November 17, 2025 • 23 mins
“Hey Mike, can you explain in more detail your "Bear Market Protocol?’”
Discover different ways you can prepare now to take advantage of a market crash.
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Episode Transcript
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Mike (00:05):
Welcome to How to Retire On Time, a show that answers
your retirement questions. We'rehere to move past that
oversimplified advice you'veheard hundreds of times.
Instead, we're gonna get intothe nitty gritty here. Have some
fun. As always, text yourquestions to (913) 363-1234.
And remember, this is just ashow, not financial advice.
David, what do we got today?
David (00:24):
Hey, Mike. Can you explain in more detail your bear
market protocol?
Mike (00:29):
So for the uninitiated or those who are just tuning in, a
bear market protocol issomething we have internally
here. At Kedrick Wealth, webelieve that bear markets are
actually a good thing.
David (00:40):
Oh, that seems counterintuitive.
Mike (00:42):
Yeah. I'm almost looking forward to the next bear market.
Dare I say. But here's what youneed to understand. Many people
build their portfolios aroundone market, the bull market.
And let's get rid of the jargonfor a second.
David (01:00):
Alright.
Mike (01:00):
Bull means up, so you can remember that u in there. You
and the bull means up, bear,down. Another way to think about
it, bulls on the up. Bad newsbears, so that's a differential.
Whatever the story is, bullsstrike upward when they attack.
Bears strike down. That's wherethe expression comes from.
(01:22):
Whoever comes up with theseeuphemisms or ideas, I'd like to
meet them. But everyone seems tobe focused on the bull market.
Let's grow, grow, grow.
Caution's thrown into the wind,because you can or at least the
idea is if you grow well enoughduring the good times, you can
take one on the chin during thedowntimes. That's a very
(01:45):
ignorant position to be in, inmy opinion. You're gonna outgrow
your problems.
David (01:50):
Yeah. Is it too simplistic maybe? Or It's
Mike (01:53):
not necessarily simplistic. It's like, I don't
know, it's football season.You're gonna blitz the offense
every single play. You mightleave yourself exposed a little
bit. K?
David (02:06):
That makes sense.
Mike (02:07):
What is the purpose of your portfolio? Is it to have
the highest average annualreturns or growing your money?
That's not the same thing.
David (02:19):
On the surface, it seems similar, but that's
Mike (02:21):
why it's not. When you think about average returns,
what you're doing is you'retaking a bunch of individual
returns and then doing a simpleaverage together. You know, you
add them all up, divide it bythe number, and that's your
average. So let's say the marketor whatever average 3% growth,
then it goes a 30% crash, andthen it's a 10% growth, and then
a 20%, and then a 7%, orwhatever it is. K?
(02:44):
The problem is your money isaffected differently in each
year. I think we did acalculation. A 7.4% annual
average grew money less than a5% average return. Because the
5% was averaging 4%, 5%, 6%, 4%,5%, 6%. It was within a smaller
(03:06):
range, but it was moreconsistent.
And what people forget is 20%growth of a portfolio that lost
30% isn't that good, becauseyou're growing less money. Okay.
So let's think of that adifferent way. Is 10% growth on
a million dollars better orworse than 10% on 800,000? It's
(03:29):
less money for the 800,000.
Right. But people don't thinkabout the term of the actual
implementation or therealization of the returns when
you break it down and chunk itout. So if you take an average
annual return, you are getting amanipulated position. Mhmm. It's
not wrong.
You do want good growth. Youwant to have, you know, a good
(03:52):
average annual return, but youneed to pull back and understand
where are those numbers comingfrom. A very volatile situation
might have some big drops, butthe next year might have some
incredible gains. That distortsthan the average annual return.
So when we say, well, you know,just buy the S and P 500 and
(04:15):
you're good, The S and P 500 isa roller coaster.
It does go up, but it also hassome pretty big drops. And it's
not as big of a deal unless theequities market or the stock
market goes flat.
David (04:28):
Yeah. It happens every some number of years.
Mike (04:30):
Twenty years or so. Okay. On average, not in the
historical prediction. But 2000,2010, had you put your money
into the equities market, theroller coaster, no returns. You
would have not made any money.
1965, 1966, depending on whereyou start for over ten years, no
money, no growth in the market.But that's where the best
(04:51):
average annual returns are.Right? Well, if you look at over
thirty years, but maybe onethird of that isn't really
growing. So is it really theannual return?
Is it something that's you know,1929, there was another flat
market. That was like fifteen,twenty years long. Of course, it
was the great depression, veryunusual circumstances. In
nineteen o six, they didn't doso. We know it happens from time
(05:14):
to time.
Typically, it happens when a newindustry comes in. We've
overpriced it. This is myopinion based on my research.
It's then when we start todigest what this thing was, or
there were new financialinvestments or instruments that
then were abused, manipulated,and basically put more money on
(05:37):
a thing that was still fixed. Sothink of it like in 2008, these
CDOs, so collateralized debtobligations.
David (05:46):
Oh, I remember that phrase.
Mike (05:47):
You remember on The Big Short? Uh-huh. There was one
bet, and then people made betson the bet, and then they met
bets on the bets on the bets onthe bets. Uh-huh. And it started
to create a lot of new financialinstruments that would swing
based on one thing.
So the point of this is there'sa couple of points here. First
off, markets don't just go up,and I know the markets over the
(06:09):
last ten to fifteen years haveaveraged over 10%. But if you
look back to 2000, it's maybearound 7%. Maybe 8%, depending
on on how you look at it. That'sa concern.
