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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, well, 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, we can pretty much discuss whatever's 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. With me in the studio today is my esteemed colleague, mister David Frandsen. David, how are you doing today?
David:I'm well. How are you?
Mike:I'm doing well. Great. This is gonna be a good show. And now just for the newcomers, this is how the show works. David will be reading your questions, and I will do my best to answer them.
Mike:You can send your questions in by either texting them to 913 363-1234. That's 913-363-1234. Or email them to heymike @howtoretireontime.com. Let's begin.
David:Hey, Mike. You mentioned in your book the Dunning Kruger effect. I looked it up on YouTube, had a good laugh, and then started to wonder if I should continue to manage my investments. When does it make sense to manage your investments on your own, and when does it make sense to work with a professional?
Mike:Yeah. So for those who don't know what the Dunning Kruger effect is, it was a study done by doctor Dunning and doctor Kruger, which basically it it discusses why people who lack experience overcompensate or overestimate their own abilities. And the problem is if you don't know the right questions to ask, you'll never ask them. You can't solve problems you don't know exist. You can't hedge against risks that you don't know exist.
Mike:And so it's it's a phenomenon that cannot be solved. And what's interesting, if you look at the the graph, it's the confidence level of someone who may not have the experience is high. And then it goes down drastically as they start to realize how little they actually know. And then after years of experience, then the confidence level goes back up. But it's because they know what they don't know, they know how to look for what they don't know.
Mike:They start understanding how to ask the right questions and so on. This is why I wrote the article, how a comprehensive financial plan could replace your adviser and save you money. So if you look at the difference let's say you've got a $1,000,000 portfolio. If your plan can create efficiencies enough to give you 1% more growth each year over a 30 year retirement that's easily, I mean it depends on your the plan specifics another $1,000,000 to $2,000,000 I mean maybe for your legacy purposes or maybe just spend more money 1% 2% more growth can mean a significant lifestyle and legacy improvement. The devils are in the details, and and it really is that insignificant at the beginning of those those things.
Mike:So the Dunning Kruger effect is do you do you have the sufficient experience? I've met several people, I mean, a lot of my clients, they deal with very sophisticated trading models. They just they've done it for a while. It gives them purpose. And even though we're managing the more majority of their assets, they're still investing because they just love it.
Mike:So do you understand how to invest? Do you understand the taxes and all that? If you don't, then I would say you may be missing out on either upside potential, you may be creating inefficiencies in your portfolio unknowingly, and this is the problem. And I'm going to be rather bold here, I've been saying it, but when people typically ask, well, when does it start making sense to work with a financial professional? It's because they don't want to.
Mike:They've had horrible experiences. They've they've not gotten the time or attention that they wanted. Maybe they were the ones driving the conversation. So I I get where this question goes. It's because experiences shape our behavior or our perception.
Mike:And if you've had bad experiences, then then I I get it. So here's a baseline I'm just going to kind of rattle off a few things and if you're not tracking with me then I would recommend you you look for a financial professional that can support you how you want to be supported and that might be flat fee hourly rate build the comprehensive plan and then let you manage it on on your own through you know an app like you know fidelity your vanguard whatever you can manage money on your phone sure
David:yeah
Mike:robinhood yep Or maybe you work with a financial professional to where they're managing some of your assets, but you're doing other things. I mean, there can be a blend in one way or the other. It's not just, well, I take it all. I manage it all, and you just can't ask questions. One of the biggest red flags I have found in this industry is when someone says, I know what I'm doing.
Mike:Trust me. And they they don't explain anything. That is such a red flag.
David:Oh, boy.
Mike:Blind trust. Oh my goodness. But it happens so let's see if you're tracking with me on a couple of things and I'm just going to talk about the security side of things forget about insurance products for a second forget it I mean annuities it's much more complicated when you get to the insurance side of things But let's just do some stocks.
Mike:you're looking at managing a portfolio, you wanna be a a DIY portfolio manager, great. You've probably heard the statistic that 80 some percent of money managers can't keep up with the s and p, which, by the way, is a manipulated statistic that Vanguard likes to throw out there because they have, and Fidelity and these other mutual fund or fund companies passive indexing, they're incentivized to market that and to to show you that because that's what they sell, index funds. But anyway, so you've probably thought that at some point, well, if money managers can't keep up with with the markets, I'll just buy the markets and call it good. Okay, well fine. Make sure you're buying the right index funds.
