How To Pay Yourself When You Retire, And When To Use A Portfolio Stress Test

Mike Lester

by Mike Lester

Oct 26, 2020

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Transcript

Announcer (00:02):

Welcome to the Retirement Wealth podcast. Our goal is to help those retired or soon-to-be-retired investors make more informed financial decisions and live an enjoyable retirement. Our host, Mike Lester, is the founder and CEO of Talon Wealth Management. Mike is an investment advisor representative of Retirement Wealth Advisors, Inc., an SEC-registered investment advisor. Thanks for joining us today, and let’s get started.

Kristen Charles (00:32):

Thank you so much for joining us this weekend. My name’s Kristen Charles, alongside Mike each week, talking about key things that affect your financial life when you’re retired or 59-and-a-half or older, and making sure that you are not following that “hang in there” advice when it comes to Wall Street and the rest of your retirement.

Kristen Charles (00:56):

Today, specifically, we will address stress-testing your nest egg, working out paying yourself when you stop working because that’s kind of terrifying to a lot of folks. I mean, we’re used to that paycheck. When we go in Monday through Friday, our entire working career, when we stop, hello, it’s time to pay yourself. Mike’ll talked to you about how that works, and find out if it’s time to walk away from volatility. That, and more, coming up.

Kristen Charles (01:20):

A survey by New York Federal Reserve finds that one in three Americans expect their financial well-being to decline over the next year. Now, obviously, that is not where we want to be in the last few years before we retire, so what’s the deal with this information? Does that mean we keep working longer than we planned, or what?

Mike Lester (01:39):

Well, have you ever noticed how things seem to be just kind of obvious? For somebody to come out and write a report right now or have a story that says, “Hey, listen, I think that your financial well-being might not be as good as it was three, four or five months ago,” I mean, it’s kind of obvious, isn’t it?

Kristen Charles (01:54):

Well, duh. Nobody’s really is, right?

Mike Lester (01:56):

Yeah, duh. So, I don’t know how much I’d put into just stating the obvious. I think what people are really looking for, at least the people that we talk to week after week, Kristen, are individuals that… they don’t consider themselves do-it-yourselfers when it comes to investments. They’re typically people that have been working for 20, 30, 40 years, they’re either retired or very close to it, and they’re looking for some guidance. And saying the obvious just isn’t guidance.

Mike Lester (02:21):

So, what I’d say is, “Is there a chance you’ll have to work longer than you planned?” Well, it’s going to depend on how tight that budget was, how much money you had set aside for retirement. For some, it’s you’re going to need an income because chances are a lot of people have taken a pretty significant hit. Markets have bounced back. I think things are coming back faster than anticipated by markets maybe early on.

Mike Lester (02:41):

There were a lot of financial advisors out there… frankly, Kristen, there are still financial advisors out there that are, week after week, telling people to get out of the market, sort of doom and gloom and, “I’ll save you by getting you out of the market.” Meanwhile, the market keeps creeping up. We do have volatility, and so that can be a little more stressful, but to just get out…

Mike Lester (03:01):

I’ve been saying this for a while now. I don’t know how you dump this much stimulus on our economy, and you don’t push markets higher. Now, it doesn’t mean that they’re higher for healthier reasons. Doesn’t mean that the economy is fundamentally extremely strong; it just means that if you give people money, they’re probably going to go out and spend it, and it’s going to make the numbers look good, I think for a period of time.

Mike Lester (03:24):

So, when people ask us for advice or ask us for guidance, we’ve been telling people since March, sort of late March, I guess early April, that we feel, with the stimulus, that the markets are going to rebound nicely, and so you would want to participate in that. Again, don’t have a crystal ball. That’s just how we felt.

Mike Lester (03:44):

So, in this case, that’s worked out well for our clients, the ones that have participated in the gains. And I think if you had been out of markets over that period of time or if you got scared when things were really, really low and you sold out, you’re probably really frustrated right now. You’re staring at markets and they’re going up and then they’re going up, and then bad couple of days, but then they go back up higher. And you’re just looking for a plan. And so, the ability to get some guidance at this time, I think is going to be pretty important.

