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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. My name is Mike Decker. I'm a licensed financial advisor who can even file your taxes. All that said, please remember this is just a show, not financial advice. Everything you hear should be considered informational.
Mike:Joining me in the studio today is Mr. David Franson. David, thanks for being here.
David:Hello. Thank you.
Mike:David's gonna read your questions, and I will do my best to answer them. You can text your questions anytime during the week. Save this number on your phone, (913) 363-1234. That is the number to text. (913) 363-1234.
Mike:Let's jump in. Hey, Mike. I'm concerned about the next market crash. I don't want
David:to try and time the market, but it still keeps me up at night. Any tips?
Mike:So there's some wisdom here. No one can time the market. And what does that mean to time the market? That means being invested in the market, and the market's an arbitrary term. That could be the stock market.
Mike:That could be the bond market. That could be the real estate market. That could be the insurance market. It could be the alternative market where you're dealing with, like, oil and gas partnerships or qualified opportunity zones, Delaware statutory trust, limited partnerships. Go down the list.
Mike:Right? There's there are many different markets, and they're not correlated. But to try and time a market, usually people are referring to the equities market or the stock market, it says, I'm gonna go to cash, and then I'm gonna be in the market. And then I'm gonna go to cash, and then I'm gonna be in the market.
David:And so by going to cash, you mean, like, sell all your positions, and you just have cash in there?
Mike:Or cash equivalents. Oh, okay. That's that's a good point. Let's define that. Cash or cash equivalents is time in the market.
Mike:Time in the market would be something like a high yield savings or a money market fund Okay. Is basically a cash equivalent. A CD is, in my opinion, a cash equivalent. K? Treasuries, I think, are a similar cash equivalent.
Mike:And the reason why I would say it's more of a cash equivalent is because it barely keeps you above water when you consider inflation, if inflation is somewhat steady. If you have hyperinflation, then you're underwater with treasuries. And so you've got to understand the nuance of a portfolio. You've got different sections. So we diversify based on objectives.
Mike:You've got different parts of your portfolio. Some of your assets have a long term investment horizon. You don't need to touch them for ten years. Some of it is more short term. So that makes sense so far?
David:Yeah. Yeah. You need to live in the short term. Right? You gotta pay your bills, gotta buy groceries, so you use that cash for your immediate needs down the road.
David:You don't touch that stuff.
Mike:And Warren Buffett's got a great quote that says, the price only matters when you're selling. Uh-huh. And so it's easy to say, oh, well, markets trend, and they've recovered a 100% of the time, and we'll be fine. But you're gonna have to sell parts of your portfolio at different periods of time to fund your lifestyle, unless you wanna work until you die. Most people like to retire.
Mike:Most people enjoy retirement. And so you've gotta understand compartmentalization within a portfolio. You've heard of compartment. Compartmentalize your feelings. Right?
Mike:As it's most often associated with. But that's kind of the same metric or mindset of a portfolio. So this person is concerned about the market, but knows you can't time the market. So there's wisdom there. There's a raised awareness and understanding that what this person wants to do maybe isn't in their best interest, but they don't have the right solution.
Mike:Here's a different way to think about it. Instead of doing the arbitrary portfolio where you put your numbers into some suitability questionnaire and it says, okay. You are a moderate to high risk, or you are a conservative investor. And so based on those results, we're gonna invest you x percent in large cap stocks, x percent in mid cap stocks, x percent in high yield bond funds, or bonds and x percent in whatever. Right?
Mike:And most of that is just basically saying how much you wanna limit your growth potential, but you're also lowering your downside risk. It's kind of funny how that works because I don't understand why that is. Why is it that you treat all of your money as if you needed to liquidate all of your money? If we're not gonna time the market, then why do you concern yourself with all of your money not being subject to loss? Let me say that differently.
Mike:Okay. If you knew you didn't have to touch, let's say, 50% of your portfolio for ten years, you did not have to touch it, would you be concerned about the market crash, let's say, that happens this year or next year? No. Mhmm. Because you've got nine more years for it to recover.
Mike:You see the difference there?
David:Yeah. Like, whenever we bought a house here in Johnson County, Kansas, you know, like a decade or more ago, and I think at the time we were buying it, we weren't really thinking about what the price would be in the next year or two because we plan on living there for long time. Yeah. We never thought about the price.
Mike:Now Johnson County, the price has only gone up, but in the real estate market, prices do go down from time to time. Right. Right. Right. So you you can't time the market.
Mike:You have to think about the time horizon of the investment of the asset and so on. You with me so far? Yes. K. Now you need to understand that you can't really predict exactly what's going on in the market, but there's some risks you need to understand about the markets.
