Asset Allocation

Episode Transcript

Speaker 1 (00:00):
This is straight talk from the House with certified financial
planner Tracy Andton right here on thirteen to ten wi BA.
Of course, Tracy comes to us from tantone Investment House,
a fee only for you do share the office right
in Middleton. You can learn more about tracing the team
all online Tanton Investment House dot com. That's t A
N T O N investment House dot com. A lot

(00:20):
of really valuable information all free to you. Just check
that out online Tanton Investment House dot com. You can
also listen back to this in previous shows, podcasts, and
joining us this morning is certified financial planner Tracy Onton. Tracy,
how you doing this week?

Speaker 2 (00:33):
I'm doing great, Sean, how about you?

Speaker 1 (00:35):
I'm doing good and it's great to talk with them
doing really well. We've got a great topic this week.
What are we discussing?

Speaker 2 (00:41):
So today we're talking about how asset allocation and diversification
are very important part of building a strong investment portfolio.
So it's crucial to find the right balance of assets
that match your investment goals, your time frame, and the
comfort with risk. So it's extremely important to choose the
allocation that's best for you, and that's my point today

(01:04):
is how to figure that out and basically what things
to watch out for. But the reason why we stress
this as advisors so much is that if you keep
a long term view and you kind of adjust your
strategy as you get closer to retirement or your personal
situation changes, you can manage this risk. And in my opinion,

(01:28):
you probably don't need a guaranteed type product. Now it's
perfect for some people, but a lot of people I
think are used to market fluctuations. If they've been in
the game long enough, right, they've been investing in their
four O one K, so they're probably kind of used
to it. So today we're going to just talk about,
you know, how do you choose your asset allocation? And

(01:49):
again why do we choose? How do why do we
choose stocks and bonds in a typical portfolio? What does
that look like?

Speaker 1 (01:56):
You really going to want to take notes on this
program for sure, and don't forget if you miss part
of the show, you can always listen back at Tanton
investment House dot com. That's t a N t o
N investment House dot com podcast, also available on iHeartRadio
and a lot of the podcasting platforms as well. So, Tracy,
what is kind of that first step when it comes
to understanding acid allocation.

Speaker 2 (02:16):
Well, spreading your investments across majure asset types like stocks
and bonds and in some cases cash helps to strike
a good balance between the short term stability or fluctuations
of the market and long term growth. And what I
want to stress the most important thing here is that
asset allocation is one of the biggest factors that affects

(02:39):
how your portfolio performs over time. So people often think, well,
do I have bad investments? Well, it might be your
allocation between the stocks and bonds, how much you've chosen
in each category. And I think that's just I can't
stress that enough because I've seen it over and over
again where people call or you know, I'll have a
random converse station and they'll be like, I'm and all

(03:01):
the market's doing well, but this doesn't seem like I am.
My first question is is, well, how much do you
have in stocks versus bonds? And again, why is it
so important? It's because the average stock return over time
is about nine to ten percent per year on average,
and bonds typically do on average about half of that,

(03:22):
between four and five percent on average, no guarantees, of course,
but that's kind of the averages. So usually the longer
your time horizon, the more you should invest in stocks.
That's kind of an old brainer. I mean, most people know,
I'm a young person, I'm going to invest in stocks,
great idea. But as you approach retirement, you know, adding

(03:43):
some bonds can help reduce the short term market swings
while still giving your portfolio a chance to grow through
a retirement that could last for many years. And I mean,
you don't have to be super aggressive either about you know,
changing your retirement allocation either. I mean, you don't have
to go, well, I'm five years old and therefore I

(04:04):
need to do xyz. No, that's kind of not what
I'm talking about either. It's more about a gentle change
or or keeping it as is, but then reassessing once
you hit retirement by and what should that look like.

Speaker 1 (04:21):
I know, one of the things as we talk, I've
been talking over the years, as I know, one of
the things you often talk about is you know, just
doing a regular review and set it on your calendar
of kind of all your allocations, not just for are
they meeting your expectations and kind of that percentage, but
also drift and we've talked about in the past, and
folks can listen back to those shows at Tanton Investment
House dot com or at the radio station's website and

(04:43):
Tracy as we kind of break that stuff down, then
how does that asset allocation counter fluctuating markets?