Mike Lester (04:11):

There is going to be a time, in my opinion, when you’re going to want to get out of these markets because with all the money they’re throwing at it, yes, I think it’ll stimulate it, but they still haven’t told us how they’re going to pay for it, Kristen. That’s the problem. So, great. We spent trillions and trillions. Maybe it turns out to be 5 trillion, 6 trillion. What if it’s 9 trillion? There’s a number. But eventually, that bill comes due. And that’s a time, and certainly before that time, because markets are forward-looking, but we just want to be very, very aware of everything that’s going on and plan accordingly.

Mike Lester (04:43):

And then, of course, each investor has their own risk tolerance. So, let’s find out just how much volatility you’re willing to have in your portfolio. Let’s take a look at active management.

Kristen Charles (04:52):

You know what? I bet you that people would have a different answer if you had asked them months ago, compared to right now. That would be my guess.

Mike Lester (05:00):

Different answer about what? The-

Kristen Charles (05:01):

How much volatility they’d be comfortable with. It’s different when things have been really good for a long time. Now, that we’ve had the volatility, I don’t know, my comfort level has changed.

Mike Lester (05:10):

Yeah. Well, it’s changed for a lot of people. We tend to be a little near-sighted. And if things are just, on average, doing pretty well, you’ll find individuals that are less likely to be worried about the allocation in their portfolios. Kristen, that’s something that I worry about every single day because portfolios can be good, can be bad. But if markets are going up and you’ve got a portfolio, let’s say it was averaging 8, 9% per year, and you felt pretty good about it, but if you had tweaked it a little bit, you could have been averaging the same return with half the risk or maybe even a higher return, those kinds of things are important to us.

Mike Lester (05:43):

But let’s just take it back to, is our retirement going to be longer… or excuse me, is it going to take longer to retire than we had initially planned based on what’s going on right now, the way things are, with all this money? I do think, in the short term, my opinion is we would want to participate in markets because I think they go up. Then later on, I can’t tell you exactly when, but we’re watching this week after week after week, and we’re willing to make changes to our portfolios quickly. If things start to look bad, our clients are retired or very close to it. So, that’s when we’re going to want to move them to safer investment options. But I think it’s a little premature right now.

Mike Lester (06:18):

Bottom line: it starts with an analysis of your current portfolio, understanding what it’s likely to do moving forward, whether things are good or bad, Kristen, because I’ll be the first one to admit, I don’t have a crystal ball, but I can build smarter portfolios based on historical data.

Kristen Charles (06:32):

Professor Jeremy Siegel of the Wharton School of Business was recently asked on CNBC if the effects of the Coronavirus would have a long-lasting change on the way we invest, at least his perspective on this. He pointed out something interesting: how low interest rates and possible inflation might affect bonds.

Jeremy Siegel  (06:53):

I think the 40-year bull market in bonds, which is one of the longest bull markets in world history, is over. Moderate inflation is not bad for the stock market. It is terrible for the bond market, but not bad for the stock market.

Kristen Charles (07:08):

God, he is… just his voice. I can’t even almost focus on what he’s saying. I’m sure he’s a smart guy.

Mike Lester (07:12):

I was focused on what he was saying, Kristen.

Kristen Charles (07:14):

So, let’s talk about this with bonds. I mean, what role do they really play in a portfolio? Because I know that when people are seeking “safety,” traditionally they have gone to bonds.

Mike Lester (07:24):

Well, it’s a nice audio clip. But, again, we’re stating the obvious. I’ll be honest, I didn’t hear the whole interview, Kristen.

Kristen Charles (07:31):

I told you, it’s distracting.

Mike Lester (07:32):

What I heard is what he just said, and so I don’t want to speak out of line. But to say, “Hey, listen, I think the bond bull market is over,” is kind of an obvious statement. If you look at the reason we had a 40-year bull market in bonds, it’s because if you go back to the late ’70s, early ’80s and interest rates were super, super high, right?

Kristen Charles (07:53):

Mm-hmm (affirmative).