We need to be aware of that.Markets go up, but they also go
down. So if you build ourportfolios just for the up
markets, that's a trickysituation to be in.
David (06:27):
They wouldn't do so well. If they're built for just the up
markets, what happens to them inthe down markets?
Mike (06:32):
You're totally exposed. And the typical response that I
get, which is well intended, butit's almost like they were told
to give this response. Theyounger people, they're like,
well, I can just dollar costaverage in. You know, I still
have my paycheck coming in.Markets are down.
I'll just buy it at a discount.That's a great response. Very
healthy. Makes sense. Love that.
No resistance to that position.But for the retiree, well, we'll
(06:56):
just tighten the belt, maybetake less income. We'll we'll
get through it. They're sayingthat because they don't have any
other options. They don't knowany other way to approach this,
so they've accepted a distortedreality that ignores certain
strategies that could actuallyget them through these difficult
times.
David (07:11):
So there might not need to be any belt tightening during
the down markets.
Mike (07:15):
No. Why would you throw everything at risk in the stock
market? Maybe it's the stock andbond market, but that's all
technically at risk. So yourstock funds and your bond funds,
sixty forty, whatever your splitis, all of them can lose money.
And if they all lose money, youcan't take income from that.
If you do, you accentuate thelosses, making it more difficult
(07:36):
to recover. Here's an example.30% crash, which by the way,
2000 o one and o two thousandfifty percent, five zero, not
30. 2008, if you include acouple of months of 2009, 50%.
Okay.
So let's look at the reality.Top to bottom can be 50%, but
we'll use 30% in the example.Alright. 30% down in the market.
(07:59):
That would be a 43% return tobreak even.
But look at that. A 43% return,30%, you're averaging overall.
You're averaging a positivepercentage, but you're actually
dollar for dollar 0. You justrecovered. You just had the
breakeven.
David (08:15):
Oh, right.
Mike (08:16):
K? But if you're down 30%, let's say, and you take out 4%,
you're now down 34%. Youaccentuated the loss because you
took out money from an accountthat's already lost money. Mhmm.
Because you need income inretirement.
Yeah. You need to pay yourbills. So that would require a
50%, five zero percentagerecovery increase just to break
(08:40):
even. Now from an average annualreturn standpoint, well, you
know, negative 34%, positive50%, that's you look like you're
making money. You didn't makeany money.
You're zero. This is how we getcaught up on manipulated average
annual returns. You've gottalook at the details. For years,
(09:01):
this troubled me. You have tohave a system for when times are
good and times are bad.
There's a Finnish or Swedishexpression that says there's no
such thing as bad weather, justbad gear Yeah. Or clothes,
depending on who said it. Yeah.So after a considerable amount
of time and research andunderstanding, I created what we
(09:24):
call the bear market protocol.Now it's a protocol because we
believe in systems, notsentiment.
You shouldn't time the market.You shouldn't try to guess
what's happening in the market.But when I look at a bear
market, a market crash, if youunderstand it's an opportunity,
then you would position yourportfolio a little bit
differently. And hopefully thatpremise helps explain why this
(09:47):
is so important. There areseveral instruments,
investments, or products outthere that have principal
protection.
David (09:55):
And so meaning like the original principal can't
Mike (09:57):
Yeah. Lose You either make money or you stay zero.
David (10:00):
Okay.
Mike (10:01):
So this is gonna blow you away. Okay? Alright. Wild stuff
here. Ever heard of a CD?
Yes. I have. Or a bond, not abond fund, but like buying a US
treasury. I've heard of that.Now some of the more fancier
ones, you could use a bufferedETF.
You have to have a max buffer.So I would define max buffer as
60% or more of losses arebuffered out. So if the markets
(10:24):
in one year period of time godown, let's say 50%, you didn't
lose anything other than theexpense ratio. Maybe you lost
point 7%. But if the markets aredown 50% and you only paid point
7% and you kept your principal,I think you'd be okay with that.
K?
David (10:41):
I think that's safe to say.
Mike (10:43):
Yeah. If the markets go down 65%, okay, you lost 5%. Big
whoop. Now there's differenttypes of buffered ETFs. I'm
using a simple version.
You've got fixed indexedannuities. If they have a five
year period certain, and I'llexplain why in just a second.
You've got upside potential, nodownside risk. It resets every
year. That's the idea.
Not good for lifetime income,not long term care insurance.
(11:07):
It's just a very boring, oftennot talked about type of fixed
indexed annuity.
David (11:13):
Okay.
Mike (11:13):
And then we you could technically use, like, other
things like cash value lifeinsurance, like index universal
life if you already have it, butI'll we'll stick to the simple
stuff for now. But hear me out.Okay? If the markets were to
crash and you've got twoportfolios, you've got bear
market reserves, so assets thatare growing, so it's offsetting
inflation. It's trying to beatinflation.
(11:34):
K? Whether it's at a fixed rateor an indexed rate. So fixed, a
CD, it's gonna pay that amount.Mhmm. Or indexed, upside
potential, no or little downsiderisk.
So you've got those reserves,plus you've got over here your
risk, and your risk goes down30% or worse. If you just take
income then for the next year ortwo or three or four Mhmm. From
(11:56):
your bear market reserves, younever accentuated your losses.
David (12:01):
The risk portfolio that lost money has time to grow
during that period.
Mike (12:04):
Just let it recover. Yeah. Now here's where it gets more
technical, and this is fun.That's the simple version.
