Episode Transcript
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Speaker 1 (00:05):
Tonight, how you can become a better expert than the
so called experts at investing, and why you could one
day choose where your employer match goes. You're listening to
simply money presented by all Worth Financial. I mean me Wagner,
along with Steve Ruby. Oh, when we talk about the
so called the experts, we kind of say it a
little sarcastically. They get it wrong all of the time.
(00:27):
Here's a few examples, right, They thought we were going
to have a recession in twenty twenty three. In fact,
some of the headlines said it was going to be
the worst recession we've seen ever in the history of
people investing, all the things, all the headlines said it.
They also made some predictions at the FED would lower
interest rates seven times this year. We're roughly six times
behind on that prediction. And of course they're constantly telling
(00:49):
us the next big stock jump in of this, jump
out of that. In fact, I was making this point
yesterday' Steve to someone who was in my office. I
have seen headlines in the same publication apart one of
them saying here's why you should buy this particular asset
or stock, And then a few weeks later, here's why
you should not buy the same thing.
Speaker 2 (01:09):
I mean, I can want up be on that one.
I've seen it literally like sequential in market Watch I
think it was. I was like, oh on what is this?
You have conflicting opinions side by side in articles. So yeah,
I mean, we have fun when we tear apart some
of these, you know, news sources that have no fiduciary
standard over making sure that you make the right decision
(01:31):
for yourself. They're just trying to get clicks for ad revenue,
you know. Looking at this now that consider some research
from Vanguard Investment Giant that we've all heard of of
acid allocations of rollover I rays. These accounts come into
play when investors want to transfer funds out of their
four one K to a previous place of employment. In
most cases, a rollover's default allocation is actually in cash.
Speaker 1 (01:57):
And people miss this all of the time, right, So,
researchers in June of twenty twenty four looked at five
hundred different investors who had done a rollover in the
year before so twenty twenty three, and that timing meant
that advisors had at least or those investors had at
least six months and maybe as much as eighteen months
to move their rollovers from an all cash allocation. If
(02:17):
we are talking about how you can become an expert investor,
this is something you can't miss right. We know the
average person is going to switch jobs roughly a dozen
times in a dozen times in your careers. It means
you're gonna have a lot of old four one k's
rolling over into iras you wait six, twelve, eighteen months.
Every time you roll that money over and it's just
(02:39):
sitting in cash, think about how many good days, good weeks,
good months in the market you could be missing out on.
This is a huge miss that if you're going to
be an expert investor, it's something you've got to get right.
Speaker 2 (02:54):
What Vanguard looked at here is if you had at
least put your money into what you know, Steve sprod
you still call a good enough fund. That was a
target date retirement fund, which is certainly a better option
for most of us that a cash position in an IRA.
Vanguard calculates that for investors under the age of fifty five,
the retirement portfolios could be worth at least one hundred
(03:16):
and thirty thousand dollars more at age sixty five, had
they not spent that time sitting in cash and had
instead put those dollars from their four to one K
rollover into at least a target date retirement fund.
Speaker 1 (03:29):
I love when this research gives you perspective like that
in dollars and cents. Right, we're not just saying, hey,
this is a bad thing. We're saying, hey, this is
how much this could cost you? More than one hundred
thousand dollars if you're not getting this right. And there
has been all kinds of research out about this recently,
just people thinking that when you move your money over
from an old account into a new IRA rollover, that
(03:52):
it's going to be invested the same way that it
was before. Right, There's a lot of assumptions that are made.
And this is you know, this is my pet peeve.
You gotta know how these things work. You have to
understand all the features of your four o one K
and if that four oh one k money is going
to be rolled into an IRA when you're leaving that
job or for whatever reason, it has to be invested
(04:13):
in a way that's suited to your needs. That means
enough growth, right and also maybe enough protection depending on
you and your specific needs for you to be able
to sleep at night.
Speaker 2 (04:23):
Yeah, ideally we're using that IRA as a long term
point of consolidation that that builds that investment strategy holistically
for all of our investments. Four to one K is
we're limited to what our employers give us to pick
and choose from, which can be a bummer sometimes, but
that's still a great vehicle because we get free money
and the limits that you can contribute or high, and
there's deductions and maybe roth contributions. So I certainly don't
(04:45):
turn your back on a four to one K. You
need to be leveraging one. But having that IRA, you
don't want to open it and then move money into
it and sit in cash.
Speaker 1 (04:53):
Yeah, you got to get this one right. You're listening
to Simply Money presented by all Worth Financial, letting me
Wagner along with Steve Ruby, as we talk talk about
the so called experts right, all the predictions they make,
all the things that you could follow their advice and
get it wrong. And if you want to become your
own expert, the key is to understand how these things
work right. Make sure that if you're rolling over money,
(05:14):
it's not sitting in cash for months at a time,
that you have an investment strategy suited to your long
term needs. And I would say, hey, here's another issue.
A lot of so called experts or advisors want to
make it sound like you need to be invested in
something sexy, something new, something different. I've had someone in
(05:35):
my office several times who's kind of shopping around for
an advisor, and it's interesting then to hear the suggestions
that other firms are making, and you know, it can
sound really great. They're hand picking this basket of individual
stocks for me, you know, and then it's kind of like, well,
you look at that compared to maybe what I would
(05:57):
be recommending, which is just a diversified you know, index funds,
low fees, you know, super diversified, and we're looking at
the historical returns of those versus these other crazy predictions,
and it's like, oh, well, this would be the choice.
Every time. There's not someone on Wall Street picking and
choosing constantly. There's no active management and listen, sometimes those
(06:21):
things can make sense, right. Sometimes people come to us
with complicated, you know, concentrated positions in certain companies and
things like that. We need to make sure that they're
you know, making the smartest tax decisions and things like that.
But a lot of the time, it's really the sexy
investments that aren't going to get you ahead. It's the
things that aren't making headlines, boring, regular old exchange traded funds.
(06:47):
They're going to get you where.
Speaker 2 (06:48):
You go at the end of the day. The markets
are going to do what the markets are going to do. Yeah,
that they're going to go up over the long term,
with some volatility along the way. Obviously, there are so
many different choices that you can make when it comes
to how you invest your money or how an advisor
can invest your money for you. At the end of
the day, the most important thing is making sure that
you have the asset allocation that you need that can
(07:10):
help you meet your financial goals and that you can
afford to take based on your financial situation. Obviously, there's
a lot of moving parts here. Yes, for the majority
of folks, I would say that, you know, some kind
of a simple passively managed index fund strategy is totally fine,
But you do bring up some good points, because yes,
there are advisors out there that I would say needlessly
(07:31):
complicate things to try to offer bells and whistles to
differentiate themselves. I see that most when it's just investment
managers money managers, which is a huge difference between what
a financial planner does, a financial certified financial planner, a fiduciary.
Investments are the building block of your financial plan, and
(07:54):
financial plan is the blueprint, so it is just one piece.
There's a state planning, there's tax planning, there's insurance planning,
there's investment planning, there's retirement planning. You tie that all together,
and that's what financial planning is. Money managers I do
see oftentimes, you know, dangling those bells and whistles. Here's
why you need to choose me, because we're going to
(08:14):
create alpha in your investment strategy.
Speaker 1 (08:16):
Yeah. I was actually talking to a couple this week who,
you know, are getting into their fifties, right, and they're
starting to really think about retirement. It's not such an
abstract concept anymore. And they kind of admitted, hey, we've
just we've kind of defaulted into target date funds, and
all of a sudden, we feel like that's not maybe
good enough for us, that's not tailored to our specific needs.
(08:38):
And then they threw in and We've been seeing all
these headlines about real estate investment trusts or cryptocurrency or
and it's like, you know, gosh, they realize that what
they're doing probably isn't tailored enough to suit their individual needs.
Yet at the other end of the spectrum, if they
hadn't come to someone like us, they could end up
in cryptocurrency one hundred percent, you know, something that is
(08:59):
not the best long term smart investment. And I think
when you get to that point of like starting to
think about retirement, if you feel like you're behind or
whatever it is, they can be like, wait, what can
I do to catch up? And I think there's gonna
be a lot of people in this financial services sector
willing to leverage that, to take advantage of that and
to get you into something that isn't a good fit
(09:21):
for you.
Speaker 2 (09:22):
Yeah, you know, financial planning is about meeting you where
you are as an individual or as a family. And
you brought up something a moment ago about unwinding a
concentrated stock position, for example, to do so tax efficiently
can take some more complicated investment strategies, and that's okay
in a situation like that. In this area, for example,
we have a lot of folks in Procter and Gamble. Now,
(09:44):
now I will admit that my experience with P and
gears or they typically want to keep the stock. But
in certain situations, you know, if that stock is inherited
and you know, the child is said it not for
a while, and it has gains and they're wondering how
they can sell it without getting kicked in the teeth
with taxes, then there are strategies that you can use
using options. Selling covered calls is what it's called. I
(10:06):
think in a situation where you want to unwind tax efficiently,
getting into some of these more complicated investment strategies is
highly recommended. In fact, so you know when we talk
about some advisors are just dangling those bells and whistles,
there are differences. When you have a fiduciary financial planner
in your corner that makes a recommendation like that, there
(10:27):
is usually going to be a very good reason why
that is the case.
