Episode Transcript
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(00:01):
In your corner, saving one investorat a time. I'm working for clients
is not companies, all while bullyproofingportfolios, totally committed to sharing academic truth
is a bottomist thing. Always representingMain Street and not Wall Street. Team,
it's your Sun Money team, andthis is the Sound Money Investment Show,
(00:21):
with drawn financially by theirs. Helloand welcome to the Sound Money Investment
Show with the Brown Financial Advisor.So I'm Greg Brown and I'm James Burton.
We are a registered investment advisory firm. We are independent. We do
work for clients and not companies.That's Main Street and not Wall Streets.
To receive your complimentary and personalized financialincome plan, give us a call five
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one three five seven five nine fivefour. If you're seeking advice on old
four one K four three B,some type of employer sponsored plan, or
perhaps even in any way analysis here'sthe point. If you're no longer with
the company, then as a rule, your money you should not be there
either, so we can help youtake control roll that out tax neutral I
Ray. Give us a call fiveone three, five seven five four.
(01:08):
This our website Brown Financial Advisors dotcom. Email share your thoughts to team
at Brown Financial Advisors dot com andour home office is at Milford, but
we also have locations in Blue Westchesterand Florence, greg Today we're going to
discuss confronting market volatility. Now thesewill be strategies on how to manage market
volatility during retirement, really during youknow, all the investment bases of life,
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because being invested, it's it's justit's just a reality. You're gonna
experience volatility, the ups and downs. Some people will say they don't like
volatility. Well, do you knowif you when you see the market move
upward, that's a form of positivevolatility, and you like that. It's
just the negative, But over timethis works out to be a nice moving
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average average rador returns is the capitalmarkets to expand over long periods of time.
So it's just kind of how youlook at it. And speaking in
terms of how you look at things, Winston Churchill once said, a pessimist
sees the difficulty and every opportunity,but an optimist sees the opportunity and every
difficulty. So that's just a perspective, wouldn't you say, Well, when
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it comes to like most people inthe world that seek an optimistic approach.
They try to do it with everythingthat they know they confront and being very
positive about life success often reflects justthat. So however, here you know,
just generally in life, the unexpectedwe know can happen at any given
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moment, and that could be Itcould be anything from a serious illness,
the death of a loved one,maybe a national disaster, tornadoes, hurricanes,
fires, pandemics, global pandemics atring a bell, bank runs or
threats about that, or bank failuresor possibilities about that. Many of the
things that you might find difficult moredifficult to plan for because the sudden nature
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you know that they can occur.So it may seem like it's nearly impossible
to prepare for every life changing event, but there are ways to do so.
In the area's account, and particularlywhen it deals with money and planning,
truly thinks you can get your mindaround do your best so that the
only thing it can happen thereafter wouldbe those exceptions. You know. You
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just might think of yourself as wella person who can plan, but you
just don't know if you have theright experience or the right tools, and
like you might have, you mighthave the tool to cut a tree in
the yard. You might have atool to cut your grass. You might
have you might be a professional,has other tools to do what your trade
is. But what do you havewhen it comes to the area of finance,
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if you're do it yourselfer, doyou really have the experience in all
market seasons, phases, financial phasesof life to deal with this effectively?
There's a question for you. Iremember there's commercials over years ago where they
showed this fell about to operate onhimself. You know, scalpel in hand,
he's just going to go at it. And it was it was it
was spooky. Looked like he wasabout to go through his abdomen with this
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sharp object. And ye know,doing surgery and yourself may not be a
good idea, even if you area doctor. I'm sure needs step back
and step away from these things.But you know you have you might think
of things that you might want toprotect about investing, you protect your home,
your car, even your body mentionedthe body again. Health insurance or
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life insurance on the loved one,protect the loss of income or some kind
of financial impact with the loss ofthat person. All these are examples of
how to look ahead for an eventthat might occur later, and do what
you can do today to have abetter outcome, even if it's a difficult
time and even a sad one.So yes, bottom line, you don't
have to be a pestimist or havea pestimist outlook on life to prepare for
the things all like these. Youjust have to be proactive. James,
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Well, let's get to the thoughtprovoking questions to tie into today's show.
So, for starters, when shouldyou consider changing or altering your investment plan,
your retirement plan, your income plan? Do you have a plan?
How important is it to define andmanage your risk during retirement? What I
mean by that is when is ittime to change from say an all equities
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allocation to something that's less volatile,less risky. Is really moving towards bonds
the best way to go? Arethere bond replacement strategies out there? How
do you create a diversified or maybea balanced plan for retirement? And again,
to what extent should retirees or peoplewho are nearing your retirement have allocations
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that matches what they have when they'restill working. That means predominantly towards growth
versus targeted towards income. Does thetraditional buy and hold methods still apply for
people in retirement or should you haveactive management as opposed to passive management?
