Man: Would you like an opinion on a financial matter you're dealing with? Whether it's about retirement, investments, taxes, or 401(k)s, Scott Hanson and Pat McClain would like to help you by answering your call. To join Allworth's "Money Matters," call now at 883-99-WORTH. That's 833-99-W-O-R-T-H.

Scott: Welcome to Allworth's "Money Matters." I'm Scott Hanson.

Pat: I'm Pat McClain.

Scott: We're excited that you are with us today as we're talking about financial matters. We're both practicing financial advisors and we do our program on a weekly basis, and always excited to be here with you guys to talk about money and finances, and, of course, our goal is just to help you make wiser choices with your dollars, get to a point where you've got financial independence, where you've got more choices in your life. It's always interesting... I think most people, they can't see the decisions that they make with their finances today, they can't see the impact that's gonna have on their future.

Pat: Could you? When you were 20, could you?

Scott: When I was 20, I worried much more about building my career than I did about anything else.

Pat: When you were 30.

Scott: Okay. Yeah. I had my second child when I was... Did I have my second child or my first child? I had my first child when I was 30, set up a 529 plan.

Pat: But you knew you should save, you didn't know what impact it would have in the future. You just knew it was... You didn't do a lifetime financial plan when you were 30 to figure out if you'd have enough money to retire when you were 60.

Scott: No.

Pat: But you did...

Scott: Not 30, at age 50.

Pat: You're like... Understand. But you said at 30, "I'm just gonna save X because I can and I should."

Scott: A discipline.

Pat: It was a discipline.

Scott: Yeah. Save X% and avoid any consumer debt. And be terrified of debt as a whole, personal debt, personal guarantees, anything that's personal debt.

Pat: So where were we going with this?

Scott: I don't know. I forgot we're... Why do we do this program? It is to help people with making good choices with their future.

Pat: Yeah. And I got nothing else to do with my time. I'm joking.

Scott: Nothing else.

Pat: Pretty busy. Pretty busy. So, let's go to the calls. And by the way, hope you had a nice Thanksgiving with you and yours. We had family. We went over to... We didn't celebrate Thanksgiving at our house, but we had a bunch of people over the day after Thanksgiving. So, it was nice.

Scott: Okay, good. Kids home and all that stuff.

Pat: Yes, yes, yes.

Scott: Fine. All right, let's take the calls. 833-99-WORTH is the number. 833-99-WORTH. We're starting in California with Rashna. Rashna, you're with Allworth's "Money Matters."

Rashna: Hi, there. I am gonna start by telling you that...and you'll get this reference because you're from Sacramento. I have two questions for you, but, first, you're like the Armstrong & Getty of financial planning. That's how I think of you guys.

Scott: Oh, thank you. We appreciate that.

Rashna: You're very entertaining.

Pat: Well, thank you.

Rashna: And you're knowledgeable.

Pat: And I know them both just through being a longtime Sacramento resident, and they're both...they're very similar in person to who they are on the radio, which is probably...

Scott: Which I think it's what you get from us, so...

Rashna: Exactly. I love the personal stories. So, anyways, I have two questions. Tell me which one you'd like to take. The first one's more philosophical in nature and one is more specific to my finances.

Pat: Okay, well, let's go with the philosophical one first.

Rashna: Okay. I've been listening to you guys religiously.

Scott: Really? Okay. I would've gone the other way.

Rashna: Okay. I've been listening to you guys religiously. I look forward to Saturday morning when the podcast is gonna drop, and lately, you've been giving the advice, and I understand the philosophy behind it of, you know, your last check should bounce, you made the money, you should spend it. I get it, but I'm confused a little bit by that, because my parents, over the last few years, I have had 24-hour care in-home for them, two people. And if they had lived large, if they had gone on all the vacations they wanted to and done the things, they wouldn't have this. So I was like, "Am I missing something?"

Pat: Kind of.

Scott: That advice is not broad advice to everybody, it is directed to those people that are terrified to spend. I'll give you an example. So I've been doing this a long time, and I remember, this is years ago, I was probably in the industry three or four years and had this couple, let's call 'em Bill and Susie, because that's their names. I'm kidding. Now, Bill and Susie, they were retired and they would come in, like, every six months or whatever it was. They had 800,000 or something saved, they were early 70s, and all's the home was paid off, all's they lived on was their Social Security. And so, the major tax planning problem for us was required minimum distributions, and how do we avoid as much taxes. They weren't spending a dime of their principal, literally living on Social Security.

And so, I would kind of say, "Hey, why don't you spend a little? And I remember it was a couple...a year or two had gone by, and Bill came in without Susie, and I said, "Well, where's Susie?" And he says, "Well, that's what I wanna talk to you about." I said, "What's that?" He says, "Well, she feels like every time she comes in, you call her a cheapskate." Right? That was her perception. And it was interesting as a young advisor thinking, you know, "I need to be careful with how people are wired internally and what's going on in their own minds," so...

Pat: What you said there is we do give that advice, but that advice is given to people that we are making a value judgment that they have a hard time spending money and that they, in fact, need encouragement. I have a client that has...You know, we work with people that are just starting in their savings, and we work with wealthy, wealthy people. And this gentleman's been a client of mine for over 20, some odd years. He's got well over $10 million, and I can't get him to spend any of it. He is terrified he's going to run out of money. And I send him $25,000 a month with the provision that he cannot return any of it to me, and even then, he fights me on it. And so, you know, what he does now, quite frankly, in his late 70s, when he takes a cruise, he stays in the nicest cabin, when he flies, he flies first class. He, three years ago, decided that he was gonna take a jet trip with his friends, private.

