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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.
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 you can go to www.how to retire on time.com. My name is Mike Decker. I'm the author of the book, 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 talk about it all. Now that said, please remember this is just a show so everything you hear should be considered informational as in not financial advice.
Mike:If you want financial advice, then request your wealth analysis for my team today by going to www.yourwealthanalysis.com. With me in the studio today, it's mister David Fransen. David, thanks for being here today.
David:Yes. Hello. Thank you for having me.
Mike:Yeah. David's gonna be reading your questions, and I'm gonna do my best to answer them. Now you can send your questions in right now or anytime this week. Just save this number, 913-363-1234. Again, that number is 913-363-1234, or you can email them to hey mike@howtoreontime.com.
Mike:Let's begin.
David:Hey, Mike. Can you break down the 4 strategies you use when investing in the stock market?
Mike:Yeah. Let's let me list them and then explain them. So first, you've got absolute return models or theory, Then you've got fundamental analysis. Then you've got momentum models. And then you've got the indexing strategy or relative return theory or indexing models.
Mike:So all different. These are the ones that I personally prefer. There are other ones out there. 3 of what I just said are considered active, as in you've got to be proactive in your approach. 1 is passive, which I wouldn't even say is reactive.
Mike:It's passive in the true sense. You just sit and watch it do its thing. So let's break it down. These are not commonly understood terms. Absolute return theory is the idea that you can buy something and hold it for a predetermined period of time regardless of market conditions with the intention that it should grow.
Mike:So in 2000, o one and o two, when the markets were all going down, absolute return would have looked for something else like real estate and invested in that sector because real estate grew during the tech bubble bursting. K? You with me so far? Yeah. So it's active.
Mike:This is micro. You're picking stocks. K? You're not picking indexes. You're not picking mutual funds.
Mike:You're picking stocks or assets. Technically, I think you could include gold. You could technically probably include crypto in this. Yeah. I wouldn't call them an an investment because they're not a business.
Mike:Those are just things.
David:Mhmm.
Mike:It's a currency, but people couldn't, I guess, in theory, say that that's the asset class where I wanna put my money with the intention that it would increase in value. That's the idea of absolute return. It's very common for sophisticated investors. Not many people know it exists because it's really hard to do. And and just to reiterate the it's it's active.
Mike:It's micro. So you're doing stocks specifically, and there's a predetermined time frame to which you will hold that position. Why am I so adamant on articulating that? Because the next one is fundamental analysis, which also is active. You're proactively looking for the next deal.
Mike:It is micro because you're looking at very specific investments or companies specifically
David:k.
Mike:That you believe are undervalued. So you let let's say company x y z is currently valued at $50 and you believe it should be at 70. So this is where you buy in with an undetermined time frame you will hold it. You're gonna hold it until it reached the value you believe it deserves. So basically, where absolute return has a predetermined time frame, fundamental analysis how I define it.
Mike:And I know I'm all the finance professionals out there are probably just ridiculing all. What does he know about this? I'm giving a very basic definition here. But it's a predetermined price. You're looking to hold it until it gets to the value you believe it's worth.
Mike:And then the market's caught up. You can sell it and move on to the next deal. Just understand that when you need a good deal bad, there's a good chance that you'll make a bad deal. Mhmm. So you you don't wanna be greedy and say, I need to buy something.
Mike:Fundamental analysis has a lot to do with patience, awareness, and discipline on the rules, on your rules, your calculations, all that. But so you see the difference. They're both active. One is based on a time frame. You know what to expect.
Mike:The next one's kind of you don't really know, but you're just looking for overall long term growth. Michael Burry is a a fundamental analysis as I've seen him work. He finds undervalued positions and then holds them. Michael Burry is the guy from The Big Short if if you're unfamiliar.
David:I recognize that name.
Mike:Yeah. So then you have momentum models. Now momentum moves into the macro category or the larger group of investments. So it's active. Think like ETFs.
Mike:K? They have a bunch of positions whether it's equities or bonds in those positions or whatever it is. And what you're looking for is where is money growing. K? And you're looking to capture the already existing momentum.
Mike:So you can think of like sector rotations. You can think of rotating between large cap or small cap or mid cap or emerging markets. Those are different ways to categorize large macro groups of investments. That's the idea as you're looking to where is the movement. And a great analogy for momentum models in my mind is you're gonna ignore the waves at the beach, but you're trying to buy based on the tide.
Mike:Is the tide coming in or going out? It's not a smooth ride. It's just, hey, I think this sector or this group has good momentum. I'm gonna buy a large portion of it into that diversified but concentrated standpoint, and then let it grow. Knowing that sectors will grow.
Mike:They'll go backwards. They'll they can go any which way. K? You're just looking to move towards momentum. There are other ways that you can do momentum investing.
Mike:How I'm defining, how I like it, is from a macro standpoint. Do I explain that okay?
David:I think so. Yeah.
Mike:You're basically comparing large groups of possibilities. Then you've got indexing. Indexing is probably the most popular because it's the easiest one to do. Anyone who has money, even like a couple of bucks, you can open an account and you could buy SPY or VOO. And now you you've bought the S and P 500 in some sense.
Mike:You haven't actually bought it. It's just these are ETFs. They're intended to mimic that return. They're supposed to offer you a relative return to this index. K?
Mike:The reason why I like passive is because sometimes the trends, the momentum will fake you out. Sometimes the absolute return models or the micro of what you thought didn't work out, something happens. Like the super micro company, They were great promise. They're they're they're a great looking company
David:Mhmm.
Mike:Until Ernst and Young said we can't verify these books. I wonder why it looked like such a great company. Right? So absolute return has its risk. Fundamental analysis.
Mike:You might think it's undervalued, but the rest of the world may not. And you can get it wrong. Momentum, you can get the momentum wrong. Indexing is just a different way that might work. It might not work, but it's a different way to invest.
Mike:So do you see how blending them, I think, is a very good thing? Yeah. You know, put 25% absolute return, put 25% in fundamental, put 25% in momentum, and put 25% in index. And that's all kind of in your growth portfolio. That's not your entire portfolio.
David:Okay.
Mike:Because your entire portfolio should be designed around your plan. Your plan should not be designed around your portfolio. I'm just talking about the growth side of your portfolio, whatever that allocation would be. There is no such thing as a perfect investment product or strategy. There may be some biases towards what goes where from a tax standpoint.
Mike:So I would probably lean more towards momentum models or indexing with nonqualified assets because I don't wanna create a lot of capital gains issues. Whereas I might be more biased towards absolute return or fundamental in a qualified account because you don't have to deal with capital gains. You can buy and sell as much as you want, whenever you want, however you want, because there's no capital gains in that. It's just you only pay taxes when you pull the money out if it's IRA. You don't pay any taxes if it's Roth.
Mike:Anyway so, yeah, quick recap. The 4 models that I like are absolute return, fundamental momentum, and indexing. All of which we offer here at at Kedrick, but you can get them elsewhere too. We don't claim to own the market when it comes to strategies. We just have our own versions of these strategies that we believe in.
Mike: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:This is not your ordinary financial analysis.
David:Learn more about Your Wealth Analysis and what it
Mike: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.