What is the sequence of returns riskand can it be of avoided or can
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it at least be mitigated. Whatare some steps that you, the collective
or the individual you can take tohelp prepare for the next bear market or
the next market pullback. Are therepotential advantages maybe of a bear market or
correction that can be taken advantage of. What is the concept of deleveraging and
how does it apply to retirements?And last, but certainly not least,
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what role should your financial advisor playduring the turbulent or the vaultal times in
the markets? Well, those aregood points, and we've seen a lot
firsthand the past couple of years theimpact of bonds when the bonds have trouble
versus equities. You know, equitiesaren't the only thing that go through volatility.
We saw the bonds post their thirdworst year in history in terms of
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negative returns. In bond replacements,fully insured investments are out there, we
can get some of the market upsideout, any of the downside we could
certainly introduce you to some of those. We have some buffered index portfolio strategies
that in essence, a pretty straightforwardone that would be a bond replacement to
keep you on the safer side wouldbe, how about none of the downside
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over an eighteen month period of time, Just to give you a little inside
on something like that, because bondreplacement really caught my ear. If you're
going through those questions, James,over eighteen months, at the end of
the eighteen month period, the resultof the lesser performing of the SMP five
hundred of the DOO, whatever thatresult would be, would be a number
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that you would get up to acap in this case for this bond replacement
strategy, it would be you getup to sixteen percent of the upside.
However, none of the downside,so we kind of call that an annuity
killer. We have several buffered indexportfolio strategies and things called dual directional,
really cool things, but those justa thought. We might touch on those
more, and we talk more aboutgrowth strategies later relative to market vaulatility.
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But yep, there are some optionsfor you to entertain with a boutique like
firm as ours. It works forthe clients, not companies. We're not
cookie cutter. There's so many thingsthat we can do that Wall Street won't
do, and all doing it byworking with you and for you. So
as we kind of dive in deeperto start market volatility as our topic and
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more importantly you know ways to handlemarket volatility just mentioned one or two.
We need to be dealing kind ofhigher level here though, with what about
emotions that come along someone nearing retirementalready retired, you may feel a little
bit differently than someone earlier in theirinvestment in savings phase of life, their
accumulation phase versus your approaching distribution preservationphase. So when markets drop and you
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lose money in your accounts, ithurts. You know, no one likes
the feeling of losing money. Now, losing money just because you're down doesn't
mean you lost anything, you knowthat right. It's when you act.
If you sell while things are down, you buy the loss. That's when
you actually lose money. Otherwise,you're just on a on a coaster going
to Circle King's Island. You're justyou're enjoying the ups and the downs.
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You get off the ride to lookback said, well, that was that
was a great adventure. That wasfun. I'll do that again. Investing
should be like that over time.Don't get caught up in the highs and
the lows. Enjoy the entirety ofthe ride and benefit by an average way
to return over a long period oftime. Because capital markets work, they
work, and when they don't work, nothing else is going to work.
You just might as well hang upyour hat and call it a day.
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So let's look at when you're enduringthe vaulatile times in the market. It's
just a fact. You know,it can't be avoided. Should you try
to eliminate some of the volatility fromwithin your portfolio? Well, certainly that's
about through active management, managing aspectsof risk in relationship to reward and using
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you know, in our case,we stir up a few strategies to kind
of triangulate the market, hit itfrom different perspectives because it jumps around,
right, it's very dynamic. Youcan't expect to just line up and provide
returns. So how do you knowwhich decisions are right and which decisions are
wrong. As we go through someof this today and discuss right ways and
wrong ways to handle market volatility.We just we want you to end up
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with a strategy that you can stickto throughout retirement. Because remember, it
is about really it's all about timein the market and never about timing of
the market. So have confidence inthis. That's the key. Have confidence
and active management. If you're notconfident that you really know what you're doing
when you get under the hood,then come to us in the mechanic.
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In fact, we take care ofthe entire car. We're a holistic investments,
insurance, taxes, tax planning andpreparation, the estate planning, income
planning, social scurity maximization, pensionmaximization decisions, all forms of insurance.
Just bring it all together through financialplanning. Just really a good place to
be if this is someone like you. So let's look at, you know,
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market volatility. More recently, investorsalways question how long will last?
When will star inticipating it starts beforehe even does. There are emotions in
retiring long term. We're going tolook at some of that when we return.