Speaker 2 (04:50):
Well, over the long term, stocks that typically provided the
highest return compared to other major asset classes, like we've
talked about, and again, although they can be more valved
till in the short term, investors who are still many
years away from retirement usually have enough time to kind
of bounce back from market downturns. But the longer you
invest in stocks, the more you benefit from the growth.

(05:12):
But on the bonds, on the other hand, tend to
have lower returns but are typically more stable, especially over
mid term periods. And then you know, if you did
invest some in cash, or you just have some money
in money market that you call emergency, but it tends
to be higher than you typically would have it, you know,
that would offer obviously the least return, but it also

(05:32):
offers the least amount of risk. So again, by combining
stocks and bonds and in some cases perhaps a little cash,
I typically do mostly stocks and bonds. But you can
balance the potential for growth with the need to manage
short term ups and downs when investing in the stock market,
and again it's important to take the long view as
focusing you know, too much on any one move short

(05:55):
term you know that can lead to emotional decisions which
you know you don't want to obviously, But although market
downturns can result in short term losses, taking long term
view again changes the situation and the ups and downs
of the stock market. Returns tend to lessen over a
longer holding period, and invested during downturns and corrections helps

(06:17):
you benefit from the long term growth. So there just
really can be this happy place I think. Okay, nothing's perfect.
I mean you have down markets like oh eight, no nine,
where markets fall fifty percent and everyone goes, holy you
know what. So and it's not easy. I'm not saying
this is easy. Okay, For some people it's really easy.

(06:37):
They don't look at it and they go, I just
trust you, or I look at you know, or or
what have you? Right? But at the same time, for
others it is difficult. It can be difficult, and you know,
things like political stuff happening or whatever really can be jarring.
So I'm not trying to minimize it, but I do
think you can be quite successful doing it with a

(07:01):
good stock and bond mix and you and and I'm
I'm excited to share what I think I know about it.

Speaker 1 (07:07):
It's fast a reminds me of and just kind of
a overly simplified comparison is think of like when you
get in the shower and you always have your hot
and cold settings, and you you get in, you got
everything adjusted perfectly, and then somebody in the house runs
the dishwasher, turns on a foss and all of a sudden,
and and your instinct is to panic and I'm gonna
shut this stuff off or I'm gonna and all of

(07:28):
a sudden, now you've gotta now you're you went from
being way too cold to way too hot. It's like, well,
had you just kind of step back, let the let
the water do its thing, and step back in, you
would have been perfectly fine. But we have this tendency
when things happen to to panic, and unfortunately sometimes we
make those bad, bad decisions. And we talk with certified
financial planner Tracy Anton.

Speaker 2 (07:48):
Great example, my gosh, think about that.

Speaker 1 (07:50):
Just do it my part. This is why make the
big ish box?

Speaker 2 (07:56):
Right.

Speaker 1 (07:56):
That's right, as we talk with certified financial planner Tracy
Onton right here on thirteen ten, Wuiba, don't forget. You
can learn more about Tracy all on the website Tanton
investment House dot com. That's t A N t O
N investment House dot com and Tracy. I know a
lot of folks as to get close to retirement, they
start kind of really focusing in on this stuff. So

(08:17):
what if you're somebody who's about to retire and you've
been really aggressive with your portfolio, what would you recommend
to them?

Speaker 2 (08:23):
Well, I've gotten quite a few of these calls recently,
so I think this is an ideal question, right, And
I'm happy for him because I think you've you've done
it well because markets have done really well with a
stock portfolio. But now they actually kind of recognize maybe
the dial needs to be changed. Right, So here are

(08:44):
some questions to ask yourself. So let's say you're been
one hundred percent stocks. You've been comfortable with an all
stock portfolio? If yes, great, So that's the first question.
How comfortable have you been? Has it has it really
bothered you. At times when we've had market fluctuations, when
markets have fall in ten twenty percent, do that really
bother you? Oftentimes people say no, not really because I

(09:05):
wasn't about to retire. Okay, Well that's the first question.
Are you comfortable with risk? Second question, are you planning
to take money out of this account when you retire? Okay?
And then they start ticking and thinking about that. So
one question, do you have a pension? Is your spouse
still working? You know when? So if the answer is no,