Speaker 1 (10:31):
And you know, I think for a lot of people,
it's a tough pill to swallow as an investor for
someone to say, actually, probably your best bet is to
be invested in something that follows an index. You know
it seems like someone should be buying and selling based
on maybe what the FED is going to do, where
we think inflation is going to be in the future,
if we think there's going to be a recession on
the horizon. I think as an investor, it feels like
that feels good to kind of feel like someone is
(10:53):
doing something. But here is the research. And I'm telling you,
I have seen dozens and dozens of different pieces of
research that all points to the same thing. And here's
the latest. This is you know, it showed that eight
out of ten fund managers right actively going in there
and buying and selling different things underperformed the S and
P five hundred and that's an eighty six percent jump
(11:14):
over the last ten years. More and more people jumping
into this space, trying to do it with really really
smart degrees in backgrounds and teams of people, in all
reams of research, and they're not getting it right as well.
Speaker 2 (11:26):
Throw darts at a dart for yeah, And.
Speaker 1 (11:30):
There's also alternative investments, right, that's something that people can
bring up. I was actually at an RIA summit, you
know something in our space in Texas last year and
on stage, person after person after person, Hey, our company
does this and that and this and that, and I'm like,
oh my gosh, it's just like they're trying to come
up with like the next big shiny object. In by
(11:52):
next year, that shiny object will be not.
Speaker 2 (11:55):
Shiny, you know, we'll move along from it.
Speaker 1 (11:58):
Yeah, And the whole out in the room was it
you know, advisors like us, And I'm thinking, is anyone
buying this stuff? Was anyone you know, really thinking this
is a good.
Speaker 2 (12:07):
Idea for a high net worth investors? Sure? Yes, when
we have a portfolio that is all index funds and
you can add in alternatives like you know, private equity,
real estate exposure, you know, even some access to hedge funds,
and I think it can create a situation where your entire
portfolio isn't correlated to the market. And I think that
there's value in that for some folks, But it's not
(12:29):
a need for everyone.
Speaker 1 (12:30):
For a lot of people, it's not. Yeah, here's the
all worth advice experts, right. The so called experts who
are making these predictions are often wrong. Fiduci Ory financial
pros who are giving you advice are always working in
your best interest. Coming up next, y, you could one
day decide where that company match is going to go
plus the sixty to forty portfolio strategy. Good one, a
(12:51):
bad one. We'll get into that. You're listening to Simply Money,
presented by all Worth Financial here in fifty five KRC
the talk station presented by all Worth Financial. I mean
you Wagner along with Steve Ruby. You can't listen to
Simply Money every night. You don't have to miss the
thing we're talking about. We've got a daily podcast for you,
(13:13):
search Simply Money. It's on the Iheartup or wherever you
get your podcasts. Coming up at six forty three, A
deep dive into something called the Rule of seventy two.
When my daughter learned about this years ago, she said,
don't tell my brother. Don't tell my brother this. It's
like a magic secret of investing. Will tell you what
it is, Okay. Rarely do I get to come on
(13:36):
the show and say that the IRS did something that
makes sense, But we want to tell you just exactly
that today.
Speaker 2 (13:44):
Yeah, So a new IRS ruling it could you know?
It's laying the foundation for I will say, giving employees
more power to choose how their match within their four
one K is actually used elsewhere. So to elaborate here.
Rather than only putting that free money from your employee
in your four to one K, the idea here is
maybe putting it into your health savings account for you,
(14:07):
I know you do, maybe making student loan repayments. This
is a real life example for one company that has
gotten permission from the IRS. We don't know what company
this is yet, Yeah, but it's one company that's got
permission from the IRS to offer their company match to
the employees in these non traditional avenues.
Speaker 1 (14:29):
Yeah, to be used at your discretion for what you
think would be best within the realm of something like
a health savings plan or student loan debt, or they
could just default and put it into your retirement I
guess I would say. The only thing my concern about
this is, you know, you could lose out on dollars
for your future self in the form of retirement. You know,
(14:51):
if you're not using that HSA as kind of a
retirement savings vehicle, but using it as you go, then
maybe you're missing out on a lot of growth that
you could get for retirement. And we know there's a
retirement crisis in this country. So anything I think that
takes the focus off of retirement planning makes me a
little nervous, But I also think people know their individual situations,
and as long as you've done your research and you
(15:13):
know you do have student loan debt, you know, or
whatever it is, this can be helpful.
Speaker 3 (15:17):
Yeah.
Speaker 2 (15:17):
I think meeting with an advisor to guide you in
those decisions is important because if your student loan debt
is you know, the interest rates are very minimum depending
on where you got that loan from, compared to the
long term opportunity for your company match within your four
on K investments to grow it is. It is an
interesting trade off.
Speaker 1 (15:37):
Switching gears now. So for decades, when you think about
investing in stocks versus bonds, for those who are kind
of getting into that sort of road to retirement, kind
of leading up to it, we will often find you
sit in the same place right sixty forty portfolio allocations,
So sixty percent of your investment stocks forty percent bonds.
(15:57):
Is this the best place for everyone?
Speaker 2 (16:00):
So you know, over the past forty five years, since
the inception of what's called the Bloomberg US aggregate index
that mirrors the sixty forty model, the annualized returns are
just over ten percent, So this has outpaced inflation comfortably
without taking too much risk. If we take this all
the way back to nineteen hundred, the annualized real return
(16:23):
is about four point eight percent. So, you know, I
set expectations with folks that I work with about the
importance of having a risk exposure that makes sense for
you as an individual. A lot of people will ask,
you know, should I just be sixty forty because I'm
this old now, And I can't answer that question until
we actually build a financial plan and understand what risk
(16:47):
they need to take. So, you know, the sixty forty
it's kind of a rule of thumb thing that I
think a lot of folks lean into, but that there's
certainly for some folks more of an opportunity to take
more risk even if they're retired.
Speaker 1 (16:59):
Well, and as we've seen many many times on the show,
rules of thumb, right that people just wanted to fall
to with their money can often be rules of dumb.
You know, it just may not make sense for you.
You know, if you go into retirement, if you have
a pretty sizable emergency fund, you can afford to maybe
take on more risk if that makes sense to you.
Because if markets are down, you're not going to lock
(17:21):
in those losses, right. You know that one hundred percent
of the time markets have rebounded to new high. So
that's one situation if you're not going to need that money.
I mean for those of you who still have pensions
and social security, you know, or I know some I have,
you know several several clients who have a lot of
real estate income coming in right in the form of rent,
and so they're not living off of that money now,
(17:43):
so it doesn't matter, so they can take on more risk,
you know. So I think just defaulting to I'm fifty
five years old, I should be going to sixty forty
portfolio is not the best way to serve your financial goals.
Speaker 2 (17:56):
And keep in mind that that emergency fund in retirement
is still very important because it buy time against market fluctuation.
So even the good old fashioned sixty forty here has
had periods of time averaging about about eleven years. This
has happened six times over the course since nineteen hundred six,
periods averaging eleven years each where the sixty to forty
(18:17):
portfolio would have broken even relative to inflation. That's the
after inflation return or even lost money So.
Speaker 1 (18:26):
It's not that we're saying you shouldn't be invested in this.
I think you just have to have that kind of
perspective of sometimes you might just be breaking even barely.
You know, with an investment like this one, does it
make sense to push it a little bit? Listen, if
you are someone who cannot sleep at night, especially when
you get to retirement and those paychecks are not coming
in anymore, I'm not going to be an advocate for
(18:47):
you taking on more risks. It's not worth it.
Speaker 2 (18:48):
That's no fun. You want to enjoy retirement. If you're
bring self ulcers and losing sleep, yes, then you have
no business taking more risk, that's for sure.
Speaker 1 (18:56):
On the flip side, I've got plenty of people come
into my office and they're like, I get it. I
get how market cycles work. It never freaks me out.
I was fine in two thousand and eight, I was
fine in twenty twenty, you know when markets went or
we're tanking during the pandemic, and for people like that,
it could make sense to take on more risk. Right,
So just understand this is a very individualized thing, and
I think just kind of defaulting to well, this is
(19:17):
my age, this is my stage, This is how I
should be invested? Is going to sell your self short?
Here's the all Worth advice your asset allocation. It needs
to reflect your personal tolerance for risk and your long
term financial goals period. That's it. Coming up next. There's
sometimes confusion right over when should you update your estate plan.