That's the key is controlling or atleast mitigating to the impact of your
emotions on your decisions. Our funder, but the office five one three,
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five seven, five nine, sixfive four calls. We can help,
but stay tuned. Listening to theSound Money Investment Show with Brown Financial Advisors
here on fifty five KRC. Thetax station opinions expressed are solely those of
Brown Financial Advisors and should not beinterpreted as specific advice. Materials presented are
believed to be from reliable sources andno representations can be made as to its
accuracy. All ideas and information shouldbe discussed in detail with one of our
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qualified investment advisors prior to implementation.Market based investments involve risk, and past
performance is no guarantee of future results. Insurance based investments offer guarantees based upon
the claims paying ability of the issuingcompany. All insurance, tax and mortgage
services are offered through Brown Insurance andTax Advisors LLC. Brown Financial Advisors and
Brown Insurance and Tax Advisors are affiliatedcompanies and may only train ZEC business in
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those states and which registered or wereotherwise legally permitted. Welcome back to Sound
Money Investment Show with Brown Financial Advisors. I'm Greg Brown and I'm James Bourton.
We are independent OURIA that's a registeredinvestment advisory firm. We do work
for clients not companies. Our funnumber five one three, five seven,
five nine, five four, website, Brown Financial Advisors dot com, email
(12:22):
team at Brown Financial Advisors dot com, and our home offices in Milford,
but we also have locations in blueWestchester and Florence. Greg Well, Confronting
market volatility is our discussion today,and can you have too much of a
good thing too much of a badthing? You think about rain. You
can have too much rain, rightor too much sun? But rain waters
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and the sun helps things grow,so there is a right amount. There's
a purpose for both. Even ifwe feel at times there's too much,
you still get the benefit. Andthere are some advantages in some of the
negative aspects of the market too,James, what are some potential Well,
there's potential advantages off to top.One is something called dollar cost averaging.
Another one could be the potentiality ofdoing Wroth conversions. So when it comes
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to the dollar cost averaging, here'show that works. Let's say you're investing
a fixed amount of dollars or moneyat a specific interval, for example five
hundred dollars every month, and thefund or the stock that you're investing in
goes down in value. That allowsyou to buy more shares or more stock
during those downtimes. And if themarket goes up, you'll buy fewer shares,
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but during a downtime you will buymore. So the concept is you're
still contributing the same dollar amount.The difference would be if the value is
down, you're buying more shares,and the values up you're buying fewer shares.
Now it comes to Roth conversions.Here's how that works. If,
for example, you have a twentypercent market pullback or correction, then it
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could be twenty percent less expensive todo a Wroth conversion. There's a whole
lot more about the Roth conversion,but that's just one example of if there's
a pullback and you look at well, when is a good time to convert,
that would potentially be a good timeto convert at least some of your
money to the roth. So thoseare a couple of benefits potential advantages of
a market pullback. It's kind oflike finding a way to make lemonade out
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of the lemons sequence of returns,the sequence of returns that come through the
market over time, and ways tohelp avoid it. So one of the
largest concerns retires can have is runningit's running out of money in retirement,
you know, running out of moneybefore you run out of life. People
are living longer and fear that theywill spend through their money too quickly.
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Now, inflation it has been animpact on retirement dollars over the years.
So many people think they'll need tohave a lot more or most of their
money saved in such a way likethe market to keep up with the rate
of inflation. You know, betweentheir money needing to grow to overcome inflation
and overcome the draw down needs thatthey'll have themselves for the cash their money.
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It's a real concern. It's oneof the most significant risks mathematically pre
retires today is this concept of sequencereturns. It's the risk that timing of
your withdrawals from the retirement account willhave a negative impact on your overall rate
of return. You know, soif you have if you have a certain
amount of money, and let's sayover a twenty year period, the returns
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from the relative market just are withthe r you know, you have positive
years, negative years. It justkeeps on going over this twenty year period.
The end of the twenty years,if you're in your accumulation phase.
You just literally multiply, well,add all of those returns for each of
the twenty years together, divide itby the twenty year period, and you'll
get an average rate of return,and it'll be a very likely a positive
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number, a decent average number.And you'll look at your money and see
how it grew, and it willgrow or will have grown at about that
same average rate. Again, thisis accumulation phase. You're not drawing down
any However, when you take thosesame rates of return and you flip them
backwards in accumulation phase, I setyou up there, you get the same
marriage rate of return and the sameending dollar amount. It's only when you're
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in distribution, you're starting to useyour money that you run these same returns
first forward returns each and every yearover twenty year period, and then see
the impact of your bucket of money, and then turn them upside down and
you're withdrawing money from your bucket,let's say three percent, five percent,
some number you can find out betweenthe two examples that you could run out
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of money well before your longevity.And then just by having the same rates
return but flipped upside down, justyou know, kind of this form of
randomness because you don't know the future. We don't know the exact rate returns
in the future, right, youdon't either, So what happens you may
find that you have an access amountof money over the longevity period that you're
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looking at. So let's say,hypothetically, for example, sixty five year
old retiring with an account balance ofa million dollars, they need to take
in this case a withdrawal of fivepercent with them even a little three percent
increase year over year for inflation,so which effectively creates downward pressure of about
eight percent on their portfolio year overyear. Now, in this example,
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the retiree will generate a positive returnof their money. I'll say in fifteen
of the twenty years. Fifteen ofthose twenty years will be positive returns in
the market, only five losing years. But let's say that there are two
years. There are large losses intwo of the first three years of retirement.
