gone up down every
[ken ouellette]year, that means seven hundred and fifty out
[ken ouellette]of a thousand you would meet or exceed
[ken ouellette]your goals. That's excellent. Yeah. Yeah. That's that's
[ken ouellette]kind of the gold standard. Right? On two
[ken ouellette]hundred and fifty of those, more than likely
[ken ouellette]you would exceed, but you did there would
[ken ouellette]have to be back to back, like, financial
(16:03):
[ken ouellette]calamities that that that year over year over
[ken ouellette]year, decade over decade before you not do
[ken ouellette]it, which is not really it's not probable.
[ken ouellette]Right? So we're all Yep. Is dealing with
[ken ouellette]probabilities when we do these, but the seven
[ken ouellette]the seventy five, seventy to ninety. No. So
[ken ouellette]if you're at a hundred, right, that means
(16:23):
[ken ouellette]there's no market cycle in history. Even we
[ken ouellette]go back to back bad markets where you
[ken ouellette]would have not met or exceed your goal.
[ken ouellette]So you think, well, well, I wanna be
[ken ouellette]a hundred, right? Well, the probabilities are so
[ken ouellette]stark against that, that you're probably sacrificing a
[ken ouellette]little bit in your life, or you're gonna
[ken ouellette]create an estate problem above ninety unintended circumstances
(16:45):
[ken ouellette]gonna happen. We want people to enjoy their
[ken ouellette]life, and we also don't wanna create a
[ken ouellette]unintended estate planning situation that they don't they
[ken ouellette]don't really want to do or go through,
[ken ouellette]upon their passing to their heirs. We try
[ken ouellette]to keep people between that seventy and ninety
[ken ouellette]because if it gets above ninety, then we
[ken ouellette]have to have different conversations. They're gonna leave
(17:08):
[ken ouellette]more than what they've anticipated to leave, and
[ken ouellette]then we've got to deal with
[Don Mespelt]Or that might be their plan.
[ken ouellette]It could be their plan. Right. But we
[ken ouellette]would plan that in how much they wanna
[ken ouellette]leave. And so we plan that in, and
[ken ouellette]then we get to the seventy to ninety.
[Don Mespelt]Oh, I see. Yeah. That totally.
[ken ouellette]Right? So, but if somebody's at has has
(17:28):
[ken ouellette]planned that in and they're they're at a
[ken ouellette]hundred, well, you've got so much of an
[ken ouellette]overage that maybe, you know, you you can
[ken ouellette]do a little bit more in retirement, spend
[ken ouellette]a little bit more money, retire a little
[ken ouellette]earlier, things of that nature, or just do
[ken ouellette]more of what you wanna do because you've
[ken ouellette]already met or exceeded all your other goals
[ken ouellette]on a favorable probability.
(17:49):
[Don Mespelt]Do you get clients that are, like, give
[Don Mespelt]you okay, Ken. I have a daughter that's
[Don Mespelt]gonna get married potentially. We're looking at buying
[Don Mespelt]this house here for x amount, and, I
[Don Mespelt]also wanna do vacation. What are my odds?
[Don Mespelt]Or, you know, I mean, is that kinda
[Don Mespelt]you just you lay it all out Yeah.
[Don Mespelt]With you. Yeah.
[ken ouellette]And So we'd have scenarios. So these are
(18:09):
[ken ouellette]great. You you you build a plan, and
[ken ouellette]then you can put in a scenario. Hey.
[ken ouellette]I wanna buy a hundred and fifty thousand
[ken ouellette]dollar RV and travel the country. Great. Let's
[ken ouellette]plug that cost of that that variable into
[ken ouellette]the plan as a scenario. How does it
[ken ouellette]affect your overall retirement plan goals? What does
[ken ouellette]that do to your probabilities? That's what we
(18:29):
[ken ouellette]did with the person that was having the
[ken ouellette]client that was having the daughter, second marriage,
[ken ouellette]forty five dollars.
[Don Mespelt]We plugged it in and had
[ken ouellette]a very negative consequence on their plan. So
[ken ouellette]at that point, the client has to decide.