We're going to help you figure that out. Next, you're
(19:39):
listening to Simply Money presented by all Worth Financial here
on fifty five KRC the talk station. You're listening to
Simply Money presented by all Worth Financial. I mean me
Wagner along with Steve Ruby, how many of you Somewhere
on your list of things to do? Maybe toward the
bottom is to update your estate plan. Was talking to
(20:01):
someone this week who brought in their will for me
to look at two adult children, and the will was
written before one of them was born. Probably time to
update that estate plan. Joining us tonight is our estate
planning expert Mark Rerekman from the law firm of Wood
and Lamping with when we should all be thinking of
updating that estate plan. I'm assuming you're on board with
(20:23):
You've had another child and it's spent twenty years. Probably
time to update that.
Speaker 3 (20:29):
Of course, And you know, the thing amy is that
when major events happen in our lives, the last thing
in the world we think of is to call our
lawyer and update our estate plan, and probably rightfully so.
But once things calm down, you do need to stop
and think, does this really make a change in what
I want to do long term?
Speaker 1 (20:46):
So what are the things that we need to be
thinking about when it comes to changes, so that you know,
if it's on the forefront of our mind, it should be.
Speaker 3 (20:55):
I think of a sort of key life events. The
first one on my list, of course, would be marriage.
Birth of a child is a close second. Divorce is
a big one, death of a spouse is also a
big one. If we've got a significant increase in our
net worth, our assets, or a decrease. You know, an
increase could be inheritance that comes in, or a windfall
(21:18):
of some kind, or success in a business transaction. A
decrease can be the result of a divorce, or it
could be the result of some horrendous economic activity or
a failure of a business or but those kinds of
life events. Really it's a good time to revisit your
estate plan.
Speaker 2 (21:39):
Yeah, when I have annual review meetings with folks that
I work with. It's always touched on at least you know,
where are you with your estate planning documents? When's the
last time you review them. If I'm working with somebody
that's a newer client, then I will tell them that
I will bug them about it until they either get
it done or they tell me to shut up about
it because it is important. Brought up some key life
(22:01):
events here. Let's look at marriage, whether it's your first
or maybe a marriage later in life. Obviously, there are
some things that we need to look at when it
comes to updating our state plan.
Speaker 3 (22:11):
Well, and what most people think is that your spouse
is going to inherit everything, whether you have a will
or not, and that's simply not true. It's not true
in Ohio or Kentucky or Indiana any of our local states.
The truth is that your spouse will only receive a
portion of your state. In many states, it depends on
whether it's a first marriage. It depends on whether or
(22:32):
not there are children or children from a previous marriage.
But the point is that without a will, you don't
really control who gets your assets. So when you get married,
you need to decide you need to revisit your will now. Sometimes,
in the case of second marriages, you may not want
to leave all of your assets to your spouse. You
(22:52):
may have responsibilities to minor children, You may wish to
provide financial support to adultildren or to grandchildren. Certainly, if
I'm in a second marriage and I decide I want
to leave all of my assets to my wife, my
second wife, I need to stop and think for a minute,
what will she do at her death? Because if my
(23:15):
wife dies after me, her will controls what happens to
money that I give to her. She may leave it
to her children and my children will not be included.
Is that what I want? Those are the kinds of
things that come into play in a second marriage.
Speaker 2 (23:30):
And the answer is probably not. That's probably not what
you want, I would say for most.
Speaker 1 (23:34):
Folks, which is why it's complicated, right. You know, if
you wait on these things to go through probate, it's
likely not going to turn out the way you want
it to.
Speaker 3 (23:43):
Well, certainly it's not going to turn out the way
you think it it will. Yeah, that's for sure. And
you know what I have found that men and women
approach this problem differently, and that women have a much
stronger interest in the financial wellbeing of their children than
most men that I counsel. I'm not sure why. I'm
certainly there's no right or wrong to this, but it matters.
(24:06):
So you may not have the same testamentary plan and
a second marriage, the husband and wife may not have
the same provisions in their will.
Speaker 1 (24:15):
You know, Mark. What I also find is many people,
especially younger families, who draw up a stay planning documents
is often because they want to make sure that the
piece about what happens to the children if something happens
to them is taken care of, right, And it's like
once they do that, it's like they said it and
forget it and they don't revisit it for years, And
(24:35):
what they're forgetting is, Okay, maybe those kids are now eighteen,
nineteen twenty adults, but you want to also want to
make sure that they're cared for if something catastrophic were
to happen to both of you in a similar way,
and it may not be just guardianship, but it's financially well.
Speaker 3 (24:52):
That's right. So you start with the question, are their
mind or children? If there are minor children, then you
need to provide for a guardian, and you need to
provide for a trustee to manage money until whatever age
you think is appropriate. When those children get older, it's
time to revisit that because you may want to include
your children in different ways. For example, when my wife
(25:15):
and I got a little older and our kids were grown,
we revised our will to name our sons as the executor.
So my wife, of course is my primary executor, but
if she's not around, then my children. I have two
sons and I've named them in birth order. They're each
capable of doing this job. The money goes to them,
and so the point is that I've worked them into
(25:36):
key roles. Both of them now hold power of attorney,
living will, power of attorney for healthcare, all the documentation
we talk about on this show, all the time. I
worked my children into those roles when they became adults.
Speaker 2 (25:49):
It's a testament to changes over time and the importance
of updating your estate planning documents. And that's a great one.
I have a minor daughter, and you know, she's nine
years old, and of as she grows up will probably
make some changes just like you have, so you know,
pivoting a little bit obviously, there's other life changes that
might not be quite as great as a child growing
(26:12):
older and witnessing that divorce death of a spouse. Obviously,
you know, if something like this happens, some very important
changes that we would likely need to make as well.
Speaker 3 (26:23):
Well, that's certainly true. When the first thing that comes
to mind is that if I have a will that
leaves everything to my wife she predeceases me, I need
to go back and check that will because she's no
longer going to live outlive me. I need to be
sure that I've made the provisions that are appropriate for
the next level. I need to be sure the executor
that I nominate is appropriate, the power of attorney is appropriate.
(26:46):
All those things need to be updated in the event
of divorce or death of a spouse.
Speaker 1 (26:51):
Well, I think you from the divorce standpoint mark as
you know, I'm someone who went through that, and you know,
the first time around when I was married and you're
thinking through estate planning feels really different than when you
go through it in your divorce and you're thinking about, Okay,
this is what I now have, and I want to
make sure that my children and you're thinking through all
(27:12):
of those things. So It's interesting how just depending on
where you are and what's happened in your life, you
think very differently about estate.
Speaker 3 (27:20):
Planning, and you should, and that's appropriate, and so that's
why it should be revisited at least with each major
life change. But I'm a great believer in revisiting this
every five or ten years. Whether there's a significant we've
not talked about, is significant changes in your assets, you
inherit a significant amount of money. It may have a
(27:41):
big impact on your state plan. It may expose you
to a state taxes in a way that could be avoided.
It may change the way you want to leave your
money to your children, perhaps put it in trust, perhaps
put a provision for grandchildren, Perhaps make some charitable gifts
to your favorite university or your favorite church or whatever. Maybe.
Speaker 1 (28:00):
Yeah, I think there's just a lot to think through here.
In regardless of your age or stage. If you've got
a four to one k or a home or cars,
you have an estate. It doesn't necessarily need to be
a tree lined, gated situation that you think of an estate.
And for those of you who still have this on
your to do list, please bump this up a little higher,
right it's a big deal to make sure that you
(28:22):
have this taken care of. It's an act of love,
a labor of love to your family. Great insights as
always from Mark Grekman, are a state planning expert from
the law firm of Wood and Lamping. You're listening to
Simply Money, presented by all Worth Financial here on fifty
five KRC, the talk station. You're listening to Simply Money.
(28:44):
It wasented by all Worth Financial. I mean Wagner along
with Steve Rubidi. Have a financial question you want us
to answer, There's a red button you can click on
while you're listening to the show. It's right there on
the iHeart app. Record your question and it's coming straight
to us. You know, in the investing world, there's just
certain principles and roles that stand out, and I will say,
you know a lot of them. I was just talking
(29:04):
about in the last segment rules of thumb. That can
be rules of dumb. But there's a couple things that
I cling to. One of them is the magical power
of compounding right when you get it. It's an amazing thing.
And also one of those is called the rule of.
Speaker 2 (29:19):
Seventy two, the rule of seventy two. It's a pretty
straightforward formula formula here that it provides a quick snapshot
or an approximation of how long it will take for
an investment to double in value. The problem that I
will share here is that it's based on a fixed
annual rate of return. It doesn't take any consideration different
(29:40):
fluctuations in rates of return. But the formula itself, you
divide seventy two, the number seventy two by the annual
rate of return that you expect on your investment. So
if the annual return might be let's say nine percent,
nine or seventy two, divide by nine equals eight. So
in this situation, if you've got to fix to return
in nine percent, it would take ten years for your
(30:02):
investments or it take eight years for your investments to double.
