Subscribe
Share
Share
Embed
Welcome to How to Retire on Time, a show that answers your retirement questions. Say goodbye to the oversimplified advice you've heard hundreds of times. This show is about getting into the nitty-gritty so you can make better decisions as you prepare for retirement. Text your questions to 913-363-1234 and we'll feature them on the show. Don't forget to grab a copy of the book, How to Retire on Time, or check out our resources by going to www.retireontime.com.
Welcome to How to Retire on Time, a show that answers your questions about all things retirement, including income, taxes, Social Security, health care, and more. This show is an extension of the book, How to Retire on Time, which you can grab today on Amazon or by going to www.how to retire on time.com. My name is Mike Decker. I'm the author of the book, How to Retire on Time, but I'm also a licensed financial adviser, insurance agent, and tax professional, which means when it comes to financial topics, well, we can pretty much cover it all. Now that said, please remember this is just a show.
Mike:Everything you hear should be considered informational as in not financial advice. If you want personalized financial advice, request your wealth analysis by going to www.yourwealthanalysis.com. With me in the studio today, mister David Fransen. David, thanks for being here.
David:Yes. Glad to be here.
Mike:David's gonna be reading your questions, and I'm gonna do my best to answer them. You can text your questions in at any time this week to the number. Save this. Put it in your phone right now. 913-363-1234.
Mike:Again, that's 913-363-1234, or you can email them to hey mike at how to retire on time.com. Let's begin.
David:Hey, Mike. If I fund my reservoir, can I afford to take more risk with the other parts of my portfolio?
Mike:Yeah? Yeah. Absolutely. You can. What's the point of a bond fund?
David:Yeah. I mean, supposedly, so that you have safety preservation. Right?
Mike:Yeah. So I know we kind of already covered this a little bit, but I wanna dive a little bit deeper into it, especially for our podcast listeners that get a segment every day. Yeah. Which, by the way, if you're listening to this via the radio, we're a podcast. Just search for the podcast, how to retire on time, and then you can get this show in little daily segments.
Mike:It's about 10 minutes every single time. Yeah. It's so powerful. Listen to it as you want on your own time. But, okay.
Mike:Enough with my shameless plug. The answer is yes. And let's just define things. What's the point of a bond fund as a part of your portfolio? So Harry Markowitz, who, by the way, created this whole 6040 split concept, who won Nobel Prize for it, didn't even use it.
Mike:He did other things with his investments, but the the idea is simple. If the markets crash, there's a high probability that interest rates will go down. If interest rates go down, there's a high probability that bond funds will increase in value. K? They're not tied directly, like, with each other, but there's there is an influential correlation with that in most situations.
Mike:But it's not always true. So if inflation's an issue, the markets crash, the Fed might not move anything. So if you look back for the last couple of years, the markets were going down and bond funds were going down at the same time because the Fed was not dropping interest rates like they did in 2000 or 2008. So we need to understand that bond funds have risk. But the idea is in normal situations, if the market crash, if your equities, your stocks go down, your bond funds could increase in value.
Mike:If you wanna do a fun, research project, look up on the Internet what bond funds did in 2,008. They made a killing. Uh-huh. They were awesome. How about that?
Mike:But you wouldn't know because the equities went down so I mean, it was it was bad. Mhmm. But the point being here is bond funds have their place, but there's risk associated with it. But if you're putting, let's say, 50% of your assets into bond fund alternatives, like a CD, like treasuries, not treasury funds, but like treasuries.
David:Okay.
Mike:Or you put assets into fixed or fixed indexed annuities, or you funded a good amount of money into a cash value life insurance, like index universal life or whatever it is. Mhmm. That's 50% of your portfolio that can't lose money but still has growth potential. That's not bad. Yeah.
Mike:So the rest of it, in my mind, would allow you to take some some more risk because you've gotta look at the portfolio as a whole, Not just okay. I have this account and this account needs to be allocated this way, but I have this account for these products, and I'm not gonna look at it from a comprehensive standpoint. I'm gonna silo it a little bit. I'm gonna segment it and and not consider the other thing. Look, the reality is everything you have, your assets, your investable assets, so not your primary home, but all the other stuff.
Mike:Those are resources to generate income in retirement.
David:And
Mike:there are 10 ways you can generate income in retirement. You've got now here here are the the key ones. You've got your Social Security. If you qualify, most people do. You've got your pension.
Mike:Some people have pensions. You've got rental income. You've got income from growth, income from dividends. You've got income from annuities. The list goes on and on.
Mike:There's a lot of ways you could generate income in retirement. But all of those different ways and different strategies would require different allocations within your portfolio, and you need to hedge against them in different ways. So, like, if if you have a bunch of real estate portfolio and the real estate market tanks, there are different ways you're gonna hedge against that as opposed to different ways you're gonna hedge against a dividend portfolio because dividends aren't guaranteed. If you look at the, the 2020 corona crash, there were many, many companies that just stopped their dividend.
David:So how
Mike:do you get through that? How do you hedge against that? Again, it's context here, but the the question is, can you fund your reservoir and take more risk? Yeah. But you need to understand first, how are you gonna take income from your portfolio?
Mike:How much reservoir do you need, and what types of reservoirs do you need to back up when markets go bad? The reservoir strategy is real simple. Just like a city has a reservoir of water in case of drought or fire or whatever it is. They have the reservoir of water. They keep it full for times of need.
Mike:The reservoir in all of its form is there for when the other things don't work out. I say things because it's not just markets. It could be a number of different life events that you just need extra money that's in a protected place. Yeah. I don't I don't know if people fully understand the importance of this because they think, well, I'm diversified.
Mike:That's good enough. Oversimplified plans oftentimes, in my opinion, take on additional unnecessary risks because of the oversimplified approach. That's why the details matter. That's why a comprehensive analysis or a comprehensive plan makes sense. That's all the time we've got for the show today.
Mike:If you enjoyed the show, consider subscribing to it wherever you get your podcast. Just search for how to retire on time. Discover if your portfolio is built to weather flat market cycles or if you're missing tax minimization opportunities that you may not even know exist. Explore strategies that may be able to help you lower your overall risk while potentially increasing your overall growth and lifestyle flexibility. This is not your ordinary financial analysis.
Mike:Learn more about Your Wealth Analysis and what it could do for you regardless of your age, asset, or target retirement date. Go to www.yourwealthanalysis.com today to learn more and get started.