Mike:I had a a proud moment, actually, this week. I'm gonna tell you about it. Okay. You've heard of ChatGPT? I've heard people talk about it.
Mike:Yeah. AI? Yeah. So I was just doing some additional research just about market cycles. And I found ChatGPT quoting my own research.
Mike:It actually took my articles that I published years ago and told it back to me. That's incredible. Man. I am AI. Yeah.
Mike:That's you. We're talking to AI right now. But I mean, just consider that for a second. AI isn't figuring this stuff out. It's taking published credible content and regurgitating back into simplified forms.
Mike:Why am I saying that? I am one of the few people that I'm aware of at least that talks about the equities market cycles that I have found many financial professionals don't even know exist. Let me explain those and how this person probably ought to do some research about this and understand how to hedge against it. Okay? So there's four market patterns, and you can find a Kiplinger article about this.
Mike:Four market patterns investors need to know. The first one is that markets go up and down. We all know that. Yeah. K?
Mike:And I don't think a one or 2% up or down or even a 5% fluctuation really is gonna keep people up at night. Maybe it does. And if that's the case, then that's a different conversation we need to have. Then we have this second pattern, which is the markets tend to correct. That's a 10% top to bottom, so it goes down 10%.
Mike:That happens every one point eight years or so. Not the end of the world. Is it gonna destroy your retirement? Probably not, but you need to be aware of it so you are emotionally prepared for it. If you know it could happen, and it happens, and you know what to do about it, it's a lot less difficult than to get surprised.
Mike:Then you have the third pattern, which is the markets tend to crash every seven to eight years. So it's not every seven to eight years, but it's every seven or eight years, and those are the more difficult times. And then we have that the markets go flat for ten plus years, and that happens every 20 or so. So 2000 to about 02/2012. If you bought the S and P 500 and you reinvest your dividends, you're still not making any money.
Mike:Okay. Return for over ten years. 1965, over ten years, zero returns. 1929, over ten years, zero returns. '19 o six, over ten years, zero returns in the equities market.
Mike:And so you gotta ask yourself, okay. Am I invested in the correct way?
David:Yeah. What do you mean by that?
Mike:The last ten, fifteen years, we have taught ourselves behaviorally, just buy the S and P 500 or just buy the index funds, and you should be fine. It works until it doesn't. And historically speaking, we know there are periods of time where it stops working. What's your backup plan? People are going all in on growth, and they have not yet had to pay the piper for the risk that they're taking.
Mike:And so my guess is this person in their subconscious, subcortically deep within them knows this, but they haven't been able to articulate it yet. I believe this person deep within their being probably understands they're taking more risk than they're being told or explained to you and saying, well, this is the new way, and, you know, the wolf on Wall Street guy just said to do this and pick your favorite pundit on political or not. This is just kind of the way we do things. We fix the market. It's predictable.
Mike:Anytime someone tells you that, they're oversimplifying it for clicks, in my opinion. Right. So how do you handle a flat market cycle? Different types of investments or products can do well in a flat market cycle. Fixed investments or products.
Mike:So if the markets go flat for ten years, CDs might outperform the equities market. Right. That's a very weird thing to say. That CDs could outperform the stock market. But if the markets go flat for ten years, a 3% return is really all you need to beat Wow.
Mike:The equities market if that were to happen, which it happens every every so often. You've got treasuries. You've got bonds as long as the entity doesn't go bankrupt. And in a flat market cycle, bonds could be considered somewhat riskier than normal. I do not believe that people are being compensated appropriately for the risk they're taking with many bonds that I've seen in many portfolios today.
Mike:Alright. Now that's one side of it. Okay. Then you've got another side. These are called indexed products.
Mike:An indexed product, every year it resets. Usually, you can get a two, three, four year, but let's keep it simple for now. Where if the index it's associated with goes up, you participate with the upside. You don't get all of it necessarily. Okay?
Mike:These aren't gonna make you rich. If markets are going up like they did in the nineties or from 2012 to 2020, these aren't gonna get you rich. But they participate with the upside, and they cannot lose money in the downside. There's a mechanism within various products that prevents it from going backwards. What does that mean?
Mike:If the markets go up one year, then down the next, like they do in a flat market cycle, you are capturing twelve months of up if that period of time works for you, and then when it goes down, you don't go backwards. So it's kinda like a stair step upwards in a flat market cycle. See this how this works kind of so
David:far? This sounds like it'd be advantageous.