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So, in other words, negativereturns happened earlier in this twenty year
period. So at the five losingyears, two of the first three years
start negative. Year one lose twentyfive percent, Year two gain ten percent,
but in year three lose twenty percent. What would that do over time?
Well, although the gains can bea significant percentage in several of the
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following years, the first initial yearsreally did the damage. To be exact,
those years caused this individual's money torun out by year eighteen, which
would be their age eighty three,starting at sixty five. So for those
blessed with longevity, this could bea major problem. And it's just a
statistical reality. It's mathematical, andit's based on something that none of us
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control. So there might be theinfluence here of active management could be a
positive influence. Wouldn't you agree Asnegative years, negative cycles come on,
active management is cycling through different investments, different asset classes, different positions of
investing, to smooth out some ofthat downness, to lessen some of the
downness, to maximize some of theupness, to get a better average ready
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to return that will fare better.You'd think, just common sense would be
true. It will fare better inthe results and outcome regardless. You know
it's no guarantee your promise. Marketinvesting is risky, but wouldn't you think
that if your hands are on thesteering wheel and you're driving down the road,
you might have a better outcome thenif you randomly hold on, let
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go hold on. Same with activemanagement. I mean, the concept is
very true. So good way toaddress the risk like this is by allocating
a portion of your nest egg tosafer investment vehicles that are designed to produce
steady, reliable, renewable sources ofincome. We'll discuss some of these vehicles
as we go along, but alreadymentioned one called it an annuity killer,
the buffered index strategy that will allowyou to get sixteen percent of the upside
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with none of the downside over eighteenmonths, and it's renewable in eighteen months.
And so it's basically it takes thelesser performing of the SMP or the
DALLAS results over eighteen months and says, whatever they are, you get the
first sixteen percent. If it's anegative outcome, you get none of the
negative side of that outcome. Now, many fixed index annuity products work this
way too, but they just don'thave the same competitiveness of upside participation.
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So if you can eliminate downside inan investment vehicle or fully insured account,
wouldn't you agree that it becomes moreimportant to measure the quality of the strategy
by how much upside you would getfrom it without the downside. I think
the answer is obviously yes. Wehave other buffer index products. One that
comes to mind gets you one hundredand four percent of the SMP or the
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doubt, which everyone's a lesser overtwenty four months. Over twenty four months,
whatever's a lesser of the doubt orthe SMP. So let's say it's
the result of that one hundred andfour percent. That result is thirty percent.
Well, in this strategy, it'suncapped to the upside, so you
would get thirty percent. You wouldget the upside, the full upside of
whatever that market result is. Now, if it's down in this case,
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it has a buffer, which meansit absorbs so much of the downside,
how much fifteen percent? In thiscase, the buffer is fifteen percent.
It's uncapped to the upside, andit's it's buffer is fifteen percent. So
if the result was negative twenty,it absorbed the first fifteen you would be
doubt five. If it were downfifteen, you'd be down zero. Now
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here's a twist. This is calleddual directional. So if the outcome was
negative, but say between zero andnegative fifteen, like negative ten, negative
twelve, negative fourteen. Pick anumber between zero and negative fifteen that negative
twelve would become positive, the negativeten, a positive ten, negative fourteen,
positive fourteen, So very interesting.Unlimited upside absorbers first fifteen percent of
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downside and get you a positive returnon any negative between zero and fifteen.
I could go on. These aredifferences that we can offer as an investment
advisor firm. It works for youand with you and doing things for you
and not to you like a brokeragefirm. In essence, it's like saying
you can actually profit or make moneyeven in a negative market, all the
way down to a negative fifteen percentoutcome of the market. So markets down
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twelve, your portfolio is actually uptwelve. It's a very unique and like
Greg mentioned, a very it's aboutique way of investing, if you like
that particular word. To simply,it's not anything that you're going to find
out in the regular brokerage houses.Our funder brought the alphae five one three,
five seven, five nine six fivefour call us we can help.
Let's stay tuned listening to the SoundMoney Investment Show with Brown Financial Advisors here
(22:17):
on fifty five KRC the Detoxation Welcomeback to the sound Many Investment Show.
The Brown Financial Advisors have great Brownand I'm James Bourton. We are a
registered investment advisory firm. We areindependent. We do work for clients and
odd companies and it really does allstart with the plan. That means actually
(22:40):
having a plan, knowing what youown and why you owned it. So
when you're seeking bise on an oldfour one K four three b IRA rollover,
investment planning, retirement planning, incomeplanning, tax planning, social security
maximization or ross conversion analysis, anywayanalysis and for some perhaps even service rollover.