Scott: That is a way you can blow through $10 million.

Pat: You can go through $10 million pretty fast with private. So we do say that. But if you listen to who we're talking to, you'll realize, "Okay, that makes sense." Because we don't say it very often, but we do say it.

Scott: And we need...it's really important that we've got the assets to take care of what needs we are gonna have later in life.

Pat: We couldn't agree more. Like, your parents, had they had blown it, they would be on state aid.

Rashna: And they wouldn't be in their own home.

Pat: That's right.

Rashna: And this has been... You know, I mean, my mom was on a ventilator two years ago, and we thought that was it, and here she is still today.

Pat: Wow.

Rashna: But because they were very judicious, they were not spenders, they have the wherewithal to be able to afford it, because it's a very expensive proposition.

Pat: That is right. That is right.

Rashna: And so that's what I was missing.

Pat: Yeah, that is right.

Rashna: Because I was like, okay.

Pat: That is right.

Scott: And I actually think that people are kinda wired a certain way. I just watch my own children. My oldest daughter, she can't save two nickels, and my son doesn't like spending. And they've always been that way since they were little. I remember going on to Toys "R" Us when my kid was little, he had a gift card, and after 45 minutes we left, he had nothing, because he didn't feel like partying with this little card he had that can exchange for something that's more valuable to him. And so, I hope when my daughter eventually marries, if assuming she ever gets married, she marries someone who's like my son, who's a good saver.

Pat: [crosstalk 00:08:31].

Scott: If she marries another spender, they're gonna be in big trouble. And my son, if he ends up marrying another big saver, they're not gonna have any fun in life. They're gonna end up with tons of money...

Pat: Well, they'll have fun.

Scott: All right, whatever.

Pat: So, what's your next question? You said you had a practical question for us.

Rashna: Okay, yes. And, by the way, I have a son and daughter that...daughter and son that literally match up with what you just described. Anyways, so my second question is, we're gonna retire in four years, that's the plan, and there is a sum of money that we can either roll over. At that point, it will be about $670,000. We can either roll it over into another tax-deferred...you know, into an IRA or whatever, or they will... It's basically, for every $50,000, it's $620,000 a month for 9 years [inaudible00:09:26].

Pat: Okay. But the...

Scott: Is this a deferred compensation plan through an employer?

Rashna: So, it stirs as the employer or the... We both teach college. And this is the supplemental plan because we...

Scott: Yeah, got it.

Pat: But it's four years from now?

Rashna: Four years from now.

Pat: Okay, we can't answer your question. And let me tell you why we can't. Well, we can answer your question, but we're going to be wrong. We're going to be wrong, because...

Rashna: Why?

Pat: Well, because this lumpsum may change and the... This lumpsum may change.

Scott: Depending on where interests are, the lumpsum might be really attractive or a monthly amount, I mean, might be...

Pat: More attractive.

Rashna: So, okay.

Pat: So, if you have a choice of... You have a choice right now of X amount of money a month or a lump sum of $670,000, correct?

Rashna: Once we leave the employer, we'll have a pension as well.

Pat: That's right. So...

Rashna: But this is separate money.

Pat: So, what happens is, if interest rates are low when you go to retire, this lump sum will be large. If interest rates are high when you go to retire, this lump sum will be smaller. This may be as large as that $670,000 ever gets. Now, if you could roll this out without leaving your employer today, today, I would do so.

Scott: But you probably can't.

Pat: But you probably cannot.

Rashna: Cannot. Yes, I cannot. I just didn't know if it was a good deal, so, you know...

Pat: We don't know.

Scott: It's all based upon market interest rates at the time.

Pat: Yeah. And so, we don't know what that is. So what we do know is that many of these are based upon an annual or quarterly interest rate off the set side by the PBGC, or the Pension Benefit Guarantee Corp. We've taken a number of calls about this over the last few weeks. So, these pension lump sums are massive. They will absolutely be smaller next year because we know interest rates that they base the lumpsum on has gone up. And so, as much as I'd love to tell you what to do, call me in four years, Rashna, God willing I'll still be here, and we will answer the question at that time. But I wouldn't spend a minute thinking about it.

Scott: Yeah, I wouldn't either.

Rashna: Okay. That's fine. Yeah. And like I said, we'll both have pensions and we'll both have... We've also saved, so we'll have...

Pat: Rashna, we have no question that you are a good saver.

Scott: There's a good chance the lumpsum's gonna make more sense for you, based upon you've got a pension, and you...

Pat: But we won't know there. But because you've got a defined benefit pension plan as a college professor, you're going to probably be more...you'll most likely gravitate more to the lump sum. But if interest rates are, God forbid, 12%, 14%, then you'd take the pension. And we could laugh at 12 %or 14%, but it wasn't that long ago that they were...

Scott: Thirty years.

Pat: Yeah. Well, that wasn't that long ago.

Rashna: Yes. Our first house had a 10% interest rate.