Mike:Make sure you're buying the right the right options there, and then make sure that you're you're running enough of an analysis so these are things like if you want to get more detailed the petroski score is a simple way of I think it's it's 7 to 10 indicators fundamental indicators that say is a stock healthy or not? Look it up. It's pitroski score. Petrovski's score. If you could run those calculations on your own, if you could understand how to look at the fundamentals and look at their debt, look at their their price earnings, maybe look at a stock but look at their moving averages.
Mike:If you can understand some of the more technical sides of this, then then it might make sense. But understand, DIY investors are doing relative return investing. Relative return means you're just getting whatever the market has in store. Market goes up, you participate with the up. Market goes down, you get you're going to lose money.
Mike:And that understand that the fact is markets can go flat for 10 plus years. 2000 flat for 10 plus years 1965 flat for over 10 years 1920 9 flat for over 10 years 1906 flat for over 10 years so if you are being a diy investor you also need to be prepared for flat market cycles
David:and so in a flat market there might be some daily kind of little bit of dips but overall the line over a decade is like pretty flat
Mike:it's nothing yeah it's it's basically over a 10 year period of time you would have earned nothing And that depends on how you're gonna calculate it, dividends reinvested, or did you spend the dividends? So there's some nuance. Maybe it's 12 years or 10 years depending on how you use the dividends, but, that's a real risk that and this is the Dunning Kruger effect at work right here. Did you know that exists? If you have a 30 year retirement and you're gonna DIY your investments and you're buying the indexes and the 1st 10 years of your retirement has no return
David:That sounds like a problem.
Mike:That that's a way to suffocate. So if what I'm saying is all new to you, which, by the way, I coach financial advisers all over the country, and the things I'm telling you are also new to many of them. They go, wait. What? So if if what I'm saying is new, then, sure, you might be able to DIY your your portfolio, but make sure you're working with someone that's going to tell you all of these risks so then you can address them.
Mike:That's the the crux of all of this. Not all financial professionals are the same. Not all have done an extensive amount of research. So make sure that if what I'm saying is new, that you're gonna bring an expert or a specialist or a professional in to help bridge the gap, prepare yourself, and then move forward. We do that.
Mike:That's why we offer your wealth analysis to people at no cost. We want to raise their awareness so they understand the risks that they're taking, whether they decide to proceed with us and solve how to address those risks or work with someone else. But unless you see it, you can't solve it. There's a number of ways to look at it from a psychological standpoint, but when it comes to emotional competence, the lowest level is unconsciously incompetent, as in you don't know what you don't know, and you don't know that you don't know what you don't know. And if we can and this is why we do the Your Wealth Analysis and why we offer it is if we can help someone go from unconsciously incompetent to consciously incompetent, they know they don't know, but now they know what they don't know.
Mike:So now they know the problems, and they know they need to solve those problems. It doesn't it's okay that you don't know how to solve them. You just need to know they exist. At that point, you are so empowered to then be proactive in addressing these problems, especially right now while the markets are relatively calm. And if you want to go through this by the way if you want to illuminate and see the potential problems that you may be facing pick us
David:yeah I mean you
Mike:can pick any financial advisor that's up to you any any company we are fiduciaries we're held to the fiduciary standard but if you want to see what's going on if you want to see problems that you probably had no idea even existed if you want to see what tax strategies could be implemented request your analysis. I mean, yourwealthanalysis.com. Www.yourwealthanalysis.com won't cost you a dime, but my goodness, the the amount of awareness that can be raised in just 1 to 2 visits is incredible. You can also text analysis, keyword analysis, to 913-363-1234. Text it right now.
Mike:913-363-1234. Doesn't cost you a dime, but the amount of information you can get in 1 to 2 visits is incredible. Consider that. Go to www.yourwealthanalysis.com today. Now that's all the time we have for today.
Mike:If you want more tips about retirement, income, taxes, social security, health care, and more, make sure you subscribe to this show wherever you get your podcast. Just search for how to retire on time. Also, you can catch this show via our 247 digital broadcast by going to www.retireontimeradio.com. You can stream various episodes on your phone while you're on the go, in the car, or wherever you are on a run. Just go to www.retireontimeradio.com.
Mike:From everyone here at Kedrick Studios, thank you for spending your time, your most precious asset, with us today.