Speaker 1 (30:05):
And I just think, you know, so many times there's
equations that people want to figure out. When it comes around,
just tell me, is it forty percent of what I
was making when I'm working? That's what I need for retirement?
Is that I'm going to draw down four percent. But
this is kind of just a guideline throughout your life
as an investor to figure out, Okay, here's where I
(30:26):
am right now. If I could reasonably assume a seven
percent rate of return ten years, I can double that investment.
And I remember the first time this was years ago.
You know Grace, who's eighteen now, I mean maybe she
was ten eleven, something like that. She was in the studio.
Nathan Backgreck and I were doing the show and we
were talking about the rule of seventy two. And when
we finished, he had this little whiteboard in the studio
(30:48):
and he gets out the whiteboard and he's explaining this
to Grace, like, hey, you invest this much and it
could double in this amount of time. And her eyes
are just getting bigger and bigger and bigger. And I
mentioned this and of the last segment, but she really
said to him, I need you to not tell my
brother about this magic formula, magic formula in this way
that money can compound, because if this is true, I
(31:11):
want to be the only one that can take advantage
of this in my family, you know. And I just think, hey, listen,
for people who are starting out investing, or really wherever
you are, this is just a great and mathematically I
can't explain to you how this works. It's just it
just works, and it works without fail. But it's pretty brilliant.
Speaker 2 (31:29):
It works without fail as long as it's a fixed
rate of return.
Speaker 1 (31:31):
Well, yes, absolutely so I'm not but I'm saying, like,
you know, it's like, well, is there a time when
it's wrong? Nope. As long as you know the average
return is that amount, that's when you could expect it
to double.
Speaker 2 (31:43):
I think that it certainly is helpful for setting, you know,
some kind of expectation for your investments to help you
determine whether your financial goals are achievable within your investment
time frame. In a situation like that, it can shine
light on whether or not you're doing the right thing.
So it is helpful as a rule of thumb for
that and setting kind of a guide for some of
(32:04):
the decisions that one might make.
Speaker 1 (32:06):
On the flip side, for many who are getting closer
to retirement and you're starting to think about kind of
the real threat of inflation during that time, you can
also use the rule of seventy two to say, Okay,
how long would it take before my purchasing power is
cut in half? Right? And you can use the rule
of seventy two for that too. So it's like this
multi purpose tool that you can have in your investing
(32:30):
tool belt. I know that was really cheesy.
Speaker 2 (32:32):
But.
Speaker 1 (32:34):
Really I love this formula because I think you can
use it for so many different reasons. And listen, I'm
not someone who's like a big fan of all the formulas,
but this one makes a lot of sense and can
be used in a lot of different ways to help
you get to your point. This is not like a
I'm going to use this formula and it's going to
tell me exactly what I need to do. No, but
it can send you in a general direction.
Speaker 2 (32:55):
I feel like I'm raining on your parade here for
how excited you are about the rule of seventy two.
I mean, yeah, it's pretty much the greatest thing ever,
except it doesn't count for taxes, potential fees on the investments,
other expenses they can chip away return. So you know,
rules of thumb. Yeah, they can be helpful guides, but
they're not what you need to make long term financial
(33:17):
planning decisions.
Speaker 1 (33:18):
I'm not saying, hey, this is the thing, this is.
Speaker 2 (33:21):
This is the one and only things that you need
you need.
Speaker 1 (33:24):
But I am saying for kind of like back of
napkin math, maybe you're sitting down with your adult children
who are working for the first time, bringing home a paycheck,
and you want to say, listen, you know, if you
can expect this return of seven percent or whatever it is,
you know roughly how long that money that you're putting
in that four one?
Speaker 3 (33:42):
Kay?
Speaker 1 (33:42):
How long will that take to double? Which I think
for younger investments investors is like momentum. Right, if they're
trying to figure out whether they're going to use money
to go to happy hour or they're going to skip
happy hour and put that money in their four one. Okay,
this might be just what they need to push them
over the edge their stand. Yes are you feeling me now?
Speaker 3 (34:02):
Yeah?
Speaker 2 (34:02):
All they need is rule seventy two in an HSA, right, yes, yes.
Speaker 1 (34:07):
All of those things and a fiduciary financial advice.
Speaker 2 (34:10):
I agree with that last week. I think that's a
good idea, and I will.
Speaker 1 (34:13):
Say listen, like we might bring this up from time
to time in our offices of like, hey, you know,
here's one way that maybe we can look at this.
It's not something that we use all the time, but
again as a general rule, especially for someone who's doing
it yourself or just getting started getting invested. I think
this can just be kind of just a great thing
of like, hey, gee whiz, this is one way to
figure this out. It's not requiring, you know, some calculator
(34:35):
that's going to compound something and you have to put
in seventeen different variables. It's a pretty easy formula, but
it can tell you a lot. Here's the all Worth advice. Listen.
The rule of seventy two can help you focus on
the power of compounding, which may stop you from pulling
money from those long term investment accounts. They help you
just make decisions a little differently. Come up next a
financial gem from mister Ruby. You're listening to Simply Money,
(34:59):
presented by all Worth Financial. Well, here in fifty five
KRC the talk station Black, you're listening to simply when
percent off I all Worth Financial. I'm Amy Wagner. A
long whist Ruby Rhinestone Cowboy must mean that you have
a gem for us today.
Speaker 2 (35:18):
I did not choose that music. It was a surprise
for me too.
Speaker 1 (35:21):
I love it.
Speaker 2 (35:21):
It was beautiful, makes me very happy. Thank you. So
Ruby's gem. This is a little nugget of wisdom, so
to speak, where you know we've had some conversations just
today about different financial rules of thumb, whether it's the
rule of seventy two you had mentioned four percent withdrawal rate,
you just briefly brought it up. Yeah, and these are
(35:41):
certainly helpful guides. I've heard others like one hundred minus
your age is your optimum asset allocation?
Speaker 1 (35:50):
Yep for them.
Speaker 2 (35:51):
Yeah, there's several of them that the four percent withdrawal
rate saving ten percent of your salary. These these are
good guides. I thank you said it yourself. When it
comes to maybe getting a younger individual excited about the
impact of compounding interest on investments to motivate them to
actually make the right decision with getting you know, started
saving early can be a huge It can have a
(36:13):
huge impact on someone in your family's life. But you
do need to be careful when if you are self
directed and trying to plan on your own and maybe
you're building spreadsheets. I've seen this before where folks just
aren't taking into consideration inflation and the impact of that
on their long term the longevity of their money. I
(36:34):
would say these rules are just guides, they're not set
in stone because everybody's financial situation is different. So you
look at one hundred minus your age for your asset allocation.
Are you kidding me?
Speaker 1 (36:45):
Yeah? No, I don't like one size fits all approaches
to investing. And I think you know, when you think
about going to your doctor's office and you've got a headache,
and they tell everyone who comes into the office with
a headache, this is what you do. Take two aspirin
and call me in the morning. Meanwhile, well, you have
an aneurysm.
Speaker 3 (37:01):
You know.
Speaker 1 (37:01):
That's yeah, exactly not the right thing. I think that
for most people, rules of thumb can get you started
in a good direction, but at some point you're going
to look at your four O one K, You're going
to look at your investments, and you're going to think, wow,
this is real money. Now, this is real money, and
I want to make sure that I am doing everything
I can to maximize it, to minimize the tax consequences
(37:24):
of it. And that might mean you're no longer doing
it yourself, you're working with someone who's a financial professional,
but it certainly means that you are no longer relying
on a rule of thumb.
Speaker 2 (37:36):
Even the three to six month of living expenses. I
think that's great when you're in the accumulation phase of
retirement planning. But what a lot of folks don't realize
is the importance of maybe having a little bit bigger
of a cushion as you transition into the distribution phase
of retirement planning when actually comes time to generate a
paycheck from your investments, because at that point, if the
(37:56):
markets get kicked in the teeth and you don't have
cash to pull from, then you are forced to take
distributions from a portfolio that could be down right when
you transition into retirement. So that rule of thumb could
really derail the longevity of your accounts if that's all
you applied to your overall financial plan.
Speaker 1 (38:12):
Yeah, rules of thumb can work until they become a
rule of dumb when you need a more personalized approach.
Speaker 2 (38:18):
That's exactly what I was going to say.
Speaker 1 (38:20):
Thank you, ah tak the words out of your mouth.