[ken ouellette]Okay. Is it worth doing? Can I downsize
[ken ouellette]the wedding to make it where I can
[ken ouellette]fit this in and not have to worry
(18:50):
[ken ouellette]about my retirement? Otherwise, they're going to have
[ken ouellette]a consequence down the road, and they just
[ken ouellette]it's our job to make them aware of
[ken ouellette]that. Not to tell them not to tell
[ken ouellette]them no, not to tell them yes, but
[ken ouellette]to say, okay. Based off the planning that
[ken ouellette]we've done for you, this is the consequence
[ken ouellette]of that action.
(19:10):
[Don Mespelt]Wow. When you lay it out like that,
[Don Mespelt]that's totally you know? Do you find that
[Don Mespelt]they still go ahead sometimes? Or
[ken ouellette]Yes. Wow. Some do. I mean, some do.
[ken ouellette]And so then then the tough conversation has
[ken ouellette]to be that I I have to explain
[ken ouellette]to them that we have to downsize the
[ken ouellette]amount that they're gonna receive in retirement to
(19:31):
[ken ouellette]still be successful.
[Don Mespelt]Uh-huh.
[ken ouellette]But that's the client's choice. Totally. Yeah. Wow.
[ken ouellette]We make recommendations. They make decisions.
[Don Mespelt]That's,
[ken ouellette]you can't make those decisions unless you have
[ken ouellette]a plan.
[Don Mespelt]Oh, yeah.
[ken ouellette]Otherwise, you're just flying by the handle, and
[ken ouellette]you're just at a whim of whatever happens.
(19:52):
[ken ouellette]Plan, plan, plan, and that's why these early,
[ken ouellette]plan meetings are important.
[Don Mespelt]So how about the end of the year
[Don Mespelt]as we bring this up before taxes and
[Don Mespelt]everything like that? Because you're probably doing some
[Don Mespelt]of those now too.
[ken ouellette]Yeah. That's that's more just to your point,
[ken ouellette]that's that's more tax related. So we we
[ken ouellette]assess their tax situation, their gains for the
[ken ouellette]year. Is there any losses that they can
(20:14):
[ken ouellette]take to reduce their tax situation, things of
[ken ouellette]that nature. So that that's that's more dollars
[ken ouellette]and cents balance sheet stuff that is just
[ken ouellette]tax related. Uh-huh. We try to take care
[ken ouellette]of the most of the tax related stuff
[ken ouellette]in November, late October.
[Don Mespelt]Okay. Okay. The the, the year round issue
(20:35):
[Don Mespelt]is always, debt in general. How do you
[Don Mespelt]Yeah. I mean
[ken ouellette]Yeah. So In that meeting, in that initial
[ken ouellette]meeting, we you know, you got the financial
[ken ouellette]plan, and then you've got the budget budgetary
[ken ouellette]process. So for some clients, they like us
[ken ouellette]to do, work on their budgets with them.
[ken ouellette]And and the budget and the budget is
[ken ouellette]where you, you know, you iron out the
(20:56):
[ken ouellette]emergency funds, what their expenses look like, where
[ken ouellette]can we reduce some expenses, where can we
[ken ouellette]well, you know, how how do those fit?
[ken ouellette]Do do does your budget actually fit with
[ken ouellette]the outlay of what the plan's gonna provide?
[ken ouellette]Yeah. Know, that gives us a real good
[ken ouellette]sign. You know, if their budget if they're
[ken ouellette]if they need eight thousand a month because
(21:17):
[ken ouellette]they're they live in Florida and their homeowners
[ken ouellette]insurances went from six thousand to fourteen thousand,
[ken ouellette]and that's a budgetary item. We need to
[ken ouellette]put that into the plan and see, okay.
[ken ouellette]Well, how how right. Now you're we know
[ken ouellette]you've said you wanted this much, and we've
[ken ouellette]planned for this much, but now your budget's
[ken ouellette]showing us you're gonna need this much. So
[ken ouellette]we need to get realistic on that and
[ken ouellette]see when we start need to start doing
(21:39):
[ken ouellette]our scenarios.
[Don Mespelt]With the the end of the year stuff,
[Don Mespelt]I know we're talking about budgeting and things
[Don Mespelt]like that. How do you I mean, do
[Don Mespelt]you just do you evaluate midyear saying, okay.
[Don Mespelt]You you have to take out this much,
[Don Mespelt]and so, you know, we should start doing
[Don Mespelt]it now. Or is that the conversation you
[Don Mespelt]have at the beginning as well? Yeah. Yeah.
