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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.
Hello, and 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 advisor, insurance agent, and tax professional, Which means when it comes to financial topics, we can pretty much discuss whatever is on your mind. 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, then request your wealth analysis from my team by going to www.yourwealthanalysis.com. With me in the studio today is my esteemed colleague, mister David Fransen. David, thank you for being here today.
David:Hello. Thank you.
Mike:This is gonna be a fun show. And now just for the newcomers, David will be reading your questions, the questions you have submitted, and I'll do my best to answer them. You can send your questions in now or anytime during the week by either texting them in to 913-363-1234. That's 913-363-1234 or email them to hey mike at how to retire on time.com. Let's begin.
David:Hey, Mike. I am 60 years old, and I'm being told that I should have 60% of my money in bond funds. When I ask why, I don't feel like I get a straight answer. Do you agree with this proposal?
Mike:Alright. So, yeah, let's let's address. This is this is based on what's called the rule of 100. The rule of 100 suggests that your age is the percentage of assets that you should have, roughly speaking, in bond funds. Why?
Mike:Because the older you get in this theory, based on this rule, the less risk you should take, and bond funds are technically less risky as an asset class is defined, than maybe the stock market would be or equities fund. So it's a well intended idea. Bond funds are not principal guaranteed, as in bond funds can lose money. They do have risk. However, when the markets go down, typically, the fed will drop rates, which create an increase in your bond funds.
Mike:It helps it increase. So in 2008, bond funds actually did pretty well. It's just this the equities market tanked so, so intensely, so heavily that people still were losing money. So that's the idea. Now the idea also of splitting your portfolio in equities or stocks and the funds associated with that market and the bonds or bond funds and the association with the bond market, is that the stock or equities market and the bond market are technically uncorrelated, as in they are supposed to work independently.
Mike:And I say that because last couple of years, we saw that stocks and bonds, or bond funds, I should say specifically, went down together. That can happen. They also can go up together.
David:Okay.
Mike:That can happen too. So it's it's just trying to move assets to a less risky or less volatile portfolio. Here's where my heartburn comes in. Why? Why are you taking less risk?
Mike:What's the purpose of taking less risk? Is it to get through the market crashes? Well, bond funds can lose money even in the market crash. They might not, but they might. It just depends on what happens, and no one knows the future of the market.
Mike:So I I think it's a bit precarious just to say, well, the older you get, the less volatile the roller coaster is. That means as you go more towards bond funds, you yes. You've got less downside risk, technically speaking, but you also have less growth potential, technically speaking. Perfect diversification basically means you don't make any money and you don't lose any money.
David:Oh, right. How often does that happen?
Mike:Yeah. Well, then you lose money on inflation. No. There's there's always a risk to the potential reward. It's not risk for reward.
Mike:It's risk for potential reward. And the too many people, in my opinion, base portfolios on speculation. Oh, well, we've bought these stocks because they're defensive, or these stocks do well in market crashes. And they're just guessing because they don't know how that stock or that company or that industry really is going to do in the next market crash, whenever that happens. It's still speculation.
Mike:And so this is where where I get a little upset. And also the older you get, let's say you have more money than you know what to do with. This does happen. So someone is 10 years into retirement. Their money has grown more than it was expected.
Mike:They know they're not gonna spend it all, because spending more money doesn't bring them happiness, so they just let it grow in the market. I would suggest that maybe some of those funds or a portion of your portfolio really isn't invested for you at that point. It's probably more invested for your kids or whatever charity is is going to receive it.
David:Mhmm.
Mike:And is your kids' suitability or risk tolerance at their age different than yours?
David:I would think so.
Mike:I would agree. So this is where I believe that deliberate diversification really should come into play. So the rule of diversification, the way I've defined it, is that you diversify your assets based on objectives, not investment ambiguity. It's not, oh, I'm 60 years old, so 60% of my assets should be in in bond funds, and we just kinda let the market do its thing. In my mind, it's okay.
Mike:Here is 10% of your portfolio assigned to do this specific thing. Here's 5% of your portfolio intended to do this specific thing. Here's some leftover assets we don't expect we're ever gonna earn. It's really intended for legacy. We could change our mind.
Mike:Maybe we'll use it for income later on, but we're gonna invest it based on legacy purposes, and now it's invested as such. When you can articulate why you have every investment in your portfolio, now you're deliberately investing. Too many people just have this ambiguous, diversified portfolio where they buy a little bit of everything. They can't explain it. They don't know why.
Mike:It's just, oh, I've diversified a little bit of everything and all is well. And I just I think that's that's a problem. Go ahead.
David:I was gonna say maybe they're just diversifying for diversification's sake. Right? Just because it's a word that's out there, and they, oh, I need to do that, so I'll just do it, but they don't really know why.
Mike:Yeah. Charlie Munger has a famous quote that says, blind or broad diversification's madness because it requires you to invest in mediocre businesses. And if you invest in mediocre businesses, you're inherently going to get mediocre returns. So if you've got, let's say, 20%, 40%, 60% of the assets you want to grow, why would you limit its growth? Based on my research and what I have found, the day that someone should have the least amount of risk is the day that they retire.
Mike:Because as time goes on, they have less time in their life, which means more assets are essentially allocated or could be allocated towards legacy or charitable purposes. So, yes, I I get why this person is confused because when you start when you just ask a couple of questions as to, well, why is that? Why are we doing it this way? What risks are associated with it? What's the purpose of my money?
Mike:I find it kind of falls apart. So if you wanna get a more deliberate portfolio or start to uncover how to develop a more deliberate portfolio, here's what I'd recommend. I'd say text analysis. The keyword is analysis to 913-363-1234, Or go to your wealth analysis dot com, that's keyword analysis, to 913-363-1234. Or you can go to www.yourwealthanalysis.com and request an analysis, a second opinion, a review on your current plan, on your current strategies being implemented, and on your portfolio.
Mike:It all needs to work together. The plan is the driving motive in our opinion. The strategies help you get more out of your hard earned money. The portfolio is then just the assignment of how do we implement those strategies under the direction of the plan. We say plan efficient growth portfolios.
Mike:If you wanna get more out of your hard earned money, that's how you do it. That's how we found to do it at least. So if this is you, if you wanna get more deliberate on your investments, assign more purpose to many portfolios within your overall portfolio, text analysis right now to 913-363-1234. Again, that's keyword analysis to 913-363-1234, or go to your wealth analysis dot com. Imagine if we could get an extra 1, 2, 3 percent a year in additional growth.
Mike:No one can control the market. Past performance isn't indicative of future performance. But if we found additional efficiencies or made a more efficient growth portfolio that maintained the same or less risk, how much more would that affect your life? I know it sounds like little numbers, but the compounding interest difference Mhmm. Can be stark.
Mike:Yeah. So find out more, see what your lifestyle and legacy potential really could be by texting analysis to 913-363-1234 or go to www.yourwealthanalysis.com. 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.
Mike: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.
David:Learn more about Your Wealth Analysis and what
Mike: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.