Thanks for listening tonight. You've been listening to Simply Money,
presented by all Worth Financial here in fifty five KRC,
the talk station
Tonight, how you can become a better expert than the
so called experts at investing, and why you could one
day choose where your employer match goes. You're listening to
simply money presented by all Worth Financial. I mean me Wagner,
along with Steve Ruby. Oh, when we talk about the
so called the experts, we kind of say it a
little sarcastically. They get it wrong all of the time.
(00:27):
Here's a few examples, right, They thought we were going
to have a recession in twenty twenty three. In fact,
some of the headlines said it was going to be
the worst recession we've seen ever in the history of
people investing, all the things, all the headlines said it.
They also made some predictions at the FED would lower
interest rates seven times this year. We're roughly six times
behind on that prediction. And of course they're constantly telling
(00:49):
us the next big stock jump in of this, jump
out of that. In fact, I was making this point
yesterday' Steve to someone who was in my office. I
have seen headlines in the same publication apart one of
them saying here's why you should buy this particular asset
or stock, And then a few weeks later, here's why
you should not buy the same thing.
Speaker 2 (01:09):
I mean, I can want up be on that one.
I've seen it literally like sequential in market Watch I
think it was. I was like, oh on what is this?
You have conflicting opinions side by side in articles. So yeah,
I mean, we have fun when we tear apart some
of these, you know, news sources that have no fiduciary
standard over making sure that you make the right decision
(01:31):
for yourself. They're just trying to get clicks for ad revenue,
you know. Looking at this now that consider some research
from Vanguard Investment Giant that we've all heard of of
acid allocations of rollover I rays. These accounts come into
play when investors want to transfer funds out of their
four one K to a previous place of employment. In
most cases, a rollover's default allocation is actually in cash.
Speaker 1 (01:57):
And people miss this all of the time, right, So,
researchers in June of twenty twenty four looked at five
hundred different investors who had done a rollover in the
year before so twenty twenty three, and that timing meant
that advisors had at least or those investors had at
least six months and maybe as much as eighteen months
to move their rollovers from an all cash allocation. If
(02:17):
we are talking about how you can become an expert investor,
this is something you can't miss right. We know the
average person is going to switch jobs roughly a dozen
times in a dozen times in your careers. It means
you're gonna have a lot of old four one k's
rolling over into iras you wait six, twelve, eighteen months.
Every time you roll that money over and it's just
(02:39):
sitting in cash, think about how many good days, good weeks,
good months in the market you could be missing out on.
This is a huge miss that if you're going to
be an expert investor, it's something you've got to get right.
Speaker 2 (02:54):
What Vanguard looked at here is if you had at
least put your money into what you know, Steve sprod
you still call a good enough fund. That was a
target date retirement fund, which is certainly a better option
for most of us that a cash position in an IRA.
Vanguard calculates that for investors under the age of fifty five,
the retirement portfolios could be worth at least one hundred
(03:16):
and thirty thousand dollars more at age sixty five, had
they not spent that time sitting in cash and had
instead put those dollars from their four to one K
rollover into at least a target date retirement fund.
Speaker 1 (03:29):
I love when this research gives you perspective like that
in dollars and cents. Right, we're not just saying, hey,
this is a bad thing. We're saying, hey, this is
how much this could cost you? More than one hundred
thousand dollars if you're not getting this right. And there
has been all kinds of research out about this recently,
just people thinking that when you move your money over
from an old account into a new IRA rollover, that
(03:52):
it's going to be invested the same way that it
was before. Right, There's a lot of assumptions that are made.
And this is you know, this is my pet peeve.
You gotta know how these things work. You have to
understand all the features of your four o one K
and if that four oh one k money is going
to be rolled into an IRA when you're leaving that
job or for whatever reason, it has to be invested
(04:13):
in a way that's suited to your needs. That means
enough growth, right and also maybe enough protection depending on
you and your specific needs for you to be able
to sleep at night.
Speaker 2 (04:23):
Yeah, ideally we're using that IRA as a long term
point of consolidation that that builds that investment strategy holistically
for all of our investments. Four to one K is
we're limited to what our employers give us to pick
and choose from, which can be a bummer sometimes, but
that's still a great vehicle because we get free money
and the limits that you can contribute or high, and
there's deductions and maybe roth contributions. So I certainly don't
(04:45):
turn your back on a four to one K. You
need to be leveraging one. But having that IRA, you
don't want to open it and then move money into
it and sit in cash.
Speaker 1 (04:53):
Yeah, you got to get this one right. You're listening
to Simply Money presented by all Worth Financial, letting me
Wagner along with Steve Ruby, as we talk talk about
the so called experts right, all the predictions they make,
all the things that you could follow their advice and
get it wrong. And if you want to become your
own expert, the key is to understand how these things
work right. Make sure that if you're rolling over money,
(05:14):
it's not sitting in cash for months at a time,
that you have an investment strategy suited to your long
term needs. And I would say, hey, here's another issue.
A lot of so called experts or advisors want to
make it sound like you need to be invested in
something sexy, something new, something different. I've had someone in
(05:35):
my office several times who's kind of shopping around for
an advisor, and it's interesting then to hear the suggestions
that other firms are making, and you know, it can
sound really great. They're hand picking this basket of individual
stocks for me, you know, and then it's kind of like, well,
you look at that compared to maybe what I would
(05:57):
be recommending, which is just a diversified you know, index funds,
low fees, you know, super diversified, and we're looking at
the historical returns of those versus these other crazy predictions,
and it's like, oh, well, this would be the choice.
Every time. There's not someone on Wall Street picking and
choosing constantly. There's no active management and listen, sometimes those
(06:21):
things can make sense, right. Sometimes people come to us
with complicated, you know, concentrated positions in certain companies and
things like that. We need to make sure that they're
you know, making the smartest tax decisions and things like that.
But a lot of the time, it's really the sexy
investments that aren't going to get you ahead. It's the
things that aren't making headlines, boring, regular old exchange traded funds.
(06:47):
They're going to get you where.
Speaker 2 (06:48):
You go at the end of the day. The markets
are going to do what the markets are going to do. Yeah,
that they're going to go up over the long term,
with some volatility along the way. Obviously, there are so
many different choices that you can make when it comes
to how you invest your money or how an advisor
can invest your money for you. At the end of
the day, the most important thing is making sure that
you have the asset allocation that you need that can
(07:10):
help you meet your financial goals and that you can
afford to take based on your financial situation. Obviously, there's
a lot of moving parts here. Yes, for the majority
of folks, I would say that, you know, some kind
of a simple passively managed index fund strategy is totally fine,
But you do bring up some good points, because yes,
there are advisors out there that I would say needlessly
(07:31):
complicate things to try to offer bells and whistles to
differentiate themselves. I see that most when it's just investment
managers money managers, which is a huge difference between what
a financial planner does, a financial certified financial planner, a fiduciary.
Investments are the building block of your financial plan, and
(07:54):
financial plan is the blueprint, so it is just one piece.
There's a state planning, there's tax planning, there's insurance planning,
there's investment planning, there's retirement planning. You tie that all together,
and that's what financial planning is. Money managers I do
see oftentimes, you know, dangling those bells and whistles. Here's
why you need to choose me, because we're going to
(08:14):
create alpha in your investment strategy.
Speaker 1 (08:16):
Yeah. I was actually talking to a couple this week who,
you know, are getting into their fifties, right, and they're
starting to really think about retirement. It's not such an
abstract concept anymore. And they kind of admitted, hey, we've
just we've kind of defaulted into target date funds, and
all of a sudden, we feel like that's not maybe
good enough for us, that's not tailored to our specific needs.
(08:38):
And then they threw in and We've been seeing all
these headlines about real estate investment trusts or cryptocurrency or
and it's like, you know, gosh, they realize that what
they're doing probably isn't tailored enough to suit their individual needs.
Yet at the other end of the spectrum, if they
hadn't come to someone like us, they could end up
in cryptocurrency one hundred percent, you know, something that is
(08:59):
not the best long term smart investment. And I think
when you get to that point of like starting to
think about retirement, if you feel like you're behind or
whatever it is, they can be like, wait, what can
I do to catch up? And I think there's gonna
be a lot of people in this financial services sector
willing to leverage that, to take advantage of that and
to get you into something that isn't a good fit
(09:21):
for you.
Speaker 2 (09:22):
Yeah, you know, financial planning is about meeting you where
you are as an individual or as a family. And
you brought up something a moment ago about unwinding a
concentrated stock position, for example, to do so tax efficiently
can take some more complicated investment strategies, and that's okay
in a situation like that. In this area, for example,
we have a lot of folks in Procter and Gamble. Now,
(09:44):
now I will admit that my experience with P and
gears or they typically want to keep the stock. But
in certain situations, you know, if that stock is inherited
and you know, the child is said it not for
a while, and it has gains and they're wondering how
they can sell it without getting kicked in the teeth
with taxes, then there are strategies that you can use
using options. Selling covered calls is what it's called. I
(10:06):
think in a situation where you want to unwind tax efficiently,
getting into some of these more complicated investment strategies is
highly recommended. In fact, so you know when we talk
about some advisors are just dangling those bells and whistles,
there are differences. When you have a fiduciary financial planner
in your corner that makes a recommendation like that, there
(10:27):
is usually going to be a very good reason why
that is the case.