Pat: Yeah, that's right. It wasn't that long ago.

Rashna: So I get it.

Pat: Yeah. All right, I appreciate the call. Thanks for being a...

Scott: Yeah, thanks, Rashna.

Rashna: Thank you.

Pat: ...loyal listener.

Scott: Matter of fact, I was thinking, my first house had a...

Pat: Mine was 10-plus.

Scott: No, mine was 8-something in '92. 1992. You know, it was helpful. We'll go to the calls in a second, but I should say this was helpful. When my wife and I were married, we bought our first house together in 1992. We paid less for the house than the original owner had two years prior. And we lived there for three years, and when we sold it, we sold it not, only for less than we paid for it, but I had to carry a bit of a second to make the deal work.

Pat: Did you really?

Scott: Yes. But it was at a time when it was a great time to move up to the next house, which was... We had a starter home, then we had a really nice family home after that. That was a screaming deal at the time. But there's nothing like having a personal experience. From an education standpoint, always better than book experience, right?

Pat: You'll remember 'em longer.

Scott: You remember 'em longer. And I was talking to somebody recently, they're financial advisors. They specialize in kind of sudden wealth-type things and they help athletes plan and some... The challenge until somebody's actually had their own personal experience, knows what it's like to have portfolios go down in value and then come back up, have some losses in some other areas, it's hard for them to make really informed decisions. The education is not quite so personal.

Pat: Yes. It can happen, though.

Scott: Anyway, let's continue on. I'm looking at Pat's face like, "This isn't very interesting, Scott." I'm like, "Sorry."

Pat: I'm like, well, like, how do you become a financial advisor in council on sudden wealth unless you've won the lottery and then wanted to be a financial advisor? You can't be a financial advisor to people that get sudden wealth because such... I guess you could.

Scott: You know how hard it is, though, when someone gets... If they haven't experienced it before, somebody's relatively young, they don't have anything in their 401(k), they've never really had an investment account...

Pat: Now, all of a sudden, they get a bunch of million.

Scott: ...and they get a million bucks, and it's like, you know what's gonna happen.

Pat: Yes, yes. You're gonna make some terrible...

Scott: You know, how many...

Pat: You're gonna make some terrible, terrible mistakes. You're gonna make...

Scott: Well, hopefully not.

Pat: Well, a good advisor's job is to try to minimize the mistakes that will be made. There will be mistakes.

Scott: There will be mistakes, yeah. All right, let's continue on. We're in New York. Talk with Robert. Robert, you're with Allworth's "Money Matters."

Robert: Well, good afternoon.

Scott: Hi, Robert.

Robert: Hi. Well, I guess I'll give you a little bit of brief background. I'm in my late 60s, wife's in our early 60s, we are debt-free. We have both retired from full careers, we're postponing her Social Security until her 70th birthday to maximize that, and we have just sold our home and will be somewhere at between $225,000 to $250,000 cash out of that. So we're looking for what to do with it while we look for another home.

Pat: Oh, okay.

Scott: And so this'll be reinvested here shortly?

Robert: I would expect to reinvest within six to nine months.

Pat: Okay. But you don't know when in the next six to nine months, you just... It could be next week.

Robert: Right. We've been looking. It could be next week or it could be after the first of the year. So we haven't found a property that suits us yet.

Pat: Okay. I think what we should probably think about is cryptocurrency,

Robert: Oh, okay. Thank you.

Pat: It's down so much.

Robert: Thank you. I'll call you again when I need to...

Pat: That was the right response. That was exactly the right response. So, Scott, are you on bankrate.com?

Scott: Yeah. Look, if I were in your situation, I would just look for a high-yielding FDIC-insured savings account. So, there's a website, and I'm not necessarily...well, I guess I am recommending bankrate.com. And they'll list the highest...

Pat: And you're gonna end up [crosstalk 00:17:04].

Scott: Government-insured. All's you care about, as long as they're insured, you don't care anything else about the financial health of the bank.

Pat: And they're FDIC. And so there's two components to it. There's a money market account, and then there's a cash account. You put the minimum in the cash account, let's say $500 or $1,000, and then you put the remainder in the money market account. The money market account is completely liquid. And when you need the money, you just...

Scott: You're talking about money market deposit accounts, demand accounts.

Pat: Demand accounts.

Scott: You're talking about insured accounts from the financial institutions.

Pat: They were insured. So you're gonna find them at, like, in the length, the banks...

Scott: They're three. And I'm looking at rates right now.

Pat: One would be at, like, Goldman Bank, or Synchrony, or...

Scott: Three to 3.25%.

Pat: Yeah. So that's where it wants to go. And just... So, you open...

Scott: And that way it's simple. If you need the money in two weeks, you take the money right out.

Pat: You just wire it into the checking account. And you can wire it or you could write checks on it. You can do anything you want. It's completely liquid. So, you want it on demand, it's on demand.

Scott: You go to bankrate.com and just pick one. It doesn't really matter.

Pat: Yep, yep. And it's gonna be online, which might make you a little comfortable. But I actually...I gotta tell you, last night, I had this... My wife is an accountant by education, and I said to her, "You know, this money that we're keeping at the bank," a little bit of money, I said, "It didn't matter a year ago...

Scott: That's right.