Mike Lester (07:55):

Those of us who can remember the Carter administration and what happened there. Interest rates could really only go in one direction. They were coming down for that 40-year period of time, which is helpful for bonds. If interest rates are coming down, it helps bond values, but if interest rates are going up, it’s the opposite, it hurts bond values. So, for him to say, “Now, that interest rates are essentially at all-time lows, that I think the bull market’s over,” it’s kind of an obvious statement because if interest rates go up, which is pretty much the only direction that they can go, obviously, if you study this sort of thing, it hurts bonds. That’s a little obvious.

Mike Lester (08:28):

Now, my concern, and I want to just apply it to more real-life, common-sense investing. And, again, Kristen, that’s really where our clients, individuals that have 401(k)s and IRAs and trust accounts, or maybe they sold a business and they’re trying to find a way to invest the money to make money moving forward. You have to look at allocation. So, so many times, people will build an investment allocation based on somebody checking boxes off of a form. And then they find out that they’re a moderate investor. And the next thing you know, they’ve got a portion of their portfolio in bonds and a portion of their portfolio in stocks. And sometimes it’s not specific stocks and individual bonds; sometimes it’s bond funds or stock funds. And it’s very, very hard to track, particularly if this is in a 401(k) or something like that, Kristen. Pretty much your only option, a lot of times, is going to be the funds, mutual funds, that are in those accounts, maybe some ETFs.

Mike Lester (09:19):

But here’s the thing. If you don’t understand your allocation, and we can be… I mean, I’m pretty confident as well. I agree with him that bonds aren’t likely to do well moving forward. Even if I’m a moderate investor, and let’s say I had half my money in stocks and half my money in bonds, I would want to be looking at alternatives. I don’t think I’d want half my money in something that’s not likely to do well because I’m pretty darn certain that interest rates are going to be going up moving forward. That’s not a crazy expectation, particularly with all of the stimulus that’s going to have to be paid for in some way.

Mike Lester (09:50):

So, what I would say is it’s okay to continue to be a moderate investor and it’s okay to have “a diversified portfolio,” where you’re a percentage stocks and a percentage something else, but you should probably understand all of your options when it comes to fixed investment options because, first of all, bonds aren’t the only option. There are some bank investments that are liquid and probably more attractive than bonds right now, but, at the same time, if you have an actively managed portfolio where somebody isn’t just sticking you in bonds and leaving you there, there are opportunities inside of a managed portfolio that creates scenarios you wouldn’t have in what we call a “hang in there portfolio.” So, if you’re trading a bond portfolio, as opposed to just hanging in on a bond portfolio, you’re not carrying as much risk as a hang-in-there portfolio with interest rates. So, this is important.

Mike Lester (10:40):

And we just want to recommend to people, don’t just take for granted that your portfolio is well-diversified. Take some time to understand it, but if you’re not able to do that on your own, we can certainly do that for you and just, in detail, help you understand what’s likely to happen moving forward with everything that’s going on.

Kristen Charles (10:58):

Coming up, we will talk about stress-testing your nest egg in general, and making sure that you can pay yourself a paycheck when you stop working. How does that work? Find out next with Mike Lester on “Guarding Your Nest Egg.”

Kristen Charles (11:20):

(singing)

Kristen Charles (11:20):

Oh, we’ve all got some glory days. We flash back to 35 years ago. Bruce Springsteen released this one, “Glory Days,” one of seven different hits that came off the Born in the U.S.A. album. It’s one of his favorite songs to do in concert. I’ve never seen him perform live. I hear he is a phenomenal show to go to. I want to check that out. But when I hear “Glory Days,” it reminds me of something I thought of the other day. When you’re in the good times, the glory days, you don’t realize it. You realize it many years later, and you can’t appreciate it in that moment. Have you ever thought about that?

Mike Lester (11:54):

I have thought about it. And I’ve always thought of myself, I guess, as kind of fortunate in this business that we’re in, in the sense that I’ve always worked with individuals that are retired or very close to it. And so, Kristen, I’m 46 now, but in my early 20s, I was spending a lot of time with people in their 60s and 70s, sometimes 80s. So, even in my early 20s, I may have had more financial knowledge just through experiences, through work and college and everything like that that they may have had because they had a different career path, but just the real-life experience stuff. And a lot of it was glory-day stuff, and some of it was a pretty terrible stuff. But I’ve been just so fortunate and blessed over time to…

Mike Lester (12:43):

I remember, I’ve told you this, Kristen, in my early 20s, I was meeting a lot of people that were World War II-era retirees. I met a gentleman that was literally in Schindler’s camp.