(09:28):
I probably don't need money, or this is the only
money I need? Is this amount that's a different answer,
then yes, this is my sole place to take money
or not. Even if you don't have a pension, not
a problem. But you know whether your spouse is continuing
to work and maybe your household doesn't even need the cash,
well you can be more aggressive. So again the next question,

(09:52):
when are you planning to retire? What are there you know,
when are they planning or retiring? And what a your assets?
So like your spouse okay? And then if you're planning
on taking money out of your portfolio, what percent are
you planning on? Okay? So say the percent is none
or very low, say one or two percent, Well, again

(10:13):
that bodes well for more risk. But let's say your
percentage is five to six percent, Well, then having one
hundred percent stock portfolio is highly likely not appropriate for
you because market's correct ten percent a year, fifteen percent
about every three years, twenty percent or more every about
every five years on average. So again you don't want

(10:34):
you know, why why why does advisors you know, they go, okay, well,
we want some bonds, or we want we want to
be okay with this, we want some money in cash.
It's because you don't want to be selling when they've
we've had a major market correction. So you kind of
back your way into the answer of what your asset
allocation should be by looking at your number of factors. Right,

(10:56):
your time horizon, right, how old are you? Who's the
money for? Is it for you and your spouse or
you know, are you guys so financially set that it's
really you'll probably never use it. It's for the kids,
or you'll use very little. It's for the kids, or
it's for charity. You know, these are good questions, right,
what's your risk tolerance? You know, does it really bother

(11:18):
you when market's correct, What are your goals? What are
your plans to use the money? How much money are
you going to take? And how long are markets on
average down for? So you know, you kind of mix
all this together, right, And the thing I want to
stress here is how do I determine it? Right? So
I ask all these wonderful questions. I do a financial plan.

(11:41):
I figure out, Okay, this is where the money would
come from. This is social security, this is the amount.
This is how much we're shortfall based on what you
think your lifestyle needs. Say you need ten grand a month.
This is how much you have. These are all the solutions,
and we come up with some numbers. Well, when people
have asked me, how do you know? How do you
know what the allocation is? It just seems like these

(12:02):
random numbers that you choose, you know, from the money
money magazines or whatever, right, or you talk to your
neighbor or whatever, and they're doing this, and or my
brother who inherit the same amount of money as doing that? Right, Well,
I try to explain. Okay, let's look at your portfolio.
So you know, if we look at the past twelve

(12:25):
bear markets, the average bear market is about fourteen months, right,
so about a year and a half and then you
take and you take about that same time probably right
for recovery, so you need at least three to four
years of fold down and back up. Right, Well, how
much are you taking out? You know, are you taking
off fifty thousand a year? Okay, fifty thousand times four

(12:48):
that's roughly how much you should have been bonds in cash.
So it's not rocket science, right, I.

Speaker 1 (12:54):
Was gonna say, there's there's not a Well it is
it's pretty I do know that for you. That does
this day in a day, but it is, it is.
There is an absolute method to all of this, and
that's and that's one of the great things. And we
talk about the importance of you know, having that conversation,
the importance of planning as we talk about that with
certified financial planner Tracy Anton here on thirteen ten wiv

(13:15):
A each and every week and a lot of really
really good information in this show. You can always listen
back to this podcast previous shows. You can also share
that information with your friends and family. It's free to
them as well. Just head on over to the website
Tanton Investment House dot com. That's t a N t
O N Investment House dot com. Great website and resource
to learn more about Tracy and the team at Tanton

(13:36):
Investment House as well as gets some great information as
well some stuff kind of compliments what we talk about
here on the radio each and every week. We'll talk
about folks being of speaking of things on the radio.
You probably know some folks that say, you know what,
I'm about to retire, maybe I want manage my money myself.
We'll get the details on Tracy about that next as
straight Talk from the House continues right here thirteen ten
wui b A. This is straight talk from the House

(14:09):
with certain fied financial planner Tracy Anton. Here on thirteen
ten w I b A gets no Tracy in the
team at t Anton Investment House dot com. That's t
A N t O N Investment House dot com and
Tracy just for the break, you're talking a little bit
about some of the factors that go into kind of
uh you know, are to be aggressive or not so
aggressive and as you're entering into retirement, and obviously for

(14:32):
everybody that that that that priorities are a little bit different,
and I know for every every investment planning professionals the
approach is a little bit different. And I know there
are tips from the trade that you have in particular
that that you do things different from you know, from
other folks as well, and everybody kind of has their
unique approach, don't they.