(21:59):
[Don Mespelt]We do it in the beginning and then
[Don Mespelt]What do I'm not there yet. What's it
[Don Mespelt]called? The the the you recommend, your your
[Don Mespelt]mandatory withdrawals. What's those called?
[ken ouellette]Yes. Yes. For those that are seventy three
[ken ouellette]and above, there there's something called the required
[ken ouellette]minimum distribution.
[Don Mespelt]RMDs. Dang it.
[ken ouellette]RMDs. Yeah. And so they have to take
[ken ouellette]that out during the year, in that calendar
[ken ouellette]year. And sometimes it's advantageous to take the
(22:21):
[ken ouellette]RMD early, and sometimes it's advantageous to take
[ken ouellette]the RMD later. What what do you think
[ken ouellette]would be the variable there, Don?
[Don Mespelt]You're gonna die?
[ken ouellette]Well, yeah. That's good. Yeah. That's that's definitely
[ken ouellette]a very
[Don Mespelt]when you're late on
[ken ouellette]come out. Even if you pass away, your
[ken ouellette]heirs have to take the RMD out in
(22:42):
[ken ouellette]that year.
[Don Mespelt]For that year?
[ken ouellette]Yeah. Yeah. So the RMD is gonna come
[ken ouellette]care of it. What I That's crazy. So
[ken ouellette]if the market I do this basically on
[ken ouellette]valuation. So I look at the historical valuation
[ken ouellette]of the market. And if the market is
[ken ouellette]at an historically high valuation and we're going
[ken ouellette]into the new year, I encourage clients to
[ken ouellette]take their RMD early because we wanna liquidate
(23:04):
[ken ouellette]a a a higher value. Yeah. Right? We
[ken ouellette]wanna sell when it's high and and and,
[ken ouellette]you know, if anything, not sell when it's
[ken ouellette]low. So if the market like, this is
[ken ouellette]a great year of an example. I will
[ken ouellette]be recommending to my clients to take their
[ken ouellette]RMDs in January, February of this year because
[ken ouellette]the market is at an historically high valuation.
(23:26):
[ken ouellette]The probability is not a known, but the
[ken ouellette]market could be fifteen percent less at the
[ken ouellette]end of the year because historically, we're at
[ken ouellette]a high valuation. I don't wanna have to
[ken ouellette]sell something to get their RMD out of
[ken ouellette]their IRA, at a lesser value. So at
[ken ouellette]the very least, if they don't wanna take
[ken ouellette]it now, they wanna take it to the
[ken ouellette]end of the year for whatever reason, we
(23:47):
[ken ouellette]will we will liquidate enough to cover that
[ken ouellette]RMD and just keep it in the kind
[ken ouellette]of a a liquid money market or something
[ken ouellette]of that nature. But I like to distribute
[ken ouellette]it out at the beginning of the year.
[ken ouellette]That way they'd have those funds. And, you
[ken ouellette]know, if the clients are are diligent and
[ken ouellette]they're responsible with their plan, they they'll take
[ken ouellette]that money and they'll use that throughout the
(24:09):
[ken ouellette]year and not just, wow. You know, I've
[ken ouellette]got a big huge lump sum. Let's go
[ken ouellette]spend it in January.
[Don Mespelt]Yeah. And then, you know, then we got
[ken ouellette]we got stress on the plan the latter
[ken ouellette]part of the year. It depends on the
[ken ouellette]case by case analysis of the client. You
[ken ouellette]get to know, you know, how that's gonna
[ken ouellette]work. But by and large, the rule of
[ken ouellette]thumb is high valuation at the
[Don Mespelt]end of the year, beginning of
(24:29):
[ken ouellette]the year, we take the I I encourage
[ken ouellette]people to take the RMD early.
[Don Mespelt]So the biggest takeaways that I'm getting from
[Don Mespelt]this, the first one is just schedule your
[Don Mespelt]your your meeting with your financial adviser.
[ken ouellette]Yeah.
[Don Mespelt]Because if you don't do anything else, your
[Don Mespelt]financial adviser, they're a good one. They're gonna
[Don Mespelt]bring up all these things for you. So
[Don Mespelt]if you don't if you're brain dead, if
(24:50):
[Don Mespelt]you schedule a meeting, you should be okay.