All those in the more we canhelp five one three, five seven,
(23:03):
five nine six five four is ourwebsite, Brownfinancial Advisors dot com,
email team at Brownfinancial Advisors dot com, and our home offices in Milford,
but we also have locations in BlueAsh, Westchester and Florence, shall Well.
Discontinuing to confronting market volatility strategies andhow to manage market volatility during retirement
and other investment phases of life.There are questions, always questions, questions
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about I don't know which came first. The chicken or the egg, or
questions about yourself before investing. Here'sa couple of questions, James specifically,
how many questions? Oh, there'sthree questions to ask yourself at least philosophically
before investing. So first start withthis, are there lower risk alternatives that
can accomplish the same objective? Sothe financial world, yes, has changed
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quite a bit over the past fewyears. One big change is the overall
increased in interest rates. The negativeaspect of that comes in the form of
higher cost for debt that means consumerloans, that means mortgages, all those
fun things. But there's also maybethe positive aspect, which is people can
find financial instruments that means CDs,short term anuities that can benefit from the
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higher rates of return. So yes, you can literally take zero market risk
and get a five plus percent rateof return over the next couple of years,
all the way up to maybe fiveyears. So depending upon your view,
your aspect of what you think theFederal Reserve is going to do next,
maybe you want to lock in arate a little bit longer than just
simply one year. Maybe you wantto go three, maybe you want to
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go five years at a five pluspercent rate of return. But then again,
if you think, well, theFed's not done yet, they're going
to raise rates even more. It'sa guessing game, right, Well,
it doesn't have to be, butagain that's the aspect of certain people what
they think. Secondly, consider howmuch of your money you can afford to
lose. This goes back to themarket risk. So think about this when
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we mean, really spend some time. I'm thinking about and visualizing how you
might truly feel about losing a significantportion of your investments. So, if
you've invested, and you saved upand earned over time a million dollars,
you have in your nest egg amillion dollars, imagine how you'd feel if
the value went down by one hundredthousand dollars. Sometimes it's the sticker shock
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reik of I lost ten percent ofone hundred dollars, I lost ten bucks,
or I lost ten percent of amillion dollars. Guess what I lost
one hundred thousand dollars or we lostone hundred thousand dollars. How, honey,
how do you feel about that twentypercent loss? Let's go thirty percent
loss. Now we're talking about athree hundred thousand dollars decline in your nest
egg. Ouch, just when you'reabout to pull that shoot on retirement,
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suddenly you're looking at a three hundredthousand dollars pullback in your portfolio. So
then ask yourself how such a lossmight impact your retirement and if it's really
worth the risk. Last, butcertainly not least, think about how any
losses might impact on your ability topay your essential living expenses. How do
we pay the mortgage? How dowe pay the rent? The last thing
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you want to do is lose themoney that you might need to keep yourself
out of poverty or off of thewelfare roles in ten to twenty years in
retirements. Great, any thoughts?Yeah, I was just thinking if you
needed forty thousand a year on amillion, and that was a four percent
draw down. But now you findyourself not with a million, but seven
hundred thousand, and you're starting yourretirement and still need that forty thousand a
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year, but off of seven hundredthousand, now you're pushing five or six
percent draw down in five or sixyou know, pick a number like six
percent versus four percent, only soundslike it's two percent difference. Right,
that's fifty percent difference. I mean, it's just it's not good. You've
got to be careful. I findthat often when we were talking about percentages,
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people fail to recognize, you know, like one in four one over
four between one extra percent instead offour percent five percent. These are significant
percentage differences mathematically, they're not justit's not just a one. It's just
you have to you have to becareful when you're at this concept dealing with
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draw down. What percentage your moneycan you take to convert to cash flow
annually? It's kind of a mathequation. Sometimes people just you know,
market math is maybe a little bitdifferent from other types of math, or
maybe a bumper sticker kind of fitsthe bill. Four out of three people
have problems with fractions. How aboutthat exactly? So focus focus on what
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you can control is the next concepthere. Most brokers versus advisors and all
of us, you know, haveunbound confidence in the stock markets ability to
provide a great investment to return overthe long haul. And why wouldn't we
because everything trickles down from capital markets. Don't believe you're left leaning, friends,
Capitalism is alive and well, itworks well, albeit and needs regulated
(28:02):
legislated to an extent, but notoverly hampered because it works well in its
own Why do I say that,because you we are all the capital market,
we're the consumers. We drive theeconomies of the world with our consumption.
We're just looking for companies that offergood products, best prices, decent
service, decent quality, and we'llmake the decision. And we do.
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And as song as we're out thereand those companies are there doing what they
do, capital markets will work.And you can be a consumer who buys,
you can be a consumer who collects, and you can also be an
investor who owns. You can beon both sides to the cash register.
And so do we feel confident capitalmarkets over the long haul. Absolutely so.