Pat: ...if the money was in savings at the bank." I said, "Right now, the bank, the credit union I belong to is paying one 10th of a percent, one 10th of a percent in their money...

Scott: The banks are really, really low.

Pat: ...in their money market. I said, "It didn't matter a year ago when the money markets were paying two-tenths of a percent." I said, "But now they're paying 3%. We should keep almost no money in the bank at all." And you know what my wife said to me? She said, "Why don't you go ahead and do that paperwork to move it."

Scott: And did you move it?

Pat: I will.

Scott: Just last night.

Pat: I will. Does that answer your question?

Robert: Okay, good. Yeah, that answered my question. And that's the answer that I had on my own, so thank you for confirming that.

Pat: All right. And where are you moving to, Robert?

Robert: Probably somewhere within 20 miles of where I'm sitting.

Pat: All right, perfect.

Robert: Because we just felt...if I can say this on your show, we felt a leading of the Lord, it was time to sell this place.

Pat: Well...

Scott: All right.

Pat: ...whatever works. Whatever works. And you're more than welcome to say that on our show.

Scott: Appreciate the call, Robert. Let's go to California and talk to Rudy. Rudy, you're with Allworth's "Money Matters."

Rudy: Hi, Scott and Pat. Thanks for taking the call. I've got a couple of general investment questions. The first one has to do with dividend-reinvestment plan versus taking the cash from a dividend. I guess if you assumed that you don't need the dividend and you just wanna reinvest for growth, you know, in years past, there were commissions, so the drip program worked out well. It did dollar-cost averaging, it was disciplined, no commissions.

Pat: Correct.

Rudy: But today, since we don't have commissions, I guess the question is, and many managers, you know, their preferences is to take the cash and then reinvest either in a market downturn or deploy it somewhere else. So I would like your thoughts on that.

Scott: Yeah, it's interesting. We had just answered a question like this a week or two prior, and so we'll expand upon it further on this call. To your point, there was a day years ago when it made sense to have dividend reinvestment plans because it didn't cost anything to have the dividends reinvested.

Pat: There was a lot of friction in the process.

Scott: Yes. Today, buying securities is free, essentially, most of the places. And the typical portfolio outside of an IRA is not ultimately optimally allocated because someone bought some securities some something years ago and added something else somewhere else, and as things have grown at different rates, well, maybe you started out being equally weighted in value and growth stocks, and then over a number period of years, growth stocks had outperformed value, suddenly, you found yourself overweighted in growth stocks. Well, you're not gonna sell your growth to buy the value and incur tax liability unless it really made sense to you. So, the benefit about having the dividends go into cash and then getting to choose where they're reinvested, in which piece of the portfolio, it helps to have the more optimally managed portfolio. If you just have 'em reinvested, you're compounding it upon a misallocated portfolio.

Pat: And you're right, 100% correct, years ago, you would do that. It was easy, and there used to be trading friction or cost associated with the reallocating the portfolio. Those days are gone. So, does that answer that question?

Rudy: Yeah, it does. And the reason I brought it up, because recently, I had sold some fund that I had bought earlier at a loss and offset it with some gains, and then I didn't realize it, but a dividend showed up at 900 bucks, and it created a wash sale because of that automatic dripping. So, you know, I sort of got out of that and I said, "You know what? Well, this is not..."

Scott: What? It's like, oh, man, what a man.

Pat: I just learned something here. I never even thought of that.

Rudy: Yeah, you know, I had a...

Pat: It only created a wash sale for that $900 for that part of the dividend.

Rudy: Correct.

Pat: It didn't wash the wholesale.

Rudy: Correct.

Pat: That's interesting.

Rudy: Correct.

Pat: I mean, I never... Because there was a delay...

Scott: You must have sold between the X dividend period, before the X dividend period, whatever that's called.

Pat: Yeah, the clear dividend and then it went X dividend. That's interesting. I never... All right. That's another reason you shouldn't do it.

Rudy: Yeah. I not only sold it, but then I went in and I changed my allocation from reinvesting back to deposit, but it still reinvested it, and then I called and said, "How did that happen?" They said, "Well, there's a record date, and at that record date..." You know, so that was a wash. But my second question has to do with...and I know I've listened to your podcast all the time, and, you know, there's...I think it's highly recommended to put money into totals market fund from time to time. So I was thinking, if I make up a number, if you have $30,000, if you put $10,000 in a small cap, $10,000 in a mid, and $10,000 in a large cap, would that be a better strategy than just putting $30,000 in a total market? Because I've never done an event...

Scott: It's basically 75% in S&P large cap.

Pat: The total market is.

Scott: Yes, 75% in large cap, 15% midcap, 10% small cap.

Pat: So you going a third, a third, a third because it is a weighted index. It's not an unweighted index, it's weighted to its market capitalization. So...

Scott: In other words, the total stock market index, which is...well, there's several thousand securities in there. Seventy percent of the value is in just those first 500, the S&P 500.

Pat: And then the other 25% is a mid and small. So you buying small, mid, and large equally, you're not mimicking the total market. Now, in saying that, now, in saying that...

Scott: It might yield a higher return over the next 20 years.

Pat: ...yes, historically, small and mid-company stocks have done better than large company stocks, but with a lot more volatility. So, depending upon your risk tolerance and your ability for, you know, some short-term pain, I could make an argument that that's a way to go as long as you stuck with that strategy throughout, regardless of what the market conditions are.