Version one point o, that's whatI talk about in the book, How to
Retire On Time, which retireontime.com.
You can grab a copy or Amazon.But there's more opportunities
that we want to highlight here.Okay? So for example, let's say
(12:25):
you have a slightly bigger bearmarket reserve because you
believe the markets areovervalued. Well, you don't
wanna stick it in cash.
As long as the markets continueto go up, you don't wanna be in
cash.
David (12:36):
You'd be missing out.
Mike (12:37):
So what if you were in shorter term CDs that got a
slight better return, or someshorter term treasuries got a
slightly better return. Or whatif you did quarterly buffered
ETFs or annual buffered ETFs?Whatever it is. Even a fixed
index annuity. Okay?
Whatever it is, as long as ithas that five year period
certain clause without thesurrender penalties. Very
(12:59):
complicated if you dive in thatpart. But let's say you've got
your bear market reserves, sogrowth with protection. The
markets crash, everything's onsale. When the markets crash,
things are on sale.
When do you like to go shopping?
David (13:14):
Yeah. I mean, Black Friday is when all the deals
are. Things are cheaper. Right?
Mike (13:18):
Bear markets or market crashes, it's Black Friday for
those who are prepared. Theproblem is everyone seems to be
focused on the bull market, theupmarket. They don't realize the
risk that they're taking,especially when the markets are
overvalued. But what if you hadsome reserves so that when the
deals came, you could buy themat a good price? That's another
(13:41):
layer of the bear marketprotocol.
Is what if you had two, three,four years, you didn't need all
the income, so you startedbuying things cheaper. Can you
imagine if and I'm just doingthis as an example. What if
Nvidia lost 30% of its value or40 or 50% of its value? That's a
(14:01):
really good time to start buyingNVIDIA again. I don't think
NVIDIA is going away anytimesoon.
David (14:06):
So even if it lost, we feel like that company's good
enough, stable enough, theycould rebound, they could come
back and
Mike (14:11):
If you understand how efficient their chips are, I
don't see another company reallytaking them on. Yeah. There's
gonna be some competitors. Like,I'm gonna get in trouble for
saying this, but you know howPepsi and Coke are kind of the
same thing? Yeah.
It's just one slightly sweeterthan the other. Right. I like my
Coca Cola products more.
David (14:27):
Uh-huh.
Mike (14:28):
I'm a Coke guy. Some people are Pepsi people. My
mom's a Pepsi person, whatever.But the point being is it's not
as similar. Nvidia chips aresignificantly better than anyone
else in the competition.
Mhmm. And the show isn't to doan evaluation on the company.
I'm not even suggesting youshould go out and buy NVIDIA.
What I'm saying is if NVIDIA orAmazon or Microsoft or any of
(14:53):
these large companies that arereally good at growing their
price
David (14:56):
Mhmm.
Mike (14:56):
They're expansive. If they went down twenty, thirty, 40%,
it's a really good time to buyit. But you have to have assets
in something that's protected sothat you're taking it out of
something that hasn'texperienced a loss and then
buying it at that point. Bearmarket protocol. How do you take
advantage of the next marketcrash?
(15:19):
Here's a quick story. In myyounger years, when I first got
into the industry, I don't knowhow I got here, but I ended up
at a luncheon with a bunch ofvery successful financial
individuals, hedge fund managersand PhDs that teach economics
and so on in New York City. Sowe're having lunch. This was in
(15:41):
Vegas. They lived in New YorkCity, but this is at a
conference in Vegas.
I've met them a couple of timessince then. Wonderful people. I
won't say their names. But theconversation was joking about
how this is like 2016, if Iremember right, 2016, 2017. They
were saying, yeah.
You know, the markets are goingup and up, and, you know,
markets crash every seven oreight years. And they were
making fun of each other for howthey each went to cash at the
(16:05):
wrong time in the nineties. Andthese are like experts. Best of
the best. Top minds on WallStreet.
But, you know, '97, it'soverpriced. '98, oh, there's the
banking crisis. This is the timethey would sell, and it kept
growing and growing. We don'tknow when the markets will
crash. And to suggest that youcould time it is ignorance.
And if you can't admit that, Idon't know why you're listening
(16:27):
to the show or watching this onYouTube. You may have
accidentally timed it a coupleof times. Mhmm. But no one's
done it consistently over andover again, historically
speaking. So given the fact thatwe don't know, having some
assets for long term growth,wonderful.
Having some assets in your bearmarket reserves, reserves being
(16:47):
money set aside still growing tobuy things at a discount. So not
only do you have your incometaken care of from a principal
protected source, you've alsogot, if you want, extra money to
then buy stocks at a cheap rate.Do you know how awesome that is
to buy things at a lower rate sowhen they rebound, your accounts
are able to leap forward,growing your cash balance. It's
(17:10):
not about your average annualreturn. It's about how much your
cash is growing.
You don't spend money based onyour percentage. You spend money
based on the dollars that are inthere. And I think we often
associate them to be the same.And then here's the last one.
For those that have a largeportion of assets in IRAs, this
is really cool.
(17:31):
Let's say your stocks or yourETFs. Let's say a large part of
your portfolio is an ETF. Youknow, it's nice and diversified,
but the markets go down, let'ssay 50%, and let's say this ETF
was a $100 per share. Marketswent down. Now it's $50 per
share.
David (17:46):
Okay.