Mike:And you've got your buffered ETFs. Okay? That's on the security side. You've got your structured notes, which are typically more on the banking side, and you've got your fixed index annuities, which from the insurance side. So the different financial institutions, whether it's insurance, whether it's banking, whether it's these securities, whatever it is, they all have their own version of these products or this offer.
Mike:K? And they're all structured slightly different, but that's the same mechanisms or the same theory behind it all. K? That is one way that you can help hedge against a flat market cycle, but it's also a way that you can hedge against a market crash. So if the markets go down, and let's say half of your assets have now lost 50%, that's a lot to stomach.
Mike:Yeah. But let's say the other half of your assets were structured with fixed or indexed products, so you're drawing income from those sources while your other accounts have time to recover. Because remember, you don't need those products for ten years.
David:Right.
Mike:They have the time horizon. Right. This is diversifying by objectives. This is what happens when you put a plan together first, then you put together the efficiencies, and then you build your portfolio to support the plan. Mhmm.
Mike:It's not about filling out a questionnaire and saying, well, here's your arbitrary ambiguous portfolio. When you have context on how you're going to proceed, fear often disappears. That sounds great. Yeah. Thank you.
Mike:You had to say that. Yes.
David:Yes. There was someone poking me, and I said, oh, that sounds great. Yeah. Yeah. But, yeah, it sounds like you we mentioned the word compartmentalization, right, where we've compartmentalized our our funds based on these objectives.
David:Am I getting that right?
Mike:Yeah. I mean, it's ask yourself, okay, how much income do you need the first year of retirement? Great. Yeah. What if a CD or a treasury matured that first year, and that was your income source?
Mike:Now in the second year, where's your income gonna come from? Maybe it's a CD. Maybe you've got enough liquidity in fixed index annuities. Maybe you've got a rolling over buffered ETF. This might be a little bit over someone's head just for the show's sake, but understand there are ways that you can ladder in and pepper in enough liquidity and enough protection that if the markets go up, you're fine.
Mike:And if markets only went up, you probably won't even be listening to the show. But if markets go down, if you understand these risks, you understand then how to sail through the risks. This is why the first chapter of the book, how to retire on time, is so important. It sets the stage correctly to set the right mindset of how you should feel as you enter into retirement. Now let me go down a little bit of rabbit hole here.
Mike:Alright. This year, 2025, has been an interesting year. We had a great start. It felt pretty good January and February. We were on a roll.
Mike:Whether you love Trump or hate Trump, it was like, oh, hey. Things might work out. Yeah. And then liberation day hit. And even before that, we were getting more uncertain with the tariffs and all of that, and so the markets just tanked.
Mike:It was not pleasant for a lot of people, and now they've recovered, at least at the time of this recording. And I asked myself, I said, okay. When historically has something like this happened where we had a really good start of the year, things actually went down pretty harshly, pretty intently, and then we recovered, and it seems promising moving forward. I wanna look at, is there a precedent for a false breakout, which means it looks like it's recovering and then it falls off a cliff, or is there a good foundation or a resistance level that would rationalize saying, hey. This train actually could keep going.
Mike:Here's what I found. There were similar market patterns. K. This is the technical side of my background, but there are similar market patterns found in 1980, in 1997, and 2001 that looked very similar, very eerily similar to 2025. So there's the cliffhanger.
Mike:Would you like to know what happened in each of
David:those years? Yes. Please.
Mike:Yeah. 1980, we're dealing with inflation. We're kinda coming out of that. Paul Volcker's here. You know?
Mike:Okay. Fine. The markets, they go up, they go down, they recover, and then they have an incredible breakout year. Beautiful year. Great profits for the rest of that year.
Mike:I mean, it was just like the gravy train going up. So if you were concerned about the market in 1980 in May or June of nineteen eighty, the breakout happened in June, not May. Usually, it doesn't May, but it happened in June, and those who were concerned in sat in cash missed out on incredible returns. Those who were invested in the market had great returns.
David:Good.
Mike:Can't time the market. Now what happens in 1997? 1997, the.com is happening, but people are concerned about, oh, is it overpriced? Is it overhype? What's going on?
Mike:'97, it has the same things, so some people were hesitant about it. When I say some people, by the way, I know hedge fund managers, top minds on Wall Street that were hesitant in 1997. Okay? This isn't a, oh, retail investors are dumb. No.
Mike:The best of the best were also concerned. And in '97 in June, we had a breakout. Incredible returns rest of the year. Those who sat in cash missed out. Those who were invested in the market did not.
Mike:They had great returns.
David:Alright.
Mike:02/2001, same situation. Markets are up, then they go down. And by the way, this 02/2001 and o '2, there's a very difficult time. So 2,000 markets are going down, then they kind of recover, and then there's this promising, oh, did we overcome the .com bubble? Did we figure things out?