Rudy: Okay. So that's a good point. When you go to a total market fund, you're really buying more large cap. You're more heavily weighted there.

Pat: That's right, because it's a weighted index. It's weighted to market cap for those.

Rudy: Okay. Good.

Scott: Market capitalization, i.e. the value of the underlying companies.

Pat: Thank you.

Rudy: Sure. Well, thank you.

Pat: Thank you. So you're not gonna get the same... You're gonna get a lot more Microsoft and Google in there than you are in Bill Smith's trucking company of Dakota, Illinois.

Rudy: Okay. Well, I appreciate your comments and the strategy here. Well accepted. Appreciate it.

Scott: Thanks, Rudy. Appreciate it.

Pat: All right, thanks.

Rudy: Bye now.

Scott: All right, we need to take a quick break, but stick around for more of Allworth's "Money Matters."

Man: Can't get enough of Allworth's "Money matters"? Visit allworthfinancial.com/radio to listen to the "Money Matters" podcast.

Scott: Welcome back to Allworth's "Money Matters." Scott Hanson.

Pat: Pat McClain.

Scott: Hey, I think, Pat, that there are a number of people that would probably meet with a financial advisor if they had a better understanding of what their journey was gonna be like with the financial advisor. And I'm talking about an independent, credentialed, fiduciary financial advisor.

Pat: Yes.

Scott: Look, I've been in this industry ever since I got out of college, so I try to put myself in the mind of what's it like for someone in the first time they talk to an advisor, and what's it like for the first time they talk with an Allworth advisor? Because I think, like, it's probably... Like, I've talked to some psychiatrists or psychologists a few times over the years and it's always a little... They go deep, right? And it's like...

Pat: That's...

Scott: ...I have some things I'm not that proud of, and the same thing with my financial life.

Pat: I would equate it to going to a marriage counselor for the first time, because if you're in a relationship or you're married and you go to a financial advisor, both, you and your spouse are gonna reveal things about yourself. You're gonna talk about things you're not comfortable with. You'll probably talk about things you're excited about with. You go to a marriage counselor, which I've been in for tune-up a number of times... Like, the first time I went to a marriage counselor, I'm like, "What's gonna happen here? Am I gonna be the idiot? Am I the one that's gonna be, like, the jerk in the relationship?"

Scott: You didn't show up with a list of things that they needed change in her, work this out.

Pat: Exactly. Sure enough, all my fears came true. It was me. But, look, the point being is, going to a financial advisor, it's a little bit scary.

Scott: So, Pat, I would say it's not quite like that.

Pat: Because [inaudible 00:27:36]?

Scott: No. I mean, an advisor, a good advisor understands how uncomfortable it might be for somebody. And then there's all those other questions. So, we thought we'd have on one of our own financial advisors join us, Eric Chetwood. And Eric is one of our Allworth's partners in North Carolina. And, Eric, thanks for taking some time to be with us

Eric: Gentlemen, thanks for having me. Longtime listener, first-time guest.

Pat: Longtime listener.

Scott: So, Eric, how long have you been a financial advisor?

Eric: Since 2004.

Scott: Okay, 2004, and you were a partner with the firm and then you joined Allworth within the last year.

Eric: That's right.

Scott: And so, you've been around lots of different financial situations. And so, tell us what it's like for, you know, a first meeting with a financial advisor. Is it as bad as the way Pat was describing?

Eric: Yeah. Scott, I think in my experience, I mean, I've noticed that clients, they may be hesitant to meet with an advisor because maybe they've had a bad experience or they have preconceived notions about what meeting with an advisor might look like. I think they might have this idea or an experience that advisors kinda treated them kind of at that initial meeting, almost like a speed dating event where it feels awkward, it feels pushy, and they don't wanna experience that. So I get the hesitation. I know that our approach... Scott, you were talking about the importance of meeting with a fiduciary-minded advisor. Our approach is more consultative than salesy in the sense that, instead of a speed dating event, it's more like going to the doctor's office for the first question, where my first question to a prospective client is, "Hey, what brought you in today? How can I best care for you?" And then they tell me what's ailing them about their retirement. And then, just like a doctor, I'll ask them some questions, you know, take an inventory of their...instead of their medical history, their financial history, instead of their prescriptions, you know, their assets and liabilities, and then we kinda go from there.

Scott: And give me an example of...well, think of the last month or two, first-time appointments, somebody came and met with you for the first time. What were they looking for? What was their situation?

Pat: And, Eric, I'll add onto that. You said retirement. Do people come to you for things other than retirement or multiple or just, like, singular questions?