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Just fasten your seatbelt, own acertain risk level, do not panic,
be coachable, leadable, teachable,have a plan, make sure the
investments align well with that, andmean your goals and your objectives, and
you will succeed too. And that'ssomething to feel really good about. If
you have the confidence in the longterm picture, you get caught up in
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the turbulence and the short side.You know, even a plane ride to
your favorite destination, it'll include alittle turbulence where you're reminded to, you
know, take your seats, fastenyour seatbelt. Going to be a little
turbulence. Well yeah, not theentire flight. Rarely same with this.
You'll get to you know, Wahooor wherever, and you'll enjoy. You'll
get to your retirement, to andthrough your retirement. Just be leadable,
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teachable. So here's a good reasonto believe. Despite all periods of market
corrections, bear market cycles, negativereturns, the smp IS posted an average
analyzed total return of approximately ten percentover the past ninety years. That's a
long airplane ride, wouldn't you agree? Don't you know there's turbulence. You
do know there's turbulence. There's recessions, wars, rumor of wars, pullbacks,
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corrections, depression, recession, greatrecessions, all that all it up
in the belly of time to producea nice average raid return. So there's
a place for the market, there'sa place for other asset classes to protect
your money from the market storm togetherand you get a magical bowl of soup.
We won't say magic. I don'tbelieve in that mysticism and all that
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stuff. I just say you getintentionally a great outcome because you did it
on purpose. And then we're aboutdoing things on purpose, not happenstance.
So retirees, you need to worryabout a couple of things here and focus
on time. What's the time horizonfor your investing, what money's needed in
the next few years versus further downthe road. Market be a great choice
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for midterm, longer term investment,shorter term investments. We can look at
some other asset classes for sure.Let's see, you know, potential for
long term growth. We've touched onthat relative to your time horizon, your
risk tolerance. You shouldn't be inthe deep end the pool if you can't
swim. It's just common sense.Shouldn't be in too much risk. If
you can't tolerate, you'll get inthere. Things get hot, then you'll
sell out low, you'll own thelass, and you'll be wondering, you
(30:57):
know how you did it. You'llblame the market and not your methods,
not your practices, not your impatience, not your imprudence, and not your
poor planning. It's always the market'sfault. I mean blame shifting one O
one. That's just the investor's narrative. It doesn't have to be that way
now. I think the focus onour costs total cost of investing. You
might look at it as fees.It's more than fees. It's the internal
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cost spreads, fees, margins,loads, annual expenses, plus whatever advice
or fore you may be aware of. And we pick on this all the
time because you can be pennywise andpound foolish. You can evaluate the cost
of your investments based on a feethat has loss led for some brokerage firm,
thinking you're at the right place becausethat fees lower, and not even
realize that your total cost of investinginside outside end fees are much higher,
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and you're at the wrong place.So I encourage you to come see us.
We'll evaluate that. We'll look atall the investments you have tournament inside
out, project a plan, dothe assessment, the analysis, make all
the recommendations, share all the above, all the information with you, not
hold anything back. Let you justchew on that you know, make a
good decision based on better information.You see a fit to work with us,
(32:02):
We work together. If you don't, we agree to disagree. It's
simple, no cost, no obligation. It's that straightforward, you'll benefit invest
a little time in US, willinvest time, energy resources on you,
and you'll walk away a better investorfor it. No thing to focus on
taxes. You could be in somereally cool investments. They could be rocking
your world, making some money beton a net of tax basis. You
(32:23):
could be sucking lend taxes. Well. Let yeah, let's give an example
of the buffered index portfolios. Oneof the great things about those, assuming
that you have gains in the investments, is that they have long term capital
gains. What's the advantage of longterm capital gains versus ordinary income the tax
rates. If you're in a twelvepercent federal tax bracket, your capital gains
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tax rate is zero percent. Ifyou're in a higher rate, that means
twenty two, twenty four to twentyeight into the thirties, your long term
capital gains tax rates fifteen percent.So not only is it a great way
to invest, but it's also agreat way to be taxi efficient. So
not to be underappreciated or even ignoredis what are the tax efficiencies of your
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investments? That leads to planning ormanaging your future tax liabuilding. There's more.
There's much more. Our fundum aboutthe outfits five one three, five
seven, five ninety six five fourcall us we can help, but stay
tune. You're listening to the SoundMoney Investment Show with Brown Financial Advisors here
on fifty five KRC the Tax Station. Welcome back to the Sound Many Investment
(33:34):
Show with Brown Financial Advisors. I'mGreg Brown and I'm James Bourts and we
are an independent RIIA that's a registeredinvestment advisory firm. We do work for
clients, not companies. That's MainStreet and not Wall Street. Our fund
number five one three, five seventyfive ninety six five four, website,
Brown Financial Advisors dot Com, emailteam at Brown Financial Advisors dot Com,
(33:54):
and our home offices in Milford,but we also have locations in blue As,
Westchester and Lawrence. Greg So,continuing with the how to handle market
volatility, well, handling market develatilityis like Unfortunately, investing is not an
easy game because there's a lot goingon with it, one of those being
just the ability to handle and toleratethe ups and downs to the market.