[ken ouellette]Yeah. That's the that's the main but there
[ken ouellette]is a couple of the points that they
[ken ouellette]need to to look at in the in
[ken ouellette]that initial meeting.
[Don Mespelt]Remember, I said the brain dead part. So
[Don Mespelt]that's where you come in and help me.
[ken ouellette]Yeah. Let me cover a couple more points
[ken ouellette]that I think are important, just for just
[ken ouellette]just to kinda round out this part of
(25:11):
[ken ouellette]the planning process. Okay. We wanna look at
[ken ouellette]does your allocation look good for twenty twenty
[ken ouellette]five? Okay. Because we just talked about the
[ken ouellette]market had a really good year out last
[ken ouellette]year. The previous year had a really good
[ken ouellette]year. The valuations are high. So sometimes your
[ken ouellette]allocation gets skewed. And the beginning of the
[ken ouellette]year is a good time to look at
[ken ouellette]your evaluate your your allocation and see that
(25:33):
[ken ouellette]it does it match the plan? Right? So
[ken ouellette]giving it give you a good example. If
[ken ouellette]you're if the plan is looked at the
[ken ouellette]historical number on the assets, whether it be
[ken ouellette]bonds, cash, stocks, commodities, and one of those
[ken ouellette]groups has done very, very well. You could
[ken ouellette]get out of skew on your value on
(25:54):
[ken ouellette]your, allocation. Right? That let's say, to make
[ken ouellette]it real simple, let's say you're at a
[ken ouellette]seventy twenty ten. Seventy percent equities, twenty percent
[ken ouellette]fixed income, and ten percent cash. Say make
[ken ouellette]it simple. The market's really good. What does
[ken ouellette]that do to your allocation?
[Don Mespelt]Well, I guess I mean, you know, you
[Don Mespelt]said we're at seventy twenty ten. I mean
[Don Mespelt]but what if, you know, if it's been
(26:15):
[Don Mespelt]really good and it might have been went
[Don Mespelt]up to eighty even instead of the
[ken ouellette]Exactly. Exactly. You've gotten you've gotten over allocated
[ken ouellette]on the equity side. Right? And so discipline
[ken ouellette]in investing is having your allocation meet your
[ken ouellette]plan. What happens when equities go to eighty
[ken ouellette]percent and the bonds have gone down in
(26:38):
[ken ouellette]the portfolio and and cash has stayed stagnant,
[ken ouellette]it's a hard conversation to tell somebody, hey.
[ken ouellette]These things have done really well. We wanna
[ken ouellette]curve back that thing that has done really
[ken ouellette]well for you. Yeah. Clients don't like to
[ken ouellette]do it. They don't like it.
[Don Mespelt]Well, no. They just wanna ride the wave
[Don Mespelt]as long as they can.
(26:59):
[ken ouellette]Right. But the allocation protects you from the
[ken ouellette]wave when the tide comes out. So it
[ken ouellette]forces you to buy the things that are
[ken ouellette]out of favor. And allocation can go really
[ken ouellette]deep. Right? You can go mid cap, small
[ken ouellette]cap, international stocks, domestic stocks, emerging markets. So
(27:21):
[ken ouellette]we're talking the macro, but we take it
[ken ouellette]to the to the to the real to
[ken ouellette]the real surgical side of each slice of
[ken ouellette]the equities, each slice of the fixed income.
[ken ouellette]So I'll give you a good example here.
[ken ouellette]Okay. Emerging markets, I tend to like about
[ken ouellette]ten percent in emerging markets. Why? Because emerging
[ken ouellette]markets historically emerging markets for the listener are
(27:43):
[ken ouellette]markets that are like Brazil, smaller European countries,
[ken ouellette]Asian countries that are that are not as
[ken ouellette]as large, and they're growing at a typically
[ken ouellette]at a larger rate because they're smaller. They're
[ken ouellette]smaller economies, so they grow a little bit
[ken ouellette]quicker. Larger economies like ours, Europe, they grow
(28:05):
[ken ouellette]at a slower clip. Okay. Emerging markets have
[ken ouellette]done atrociously bad versus the the more mature
[ken ouellette]markets over the last three to five years.