Mike (17:46):
Well, if you think about it from an IRA to Roth
conversion standpoint, you nowcan get twice as many shares
from your IRA to your Rothbecause the cost per share is
not a $100 per share. It's $50per share. So you can put twice
as many shares converted over aslong as you pay the taxes from
(18:08):
your bear market reserves.
David (18:09):
Okay.
Mike (18:10):
Protected accounts because taxes if you pay taxes out of
the conversion, you'reaccentuating the loss. You're
pulling money out. I mean,imagine taking 20% out of your
conversion when you've alreadylost 50%. You're getting hit
twice. That doesn't work.
David (18:24):
Because you have to sell more shares to cover the taxes.
Mike (18:27):
Yeah. It's like taking income. It's sequence of returns
risk is the technical term. Askyour favorite AI bot about that.
Yeah.
But when you understand that ifyour accounts go down,
especially if you've overfundedyour IRA, you want the markets
to crash during the first partof your retirement.
David (18:44):
And what does that mean to overfund your IRA?
Mike (18:46):
Yeah. Let's say you only need a certain amount of income.
You won't spend all of yourmoney, but everything is in your
IRA. You're going to get stuckin this type of situation,
paying taxes every single yearto do IRA to Roth conversions,
or maybe you end up with an RMDissue. So '73, '75, whatever the
date ends up being in the timeyou listen to this recording,
(19:07):
you may be forced into highertax brackets.
Let's say you need, I don'tknow, 60,000 to live the life
that you want, but your army isa 150,000. You're paying taxes
on that. You can't get money outof your IRA unless you pay taxes
or you die. Yeah. And then youcan send it to charities.
Now you can do qualifiedcharitable distributions with
your armies and other things tokind of maintain but still,
(19:29):
you're not getting the money.You either get the money and get
taxed, or you're giving it away.Either way, you're not utilizing
your money that you worked for.But if the markets were to crash
during the first part of yourretirement and you were able to
prepare for this correctly, youare significantly shifting IRA
assets to Roth, paying taxes outof a principal protected source
(19:50):
so that you don't accentuateyour losses. And then when the
markets recover, and they'vealways recovered, you would then
have a huge recovery in yourRoth, not your IRA.
Mhmm. Very tax efficient. Sonotice the three layers of a
bear market protocol. I don'tknow why this is not utilizing
other maybe other advisers aredoing this. I I don't think so.
(20:10):
Typically, see stock bond fundportfolios and hope it grows,
and if it doesn't, you know,that's we all have to deal with
it. No. Mhmm. There's a hugeopportunity if the markets were
to crash sometime soon. Wouldlove it.
Yeah. It stinks, the part ofyour portfolio that's lost
money. But when you see it asthe opportunity, your whole
retirement plan shifts.
David (20:31):
Just depends on your perspective.
Mike (20:33):
But notice, a bear market protocol means you've got bear
market reserves, growth withprotection, and flexibility to
maintain income, to buypositions on sale, and to
accelerate your IRA to Rothconversions without paying more
in taxes. That's a really coolplaybook, if I do say so myself.
(20:55):
Agreed. Now you might bewondering, well, how much should
your portfolio be in a bearmarket reserve like product or
asset or whatever? I don't know.
David (21:05):
So if you had, like, a million dollars total, you
couldn't say for certain rightnow, oh, 500 k should be in the
bear market.
Mike (21:11):
Couldn't say it. And the reason is there's not enough
context. But here's how youanswer it for an individual. You
first need to put together theirplan. So what is the cash flow
look like?
Cash flow within the investmentsand the assets, the taxable
consequences of that, thegrowth. You have to look at the
plan from a projectionstandpoint, the flow of money
(21:33):
standpoint. Then you need toexplore what's the purpose of
your money, and what are theefficiencies you wanna use? So
efficiencies strategies. Do youneed to do IRA to Roth
conversions?
Do you not need to do IRA toRoth conversions? The truth is
not everyone needs to do IRA toRoth conversions. I know it
sounds like we're all supposedto do it. Not everyone needs to
do it. People have differentsituations, and that's because
(21:55):
they have a different percentageof assets in their IRA, their
Roth, and their nonqualified ortheir brokerage account.
Everyone's different. Planfirst, explore the strategy
second to try and get more outof your money, and then you
start putting together yourportfolio. And you might say,
based on my lifestyle and legacygoals, here is what I want.
(22:16):
Here's how we're gonna getthere, and then you can start to
shape your bear market reserves,get ready for the bear market
protocol, and so on. Don't bescared of bear markets.
Embrace them. It's just like,yeah, winter stinks for some
people unless you're a skier.Not many skiers here in Kansas
City, but for the rest of usthat go to Colorado and ski or
(22:38):
whatever. Yeah. The point beingis markets are going to crash.
You can't control that. Youcan't time it effectively over
and over again, and you don'twanna stake the ability for you
to retire and stay retired basedon hoping that the markets don't
crash or stay down too long. Wewanna be prepared for both
situations. And the way to dothat, in my opinion, is to
(23:00):
properly put together yourspecific bear market protocol.
Don't bake on outgrowing yourproblems.
Be ready for the good, the bad,and the ugly. That's all the
time we've got for the showtoday. If you enjoyed the show,
consider subscribing to itwherever you get your podcast.
Just Discover if your portfoliois built to weather flat market
(23:22):
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This is not your ordinaryfinancial analysis. Learn more
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(23:45):
www.yourwealthanalysis.com todayto learn more and get started.