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So, without going too far indepth about building a proper plan to prepare
for the next bear market, somesimple steps we can touch on to you
know, I guess you could coverwith your significant other, better half,
financial advisor, whoever that helps youcode deal with market volatility. Number one,
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It just accept the unexpected, justlet it be baked into the metrics,
the equation, the formula, therecipe, whatever you might want to
look at it as. Just likewith anything else in life, the stock
market comes with both good and bad. So none of us having a crystal
ball, can predict exactly when themarket's going to go up or down,
rebound, take a turn for theworse, whatever the case. We just
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what happens over time and how tobest prepare within that by how we handle
asset classes, moving money to andfrom from you know, less good stocks,
less underperforming sectors, components markets intobetter performing asset classes. You know,
we want to own the best stocks, good stocks, better stocks,
and move away from less good togood and keep that cycle, that filtering,
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that process moving because it will lowerrisk and increase returns and cost over
time. We just know that works. So we don't settle for just the
market rates return over long periods oftime, nor do we handle just imagine,
you know, equipping a car withabsolutely no shock absorbers. Will that
be just like ride in the market, we would rather equip it with the
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right types of efficiencies creature comforts,shock absorption. Active management provides a lot
of those those elements to provide abetter ride over long period of time.
So what we can do we canmake predictions based on the economy, the
current picture of the Federal reserve,interest rates, inflation, whatever, those
types of things. And so wecan't guarantee anything right, So anytime you
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have any type of market based investment, there's always going to be some degree
of risk in the market. Itwill have swings, but you can potentially
take a manage of both the goodand bad times by planning properly and investing
properly. And that's how we approachit, just like that. So bottom
line, accept the unexpected or acceptthe fact that the market will have pullbacks
at some point in time, justis what it is. Number two the
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concept of deleveraging. That means payingoff debt. So leveraging is the borrowing
of money at any level. Forexample, leverage could be used to buy
a car, your home, eveninvestments. There can also may, i'd
say, be a problem with leveraging, and that is the debt to borrow
or the cost of money can bea severe burden during any type of market
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environment, but especially a bear marketenvironment. So if you take a big
loss in a down market and you'repaying on debt, it can add a
lot more stress. So in orderto be success asful in a pullback environment,
you should get rid of as muchdebt as you can afford. That
means deleveraging. It will also helpavoid the major financial problems that could cause
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if the market were to drop severelyfor an extended period of time. Think
about what happened back in the earlytwo thousands or even back in twenty twenty
nine. And even if you're notsure when the market is going to decline,
yes, I know, we're allgreat forecasters of what's going to happen
next with the market. We allwant to and you know, quote unquote
affordably pay off our houses, ourcredit cards, and any other debts as
(37:35):
fast as possible, right, Soremember this affordability means to cost of money
issue kind of works like this.If your mortgage is costing you, and
this is true with a lot ofpeople who locked in a low rate several
years back, maybe you're only payinga three percent rate of interest on your
mortgage. Well, if you caninvest dollars that are earning a higher rate
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of return, it's an arbitrage that'spositive in your favor. So the cost
of money. If your cost isthree percent and you're earning at least five
or even a higher rate of return, then that's a good way to leverage
or take advantage of in this particularexample, other people's money. Greg,
Any thoughts, now do you leveraging? It's always a story of cost of
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capital. How much cash will youpick up in sending a debt, how
much cost the debt is relative toyour cash flow? And we could just
help you with all that the messages. Don't be in a hurry just to
pay off your debt at any cost. Yes, it's a nice feeling to
be debt free, but you stillmight be handicapping what could otherwise be done
with your investments. Yeah, particularlyin retirement phase, when you only have
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so much cash, so much inflowon so many buckets of money. You
use buckets money to discharge debt.You don't have the bucket of money anymore,
nor do you have new income toreplace the bucket of money. You
just extinguished. It's just we'd liketo help you that it's very important,
much more important than you would think. More important analy is how you approach
it. Then it is to justoften do it because you don't like to
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carry debt. Just like James said, Number three, diversify or diversification just
I guess you could a new word. You can pronounce it that way if
you want diver siffy, you know, diversify. As common sense is,
this might seem or sound. Itcan be a problem. Many people have
this problem. In retirement. Youcan let bias set in. You can
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just let fear affect how you invest. You end up too conservative. There's
just so many things. We havean old saying that just because you're retired
doesn't mean you to invest like youdied too. And you think about that,
you can be too conservative. Sopeople think they diversified just because their
nest egg owns a bunch of stuff. Well that's over diversification, too broad.