Kristen Charles (12:56):

Wow. I didn’t hear that story before. Man.

Mike Lester (12:58):

Yeah. And I met another gentleman that was shot down over France and was in the prison camps. I mean, our listeners know because they had parents who went through that. But I think about my kids. They just have no real, I think, appreciation for what has happened and I guess what could happen. And so, I was just very, very, very fortunate to have those experiences early on.

Mike Lester (13:24):

And I think it’s caused me to stop and realize, I want to make sure I don’t miss out on stuff. I think we all get to a point where we look back and it’s the glory days, but as those glory days are happening with my kids and family and everything, I don’t want it to go unnoticed, which is I guess why we do what we do. We-

Kristen Charles (13:44):

That’s right.

Mike Lester (13:45):

Spending time together, yeah.

Kristen Charles (13:45):

That’s why you spend the time together and you enjoy these moments while you have them, so that you don’t have to look back and only remember that they were glory-days moments. Treat every day that way. I mean, I think that that’s one thing that this current environment, if you will, has brought out in me, is to be thankful and embrace the real moments and take a step back from technology and the craziness and the he said, she said.

Mike Lester (14:08):

It’s brought out some chin whiskers on me. I’ve never seen that.

Kristen Charles (14:11):

Yeah. Don’t look at my roots. There’s a reason we’re not on TV with this. I can promise you that.

Mike Lester (14:16):

Well, Katie says, “Hey, you’ve never had a beard before. You want to try to grow one.” I’m like, “I’m pretty sure I can’t.” I’m just one of those guys that doesn’t really… at best, it’d be really patchy. Probably the worst beard you’ve ever seen. But figure, well, Corona’s, my opportunity to give it a shot, you know?

Kristen Charles (14:34):

That’s right, that’s right. As we grow older and look back at these glory days, doctors often suggest us to come in for a stress test to make sure our heart is still in good shape and to check everything out. And likewise, Mike, you’ve talked here on the show before about how we should stress-test our portfolio, our financial life. How do you go about doing that?

Mike Lester (14:53):

Well, it’s really, really boring, Kristen.

Kristen Charles (14:57):

Oh good.

Mike Lester (14:58):

What we do is we would have a conversation with somebody on the phone or they would come into the office. We’d tell them a little bit about what we do and how we do it. And then they share their statements with us from their retirement plan. So, we don’t need account numbers or anything like that. We just need to know how your portfolio… so, portfolio would be things like savings accounts, retirement accounts, trust accounts, joint accounts, your stuff, how that stuff’s invested. And with that information, we can do an analysis for you and predict what your portfolio is likely to do moving forward.

Mike Lester (15:33):

So, do I know what the stock market’s going to do moving forward? The answer’s no. We can come up with averages and stuff like that, but what we can do is take a look at your portfolio. We can say, “Well, hey, listen, if markets do better moving forward than they have historically, this is where you’d wind up.” By the way, that can’t happen. Markets can’t always be better. “But then also, if markets consistently do worse than they have in the past, this is where you’d wind up,” which also can’t happen.

Mike Lester (15:59):

But if you can identify those outliers in a portfolio, “Here’s your best-case scenario, and here’s your worst-case scenario.” People never get the best of the worst case. They always get somewhere in between those two. And as long as the in-between is an acceptable outcome, then we have a predictable future in the portfolio. And I find that’s really what people ultimately are looking for, “How do I invest my money so that I can maintain my standard of living throughout retirement, adjusted for inflation and taxes? Because if I can do that, I effectively have income off of my portfolio for the rest of my life. And whether markets are really good or really bad or somewhere in between, I have a plan for that.”

Kristen Charles (16:36):

I saw a recent study by the Employee Benefit Research Institute, which I’m always intrigued by the names of these places and what they do.

Mike Lester (16:42):

That’s a big name.