Welcome to How to Retire On Time, a show that answers
your retirement questions. We'rehere to move past that
oversimplified advice you'veheard hundreds of times.
Instead, we're gonna get intothe nitty gritty here. Have some
fun. As always, text yourquestions to (913) 363-1234.
And remember, this is just ashow, not financial advice.
David, what do we got today?
David (00:24):
Hey, Mike. Can you explain in more detail your bear
market protocol?
Mike (00:29):
So for the uninitiated or those who are just tuning in, a
bear market protocol issomething we have internally
here. At Kedrick Wealth, webelieve that bear markets are
actually a good thing.
David (00:40):
Oh, that seems counterintuitive.
Mike (00:42):
Yeah. I'm almost looking forward to the next bear market.
Dare I say. But here's what youneed to understand. Many people
build their portfolios aroundone market, the bull market.
And let's get rid of the jargonfor a second.
David (01:00):
Alright.
Mike (01:00):
Bull means up, so you can remember that u in there. You
and the bull means up, bear,down. Another way to think about
it, bulls on the up. Bad newsbears, so that's a differential.
Whatever the story is, bullsstrike upward when they attack.
Bears strike down. That's wherethe expression comes from.
(01:22):
Whoever comes up with theseeuphemisms or ideas, I'd like to
meet them. But everyone seems tobe focused on the bull market.
Let's grow, grow, grow.
Caution's thrown into the wind,because you can or at least the
idea is if you grow well enoughduring the good times, you can
take one on the chin during thedowntimes. That's a very
(01:45):
ignorant position to be in, inmy opinion. You're gonna outgrow
your problems.
David (01:50):
Yeah. Is it too simplistic maybe? Or It's
Mike (01:53):
not necessarily simplistic. It's like, I don't
know, it's football season.You're gonna blitz the offense
every single play. You mightleave yourself exposed a little
bit. K?
David (02:06):
That makes sense.
Mike (02:07):
What is the purpose of your portfolio? Is it to have
the highest average annualreturns or growing your money?
That's not the same thing.
David (02:19):
On the surface, it seems similar, but that's
Mike (02:21):
why it's not. When you think about average returns,
what you're doing is you'retaking a bunch of individual
returns and then doing a simpleaverage together. You know, you
add them all up, divide it bythe number, and that's your
average. So let's say the marketor whatever average 3% growth,
then it goes a 30% crash, andthen it's a 10% growth, and then
a 20%, and then a 7%, orwhatever it is. K?
(02:44):
The problem is your money isaffected differently in each
year. I think we did acalculation. A 7.4% annual
average grew money less than a5% average return. Because the
5% was averaging 4%, 5%, 6%, 4%,5%, 6%. It was within a smaller
(03:06):
range, but it was moreconsistent.
And what people forget is 20%growth of a portfolio that lost
30% isn't that good, becauseyou're growing less money. Okay.
So let's think of that adifferent way. Is 10% growth on
a million dollars better orworse than 10% on 800,000? It's
(03:29):
less money for the 800,000.
Right. But people don't thinkabout the term of the actual
implementation or therealization of the returns when
you break it down and chunk itout. So if you take an average
annual return, you are getting amanipulated position. Mhmm. It's
not wrong.
You do want good growth. Youwant to have, you know, a good
(03:52):
average annual return, but youneed to pull back and understand
where are those numbers comingfrom. A very volatile situation
might have some big drops, butthe next year might have some
incredible gains. That distortsthan the average annual return.
So when we say, well, you know,just buy the S and P 500 and
(04:15):
you're good, The S and P 500 isa roller coaster.
It does go up, but it also hassome pretty big drops. And it's
not as big of a deal unless theequities market or the stock
market goes flat.
David (04:28):
Yeah. It happens every some number of years.
Mike (04:30):
Twenty years or so. Okay. On average, not in the
historical prediction. But 2000,2010, had you put your money
into the equities market, theroller coaster, no returns. You
would have not made any money.
1965, 1966, depending on whereyou start for over ten years, no
money, no growth in the market.But that's where the best
(04:51):
average annual returns are.Right? Well, if you look at over
thirty years, but maybe onethird of that isn't really
growing. So is it really theannual return?
Is it something that's you know,1929, there was another flat
market. That was like fifteen,twenty years long. Of course, it
was the great depression, veryunusual circumstances. In
nineteen o six, they didn't doso. We know it happens from time
(05:14):
to time.
Typically, it happens when a newindustry comes in. We've
overpriced it. This is myopinion based on my research.
It's then when we start todigest what this thing was, or
there were new financialinvestments or instruments that
then were abused, manipulated,and basically put more money on
(05:37):
a thing that was still fixed. Sothink of it like in 2008, these
CDOs, so collateralized debtobligations.
David (05:46):
Oh, I remember that phrase.
Mike (05:47):
You remember on The Big Short? Uh-huh. There was one
bet, and then people made betson the bet, and then they met
bets on the bets on the bets onthe bets. Uh-huh. And it started
to create a lot of new financialinstruments that would swing
based on one thing.
So the point of this is there'sa couple of points here. First
off, markets don't just go up,and I know the markets over the
(06:09):
last ten to fifteen years haveaveraged over 10%. But if you
look back to 2000, it's maybearound 7%. Maybe 8%, depending
on on how you look at it. That'sa concern.
We need to be aware of that.Markets go up, but they also go
down. So if you build ourportfolios just for the up
markets, that's a trickysituation to be in.