Eric: For sure, yeah. And I think that is usually the best place to start, is, "Hey, what brought you in? What were you hoping to get out of this meeting? What pressing questions are on your mind right now?" I always think that's a great way to start the meeting because usually, people will come in with something in mind about, well, I have this tax issue, or I have this employer stock, or... The most common question that I get is, "I know that I have this nest egg that I've been saving for, but I'm not sure whether or not I can pull the trigger and make the transition from the accumulation phase to the distribution phase. I've been receiving a paycheck, and now I'm gonna be living off the distributions for my nest egg. And I'm not really sure, I'm not really confident that I can do that and not run out of money." And so, a lot of times what they're looking for is the confidence to be able to enter retirement and be able to do what they wanna do when they wanna do it and not have to worry about money

So, I think any of those pressing questions that they might have is a good place to start. If they're comfortable sharing their story, I love to get to know them a little bit and just hear a summary of their life story for a little bit, and then if their questions are about retirement, I may ask them what their ideal retirement looks like, and I'll tell 'em a story. And I'll tell you all the story that I usually share with them. I ask them to imagine a crew of workmen and maybe the mid-1800s who were clearing a forest full of trees to build a road between two towns. And if you can remember the mid-1800s, the bulldozer wasn't invented yet, wasn't invented until 1904, so these guys are chopping and clearing by hand.

Scott: And I'm picturing myself in Durham where you are, because there's lots of...it's lots of trees.

Eric: Yes, lots of trees.

Scott: It's not like the Great Plains or something, right?

Eric: That's exactly right.

Scott: Lots of trees.

Eric: So, these guys are chopping trees, and they're chopping and clearing, and they're doing it by hand, and it's hard work and it's brutal work. And just imagine, they've spent weeks trying to clear this road, chopping and clearing, chopping and clearing, and the mayor of the destination town arrives in a huff yelling at them that they've bypassed the town altogether, which is obviously not good. And one of the workman looks back and notices that the road that they have been clearing is curved ever so slightly. And as you might imagine, small curves over a long distance add up to big curbs.

So tempers flare, workmen start blaming each other for making such a stupid mistake, and then suddenly, one of the wiser lumberjacks begins climbing one of the trees, and his colleagues ask in exasperated toads, they're like, "Where do you think you're going"? And he spits on the ground and he says, "Sometimes, you gotta get above the trees to see how to get where you wanna go." And I think that's relevant to this discussion because a lot of times when I talk to prospective clients, many of them are so caught up in the chopping and clearing of everyday life that they never take time to get above the trees and see where they wanna go and which route is the best to get them there. So, we talk about that. We try to help them articulate that ideal retirement and then ask them questions that can help them do that, things like the Kinder questions and other things they can...

Scott: What are the Kinder questions?

Eric: Yeah, yeah great... So, a life planner named George Kinder came up with three questions that really kinda uncover passion and priority. I'll give 'em to you real quick. The first is, if you suddenly had a billion dollars in your pocket and work is now optional, how would you spend your time? And that question, to think about that, is really helpful because it uncovers your passion. If you do something for free, chances are you're pretty passionate about it. The second question is, if you found out that you only had five years to live, how would you spend your time? That helps uncover priority, because when people are forced to number their days, then what's important changes, who's important changes, all that good stuff. The third question is, if you found out you only had 24 hours to live, what would you mourn? And so, those questions kinda uncover passion, priority, and then the responses to those questions really become the big rocks that we can plan around. And so, once we have a vision for what that ideal retirement looks like, we can help those clients quantify the variables that would get them to that ideal retirement, and then we show 'em an example of how we've helped other clients have confidence that they are on track to reach that ideal retirement by showing them a Monte Carlo simulation or financial planning tool.

Pat: But, Eric, when people will come in and they like, "Well, if I had..." Well, these things aren't really centered around money. No, at all.

Scott: Correct.

Pat: They're centered around life.

Scott: You know, what I enjoy about this conversation, I think, if you just asked random people on the street what a financial advisor does, that's probably, "Well, they invest your money to get a high return for your money." And, Eric, I know you've had people come in and you say, "Well, what brings you here today?" And they say, "I have this chunk of money. I'm trying to see what the best place. Where do you think the best place to invest right now is, Eric?" Right?

Eric: Yeah.

Scott: And you're like, "Well, let's take a step back." And you give your little story about chopping the wood through the forest. And these questions to really to figure out what it is they're trying to accomplish, because how else do you build a financial plan and an investment plan unless you know things such as when is the money gonna be needed, what's the money needed for, how much distributions are we gonna need? All those other things.

Pat: Are you charitably minded? Do you want money to go to your kids? Are you supporting any grandchildren? Right?

Eric: Mm-hmm.

Pat: And then the rest is you just plan backwards from this.

Eric: For sure, yeah. I mean, I think trying to discuss...we always tell clients trying to discuss investment strategies without first discussing the plan is like a doctor prescribing medicine without taking a medical inventory of what you've dealt with and what you're dealing. So, Pat, you're right, these are life questions, and then the reason that they're helpful is they help paint an ideal, and then you can quantify the ideal.

Pat: Do you ever have to...?

Eric: So if somebody's...

Pat: But, Eric, do you ever have to tell someone that "Your ideals are just completely unrealistic?"

Eric: Absolutely. But we try to do that...we talk about the ideals, then we quantify what it would take to get to the ideals, and then we stress-test those. And then the stress test shows them, "Hey, your nest egg can't really support these ideals, but it can support, if you think of things in terms of needs, wants and luxuries, it can support... Your nest egg can support your needs, it can support some of your wants, but all these luxuries, you know, buying a yacht and things like that, we can't really do that. That's not sustainable." And we have found that when clients can make informed decisions, then they make better decisions. And so that's why the planning process is so important before we start talking about investment strategies, because... An author that I like to use, Andy Stanley says that "Your direction, not your intention, determines your destination." So, I can wanna retire at age 30 and have a yacht in the Caribbean and things like that, but if I'm only saving $5,000 a year, I'm not taking steps in that direction, it doesn't matter how badly I want that, I've gotta make a plan and execute on that plan in order to get there.