Kristen Charles (16:43):

But three quarters of those surveyed said their top priority for retirement is to have a set amount of income for life. I think that’s a pretty good assumption, and probably even more than three quarters of people feel that way. But Mike, where do you, as a financial advisor, start in helping people figure out how to pay themselves a paycheck, in essence, when they stop working and are no longer receiving a weekly, 15th/31st monthly paycheck from work?

Mike Lester (17:12):

Yeah. Well, I mean, if you pay attention to marketing, like I do, you’ll notice in retirement planning, this income for life idea is… it’s all over the place. You hear about it all the time. Now, if you break it down, or internet or maybe a radio show and people are talking about it, usually they’re talking about annuities, right?

Kristen Charles (17:28):

Okay.

Mike Lester (17:28):

An annuity for some people is like a four-letter word, like, “Oh no, I heard I should never, ever have an annuity.” And you know what? I tend to… never’s a strong word, okay?

Kristen Charles (17:38):

Yes.

Mike Lester (17:38):

But in our financial planning process, we find it difficult to come up with a reason why somebody should have one, right?

Kristen Charles (17:45):

Mm-hmm (affirmative).

Mike Lester (17:45):

It’s not that we can’t do it; it’s just difficult. My job, as a fiduciary and a fee-based advisor, is to take a look at all of the investment options that are available and find ways for people to get the return that they need in their portfolio, maintain liquidity in their portfolio, and then, certainly, income for life. And if I can accomplish income for life without locking my money up on some financial product, that’s the way I want to do it, but I have to have the information to be able to make that happen. And that’s what we’re doing in our meetings.

Mike Lester (18:15):

When people come into the office, we’re going to sit down with you. We’re going to help you put together a financial plan. You can implement it on your own, if you like. You could take it to your current financial advisor, if you like. Or if you’d like for us to do it for you, that’s fine too. Just ask us.

Kristen Charles (18:27):

And stay with us because coming up next, we will find out if it’s time for you to walk away from some of this market volatility or not on “Guarding Your Nest Egg” with Mike Lester of Talon Wealth Management.

Kristen Charles (18:48):

(singing)

Kristen Charles (18:48):

Thank you so much for joining us this weekend on the radio for “Guarding Your Nest Egg” with Mike Lester of Talon Wealth Management. Stevie Nicks is the sole credited writer on this 1983 hit, “Stand Back.” But she later said the song really belongs to Prince because he wrote and recorded these synthesizer parts that make it so memorable. I love that she’s giving credit where credit is due. A lot of artists don’t do that.

Kristen Charles (19:23):

Stevie Nicks: so well-known in the music industry. And Mike, I think about friends of mine, guy friends of mine especially would always say, “I don’t know how to explain it. If she couldn’t sing, I wouldn’t say this, but Stevie Nicks is hot because of her voice.” Would you agree with that?

Mike Lester (19:40):

She’s definitely hot because of her voice.

Kristen Charles (19:43):

Yeah.

Mike Lester (19:44):

I mean, yeah.

Kristen Charles (19:44):

I would say that holds true about many folks.

Mike Lester (19:47):

I mean, I don’t know how you don’t like her voice.

Kristen Charles (19:47):

I mean, Steven Tyler, if it wasn’t for his voice, he’s just kind of a odd-looking guy, right?

Mike Lester (19:53):

You know what? God forbid, Stevie Nicks or Steven Tyler are listening to us right now. I’m sure they could care less what we think about-

Kristen Charles (20:01):

Well, of course, they don’t care. But we’re real people, and this is what real people think.

Mike Lester (20:05):

All right. We’re talking about real stuff.

Kristen Charles (20:07):

That’s right, that’s right.

Mike Lester (20:08):

All right. [crosstalk 00:20:08] yeah.

Kristen Charles (20:09):

You know why? It is because I keep hearing so much about this economy, how weak it is overall, yada, yada, yada. That’s all anybody’s talking about. However, stocks have rallied from their low point in March. Morgan Stanley’s Andrew Harmstone tells CNBC that he believes people who’ve been jumping back into the market are actually making a big mistake though.

