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.
In my opinion, you don't follow a sixty forty split. That's an arbitrary, confined mechanism. It's all revolved around the income you need, and what do you do when the markets go down. Welcome to the retire on time podcast, a show all about your retirement questions. As always, this show is about the nitty gritty, not the oversimplified advice you've heard hundreds of times.
Mike:Hopefully, we can give you context to the opinions that you hear all the time online. Now that said, remember this is just to show it's not financial advice. Your situation may be different than someone else's, probably is, so let's figure out what's right for you. Now text your questions to (913) 363-1234. Again, (913) 363-1234, and we can feature them on the show.
Mike:David, what have we got today?
David:Hey, Mike. To keep things simple, could the $60.40 split work for a retiree? Yeah. And we're not talking about bowling here. Well, that's a Is that a six bowling 10 term?
David:Yeah. Like a six ten split or something. The the number of the pins. When you have two pins that are
Mike:far Oh, yeah.
David:They're split and you knock them both out. Yeah. We're not talking about that. That's a different podcast.
Mike:So we'll talk about the benefits here. Alright. If you look at a sixty forty, which for layman's terms, that infers 60% of your portfolio is exposed to stocks or equities
David:Alright.
Mike:And then 40% is exposed to bonds or bond funds is most typically used. So with that being said, if you look at the S and P 500, which is becoming a more and more popular portfolio, just buying that and saying, forget everyone else. From 2000 to 2010, the S and P would have done nothing. 0% total return, where a sixty forty split would actually be positive because the bond funds made money when the equities or the stocks were going down.
David:Alright.
Mike:So it was like the little engine that could during a flat and very difficult market cycle. And then from 2010 to about today, the S and P would have done better on the growth side, but because the sixty forty was ahead, because it was making money during that first ten years, they kind of end up being near the same performance.
David:Oh, okay.
Mike:Why that's interesting is because in a thirty year retirement, ten years of those thirty years could be in a flat market cycle. So in some sense, you could argue that the sixty forty split could be a nice set it, forget it product. I'm not calling it a strategy. I know people would argue that it's a strategy. It is a product because you're buying the idea of one thing and you're not changing that.
Mike:You're just rebalancing it, setting it, forgetting it. That's a product because products don't change. Strategies can be dynamic. So, yes, it could work. The numbers could work.
Mike:You might have some very stressful moments when the markets go down. You might need to tighten the belt a little bit. Is it the best strategy? Because it's not really strategy. It's a product.
Mike:No. I don't I don't think that's the best way. If you want to simplify things a little bit more, what I would suggest is what if you were to take the sixty forty idea of stocks and bonds or stock funds and bond funds, and you were to say growth versus less risk. Now you can open the umbrella up a little bit. And maybe on the growth side, you've got some equities, some stocks, but maybe you expose some real estate as a part of it.
Mike:Maybe 20% of your portfolio is in real estate, and you just kinda set it and forget that. And then you've got 40% of your portfolio that maybe isn't all in bond funds. Maybe 20% of your portfolio is in bond funds, and the other 20% is in, I don't know, CDs, fixed indexed annuities, buffered ETFs, structured notes. I mean, you can still take the same concept but diversify more strategically. Notice the keyword strategically because within each corridor or each allocation, growth versus protection, you could be more strategic about, well, in this season, I'm gonna have these investments or products in my 40% less risky part of the portfolio.
David:Mhmm.
Mike:And then as things change, I'm going to shift. Here's an example. It might not make any sense from when when the markets dropped interest rates in '20 or after the February
David:Oh, yeah.
Mike:Bond funds weren't very competitive. Yeah. I I would not I mean, I I've spoken openly about how I don't care for bond funds in most economic environments. If Trump gets his new Fed chair and drops interest rates and we experience, like, a 2,010, 2011, 2012 situation, then I tell you what, bond funds might not be a good part for 40% of your assets.
David:Does
Mike:that make sense? So what Right. If what if instead of bond funds, you decide to do something a little bit different? That's that's strategy. Now is the sixty forty split the best one?
Mike:That's an argument. It's a matter of opinion. But if you can open up the cliche and think outside the box and just say, well, okay. Here's kind of a structure I wanna solve for. I think you could do a little bit better.
Mike:When I say better, I just mean not necessarily performance. You can't promise performance, but have a more suited portfolio towards your goals.
David:Okay.
Mike:Now, again, my opinion is you first put your lifestyle together first. Right? Then you put together your plan as one plus one equal two, at least in retirement, and then you put together your strategies. Because you don't wanna buy products that that it that make it difficult or impossible to implement a strategy. And then you can figure out your investments or products in the right allocation.
Mike:In my opinion, you don't follow a sixty forty split. That's an arbitrary kind of confined mechanism. What you do is you say, okay, I'm ten years away from retirement. Here's what my portfolio should look like based on my plan and my projections. I'm five years away from retirement.