So, it begins with a vision, and then it starts with action steps of taken inventory, of what resources do you have to make that vision a reality, and then stress-testing those resources to see whether or not they can handle high inflationary markets, you know, turbulent markets like what we've seen this year in 2022. So, all of that planning process is so important because the investment decisions are a derivative of that plan.

Pat: Makes complete...

Scott: Yeah, totally agree with you.

Pat: And, Eric, I gotta tell you, I like this process. Many of our advisors...you know, so we have... Listeners, we have, I don't know, 27 offices across. We have similar but not identical experiences in every office. So, the core values are the same, but some advisors use different words because...

Scott: Well, it's all of the same kind of thing to get you to figure out what it is that's driving you.

Pat: That's right, you know, what's the objective? So, we do appreciate the fact that you're part of the Allworth team, and we appreciate you joining the show today. So, I appreciate [crosstalk 00:39:38].

Eric: Thank you, gentlemen. Really appreciate it.

Pat: Thank you.

Scott: Thank you, Eric.

Pat: So, yes, Eric, great, great.

Scott: It's great, great. I know you sounded a little self-promotional. I think the intent here was to have people understand what a good financial advisor...

Pat: That was, yes.

Scott: But he is a good guy. He's a good guy.

Pat: He's really mellow. He has a mellow demeanor. He's intense on the inside, but he has...

Scott: No, yeah, I was gonna say, I wouldn't call him mellow, but he's highly engaging, great listener. You could just tell when he first meets somebody that he's interested in others. He's interested, is, probably.

Pat: He's intentional.

Scott: Yeah. Anyway, enough about Eric. Let's go back to calls here. Again, if you would like to be part of our program, if you're dealing with something in your financial life you'd like us to chime in on, would like our opinion on how you should be thinking about things, we would love to take your call. You could just call us and then we'll schedule a time that it's convenient for both of us, all of us, to have that conversation. And to join us, that number's 833-99-WORTH. That's 833-999-6784. And let's go to Doug. Doug, you're with Allworth's "Money Matters."

Doug: Yeah, hi. Thank you. Love your podcast, by the way.

Scott: Thank you.

Doug: And I had a question, you know, it's impossible to avoid the news and the effects being discussed of things like, you know, rising inflation, especially food and fuel, oh, my gosh, it's a gas pump in the checkout lane, and then we've got rising interest rates. And today, the Dallas Fed said, "Well, you might have a 20% retraction in real estate value." None of this, of course, helps us sleep well. And then you go out and you start to talk to people and you hear about things like skittles, charts, and stagflation, or recession, and asset classes. And it goes on and on, and here I am, a retail investor, and I have some stuff that's managed, but the go-to seems to be portfolio rebalancing. And with all these moving parts, I'm wondering, do we need to talk about something bigger or more core like a change in investment strategy?

Scott: You know, it's interesting.

Pat: I'm sorry [crosstalk 00:42:08].

Scott: Keep going.

Doug: Yeah. What would that mean for, well, people who, you know, are investment advisors like you folks and myself who's also, you know, a retail investor?

Scott: This question, this call, reminds me back, actually during the financial, crisis, right, in '09. And, well, it really brought me back to a conversation I was having with somebody who's in the industry. And this gentleman, he represented a firm that does investment management for other advisors. So, typically, smaller investment advisors, they would outsource this to this particular company. And this company had thousands of investment advisors they worked with, then...

Pat: They call 'em third-party asset management programs.

Scott: Yeah. And so, this person was telling me about all of the various kind of alternative-type solutions they had to the classical, let's own stocks for the long term and let's use bonds for the more conservative part of the portfolio.

Pat: Modern portfolio theory.

Scott: Right. And, of course, the reality is, if you looked 5, 10, I mean, 15 years out, they would've been much better off. Those clients would've been much better served had they stuck with the strategy they had going into the financial crisis. Well, because, so when you think about what options do we have with our money? Well, we can own things that are gonna produce something for us, and that would be in the... We can own companies, pieces of companies through stocks, we can own real estate, we can own the local dry cleaner. We can own things that are gonna produce some sort of return, or we can lend money to somebody. We can lend the government by buying government bonds, we can lend the company by buying their bonds.

Pat: We can lend money to the bank.

Scott: Yeah, essentially, just keep our cash...

Pat: In savings, but you're lending it to the bank and the bank is turning around and lending it to someone else.

Scott: Or we can speculate. I don't know what other options there really are. Right?

Doug: Yeah.

Scott: And what ends up happening in cycles like this, there's an old saying on Wall Street, "When the ducks quack, feed them." And so, we start seeing some of these sorta solutions that are supposedly going to provide great returns while providing tremendous downside protection. But the reality is, unless we suddenly think that we're no longer gonna have any growth going forward of any sort of companies, whether it's a publicly traded company, or a real estate, or a local dry cleaner, if we think those are all gone, then it's not...maybe the U.S. dollar is not even the place to store our wealth anymore, because it would be a reset of some sort.

Pat: Well, it's kinda viewed a little bit differently. I think that it's really difficult to be an investor right now because modern portfolio theory did not work.