[ken ouellette]So it's difficult conversation to have with the
[ken ouellette]client. Hey. We're our emerging markets, what we
[ken ouellette]started at ten is now at five, but
[ken ouellette]we really need to be at ten. They're
(28:27):
[ken ouellette]rightly so, they're gonna say, well, why would
[ken ouellette]we throw money after some at something that's
[ken ouellette]done so poorly? Well, because that cycle is
[ken ouellette]going to change. I don't know when. I
[ken ouellette]know the allocation historically has done so well
[ken ouellette]that we need to buy things that we
[ken ouellette]don't wanna buy when they're low and reduce
[ken ouellette]things that we don't wanna sell when they're
[ken ouellette]high. Make sense?
(28:50):
[Don Mespelt]Buy low, sell high.
[ken ouellette]Yeah. That it and reallocation forces you to
[ken ouellette]do that. It forces it protects your plan,
[ken ouellette]and then it also allows you to be
[ken ouellette]able to buy things that are out of
[ken ouellette]favor when nobody else likes them. That's how
[ken ouellette]money is really generated on a consistent basis
(29:10):
[ken ouellette]by buying things that are out of favor
[ken ouellette]until they come in favor, reducing them and
[ken ouellette]buying more of the other things that's out
[ken ouellette]of favor and just doing that every year
[ken ouellette]looking at that. Now you have to take
[ken ouellette]into tax considerations. So, you know, so those
[ken ouellette]things that have gone up a high, you
[ken ouellette]have to look at it. Where is it
[ken ouellette]in a tax deferred account such as an
[ken ouellette]IRA versus a tax Uh-huh. What's gonna be
(29:31):
[ken ouellette]the tax consequence of doing this? So we
[ken ouellette]we need to intermix in there where we
[ken ouellette]make those changes so it's most, you know,
[ken ouellette]so it's not too too harmful on a
[ken ouellette]taxation basis. So that's another sliver in there.
[Don Mespelt]That's a big sliver, Ken.
[ken ouellette]It's big. I mean and it's those are
[ken ouellette]those are tough conversations to have, but they're
[ken ouellette]so important because the next point to the
(29:53):
[ken ouellette]plan is doing your your fireboat drills. Right?
[ken ouellette]So
[Don Mespelt]Okay. We
[ken ouellette]want that that's the stress testing of the
[ken ouellette]portfolio. If the market's down twenty five percent,
[ken ouellette]what's our allocation? How does it look? How
[ken ouellette]will our portfolio respond? How and more importantly,
[ken ouellette]how do you feel emotionally when that happens?
(30:15):
[ken ouellette]Because, yeah, that's the the real real struggle
[ken ouellette]and to to be as a successful investor.
[ken ouellette]So the price we pay the average the
[ken ouellette]average annual return on equities is ten percent
[ken ouellette]per annum. It's been like that forever. We've
[ken ouellette]talked about that in past podcast. The price
[ken ouellette]you pay for that ten percent is every
(30:37):
[ken ouellette]three to five years, you gotta be down
[ken ouellette]thirty. That's the price of admission. You can't
[ken ouellette]get to ten without facing down being down
[ken ouellette]twenty five or twenty at at some point.
[ken ouellette]Yeah. It's just that is what you have
[ken ouellette]to pay, and you have to weather that
[ken ouellette]and do the right things at the bottom
[ken ouellette]to be able to get that average annual
[ken ouellette]return. So we do the fire drills more
(30:58):
[ken ouellette]just to show the client. So that way
[ken ouellette]we can see, okay. If the market's down,
[ken ouellette]has a real bad year and it's down
[ken ouellette]forty, you're down twenty. How are you gonna
[ken ouellette]feel? The plan says you're gonna be fine,
[ken ouellette]but how are you gonna feel emotionally? And
[ken ouellette]we give them the dollar value. Right? Because
[ken ouellette]everybody monetizes the law the high level the
(31:21):
[ken ouellette]highest level they've ever hit on the on
[ken ouellette]in the their value of their portfolio. Uh-huh.
[ken ouellette]Everybody assumes that that's the that's the value
[ken ouellette]that they're they're gonna always have going forward
[ken ouellette]building upon. So if you got a million,
[ken ouellette]you're down twenty percent. You're now at eight
[ken ouellette]hundred thousand.
[Don Mespelt]How are you gonna sleep that night?
[ken ouellette]How are you gonna sleep? Now the plan
[ken ouellette]says you you should sleep like a baby.
(31:43):
[ken ouellette]Right? Because we we bake this in.