Andrew Harmstone (20:31):

The fear of missing out, or another term for that traditionally has been greed, is definitely playing a role in the current market. And it’s actually not a good sign. And it’s a sign of the phase-one period, where people still think that things are going to go back to normal quite quickly, whereas, in fact, quite a bit of damage has been done. And basically, right now, the next phase we think is the real cost of the damage has been done will become visible, and the markets will respond accordingly.

Kristen Charles (21:02):

It sounds like he’s expecting another correction, or maybe even worse. Mike, how seriously should we take what Andrew is saying here?

Mike Lester (21:09):

Well, again, have you ever noticed when you turn on the television, they’ll find somebody like Andrew to sort of give you the doom and gloom, and then they’ll find somebody else to tell you how great everything’s going to be, and then at the end of the news broadcast, you just find yourself even more confused?

Kristen Charles (21:24):

Yes.

Mike Lester (21:26):

One person’s saying that it’s going to be terrible, and the other person’s saying it’s going to be great. They can’t both be right, Kristen. So, again, these are very smart people. I appreciate that they’re giving their two cents. The reality is they don’t know. I don’t know. Nobody has a crystal ball. We all know that.

Mike Lester (21:42):

So, Kristen, if I came on the radio every weekend and I told everybody that markets are going to crash and things are going to be terrible and I just kept doing it and doing it and doing it-

Kristen Charles (21:53):

Well, first of all, anybody would want to listen to that.

Mike Lester (21:54):

… eventually, one day, I’ll be right.

Kristen Charles (21:55):

Also that.

Mike Lester (21:56):

[crosstalk 00:21:56] I wouldn’t be any fun to listen to. By the way, some people do that. But the point is eventually, I’ll be right. You ever notice they don’t tell you when it’s going to happen?

Kristen Charles (22:04):

Mm-hmm (affirmative).

Mike Lester (22:05):

They just tell you it’s going to happen. So, they don’t tell you when it’s going to be great, and they don’t tell you when it’s going to be terrible; they just tell you it’s going to be terrible or it’s going to be great. And so, it’s the win that matters most to anybody who’s an investor. And telling me that we’re not going to get back to normal quickly, well, I know that already. Telling me that the real cost of all this is going to be a ton of money, well, I know that already. That’s not a surprise. And okay, fine.

Mike Lester (22:30):

So, eventually, he’ll be right in that statement. That’s not very helpful when it comes to investment planning because if you listened to him, you would just be on the sidelines probably for a really, really long period of time because currently, market’s have been pretty good here lately. I mean, we bounced off of lows that got down to mid-18,000s. And now, we’re doing very, very well. The S&P 500’s back higher than it’s been since early March. That sort of a thing. This is all good stuff. If you had just taken your money out of the market and buried your head in the sand back on the lows and missed out on this run-up, you’d be kind of upset.

Mike Lester (23:07):

We want to take just a closer look at investing and portfolios. And we want to be willing to make choices and decisions, and not just tell people to hang in there and say, “Hey, listen, for right now, what do things actually look like?” Well, they’re going to dump a bunch of money in our economy. And people are going to get checks. And they’re talking about sending more and more and more. And that probably looks pretty good. So far, at least to me, it doesn’t look like we’re going to get a big…

Mike Lester (23:33):

Anything could happen here, Kristen, but so far as right now, it doesn’t look like there’s going to be a big shake-up in the White House come November, depending on who you talk to. So, that’s probably good for markets if there isn’t a big shake-up there. I don’t know. People are ready and willing, and they want to go back to work. Unfortunately, Corona is… or COVID-19… This whole prophecy of all these terrible, terrible, terrible things were going to happen didn’t come true. Hopefully, that’s because they shut down the country and we’ve we’ve flattened the curve, so to speak. But all of that being said, it looks like things are going to turn around pretty quickly. Quickly than they had initially anticipated. And also, all the stimulus is going to help. I mean you see the protests on TV, right?

Kristen Charles (24:23):

You can’t miss those.

Mike Lester (24:24):

You can’t miss it. So, what does all that mean. And I’m going to say in the short term for markets. Well, in my opinion, they probably do pretty well. Do I think he’s eventually right? Yeah. But I don’t think I want a relationship with my portfolio where I’m just sitting on the sidelines, waiting for things to get terrible. I mean, I could do that, I guess, but I’m not making anything while I’m doing that.