Speaker 1 (10:31):
And you know, I think for a lot of people,
it's a tough pill to swallow as an investor for
someone to say, actually, probably your best bet is to
be invested in something that follows an index. You know
it seems like someone should be buying and selling based
on maybe what the FED is going to do, where
we think inflation is going to be in the future,
if we think there's going to be a recession on
the horizon. I think as an investor, it feels like
that feels good to kind of feel like someone is
(10:53):
doing something. But here is the research. And I'm telling you,
I have seen dozens and dozens of different pieces of
research that all points to the same thing. And here's
the latest. This is you know, it showed that eight
out of ten fund managers right actively going in there
and buying and selling different things underperformed the S and
P five hundred and that's an eighty six percent jump
(11:14):
over the last ten years. More and more people jumping
into this space, trying to do it with really really
smart degrees in backgrounds and teams of people, in all
reams of research, and they're not getting it right as well.
Speaker 2 (11:26):
Throw darts at a dart for yeah, And.
Speaker 1 (11:30):
There's also alternative investments, right, that's something that people can
bring up. I was actually at an RIA summit, you
know something in our space in Texas last year and
on stage, person after person after person, Hey, our company
does this and that and this and that, and I'm like,
oh my gosh, it's just like they're trying to come
up with like the next big shiny object. In by
(11:52):
next year, that shiny object will be not.
Speaker 2 (11:55):
Shiny, you know, we'll move along from it.
Speaker 1 (11:58):
Yeah, And the whole out in the room was it
you know, advisors like us, And I'm thinking, is anyone
buying this stuff? Was anyone you know, really thinking this
is a good.
Speaker 2 (12:07):
Idea for a high net worth investors? Sure? Yes, when
we have a portfolio that is all index funds and
you can add in alternatives like you know, private equity,
real estate exposure, you know, even some access to hedge funds,
and I think it can create a situation where your entire
portfolio isn't correlated to the market. And I think that
there's value in that for some folks, But it's not
(12:29):
a need for everyone.
Speaker 1 (12:30):
For a lot of people, it's not. Yeah, here's the
all worth advice experts, right. The so called experts who
are making these predictions are often wrong. Fiduci Ory financial
pros who are giving you advice are always working in
your best interest. Coming up next, y, you could one
day decide where that company match is going to go
plus the sixty to forty portfolio strategy. Good one, a
(12:51):
bad one. We'll get into that. You're listening to Simply Money,
presented by all Worth Financial here in fifty five KRC
the talk station presented by all Worth Financial. I mean
you Wagner along with Steve Ruby. You can't listen to
Simply Money every night. You don't have to miss the
thing we're talking about. We've got a daily podcast for you,
(13:13):
search Simply Money. It's on the Iheartup or wherever you
get your podcasts. Coming up at six forty three, A
deep dive into something called the Rule of seventy two.
When my daughter learned about this years ago, she said,
don't tell my brother. Don't tell my brother this. It's
like a magic secret of investing. Will tell you what
it is, Okay. Rarely do I get to come on
(13:36):
the show and say that the IRS did something that
makes sense, But we want to tell you just exactly
that today.
Speaker 2 (13:44):
Yeah, So a new IRS ruling it could you know?
It's laying the foundation for I will say, giving employees
more power to choose how their match within their four
one K is actually used elsewhere. So to elaborate here.
Rather than only putting that free money from your employee
in your four to one K, the idea here is
maybe putting it into your health savings account for you,
(14:07):
I know you do, maybe making student loan repayments. This
is a real life example for one company that has
gotten permission from the IRS. We don't know what company
this is yet, Yeah, but it's one company that's got
permission from the IRS to offer their company match to
the employees in these non traditional avenues.
Speaker 1 (14:29):
Yeah, to be used at your discretion for what you
think would be best within the realm of something like
a health savings plan or student loan debt, or they
could just default and put it into your retirement I
guess I would say. The only thing my concern about
this is, you know, you could lose out on dollars
for your future self in the form of retirement. You know,
(14:51):
if you're not using that HSA as kind of a
retirement savings vehicle, but using it as you go, then
maybe you're missing out on a lot of growth that
you could get for retirement. And we know there's a
retirement crisis in this country. So anything I think that
takes the focus off of retirement planning makes me a
little nervous, But I also think people know their individual situations,
and as long as you've done your research and you
(15:13):
know you do have student loan debt, you know, or
whatever it is, this can be helpful.
Speaker 3 (15:17):
Yeah.
Speaker 2 (15:17):
I think meeting with an advisor to guide you in
those decisions is important because if your student loan debt
is you know, the interest rates are very minimum depending
on where you got that loan from, compared to the
long term opportunity for your company match within your four
on K investments to grow it is. It is an
interesting trade off.
Speaker 1 (15:37):
Switching gears now. So for decades, when you think about
investing in stocks versus bonds, for those who are kind
of getting into that sort of road to retirement, kind
of leading up to it, we will often find you
sit in the same place right sixty forty portfolio allocations,
So sixty percent of your investment stocks forty percent bonds.
(15:57):
Is this the best place for everyone?
Speaker 2 (16:00):
So you know, over the past forty five years, since
the inception of what's called the Bloomberg US aggregate index
that mirrors the sixty forty model, the annualized returns are
just over ten percent, So this has outpaced inflation comfortably
without taking too much risk. If we take this all
the way back to nineteen hundred, the annualized real return
(16:23):
is about four point eight percent. So, you know, I
set expectations with folks that I work with about the
importance of having a risk exposure that makes sense for
you as an individual. A lot of people will ask,
you know, should I just be sixty forty because I'm
this old now, And I can't answer that question until
we actually build a financial plan and understand what risk
(16:47):
they need to take. So, you know, the sixty forty
it's kind of a rule of thumb thing that I
think a lot of folks lean into, but that there's
certainly for some folks more of an opportunity to take
more risk even if they're retired.
Speaker 1 (16:59):
Well, and as we've seen many many times on the show,
rules of thumb, right that people just wanted to fall
to with their money can often be rules of dumb.
You know, it just may not make sense for you.
You know, if you go into retirement, if you have
a pretty sizable emergency fund, you can afford to maybe
take on more risk if that makes sense to you.
Because if markets are down, you're not going to lock
(17:21):
in those losses, right. You know that one hundred percent
of the time markets have rebounded to new high. So
that's one situation if you're not going to need that money.
I mean for those of you who still have pensions
and social security, you know, or I know some I have,
you know several several clients who have a lot of
real estate income coming in right in the form of rent,
and so they're not living off of that money now,
(17:43):
so it doesn't matter, so they can take on more risk,
you know. So I think just defaulting to I'm fifty
five years old, I should be going to sixty forty
portfolio is not the best way to serve your financial goals.
Speaker 2 (17:56):
And keep in mind that that emergency fund in retirement
is still very important because it buy time against market fluctuation.
So even the good old fashioned sixty forty here has
had periods of time averaging about about eleven years. This
has happened six times over the course since nineteen hundred six,
periods averaging eleven years each where the sixty to forty
(18:17):
portfolio would have broken even relative to inflation. That's the
after inflation return or even lost money So.
Speaker 1 (18:26):
It's not that we're saying you shouldn't be invested in this.
I think you just have to have that kind of
perspective of sometimes you might just be breaking even barely.
You know, with an investment like this one, does it
make sense to push it a little bit? Listen, if
you are someone who cannot sleep at night, especially when
you get to retirement and those paychecks are not coming
in anymore, I'm not going to be an advocate for
(18:47):
you taking on more risks. It's not worth it.
Speaker 2 (18:48):
That's no fun. You want to enjoy retirement. If you're
bring self ulcers and losing sleep, yes, then you have
no business taking more risk, that's for sure.
Speaker 1 (18:56):
On the flip side, I've got plenty of people come
into my office and they're like, I get it. I
get how market cycles work. It never freaks me out.
I was fine in two thousand and eight, I was
fine in twenty twenty, you know when markets went or
we're tanking during the pandemic, and for people like that,
it could make sense to take on more risk. Right,
So just understand this is a very individualized thing, and
I think just kind of defaulting to well, this is
(19:17):
my age, this is my stage, This is how I
should be invested? Is going to sell your self short?
Here's the all Worth advice your asset allocation. It needs
to reflect your personal tolerance for risk and your long
term financial goals period. That's it. Coming up next. There's
sometimes confusion right over when should you update your estate plan.