David (06:27):
They wouldn't do so well. If they're built for just the up
markets, what happens to them inthe down markets?
Mike (06:32):
You're totally exposed. And the typical response that I
get, which is well intended, butit's almost like they were told
to give this response. Theyounger people, they're like,
well, I can just dollar costaverage in. You know, I still
have my paycheck coming in.Markets are down.
I'll just buy it at a discount.That's a great response. Very
healthy. Makes sense. Love that.
No resistance to that position.But for the retiree, well, we'll
(06:56):
just tighten the belt, maybetake less income. We'll we'll
get through it. They're sayingthat because they don't have any
other options. They don't knowany other way to approach this,
so they've accepted a distortedreality that ignores certain
strategies that could actuallyget them through these difficult
times.
David (07:11):
So there might not need to be any belt tightening during
the down markets.
Mike (07:15):
No. Why would you throw everything at risk in the stock
market? Maybe it's the stock andbond market, but that's all
technically at risk. So yourstock funds and your bond funds,
sixty forty, whatever your splitis, all of them can lose money.
And if they all lose money, youcan't take income from that.
If you do, you accentuate thelosses, making it more difficult
(07:36):
to recover. Here's an example.30% crash, which by the way,
2000 o one and o two thousandfifty percent, five zero, not
30. 2008, if you include acouple of months of 2009, 50%.
Okay.
So let's look at the reality.Top to bottom can be 50%, but
we'll use 30% in the example.Alright. 30% down in the market.
(07:59):
That would be a 43% return tobreak even.
But look at that. A 43% return,30%, you're averaging overall.
You're averaging a positivepercentage, but you're actually
dollar for dollar 0. You justrecovered. You just had the
breakeven.
David (08:15):
Oh, right.
Mike (08:16):
K? But if you're down 30%, let's say, and you take out 4%,
you're now down 34%. Youaccentuated the loss because you
took out money from an accountthat's already lost money. Mhmm.
Because you need income inretirement.
Yeah. You need to pay yourbills. So that would require a
50%, five zero percentagerecovery increase just to break
(08:40):
even. Now from an average annualreturn standpoint, well, you
know, negative 34%, positive50%, that's you look like you're
making money. You didn't makeany money.
You're zero. This is how we getcaught up on manipulated average
annual returns. You've gottalook at the details. For years,
(09:01):
this troubled me. You have tohave a system for when times are
good and times are bad.
There's a Finnish or Swedishexpression that says there's no
such thing as bad weather, justbad gear Yeah. Or clothes,
depending on who said it. Yeah.So after a considerable amount
of time and research andunderstanding, I created what we
(09:24):
call the bear market protocol.Now it's a protocol because we
believe in systems, notsentiment.
You shouldn't time the market.You shouldn't try to guess
what's happening in the market.But when I look at a bear
market, a market crash, if youunderstand it's an opportunity,
then you would position yourportfolio a little bit
differently. And hopefully thatpremise helps explain why this
(09:47):
is so important. There areseveral instruments,
investments, or products outthere that have principal
protection.
David (09:55):
And so meaning like the original principal can't
Mike (09:57):
Yeah. Lose You either make money or you stay zero.
David (10:00):
Okay.
Mike (10:01):
So this is gonna blow you away. Okay? Alright. Wild stuff
here. Ever heard of a CD?
Yes. I have. Or a bond, not abond fund, but like buying a US
treasury. I've heard of that.Now some of the more fancier
ones, you could use a bufferedETF.
You have to have a max buffer.So I would define max buffer as
60% or more of losses arebuffered out. So if the markets
(10:24):
in one year period of time godown, let's say 50%, you didn't
lose anything other than theexpense ratio. Maybe you lost
point 7%. But if the markets aredown 50% and you only paid point
7% and you kept your principal,I think you'd be okay with that.
K?
David (10:41):
I think that's safe to say.
Mike (10:43):
Yeah. If the markets go down 65%, okay, you lost 5%. Big
whoop. Now there's differenttypes of buffered ETFs. I'm
using a simple version.
You've got fixed indexedannuities. If they have a five
year period certain, and I'llexplain why in just a second.
You've got upside potential, nodownside risk. It resets every
year. That's the idea.
Not good for lifetime income,not long term care insurance.
(11:07):
It's just a very boring, oftennot talked about type of fixed
indexed annuity.
David (11:13):
Okay.
Mike (11:13):
And then we you could technically use, like, other
things like cash value lifeinsurance, like index universal
life if you already have it, butI'll we'll stick to the simple
stuff for now. But hear me out.Okay? If the markets were to
crash and you've got twoportfolios, you've got bear
market reserves, so assets thatare growing, so it's offsetting
inflation. It's trying to beatinflation.
(11:34):
K? Whether it's at a fixed rateor an indexed rate. So fixed, a
CD, it's gonna pay that amount.Mhmm. Or indexed, upside
potential, no or little downsiderisk.
So you've got those reserves,plus you've got over here your
risk, and your risk goes down30% or worse. If you just take
income then for the next year ortwo or three or four Mhmm. From
(11:56):
your bear market reserves, younever accentuated your losses.
David (12:01):
The risk portfolio that lost money has time to grow
during that period.
Mike (12:04):
Just let it recover. Yeah. Now here's where it gets more
technical, and this is fun.That's the simple version.
Version one point o, that's whatI talk about in the book, How to
Retire On Time, which retireontime.com.