Mike Lester (24:45):

So, it comes down to having a plan, and working with an advisor that’s willing to be helpful. Not one that just says, “Well, hey, listen, we’re just going to sit out of the market until I say it’s time to get back in.” Meanwhile, you’re just watching all these gains pass you by. A relationship with an advisor that has a vested interest in you doing well. We recommend that you work with fee-based advisors. There’s plenty of fee-based advisors out there. The business has changed

Kristen Charles (25:09):

And that’s because they benefit when you benefit. So, they kind of have skin in the game. It makes sense, once you finally explained to me the benefit of working with a fee-based advisor.

Mike Lester (25:17):

Sure. Yeah. I mean, if our portfolios take a big hit, our income takes a big hit.

Kristen Charles (25:23):

So do you, yeah.

Mike Lester (25:23):

So, again, we want our clients to do well. And it’s not just because we’re nice people. It’s also for a selfish reason. It helps us if the portfolios do well.

Mike Lester (25:32):

So, again, just going back to the whole fear of missing out thing, just be very, very careful with the information that you’re getting. Be very, very careful with the 24-hour news cycle. Realize it’s their job to sell advertising. And if they can’t keep your eyes glued to the television or to the radio, they’re not going to sell advertising. Take a very close look at your portfolio and what you’re looking to accomplish, not just in the next 6 months, but the next 10 years, 20 years, 30 years, and come up with a plan for that.

Mike Lester (26:00):

Do I think markets are going to get bad at some point? I do. And I think it’s going to be because we don’t have a plan to spend… well, a plan to pay for all the spending that we got. But I think we’ve got a little time too. And do you really want to be on the sideline? I don’t think so. Not right now.

Kristen Charles (26:13):

So, in Washington, they’re debating another round of stimulus spending. The price tag for one proposal is $3 trillion. Now, Fortune Magazine is warning that within the next decade, the government will likely need to impose monumental tax increases to pay for that spending. I could have written this article for Fortune Magazine. I mean, we are spending so much money. We already had a huge deficit. But the bottom line is we want to know what that means for those who are hoping to be able to enjoy retirement within the next decade with all of this debt looming.

Mike Lester (26:47):

Yeah. So, I mean, just think about the numbers. I mean, we’ve never done this kind of spending. And our listeners don’t have to listen to our radio show to know that. I could just turn on the TV.

Mike Lester (26:55):

There’s craziness. Politics is getting involved, which is a shame. I know our listeners aren’t surprised by that. I’m not surprised by it. But sitting around and saying to ourselves, “Hey, gee whiz, why does it have to be that way?” Well, it just is that way. And they are just going to fight over it. And the people who hate the current administration are going to hate the current administration, no matter what happens. It’s just all there is to it. People who love the current administration, they’re going to love the current administration, for the most part.

Mike Lester (27:24):

It’s everybody in between that is really going to move the needle moving forward. And that’s why we just got to tune a lot of this stuff out, and realize that when Nancy Pelosi throws a $3-trillion package in front of government, knowing full well there’s no way in the world anybody in their right mind would pass that. Does it irritate me? Sure.

Kristen Charles (27:45):

Of course.

Mike Lester (27:46):

However, that’s, I guess, the games that they play. And they do what they do. And my job is to look out for my clients, and just look at the facts. Okay. Do they eventually get this passed? Yeah. I mean, they do. I mean, they’re going to kick it around and they’re going to yell at each other and they’re going to act like everybody else is being a jerk. But eventually, it gets passed and more money gets pumped into the economy and more money gets spent. And frankly, that is good for markets.

Mike Lester (28:11):

The other thing is which industries are going to get hurt? Well, obviously airlines are getting beat up.

Kristen Charles (28:16):

Travel/tourism in general.

Mike Lester (28:17):

Travel/tourism. I mean, Hertz just declared Chapter 11. We could have anticipated that. Nobody’s renting cars right now, Kristen. So, we’re going to see a lot of that. Be careful with your portfolios. There are going to be companies that are going to go under.