Speaker 2 (14:52):
Well, yeah, I mean I think you know these are
I'm sharing today. You know, what, what are my tips?
How do I figure out asset allocation for for And
I think, you know, it's just really important to recognize
that it isn't just a typical answer. So there is
art to it. There's science, but there's some art. And
again these are this is how I choose it. But

(15:13):
then there's a lot of factors that are probably not
too quantitative because I had the experience with people and
you know, I kind of see how they live and
what their expenses are and how this, how this has
worked for them or their temperament. And I also want
to stress that there isn't maybe a perfect answer, but

(15:34):
there's a really really good answer. That's another thing. But
the second thing is the answer can be changed. Okay,
so you know, life changes, and maybe your allocation should
be different because you didn't take as much money as
you thought you were going to or you've lived through
a bad market and you're like, you know what, I
really want something more conservative. And also markets change, so

(15:56):
right now, great time to be adding some bonds. Right.
Markets have moved up so much for most people, right,
and so maybe your allocation is a little more aggressive
than you recognize, and now it's great time to reallocate
because it's great time to be adding some bonds given
that we're having typically looks like a declining interest rate environment.

Speaker 1 (16:18):
Great tips and great and great perspective on all of
this stuff. As we talk with sort of five financial
planner Tracy Anton and Tracy, what have you typically saw
when folks say, you know what, getting ready to retire
and I'm going to manage money myself. What have you
seen for folks in that situation.

Speaker 2 (16:33):
Well, a few conversations just kind of come to mind
that I've had recently with listeners, which is awesome, thank
you for calling me. And you know, typically they've been
aggressive with one hundred percent stocks, and I'm super excited
about that again because they've made really great decisions there
and they usually want to step down to be a

(16:54):
more conservative portfolio because they recognize, you know, things are
really changing for them. They're relying now on this their
sole income are most of their income, but they don't
know how much bonds they should add, which is typical.
And then they also don't want to give up great returns.
And hey, I don't blame them, you know, And so
I say, but I don't think you have to sacrifice

(17:16):
returns the extent that sometimes they're thinking they might have to.
So I think they might be pleasantly surprised because again,
the bonds are it's such a great opportunity right now
in bonds. And yes, on average they do four to five.
But I think you've got there's a period of time

(17:36):
here where as there's so much money sitting in cash
and money markets. Once those interest rates keep continuing to fall,
if that happens, then you're going to see typically bond
markets go up as well as stock markets go up.
And so that's what's happened on the past. No guarantee,
of course, but I think I think that you know,

(18:00):
changing your allocation from one hundred percent aggressive to something else,
you know, you don't have to dial it down that
much in order to still get great returns. And I
also think that if you ask the right questions and
really get to you know, for me to get to
know the goals and concerns, you can find a better
fit for clients or you know, in individual investors or couples.

(18:24):
You know, because you ask the right questions. And I
think it's so important to ask the right questions.

Speaker 1 (18:30):
That's and we you know, one of the things I
know about you And one of the things I love
getting a chance to talk with each and every week
is for people that don't know Tracy does absolutely love
what she does and loves the people she works. Was
then really an important part for her is getting to
know you. And that's a big big deal when it
comes to you know, your retirement, when it comes to
your planning and your investments. And that's one of the
great things fo getting the chance to talk with Tracy

(18:51):
and Tracy as we talked about looking at folks portfolio,
I've got a guess there's probably some. If I were
to hand you somebody's portfolio, you could tell right away
how aggressive they've been they've been in their planning, won't you.

Speaker 2 (19:04):
Well, I think I see trends, you know, I see trends, right,
so you know, it depends on what markets have done well,
Like what sectors they've done really well. You know, it
also depends what kind of four to one K plans
they have of over the over the years, right, what
options they have available, but tend they tend maybe to
lean heavily to a favorite fund that's done well and

(19:26):
you know, maybe that's been gross stocks if you're too growthy.
Adding some value stocks can not only be a good
idea for diversification and reduction of risk in my opinion,
because different paying stocks do tend to be less volatile,
but performance wise they too can be quite do quite
well and half at times outperform the growth stocks. You know. Plus,

(19:48):
choosing an allocation that's say maybe seventy to eighty percocks
eighty percent stocks, Yes, we'll reduce your returns a bit, right,
it has to because you have less risk, but the
amount is not as much as you would think. Plus,
now is again a great time to be in bonds
with interest rates likely on the downward trend.