Scott: Which is essentially at its core, markets are efficient, short periods of times, they are inefficient. It could be inefficient, but eventually, things resort back to their mean, they're back to their norms, and the index funds are built up exactly on the premise of modern price.

Pat: Right. And then, this risk tolerance where I mix bonds with stocks, it's the worst year for this stock-bond mix that we've seen in over 90 years, right?

Doug: Yeah. Yeah, in fact, I've seen these horizontal bar charts where I should've been in commodities for the last 18 months.

Pat: That's right. That's right. Should you have been in commodities for the last 20 years?

Doug: Well, probably not.

Scott: Okay. So, what...? I mean, looking at what just happened is irrelevant. Unless we have the ability to suddenly say, if you can tell me what's gonna perform best the next 18 months, then surely, we could recommend which asset class to put your money in the next 18 months. But the reality is nobody knows.

Pat: No one is discounting that this is not difficult. And, by the way, it could get a lot worse than it is today. And the markets could actually...it doesn't have to actually go down to make it worse, it just needs to extend the same way before it recovers, and then the emotions will get even stronger, which is, "Why am I wasting my time here? This thing not only lost money. Once it lost money, it just stayed the same forever for another year or a year and a half after that. Why am I doing this?" Right?

Doug: Yeah, that's when we start stuffing our mattress with our cash instead of leaving it invested.

Pat: That's right.

Scott: Well, if you go back to the downturn after dot-com bubble, that was 30 months.

Pat: So...

Scott: March of 2000, we hit a high, we continued to have declines, things didn't bottom out until, I believe it was November of 2002.

Pat: The bonds did okay during that time period.

Scott: The bonds did okay during that time period.

Pat: Right?

Doug: Yeah.

Pat: So, it was propping it up. So, what we're gonna end up seeing is the bonds could get a little bit worse. Nobody knows. In fact, the fed doesn't know, right? The problem is right now, is you're seeing that you can't go a day without picking up the paper without...you see mass layoffs everywhere. And these are the ones that are hitting the paper. The stuff that's happening in the mortgage of the building industry hasn't even hit in the paper. Severances are being given. People aren't on unemployment, they're not showing up in the numbers yet. They may not show up for three months, four months, five months, six months. So, the problem, the fed's looking at this and they're measuring everything and they're like, "Whoa." And we saw a couple of weeks ago with that one Thursday where it just popped, the markets were up 5% across the board.

Scott: Yeah, crazy.

Pat: Crazy. And the reason being is, because inflation seems to have come down a little bit. It could turn. I'll tell you, this market could stay like this for another 18 months or it could turn on a dime in six months. It could turn on a dime.

Doug: Yes. So, how do asset class mix fit into this? Do you just ship those kinda things around it for safety or sacrificed growth or...?

Scott: Well...

Pat: Well, you normally would... Like, if stocks fell 25%, bonds sell 10%, then you would actually sell bonds and buy more stocks.

Scott: To your question there, Doug, it really kinda comes down to, and what we just had a conversation with Eric about, it's building a portfolio based upon what you're trying to accomplish with your finances in an area that's gonna give you the highest probability of success. Nothing's going to be totally sure-proof unless you had everything in short-term treasuries. But then you've got your own...you have other issues like inflation and whatnot. And so, it's really about building a portfolio designed to... This is our philosophy. This is what...and I think most fiduciary advisors are... So, it's about building a portfolio that's designed to weather the storms, knowing that they're gonna come, knowing market cycles are gonna come and go. But we can't predict the timing of those things. I have no idea when commodities are gonna have a great 18-month run and when they're gonna have a lousy 18 months. Those things are just not possible for anyone to predict, and if you try to predict 'em, the problem is, if you're wrong and you find yourself on the wrong side of the trade, it can be completely detrimental to retirement. And if you look back at the people who called the financial crisis, well, they've also...the same people have had horrible bets than other ones. They're not the same people that keep calling.

Pat: Yeah, they're the people that have called nine out of the last, too.

Scott: Yeah, they've gotten luckier.

Pat: Right? So, but it's okay to own 5% of the portfolio and commodities if that's what you want, but I wouldn't bet the farm on any one asset class.

Scott: No. And have a good... And part of it, there's some tools you can look at that you can see at least historically how asset classes have worked together to structure things to give you the maximum amount of return with the lowest amount of risk. What's happened historically obviously doesn't guarantee the future, but it gives you something to build off from there, and then it's again, probability of outcome. So, appreciate the call, Doug. Hope that was helpful.

Hey, wanna let everyone know that this coming Saturday, Pat and myself, are gonna be in the studio all morning from 9:00 a.m. to noon Pacific Time, taking your calls. So, if you think about that, three hours, we're gonna be in the studio, Saturday, September 3rd from 9:00 a.m. to noon, Pacific Time, or in the afternoon if you're on the East Coast, for those three hours. And simply call 833-999-6784, or you can send us an email at questions@moneymatters.com. It's been great being with you. We'll see you next week. This has been Allworth's "Money Matters."

Man: This program has been brought to you by Allworth Financial, a registered investment advisory firm. Any ideas presented during this program are not intended to provide specific financial advice. You should consult your own financial advisor, tax consultant, or estate planning attorney to conduct your own due diligence.

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