(39:45):
It's not appropriate. You own afew mutual funds. They all look
unique, they have different names,right, and they hold a bunch of
stuff. Well there's that bunch ofstuff phrase. Again, you don't realize
amount of exposure you might have tothe market risk or the redundancies and inefficiency
owning many of the same things inthe same funds. The funds that seem
to be different are owning the samethings inside them. Let's too broad of
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diversification. Here's a simple illustration.If some things in your say overly broad
broadly diversified holdings are good, someare good, some are okay, some
are bad. The okay and thebad draw they weighed down the good,
So you get mediocrity, you getit stirred down, water down. It's
like having to bitch water in yourlemonade. There's there's an appropriate formula for
(40:29):
this. Wouldn't you agree, somuch sugar, so much lemon, so
much water? Yeah? Absolutely,same with this. So just because the
mutual fund or ETF looks to becomprised of a large basket stocks, bonds,
or other investments or similar investments,doesn't mean they're truly diversified. Certainly
doesn't mean they're properly diversified. Sojust diversification, we could diversify amongst different
types of holdings. We talk aboutgreen money, yellow money, red money.
(40:52):
Green money would be safer investments,yellow would be properly managed investments.
Red would be unmanaged like four wink is do it yourself investing. We
would just deem that typically not actuallymanaged and you need it properly managed.
So we need to get the redout. We need to have some yellow
money professionally managed, actively manage andsome green money. Green many investments could
(41:13):
be some bond appropriate bonds. Fixedannuities, fixed index nuities the types of
annuities that are not variable. Youhave a variable annuity, comes see us,
Come see us. Now we needto evaluate that and tell you,
show you what's really going on insidethat you will not like it in all
likelihood. The fixed family of annuityproducts so they don't go backwards. Fixed
nuities you get a certain percentage rateof return like a CD and for a
(41:37):
period of time straightforward you can't losemoney. Their tax deferred well based on
the claims paying ability of an internscompany, which these companies are strong and
known to protect money. That Fixedindex nuties give you the opportunity to link
to market indussy like SMP NASTAC,so you get some of the return to
that index without any other downside andcould present a decent range or rate of
(41:59):
return over five seven ten year periodsand without the risk of the market.
You know, so talk about bondreplacements. Having a fully insured account that's
insured against going negative would have beena sweet thing to have last year,
right, twenty twenty two bonds justsunk, right with equities? Well not
if you used a safe money replacement, a bond replacement like a fixed nuity
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or fixed index nuity, all themoney still be there. And in fact,
I would say, now knowing therest of the story, they would
be up. They would have mademoney, not lost money. Just not
losing money could have saved people eightto thirteen percent on the bond market in
twenty twenty two alone. Avoid thosenegative returns on assets that you don't want
to lose money. Which half ofyour money you're willing to lose exactly,
(42:42):
that's the half that shouldn't be exposedto the market. If that's the case,
anyway, watch half a variable nuitiesother financial vehicles come from brokerage firms,
banks and insurance agents. We're hereto help on that. How about
rules, James, or any rulesyou can think of? Well, question
usually so when people say, well, how much should I have invested in
the equities market, and the assumptionis that you're going to be invested with
(43:06):
one hundred percent of your money inthe overall market, maybe fifty in the
equities market, fifty percent in thebonds market because you think bonds are safe,
or at least comparatively speaking, they'resafe. And that goes back to
the point about having a bond replacementstrategy that can get the same rate of
return without the risk. So ifwe go back to just twenty twenty two
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and see what happened last year inthe bonds market, yes, the bonds
market was down over ten percent,So it's a great way to safely lose
money. Right. Not only wasthe market down, but it was down
significantly. So, as Greg mentioned, if you were in something that like
a CD or a short term manuity, you could have earned a positive return
without the risk, which usually isthe point of what most people invest.
(43:52):
Why they invest in bonds is becausethe perception of safety versus the reality of
safety. Now, as far asthe so called rules of thumb, yes
this is not a one size fitsall, it's not a one age fit
all. But for example, ifthe rule of one ten is being put
into effect, take your age andsubtract from one ten. That means if
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your age sixty one ten minus sixtyequals fifty, that means fifty percent in
the equities market, fifty percent insomething else, either in the bonds market
or in the bond replacement strategy,which is to say, the annuities or
short term annuities markets. Greg gettingclosing thoughts now. The best risk to
measure is your own relative to yourplan. Will succeed on purpose by drafting
(44:35):
the plan, the recommendations, thestrategies for you. It's complimentary. Come
see us. We'll help you today. Our fun number five one three,
five, seven, five nine sixfive four again five one, three,
five, seven, five nine sixfive four calls We can help now on
behalf of Greg myself James, thankyou for listening today. Have a great
week and remember this sound money,where good things are believable, achievable and
(44:58):
drew for you.