Why Suitability Questionnaires May Not Be Enough

“Hey Mike, I feel like I am taking too much risk but keep getting reassured that I am fine. Can you expand on how to self-assess the appropriate amount of risk a person should take?” Discover why taking a suitability intake questionnaire may not be enough and what you can do to help find the right risk balance in your portfolio. 

Text your questions to 913-363-1234.

Request Your Wealth Analysis by going to www.yourwealthanalysis.com.

What is How to Retire on Time?

Welcome to How to Retire on Time, a show that answers your questions about all things retirement, including income, taxes, Social Security, healthcare, 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.howtoretireontime.com.

This show is intended for those within 10 years of their target retirement date or for those are are currently retired and are concerned about their ability to stay retired.

Mike: 00:05

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 go 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, we can pretty much discuss it all. Now that said, please remember this is just a show.

Mike: 00:35

Everything you hear should be considered informational, as in not financial advice. If you want personal financial advice, well, just request your wealth analysis today from my team by going to www.yourwealthanalysis.com. With me in the studio today is mister David Fransen. David, thank you for being here today.

David: 00:55

Yeah. You're welcome.

Mike: 00:56

Now David will be reading your questions, which you have submitted, and I'll do my best to answer them. You can send your questions in right now or anytime during the week. Just save this number. Save it right now. 913-363-1234.

Mike: 01:08

That's 913-363-1234. Or you can email them to heymike at how to retire on time.com. Let's begin.

David: 01:19

Hey, Mike. I feel like I am taking too much risk but keep getting reassured that I am fine. Can you expand on how to self assess the appropriate amount of risk a person should take?

Mike: 01:30

Okay. Yeah. Risk is a funny thing. And and the reason why I think it's funny is because, traditionally, we would assume risk as how much growth potential you want for the downside potential risk. And usually, you fill out some suitability questionnaire that pumps out a portfolio recommendation between stocks and mutual funds and ETFs that blend between the equities market or the stock market and the bond market to give you that that perfect silver lining of Yeah.

Mike: 01:57

And the funny thing is people say, I want all the growth, but I don't want any risk.

David: 02:01

Mhmm.

Mike: 02:01

And you've got to be able to blend it. You've got to find, yes, the right silver lining, but I think people oversimplify it. They try to put all of their assets into a singular strategy. This is the perfect portfolio for me. It may not be that simple.

Mike: 02:16

So let me give you a few layers to consider when you're looking at risk. First off, you you gotta understand your growth potential versus potential risk or loss. The more growth potential you have, the more risk you're taking. So you you can't increase your growth potential without having risk. They're they're tied at the hip.

Mike: 02:37

K? So that's the first thing. The second thing are time frames. When do you need the money? When do you expect to spend it?

Mike: 02:44

So if you're not needing, let's say, a portion of your portfolio for 10 years, You might treat it differently than if you need certain assets today. Diversification, in my opinion, or making assessments on risk really is a conversation around diversifying between growth, liquidity, and protection. You can pick 2 out of the 3. So instead of going all in on, let's say, growth and liquidity, you have some with growth potential and liquidity, some with growth potential and protection, and some in liquid and protection. You diversify the portfolio as such.

Mike: 03:20

Diversification by company also, in my mind, makes sense. Whether you're buying CDs at multiple banks, that makes sense to me, or different insurance companies, or, so on. Diversification by the index, the sector, the market, that also matters. And then diversification by the position itself, so a little bit more granular as such. But these are different layers of diversification to consider.

Mike: 03:44

I think too often we focus on just diversifying by the sector or the index and then the positions within and just leave it at that. There are different layers and different ways to potentially lower your risk, different levels of diversification. Now I'm not saying blindly diversify your assets. I'm saying that maybe you followed what we call the rule of diversification, which is diversifying your assets based on objectives and not investment ambiguity. So you can say exactly these funds serve this purpose.

Mike: 04:18

So let's say you you take, let's say, 40% of your assets that you will not need to touch for at least 10 to 15 years and then invest it as such. And then take, let's say, another portion of your assets and say, alright, this small portion here is going to pay my income next year, maybe put that into a CD. So in that CD, you know it's principal protected, FDIC insured, and it's gonna pay your income next year regardless of market conditions.