Speaker 1 (20:09):
Fantastic stuff, and Tracy has we kind of wrap things up.
I know there's some examples out there to what to
watch for. Also kind of the role that diversification plays.
What are those two areas that people need to need
to think about.

Speaker 2 (20:21):
I would say with diversification, Sean, you know, again you
just want to be look at different asset categories and
this means investing in the various types of stocks, you know,
say some small, some mid, some large, some international. Looking
at your bond exposure and making sure again that you
align your bonds with your risk level. Okay, there's high

(20:44):
yield bonds, but you know, there's really no need to
go and get too aggressive in my opinion on that
because they can be more risky. And again, just being
looking at your diversification, and I often see you know,
people are maybe they missed opportunities to not being invested
in saying international stocks. And then as far as you

(21:06):
know examples of choosing an allocation. I recently had a
guy who called me and he'd been listening to the
show for years, Sean, and he said he was retired,
he isn't taking any money from his IRA, and he
was under the age seventy three so he didn't have
to take require minimums. And he said his performance in
the portfolio and it was significantly less than the market.

(21:29):
And I just asked him, well, how much are you
allocated to bonds that was my first question. He said
he was sixty five percent stocks and the rest in bonds.
And he said, he said this was and again, this
was several months ago, so it wasn't recent. It was
several months ago. They told me this. And you know,
because bonds obviously have improved quite a bit, So maybe
he's happier now, and I sure hope so. But over

(21:51):
the last five years, three to five years, you know,
bonds have not done well in increasing great environment. So
obviously his performance on his portfolio is kind of so
because he had too much in bonds relatively to the stocks,
then he probably needed And I said, I don't think
your issue really lies in your individual security choices, you know.

(22:13):
And he didn't choose him an advisor did. Okay, so
I don't need to, you know, say that, but it
was an advisor that chosen. He said, well, he thought
he had too much and he thought he was too conservative,
and I agree with him. I said, you know, how
do they determine your stock and bond allocation? And he said,
you know, I said, well, he said, they asked me

(22:34):
my age, and I said, well, did you tell him
you're really conservative? And he said no, I didn't say that,
and he said, I said, I think you're too conservative.
He said he thought he was too conservative. Advice that
I agree, I think you are too But you know,
if an advisor doesn't get that right, if they don't
get your asset allocation right, it's a big deal because

(22:57):
a one percent difference over time and the rates of return,
and it's a large number. So that's my point A
and point B is is you know, if they're not
getting your allocation right, then they're not fully listening to you,
you know, And to me, that's a recipe, my friend,
for you know, something you don't want to eat from them. Okay,
it's a recipe you don't want to eat because it's like, well,

(23:20):
what else are they not listening to? That is well,
so it's important to get your asset allocation correct.

Speaker 1 (23:25):
Well illustrated. And yeah, that's you mentioned that one percent.
It's may not seem that big, but it definitely becomes
big over time. And Tracy, before we wrap up today,
any last piece of advice, Well, I would say.

Speaker 2 (23:36):
You know, be sure that if you're using an advisor
that they understand your goals, your risk tolerance, and your
need for distribution really well. And if they ask you
your age and then tell you your allocation, well be sure
they aren't basing it solely on your age, because I've
seen that over and over and again. I'm not talking
about advisors that typically they sit down with you and have,

(23:56):
you know, a yearly meeting. I'm not talking about those
kinds of advisors. They're ausers out there that it's a
phone call advisor. That's a different that's a different relationship
and experience. So again, just because you're retiring doesn't mean
your portfolio needs to be dramatically changed, in my opinion,
and if you have to take you have to take

(24:17):
in consideration your whole picture before giving an appropriate allocation.

Speaker 1 (24:21):
Vital stuff, and that's the importance of having that conversation,
learning more and understanding. Of course, trantsy makes this program
available to you for free each and every week. You
can listen back at tantoninvestment House dot com. That's t
A N T O N investment House dot com. A
lot of great information there as well. Again, that's at
Tanton Investment House dot com. Tracy, it's always gret chatting
with you. You enjoy this fantastic day.

Speaker 2 (24:42):
Thanks Sean, you too, take care