Mike:Here's what my plan should look like. I'm at retirement. I'm five years into retirement. It's all revolved around the income you need and what do you do when the markets go down. So if the markets go down, you're 10 ways ten years away from retirement, you've got plenty of time to recover.
Mike:So that portfolio structure might be more geared toward risk on or more growth. Five years away from retirement, well, the markets will probably crash between that time and the first two years of your retirement. Seven years or so. So you might say, okay. How much income do I need for the first five years of retirement?
Mike:Let me put a portion of my portfolio in a less risky or a protected part of the portfolio and the rest in growth. Now instead of trying to create wealth for retirement, you're trying to keep your wealth for retirement. And that might not be $60.40. It might be $50.50. It might be $80.20.
Mike:And it's not $80.20 one way or the other. You could reverse it. It depends on what you want. Yeah. The in my opinion, the day you retire is the day you take the least amount of risk because that's the day you have to make sure your money lasts the longest.
Mike:When you're ten years in retirement, your money needs to support you ten years less. So if you think about risk and base risk on time, not, oh, the markets are gonna go down and can I emotionally handle it? That's an important metric. But risk is a time metric. Do you have enough time for recovery?
Mike:Then you start thinking about, okay, well, maybe I do fifty fifty. Maybe I put 60% of my assets in a protected account when I'm 60 years old. Maybe 70. Maybe 20. Yeah.
Mike:Everyone's different. You know, the people that got pensions and Social Security, they don't need much for income. That portfolio structure is gonna be wildly different than someone that has a small Social Security amount, but they they were able to get their assets in in what maybe FanDuel. I don't know. Inheritance.
Mike:They they didn't make much during their life, their Social Security is small, but they received a large inheritance or some sort of windfall of money. Yeah. And now they wanna build a plan around that. That's gonna be a different type of portfolio. Yeah.
Mike:So falling into these cliches, yeah, they could work. But we're talking about good, better, best. And it's not good, better, best in the overall scheme of finance. It's good, better, best based on your specific needs. So be cautious of old cliches.
Mike:Yeah. Yeah. Yeah. Ask more questions. Challenge assumptions.
Mike:Yeah. Do do we do we hit that one hard enough?
David:I I think we did. Yeah. Does does the sixty forty split or, you know, can it work? The answer is yes. It can.
David:Should you do it? Maybe, maybe not.
Mike:Who's to say?
David:Who's to say? We don't know what the the markets this is what I'm I'm I'm repeating back sort of what I hear, and and you tell me if I'm right or wrong. But we we want to first have a plan of of what our lifestyle is and how can we support that lifestyle. And so does the sixty forty traditional split support your lifestyle? If yes, then And do
Mike:that's the part of the workshops. When we do a workshop, it's very specifically catered towards, let's figure out, oh, here's your portfolio. How many dollars do you need? And that will dictate the the the asset allocation or the amount of your portfolio that goes to to certain investments or products. So there you go.
David:I love it.
Mike:Take it or leave it. Yeah. This person this is very interesting actually. I have found that people do not communicate to learn. They communicate to confirm their bias.
Mike:So I'd be very interested to see this person, and if they say, oh, you're wrong. The $60.40 always works. And just because we disagreed with it to some capacity, they're gonna go find someone that wants to agree with them. Or are they gonna say, that's interesting. I never thought about it that way.
Mike:I wonder what else I don't know, and what if I should do it differently? And then the final one, what would that look like? And exploring. This is this is the paradoxical balance of being certain about what you want to believe, or what you know is true. And there is validity to the sixtyforty being used in certain parts of your life.
Mike:Versus being open and reflective, open to a different opinion and reflecting on it.
David:Right.
Mike:I wonder what they'll do. Yeah. Because there's a lot of people that will come in and they'll say, they want us to confirm their bias, and I ain't doing that. What is right? Is it based in principle?
Mike:Is it based in universal truth? And is it applicable for your specific situation? If the answer is yes, then great. If the answer is no, are you willing for a to change or have a different opinion? Too many people want to be right.
Mike:They don't want to do what is right, they want their way to be right. And they'll look for the confirmation bias. I wonder what they'll do. That's all the time we've got for today's show. If you enjoy the show, consider telling a friend, leaving a rating, but most importantly, subscribing to it wherever you get your podcast or on YouTube.
Mike:As always, go to retireontime.com to one, enjoy our calculators, two, purchase the book and all the resources, three, join a workshop, or four, you can work with us either for a one time plan and or you can do ongoing relationship at a flat monthly fee. Whatever's right for you, just go to retireontime.com to explore your options. From all of us here at Kedric Wealth, we wanna thank you for spending your time, your most precious asset with us today. We'll see you in the next show.