David: 04:45

Mhmm.

Mike: 04:46

this is kind of where it goes. And this is why we say over and over again, plan efficient growth portfolios. Put your plan together so you have context as to the cash flow needs that you have year over year, the time frame of those needs, the other potential needs. So let's say if you had a healthcare issue or you wanted a gift, when you want to help your kids buy a house, or whatever it might be. Help the grandkids in college, whatever it might be.

Mike: 05:13

But you're putting very specific missions or objectives behind the purpose of your money. You've divided and conquered, and you you did that through planning first, looking through the efficiencies, the strategies, to then make that plan come to life, and then dive into, the the last one, which is the portfolio design. What goes where and why? If you can't answer the why it's there, it probably shouldn't be there. Or there's more more information that needs to be had.

Mike: 05:44

You know, it's funny. People say they're strategic planners. I always thought that was kind of a funny thing because a plan is what you want to happen. Anyone could create a plan. Yeah.

Mike: 05:54

I wanna make a $1,000,000,000 next year.

David: 05:56

Alright. What's your plan? That's yeah. That that's that's

Mike: 05:58

the plan. Right? The plan is to do that.

David: 06:00

The plan is to

Mike: 06:01

The strategy is how you're going to do that. Yeah. I can tell you right now, there's nothing I can think of that would make me a $1,000,000,000 next year. I can't think of a single thing that would a strategy that would actually make that plan come to life.

David: 06:14

Right.

Mike: 06:14

So people can have all sorts of plans, and good that you have a plan. The strategy is what matters that's what brings things to life

David: 06:21

yeah that makes sense

Mike: 06:23

that's why we plan efficient growth portfolios we plan first we want to know your your expectations we explore the strategies that will help bring that plan to life and then we build the growth portfolio so we can put the right tools in place to then implement the strategies to then fulfill that plan. It's very deliberate. One of the biggest red flags in this industry is if they're talking about products in their first meeting.

David: 06:48

Mhmm.

Mike: 06:49

That's that's putting the cart before the horse. Yeah. Plan first, unless you have a plan, you can't talk about strategies. Once you have a plan, you can talk about strategies. Once you know the strategies, you know what tools you could use.

David: 06:58

The strategy sort of buoys up the plan. Right? It it's what it holds the plan up. It Yeah. Makes the plan work.

Mike: 07:03

I mean, in chess, what's the goal? Checkmate. Right? Yeah. Get rid of the king.

Mike: 07:08

Yeah. How do you do that? That's the strategy. Yeah. That's where where we come into play.

Mike: 07:13

And if you wanna understand more about the strategies that could potentially increase your overall quality of life, text analysis right now to 913-363-1234. You'd be shocked at how many strategies you may not be implementing because you didn't know they just existed or, maybe the person you're working with has a limited ability, a limited amount of skill set, whatever it might be. They might be wonderful people. But at the end of the day, this is your money. Are you able to get more out of it?

Mike: 07:41

If so, how? What's the strategy? Yeah. And it's never one strategy. It's usually multiple strategies implemented at the same time, so that when the markets go up or down, you're able to implement various strategies for different situations.

Mike: 07:54

It's complicated. But that's our job is to take the complications out of it, make it simple for you so it's easy for you to follow. Text analysis right now to 913-363-1234 if you wanna learn more about what we're talking about. Or go to www.yourwealthanalysis.com to request Your Wealth Analysis to learn more and and get started with us today. It's a 30 minute call to understand what you want, then we run a 60 minute analysis with you either in person or over Zoom.

Mike: 08:23

And then from there, you can decide how you wanna proceed, whether it's a DIY relationship with hourly planning fee. You just pay us by the hour, and we'll help you out. Whether it's collaborative, we manage some of your assets, you manage some of your assets. And then the the comprehensive is also an option. Text right now, analysis, to 913-363-1234, or go to www.yourwealthanalysis.com to get started.

Mike: 08:46

That's all the time we've got for the show today. 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.

Mike: 09:11

This is not your ordinary financial analysis. 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.