[Don Mespelt]Uh-huh.
[ken ouellette]How are you going to react? You know?
[ken ouellette]Because what it doesn't just go from typically
[ken ouellette]a million to eight hundred. It goes from
[ken ouellette]a million to nine. And then you're like,
[ken ouellette]wow. That's a hundred thousand dollars. Alright. Well,
[ken ouellette]it you just probably got more to go.
(32:03):
[ken ouellette]It goes down to eight hundred, then your
[ken ouellette]mind starts to play little mental gymnastics with
[ken ouellette]you, and you think eight hundred is going
[ken ouellette]to six hundred, then it's going to four
[ken ouellette]hundred, then it's going to zero. Yeah. So
[ken ouellette]that's why we do, the fire drills. And
[ken ouellette]I think that's an important part of of
[ken ouellette]the, the planning process at the beginning of
[ken ouellette]the year. Just it's just reeducation. And, you
(32:26):
[ken ouellette]know, I sent out a nice newsletter to
[ken ouellette]the clients at the beginning of this year,
[ken ouellette]kind of outlining what we do in varying
[ken ouellette]market cycles and why we do it, and,
[ken ouellette]you know, we're not gonna change.
[Don Mespelt]Yeah. Yeah. Plan. You have a plan too.
[ken ouellette]Yep.
[Don Mespelt]Right on. Ken, thank you for this talk.
[ken ouellette]Yeah. We covered a lot in this one.
(32:46):
[Don Mespelt]I thought so. I gotta go back, and
[Don Mespelt]I'm gonna listen to this one twice myself
[Don Mespelt]just to make sure I got everything.
[ken ouellette]Yeah. I'd encourage, you know, the if there's
[ken ouellette]one takeaway, just, plan your meeting. You know,
[ken ouellette]make it make it, you know, I think
[ken ouellette]that people change the batteries in their smoke
[ken ouellette]detectors. You know, they do things every year.
[ken ouellette]You know, put that that financial planning meeting
(33:06):
[ken ouellette]at the forefront. Get it done in the
[ken ouellette]first quarter of the year.
[Don Mespelt]Then if you are brain dead like I
[Don Mespelt]alluded to, you have people like you that
[Don Mespelt]can help you out.
[ken ouellette]Yeah. Yeah. We'll we'll what what will
[Don Mespelt]Shock test it. Yeah.
[ken ouellette]We'll, yeah, we'll shock you back into the
[ken ouellette]reality. So
[Don Mespelt]Right on.
[ken ouellette]Because there's no downside to having that plan
[ken ouellette]that planning meeting in the beginning of the
(33:27):
[ken ouellette]year zero. I wouldn't.
[Don Mespelt]Yeah. Kenolette, a life well lived, grow, preserve,
[Don Mespelt]and transfer your wealth. Love you, man. You
[Don Mespelt]have good knowledge.
[ken ouellette]Well, thank you. And, as always, you know,
[ken ouellette]reach out to us at Orca Wealth, o
[ken ouellette]r c a w e a l t
[ken ouellette]h. We have offices in Tampa and in
[ken ouellette]North Carolina. So, you know, we pretty much
(33:49):
[ken ouellette]cover the south and, and kind of the
[ken ouellette]West Coast for you guys too. Yeah. Seven
[ken ouellette]two seven seven four one six zero seven
[ken ouellette]seven.
[Don Mespelt]Have a great afternoon, sir. You too, Don.
[Intro/Extro]Thank you for listening to a live well
[Intro/Extro]lived, grow, preserve, and transfer your wealth with
[Intro/Extro]Kinolett CPM. Click the subscribe button below to
(34:11):
[Intro/Extro]be notified when new episodes become available. The
[Intro/Extro]information covered and posted represents the views and
[Intro/Extro]opinions of the guest and does not necessarily
[Intro/Extro]represent the views or opinions of Orca Wealth
[Intro/Extro]Management, LLC. The content has been made available
[Intro/Extro]for informational and educational purposes only. The content
[Intro/Extro]is not intended to be a substitute for
(34:32):
[Intro/Extro]professional investing advice. Always seek the advice of
[Intro/Extro]your financial adviser or other qualified financial service
[Intro/Extro]provider with any questions you may have regarding
[Intro/Extro]your investment planning. Orca Wealth Management LLC does
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