We're going to help you figure that out. Next, you're
(19:39):
listening to Simply Money presented by all Worth Financial here
on fifty five KRC the talk station. You're listening to
Simply Money presented by all Worth Financial. I mean me
Wagner along with Steve Ruby, how many of you Somewhere
on your list of things to do? Maybe toward the
bottom is to update your estate plan. Was talking to
(20:01):
someone this week who brought in their will for me
to look at two adult children, and the will was
written before one of them was born. Probably time to
update that estate plan. Joining us tonight is our estate
planning expert Mark Rerekman from the law firm of Wood
and Lamping with when we should all be thinking of
updating that estate plan. I'm assuming you're on board with
(20:23):
You've had another child and it's spent twenty years. Probably
time to update that.
Speaker 3 (20:29):
Of course, And you know, the thing amy is that
when major events happen in our lives, the last thing
in the world we think of is to call our
lawyer and update our estate plan, and probably rightfully so.
But once things calm down, you do need to stop
and think, does this really make a change in what
I want to do long term?
Speaker 1 (20:46):
So what are the things that we need to be
thinking about when it comes to changes, so that you know,
if it's on the forefront of our mind, it should be.
Speaker 3 (20:55):
I think of a sort of key life events. The
first one on my list, of course, would be marriage.
Birth of a child is a close second. Divorce is
a big one, death of a spouse is also a
big one. If we've got a significant increase in our
net worth, our assets, or a decrease. You know, an
increase could be inheritance that comes in, or a windfall
(21:18):
of some kind, or success in a business transaction. A
decrease can be the result of a divorce, or it
could be the result of some horrendous economic activity or
a failure of a business or but those kinds of
life events. Really it's a good time to revisit your
estate plan.
Speaker 2 (21:39):
Yeah, when I have annual review meetings with folks that
I work with. It's always touched on at least you know,
where are you with your estate planning documents? When's the
last time you review them. If I'm working with somebody
that's a newer client, then I will tell them that
I will bug them about it until they either get
it done or they tell me to shut up about
it because it is important. Brought up some key life
(22:01):
events here. Let's look at marriage, whether it's your first
or maybe a marriage later in life. Obviously, there are
some things that we need to look at when it
comes to updating our state plan.
Speaker 3 (22:11):
Well, and what most people think is that your spouse
is going to inherit everything, whether you have a will
or not, and that's simply not true. It's not true
in Ohio or Kentucky or Indiana any of our local states.
The truth is that your spouse will only receive a
portion of your state. In many states, it depends on
whether it's a first marriage. It depends on whether or
(22:32):
not there are children or children from a previous marriage.
But the point is that without a will, you don't
really control who gets your assets. So when you get married,
you need to decide you need to revisit your will now. Sometimes,
in the case of second marriages, you may not want
to leave all of your assets to your spouse. You
(22:52):
may have responsibilities to minor children, You may wish to
provide financial support to adultildren or to grandchildren. Certainly, if
I'm in a second marriage and I decide I want
to leave all of my assets to my wife, my
second wife, I need to stop and think for a minute,
what will she do at her death? Because if my
(23:15):
wife dies after me, her will controls what happens to
money that I give to her. She may leave it
to her children and my children will not be included.
Is that what I want? Those are the kinds of
things that come into play in a second marriage.
Speaker 2 (23:30):
And the answer is probably not. That's probably not what
you want, I would say for most.
Speaker 1 (23:34):
Folks, which is why it's complicated, right. You know, if
you wait on these things to go through probate, it's
likely not going to turn out the way you want
it to.
Speaker 3 (23:43):
Well, certainly it's not going to turn out the way
you think it it will. Yeah, that's for sure. And
you know what I have found that men and women
approach this problem differently, and that women have a much
stronger interest in the financial wellbeing of their children than
most men that I counsel. I'm not sure why. I'm
certainly there's no right or wrong to this, but it matters.
(24:06):
So you may not have the same testamentary plan and
a second marriage, the husband and wife may not have
the same provisions in their will.
Speaker 1 (24:15):
You know, Mark. What I also find is many people,
especially younger families, who draw up a stay planning documents
is often because they want to make sure that the
piece about what happens to the children if something happens
to them is taken care of, right, And it's like
once they do that, it's like they said it and
forget it and they don't revisit it for years, And
(24:35):
what they're forgetting is, Okay, maybe those kids are now eighteen,
nineteen twenty adults, but you want to also want to
make sure that they're cared for if something catastrophic were
to happen to both of you in a similar way,
and it may not be just guardianship, but it's financially well.
Speaker 3 (24:52):
That's right. So you start with the question, are their
mind or children? If there are minor children, then you
need to provide for a guardian, and you need to
provide for a trustee to manage money until whatever age
you think is appropriate. When those children get older, it's
time to revisit that because you may want to include
your children in different ways. For example, when my wife
(25:15):
and I got a little older and our kids were grown,
we revised our will to name our sons as the executor.
So my wife, of course is my primary executor, but
if she's not around, then my children. I have two
sons and I've named them in birth order. They're each
capable of doing this job. The money goes to them,
and so the point is that I've worked them into
(25:36):
key roles. Both of them now hold power of attorney,
living will, power of attorney for healthcare, all the documentation
we talk about on this show, all the time. I
worked my children into those roles when they became adults.
Speaker 2 (25:49):
It's a testament to changes over time and the importance
of updating your estate planning documents. And that's a great one.
I have a minor daughter, and you know, she's nine
years old, and of as she grows up will probably
make some changes just like you have, so you know,
pivoting a little bit obviously, there's other life changes that
might not be quite as great as a child growing
(26:12):
older and witnessing that divorce death of a spouse. Obviously,
you know, if something like this happens, some very important
changes that we would likely need to make as well.
Speaker 3 (26:23):
Well, that's certainly true. When the first thing that comes
to mind is that if I have a will that
leaves everything to my wife she predeceases me, I need
to go back and check that will because she's no
longer going to live outlive me. I need to be
sure that I've made the provisions that are appropriate for
the next level. I need to be sure the executor
that I nominate is appropriate, the power of attorney is appropriate.
(26:46):
All those things need to be updated in the event
of divorce or death of a spouse.
Speaker 1 (26:51):
Well, I think you from the divorce standpoint mark as
you know, I'm someone who went through that, and you know,
the first time around when I was married and you're
thinking through estate planning feels really different than when you
go through it in your divorce and you're thinking about, Okay,
this is what I now have, and I want to
make sure that my children and you're thinking through all
(27:12):
of those things. So It's interesting how just depending on
where you are and what's happened in your life, you
think very differently about estate.
Speaker 3 (27:20):
Planning, and you should, and that's appropriate, and so that's
why it should be revisited at least with each major
life change. But I'm a great believer in revisiting this
every five or ten years. Whether there's a significant we've
not talked about, is significant changes in your assets, you
inherit a significant amount of money. It may have a
(27:41):
big impact on your state plan. It may expose you
to a state taxes in a way that could be avoided.
It may change the way you want to leave your
money to your children, perhaps put it in trust, perhaps
put a provision for grandchildren, Perhaps make some charitable gifts
to your favorite university or your favorite church or whatever. Maybe.
Speaker 1 (28:00):
Yeah, I think there's just a lot to think through here.
In regardless of your age or stage. If you've got
a four to one k or a home or cars,
you have an estate. It doesn't necessarily need to be
a tree lined, gated situation that you think of an estate.
And for those of you who still have this on
your to do list, please bump this up a little higher,
right it's a big deal to make sure that you
(28:22):
have this taken care of. It's an act of love,
a labor of love to your family. Great insights as
always from Mark Grekman, are a state planning expert from
the law firm of Wood and Lamping. You're listening to
Simply Money, presented by all Worth Financial here on fifty
five KRC, the talk station. You're listening to Simply Money.
(28:44):
It wasented by all Worth Financial. I mean Wagner along
with Steve Rubidi. Have a financial question you want us
to answer, There's a red button you can click on
while you're listening to the show. It's right there on
the iHeart app. Record your question and it's coming straight
to us. You know, in the investing world, there's just
certain principles and roles that stand out, and I will say,
you know a lot of them. I was just talking
(29:04):
about in the last segment rules of thumb. That can
be rules of dumb. But there's a couple things that
I cling to. One of them is the magical power
of compounding right when you get it. It's an amazing thing.
And also one of those is called the rule of.
Speaker 2 (29:19):
Seventy two, the rule of seventy two. It's a pretty
straightforward formula formula here that it provides a quick snapshot
or an approximation of how long it will take for
an investment to double in value. The problem that I
will share here is that it's based on a fixed
annual rate of return. It doesn't take any consideration different
(29:40):
fluctuations in rates of return. But the formula itself, you
divide seventy two, the number seventy two by the annual
rate of return that you expect on your investment. So
if the annual return might be let's say nine percent,
nine or seventy two, divide by nine equals eight. So
in this situation, if you've got to fix to return
in nine percent, it would take ten years for your
(30:02):
investments or it take eight years for your investments to double.