You can grab a copy or Amazon.But there's more opportunities
that we want to highlight here.Okay? So for example, let's say
(12:25):
you have a slightly bigger bearmarket reserve because you
believe the markets areovervalued. Well, you don't
wanna stick it in cash.
As long as the markets continueto go up, you don't wanna be in
cash.
David (12:36):
You'd be missing out.
Mike (12:37):
So what if you were in shorter term CDs that got a
slight better return, or someshorter term treasuries got a
slightly better return. Or whatif you did quarterly buffered
ETFs or annual buffered ETFs?Whatever it is. Even a fixed
index annuity. Okay?
Whatever it is, as long as ithas that five year period
certain clause without thesurrender penalties. Very
(12:59):
complicated if you dive in thatpart. But let's say you've got
your bear market reserves, sogrowth with protection. The
markets crash, everything's onsale. When the markets crash,
things are on sale.
When do you like to go shopping?
David (13:14):
Yeah. I mean, Black Friday is when all the deals
are. Things are cheaper. Right?
Mike (13:18):
Bear markets or market crashes, it's Black Friday for
those who are prepared. Theproblem is everyone seems to be
focused on the bull market, theupmarket. They don't realize the
risk that they're taking,especially when the markets are
overvalued. But what if you hadsome reserves so that when the
deals came, you could buy themat a good price? That's another
(13:41):
layer of the bear marketprotocol.
Is what if you had two, three,four years, you didn't need all
the income, so you startedbuying things cheaper. Can you
imagine if and I'm just doingthis as an example. What if
Nvidia lost 30% of its value or40 or 50% of its value? That's a
(14:01):
really good time to start buyingNVIDIA again. I don't think
NVIDIA is going away anytimesoon.
David (14:06):
So even if it lost, we feel like that company's good
enough, stable enough, theycould rebound, they could come
back and
Mike (14:11):
If you understand how efficient their chips are, I
don't see another company reallytaking them on. Yeah. There's
gonna be some competitors. Like,I'm gonna get in trouble for
saying this, but you know howPepsi and Coke are kind of the
same thing? Yeah.
It's just one slightly sweeterthan the other. Right. I like my
Coca Cola products more.
David (14:27):
Uh-huh.
Mike (14:28):
I'm a Coke guy. Some people are Pepsi people. My
mom's a Pepsi person, whatever.But the point being is it's not
as similar. Nvidia chips aresignificantly better than anyone
else in the competition.
Mhmm. And the show isn't to doan evaluation on the company.
I'm not even suggesting youshould go out and buy NVIDIA.
What I'm saying is if NVIDIA orAmazon or Microsoft or any of
(14:53):
these large companies that arereally good at growing their
price
David (14:56):
Mhmm.
Mike (14:56):
They're expansive. If they went down twenty, thirty, 40%,
it's a really good time to buyit. But you have to have assets
in something that's protected sothat you're taking it out of
something that hasn'texperienced a loss and then
buying it at that point. Bearmarket protocol. How do you take
advantage of the next marketcrash?
(15:19):
Here's a quick story. In myyounger years, when I first got
into the industry, I don't knowhow I got here, but I ended up
at a luncheon with a bunch ofvery successful financial
individuals, hedge fund managersand PhDs that teach economics
and so on in New York City. Sowe're having lunch. This was in
(15:41):
Vegas. They lived in New YorkCity, but this is at a
conference in Vegas.
I've met them a couple of timessince then. Wonderful people. I
won't say their names. But theconversation was joking about
how this is like 2016, if Iremember right, 2016, 2017. They
were saying, yeah.
You know, the markets are goingup and up, and, you know,
markets crash every seven oreight years. And they were
making fun of each other for howthey each went to cash at the
(16:05):
wrong time in the nineties. Andthese are like experts. Best of
the best. Top minds on WallStreet.
But, you know, '97, it'soverpriced. '98, oh, there's the
banking crisis. This is the timethey would sell, and it kept
growing and growing. We don'tknow when the markets will
crash. And to suggest that youcould time it is ignorance.
And if you can't admit that, Idon't know why you're listening
(16:27):
to the show or watching this onYouTube. You may have
accidentally timed it a coupleof times. Mhmm. But no one's
done it consistently over andover again, historically
speaking. So given the fact thatwe don't know, having some
assets for long term growth,wonderful.
Having some assets in your bearmarket reserves, reserves being
(16:47):
money set aside still growing tobuy things at a discount. So not
only do you have your incometaken care of from a principal
protected source, you've alsogot, if you want, extra money to
then buy stocks at a cheap rate.Do you know how awesome that is
to buy things at a lower rate sowhen they rebound, your accounts
are able to leap forward,growing your cash balance. It's
(17:10):
not about your average annualreturn. It's about how much your
cash is growing.
You don't spend money based onyour percentage. You spend money
based on the dollars that are inthere. And I think we often
associate them to be the same.And then here's the last one.
For those that have a largeportion of assets in IRAs, this
is really cool.
(17:31):
Let's say your stocks or yourETFs. Let's say a large part of
your portfolio is an ETF. Youknow, it's nice and diversified,
but the markets go down, let'ssay 50%, and let's say this ETF
was a $100 per share. Marketswent down. Now it's $50 per
share.
David (17:46):
Okay.
Mike (17:46):
Well, if you think about it from an IRA to Roth
conversion standpoint, you nowcan get twice as many shares
from your IRA to your Rothbecause the cost per share is
not a $100 per share. It's $50per share. So you can put twice
as many shares converted over aslong as you pay the taxes from
(18:08):
your bear market reserves.