Mike:Do we know how to price in the Internet? Do we know what Amazon's really gonna do? All that stuff. And then 02/2001, it's up, goes down, recovers. There's a glimmer of hope, and then what happens?
Mike:Market tanked. Yeah. This is in June. And then in September, it tanked even more because of September 11.
David:Okay.
Mike:But it was already going down.
David:Okay.
Mike:And then if you pull back again, 02/2001 and o two and even o three, I mean, the markets just were horrible for three years. And if you look back for the ten year period of time, there was no growth in the market for ten years. Flat market cycle. So here's why I'm bringing all this up. How many people listening in have been told about flat markets?
Mike:Or the idea that, hey, maybe we have a breakout, but maybe it doesn't, and no one really knows the future. How many people have asked their adviser about flat markets? And is that even your job?
David:Right.
Mike:To ask about these risks that you may not know exist? That's a ridiculous expectation. If you ask your financial adviser, they're not gonna say, I never knew about that. They're gonna fumble and say, oh, we go, yeah, but that was kind of a and then they'll talk themselves out of it. In my mind, trust is built on who speaks first.
Mike:If I address it first as your professional you've hired to do this job, you know I'm competent. If I'm constantly reactive to things that you're bringing up, I would question the competency. I'm not talking about sincerity. I'm not talking about how good the person is, but at the end of the day, it's your money, which is literally the thing that's going to get you through retirement. I'm concerned about oversimplified plans.
Mike:I'm concerned about another flat market cycle potentially happening, not maybe this year or next year or the year after, but during the first half of your retirement, there could be another flat market cycle in the near future, and no one knows. Are people prepared for it? In my opinion, most Americans are not. Are people prepared for the next couple of market crashes? I have found most people, based on my experience and what I've seen, have portfolios only built for the upsides, and they're hoping that in the next market crash, they can just tighten their belt and just get through the drops.
Mike:Well, look, folks, averages are deceptive. And we don't have time to really dive into that. Mhmm. But people, in my opinion, are taking more risk than they realize because they don't know the right questions to ask. They don't know the historical market patterns.
Mike:Heck, I mean, AI is using my research on this. I don't know why other institutions are not talking about these things. It's in the data. It's clear as day. Either they don't know or they don't wanna know or they don't wanna disclose it because they think it was a black swan decade that will never happen again, even though historically there's precedent saying that happens over and over again.
David:Right. And we've listed those decades off on the show many times.
Mike:Yeah. Yeah. Don't lose sleep over this. It doesn't destroy your retirement if you're prepared correctly. If you're not prepared correctly, yeah, it could be difficult, and maybe it's not.
Mike:No one knows the future of the market. Maybe it's the Boy Scout training in me that happened decades ago. Maybe it's just I'm an optimist that doesn't trust a lot of the the talking heads that try to spin news to create drama, whatever it is. Maybe is they don't trust oversimplified marketing literature from most of the financial services space and do my own internal research. Whatever it is, I believe in high probability.
Mike:I believe in being prepared for the best and the worst. I believe in having multiple strategies that allow someone to have flexibility, growth, and protection for whatever happens. I call these principles. I call these precepts. Anyway, I'll I'll stop on the rant there, but this is why we do this show is to sound the alarm and to raise people's awareness.
Mike:This is why we have the podcast. This is why we're on YouTube, is to help people understand what really could be going on and potential risks that could be in your portfolio. And this is just the tip of the iceberg for retirees. It is, in my opinion, a bit ridiculous that we have gotten rid of as a society, the pension, and asked people to work their whole life, put money into this thing called the four zero one k, and then say when you retire, you've got to now be a financial professional, figure out how to distribute it.
David:It's a tall order once you think about it.
Mike:It's a tall order, and it's ridiculous. And we've oversimplified what retirement planning should be to help people? How is an oversimplified plan gonna help someone? Oh, well, they've got less to worry. Yeah.
Mike:Because they don't know what to worry about. They don't know the risk they're taking. Anyway, beside the point here, it is important. Ask these kinds of questions. I hope this person is getting some good insight into dive into your plan first, explore your efficiencies and your other strategies to help protect your assets, and then build your portfolio appropriately by diversifying by the objectives.
Mike:Your objectives are time based objectives to support the plan. If you did not go through your plan first, and then talk about products, if you just fill out a questionnaire, and then you created a portfolio, if you just created a portfolio trying to pick good investments, hoping that was enough, chances are you're taking more risk than you realize. 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 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. 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.