Speaker 1 (30:05):
And I just think, you know, so many times there's
equations that people want to figure out. When it comes around,
just tell me, is it forty percent of what I
was making when I'm working? That's what I need for retirement?
Is that I'm going to draw down four percent. But
this is kind of just a guideline throughout your life
as an investor to figure out, Okay, here's where I
(30:26):
am right now. If I could reasonably assume a seven
percent rate of return ten years, I can double that investment.
And I remember the first time this was years ago.
You know Grace, who's eighteen now, I mean maybe she
was ten eleven, something like that. She was in the studio.
Nathan Backgreck and I were doing the show and we
were talking about the rule of seventy two. And when
we finished, he had this little whiteboard in the studio
(30:48):
and he gets out the whiteboard and he's explaining this
to Grace, like, hey, you invest this much and it
could double in this amount of time. And her eyes
are just getting bigger and bigger and bigger. And I
mentioned this and of the last segment, but she really
said to him, I need you to not tell my
brother about this magic formula, magic formula in this way
that money can compound, because if this is true, I
(31:11):
want to be the only one that can take advantage
of this in my family, you know. And I just think, hey, listen,
for people who are starting out investing, or really wherever
you are, this is just a great and mathematically I
can't explain to you how this works. It's just it
just works, and it works without fail. But it's pretty brilliant.
Speaker 2 (31:29):
It works without fail as long as it's a fixed
rate of return.
Speaker 1 (31:31):
Well, yes, absolutely so I'm not but I'm saying, like,
you know, it's like, well, is there a time when
it's wrong? Nope. As long as you know the average
return is that amount, that's when you could expect it
to double.
Speaker 2 (31:43):
I think that it certainly is helpful for setting, you know,
some kind of expectation for your investments to help you
determine whether your financial goals are achievable within your investment
time frame. In a situation like that, it can shine
light on whether or not you're doing the right thing.
So it is helpful as a rule of thumb for
that and setting kind of a guide for some of
(32:04):
the decisions that one might make.
Speaker 1 (32:06):
On the flip side, for many who are getting closer
to retirement and you're starting to think about kind of
the real threat of inflation during that time, you can
also use the rule of seventy two to say, Okay,
how long would it take before my purchasing power is
cut in half? Right? And you can use the rule
of seventy two for that too. So it's like this
multi purpose tool that you can have in your investing
(32:30):
tool belt. I know that was really cheesy.
Speaker 2 (32:32):
But.
Speaker 1 (32:34):
Really I love this formula because I think you can
use it for so many different reasons. And listen, I'm
not someone who's like a big fan of all the formulas,
but this one makes a lot of sense and can
be used in a lot of different ways to help
you get to your point. This is not like a
I'm going to use this formula and it's going to
tell me exactly what I need to do. No, but
it can send you in a general direction.
Speaker 2 (32:55):
I feel like I'm raining on your parade here for
how excited you are about the rule of seventy two.
I mean, yeah, it's pretty much the greatest thing ever,
except it doesn't count for taxes, potential fees on the investments,
other expenses they can chip away return. So you know,
rules of thumb. Yeah, they can be helpful guides, but
they're not what you need to make long term financial
(33:17):
planning decisions.
Speaker 1 (33:18):
I'm not saying, hey, this is the thing, this is.
Speaker 2 (33:21):
This is the one and only things that you need
you need.
Speaker 1 (33:24):
But I am saying for kind of like back of
napkin math, maybe you're sitting down with your adult children
who are working for the first time, bringing home a paycheck,
and you want to say, listen, you know, if you
can expect this return of seven percent or whatever it is,
you know roughly how long that money that you're putting
in that four one?
Speaker 3 (33:42):
Kay?
Speaker 1 (33:42):
How long will that take to double? Which I think
for younger investments investors is like momentum. Right, if they're
trying to figure out whether they're going to use money
to go to happy hour or they're going to skip
happy hour and put that money in their four one. Okay,
this might be just what they need to push them
over the edge their stand. Yes are you feeling me now?
Speaker 3 (34:02):
Yeah?
Speaker 2 (34:02):
All they need is rule seventy two in an HSA, right, yes, yes.
Speaker 1 (34:07):
All of those things and a fiduciary financial advice.
Speaker 2 (34:10):
I agree with that last week. I think that's a
good idea, and I will.
Speaker 1 (34:13):
Say listen, like we might bring this up from time
to time in our offices of like, hey, you know,
here's one way that maybe we can look at this.
It's not something that we use all the time, but
again as a general rule, especially for someone who's doing
it yourself or just getting started getting invested. I think
this can just be kind of just a great thing
of like, hey, gee whiz, this is one way to
figure this out. It's not requiring, you know, some calculator
(34:35):
that's going to compound something and you have to put
in seventeen different variables. It's a pretty easy formula, but
it can tell you a lot. Here's the all Worth advice. Listen.
The rule of seventy two can help you focus on
the power of compounding, which may stop you from pulling
money from those long term investment accounts. They help you
just make decisions a little differently. Come up next a
financial gem from mister Ruby. You're listening to Simply Money,
(34:59):
presented by all Worth Financial. Well, here in fifty five
KRC the talk station Black, you're listening to simply when
percent off I all Worth Financial. I'm Amy Wagner. A
long whist Ruby Rhinestone Cowboy must mean that you have
a gem for us today.
Speaker 2 (35:18):
I did not choose that music. It was a surprise
for me too.
Speaker 1 (35:21):
I love it.
Speaker 2 (35:21):
It was beautiful, makes me very happy. Thank you. So
Ruby's gem. This is a little nugget of wisdom, so
to speak, where you know we've had some conversations just
today about different financial rules of thumb, whether it's the
rule of seventy two you had mentioned four percent withdrawal rate,
you just briefly brought it up. Yeah, and these are
(35:41):
certainly helpful guides. I've heard others like one hundred minus
your age is your optimum asset allocation?
Speaker 1 (35:50):
Yep for them.
Speaker 2 (35:51):
Yeah, there's several of them that the four percent withdrawal
rate saving ten percent of your salary. These these are
good guides. I thank you said it yourself. When it
comes to maybe getting a younger individual excited about the
impact of compounding interest on investments to motivate them to
actually make the right decision with getting you know, started
saving early can be a huge It can have a
(36:13):
huge impact on someone in your family's life. But you
do need to be careful when if you are self
directed and trying to plan on your own and maybe
you're building spreadsheets. I've seen this before where folks just
aren't taking into consideration inflation and the impact of that
on their long term the longevity of their money. I
(36:34):
would say these rules are just guides, they're not set
in stone because everybody's financial situation is different. So you
look at one hundred minus your age for your asset allocation.
Are you kidding me?
Speaker 1 (36:45):
Yeah? No, I don't like one size fits all approaches
to investing. And I think you know, when you think
about going to your doctor's office and you've got a headache,
and they tell everyone who comes into the office with
a headache, this is what you do. Take two aspirin
and call me in the morning. Meanwhile, well, you have
an aneurysm.
Speaker 3 (37:01):
You know.
Speaker 1 (37:01):
That's yeah, exactly not the right thing. I think that
for most people, rules of thumb can get you started
in a good direction, but at some point you're going
to look at your four O one K, You're going
to look at your investments, and you're going to think, wow,
this is real money. Now, this is real money, and
I want to make sure that I am doing everything
I can to maximize it, to minimize the tax consequences
(37:24):
of it. And that might mean you're no longer doing
it yourself, you're working with someone who's a financial professional,
but it certainly means that you are no longer relying
on a rule of thumb.
Speaker 2 (37:36):
Even the three to six month of living expenses. I
think that's great when you're in the accumulation phase of
retirement planning. But what a lot of folks don't realize
is the importance of maybe having a little bit bigger
of a cushion as you transition into the distribution phase
of retirement planning when actually comes time to generate a
paycheck from your investments, because at that point, if the
(37:56):
markets get kicked in the teeth and you don't have
cash to pull from, then you are forced to take
distributions from a portfolio that could be down right when
you transition into retirement. So that rule of thumb could
really derail the longevity of your accounts if that's all
you applied to your overall financial plan.
Speaker 1 (38:12):
Yeah, rules of thumb can work until they become a
rule of dumb when you need a more personalized approach.
Speaker 2 (38:18):
That's exactly what I was going to say.
Speaker 1 (38:20):
Thank you, ah tak the words out of your mouth.
Thanks for listening tonight. You've been listening to Simply Money,
presented by all Worth Financial here in fifty five KRC,
the talk station
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