David (18:09):
Okay.
Mike (18:10):
Protected accounts because taxes if you pay taxes out of
the conversion, you'reaccentuating the loss. You're
pulling money out. I mean,imagine taking 20% out of your
conversion when you've alreadylost 50%. You're getting hit
twice. That doesn't work.
David (18:24):
Because you have to sell more shares to cover the taxes.
Mike (18:27):
Yeah. It's like taking income. It's sequence of returns
risk is the technical term. Askyour favorite AI bot about that.
Yeah.
But when you understand that ifyour accounts go down,
especially if you've overfundedyour IRA, you want the markets
to crash during the first partof your retirement.
David (18:44):
And what does that mean to overfund your IRA?
Mike (18:46):
Yeah. Let's say you only need a certain amount of income.
You won't spend all of yourmoney, but everything is in your
IRA. You're going to get stuckin this type of situation,
paying taxes every single yearto do IRA to Roth conversions,
or maybe you end up with an RMDissue. So '73, '75, whatever the
date ends up being in the timeyou listen to this recording,
(19:07):
you may be forced into highertax brackets.
Let's say you need, I don'tknow, 60,000 to live the life
that you want, but your army isa 150,000. You're paying taxes
on that. You can't get money outof your IRA unless you pay taxes
or you die. Yeah. And then youcan send it to charities.
Now you can do qualifiedcharitable distributions with
your armies and other things tokind of maintain but still,
(19:29):
you're not getting the money.You either get the money and get
taxed, or you're giving it away.Either way, you're not utilizing
your money that you worked for.But if the markets were to crash
during the first part of yourretirement and you were able to
prepare for this correctly, youare significantly shifting IRA
assets to Roth, paying taxes outof a principal protected source
(19:50):
so that you don't accentuateyour losses. And then when the
markets recover, and they'vealways recovered, you would then
have a huge recovery in yourRoth, not your IRA.
Mhmm. Very tax efficient. Sonotice the three layers of a
bear market protocol. I don'tknow why this is not utilizing
other maybe other advisers aredoing this. I I don't think so.
(20:10):
Typically, see stock bond fundportfolios and hope it grows,
and if it doesn't, you know,that's we all have to deal with
it. No. Mhmm. There's a hugeopportunity if the markets were
to crash sometime soon. Wouldlove it.
Yeah. It stinks, the part ofyour portfolio that's lost
money. But when you see it asthe opportunity, your whole
retirement plan shifts.
David (20:31):
Just depends on your perspective.
Mike (20:33):
But notice, a bear market protocol means you've got bear
market reserves, growth withprotection, and flexibility to
maintain income, to buypositions on sale, and to
accelerate your IRA to Rothconversions without paying more
in taxes. That's a really coolplaybook, if I do say so myself.
(20:55):
Agreed. Now you might bewondering, well, how much should
your portfolio be in a bearmarket reserve like product or
asset or whatever? I don't know.
David (21:05):
So if you had, like, a million dollars total, you
couldn't say for certain rightnow, oh, 500 k should be in the
bear market.
Mike (21:11):
Couldn't say it. And the reason is there's not enough
context. But here's how youanswer it for an individual. You
first need to put together theirplan. So what is the cash flow
look like?
Cash flow within the investmentsand the assets, the taxable
consequences of that, thegrowth. You have to look at the
plan from a projectionstandpoint, the flow of money
(21:33):
standpoint. Then you need toexplore what's the purpose of
your money, and what are theefficiencies you wanna use? So
efficiencies strategies. Do youneed to do IRA to Roth
conversions?
Do you not need to do IRA toRoth conversions? The truth is
not everyone needs to do IRA toRoth conversions. I know it
sounds like we're all supposedto do it. Not everyone needs to
do it. People have differentsituations, and that's because
(21:55):
they have a different percentageof assets in their IRA, their
Roth, and their nonqualified ortheir brokerage account.
Everyone's different. Planfirst, explore the strategy
second to try and get more outof your money, and then you
start putting together yourportfolio. And you might say,
based on my lifestyle and legacygoals, here is what I want.
(22:16):
Here's how we're gonna getthere, and then you can start to
shape your bear market reserves,get ready for the bear market
protocol, and so on. Don't bescared of bear markets.
Embrace them. It's just like,yeah, winter stinks for some
people unless you're a skier.Not many skiers here in Kansas
City, but for the rest of usthat go to Colorado and ski or
(22:38):
whatever. Yeah. The point beingis markets are going to crash.
You can't control that. Youcan't time it effectively over
and over again, and you don'twanna stake the ability for you
to retire and stay retired basedon hoping that the markets don't
crash or stay down too long. Wewanna be prepared for both
situations. And the way to dothat, in my opinion, is to
(23:00):
properly put together yourspecific bear market protocol.
Don't bake on outgrowing yourproblems.
Be ready for the good, the bad,and the ugly. That's all the
time we've got for the showtoday. If you enjoyed the show,
consider subscribing to itwherever you get your podcast.
Just Discover if your portfoliois built to weather flat market
(23:22):
cycles or if you're missing taxminimization opportunities that
you may not even know exist.Explore strategies that may be
able to help you lower youroverall risk while potentially
increasing your overall growthand lifestyle flexibility.
This is not your ordinaryfinancial analysis. Learn more
about Your Wealth Analysis andwhat it could do for you
regardless of your age, asset,or target retirement date, go to
(23:45):
www.yourwealthanalysis.com todayto learn more and get started.
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