Mike Lester (28:32):

Yes, I realize there’s some opportunities in there. Kristen, we typically don’t deal in speculation because we’re working with individuals that are retired or very close to it. They all want the highest rate of return that they can get in their portfolio; they’re just not willing to take a lot of risks to get those returns. So, we’re building actively-managed portfolios. Yeah, we’re looking for opportunities, but we’re also willing to make moves in those portfolios to protect money. I don’t like the idea of a hang-in-there approach.

Mike Lester (28:58):

We are fee-based, where our clients pay us a fee to manage their portfolio. And bottom line: we need to be able to show value. We need to be able to show someone how to get a higher average rate of return than they’re currently doing, net of any fee that they would pay us, otherwise it makes no sense to pay us a fee to administer a portfolio. They might as well stay right where they’re at and do what they’re currently doing. But if we could, not only show them a higher average rate of return, but also reduce the amount of risk they’re taking to get those returns, that’s valuable too because our clients, again, are retired or very close to it. And volatility is not their friend. They need dependable, consistent income streams moving forward. And they need to know their money is going to last the rest of their lives.

Announcer (29:53):

Any comments regarding safe and secure investments and guaranteed income streams refer only to fixed insurance products. They do not refer in any way to securities or investment advisory products. Fixed insurance and annuity product guarantees are subject to the claims paying ability of the issuing company and are not offered by Retirement Wealth Advisors.

Kristen Charles (30:08):

Mike, I read a pretty interesting story in the Motley Fool. One of their financial writers talked about money lessons that she learned from visiting with her mother and her mother’s friends in their assisted living community. Now, I will tell you, when I have visited my Aunt Kitty, she always passes on some knowledge. Sometimes it is financial. The one I’ve gotten from her is that “Kristen, don’t worry about anything because worry is interest paid on money you never even spent.” So, that’s something I’ve gotten from her. So, I could see how this could happen.

Mike Lester (30:40):

That’s a good one. The one I liked a lot, my father-in-law passed, but he was older and he used to tell me, “Don’t sweat the small stuff. It’s all small stuff.”

Kristen Charles (30:52):

That’s true.

Mike Lester (30:53):

Yeah.

Kristen Charles (30:53):

See these words of wisdom-

Mike Lester (30:55):

Just some context, yeah.

Kristen Charles (30:56):

… come from folks that are older than us, at any point in life. But you focus solely on helping people near and in retirement. Do you ever pick up any nuggets of wisdom from the clients that you work with?

Mike Lester (31:07):

I think so. We talked earlier in the program, just about 20-something years ago when I got started in this business, a lot of the people that I was sitting down with were World War II veterans. I mean, they’d been through all of that, and they were in Europe and in prison camps and all kinds of stuff. And so, there’s just some… it’s not necessarily financial nuggets, but life knowledge there. No matter how bad you think you have it, I mean, when you’re sitting in the living room with somebody who spent, I forget how many years, in Schindler’s camp, it’s just kind of… I mean, that really puts things in context. Or the stuff that grandparents went through.

Mike Lester (31:42):

And then just financial knowledge. Things have changed. People didn’t use to invest like they invest now. Most of the people that we’ll sit down with have been investing over time. That wasn’t typical 30, 40 years ago. People were going to rely on pensions primarily. Then things changed. And now, pensions went away and people are supposed to rely on 401(k)s or 403(b)s or TSP accounts. And instead of being able to depend… and I don’t want to go down the road of how some pension programs haven’t worked out for people, but let’s just assume that they work out, and people could depend on that check for the rest of their lives and get the watch, you know?

Kristen Charles (32:16):

Mm-hmm (affirmative).

Mike Lester (32:16):

That had the-

Kristen Charles (32:17):

The gold watch. That doesn’t happen anymore.

Mike Lester (32:19):

The gold watch with the… People don’t get… I don’t think they get gold watches anymore, Kristen.

Kristen Charles (32:23):

I’ve not heard of that.

Mike Lester (32:23):

But they don’t. They also, a lot of times, don’t get pension. So, the things have changed. I guess, that’s good for us. I mean, why would you need a investment advisor if you didn’t have investments and your guaranteed check just rolled in every single month? But it’s changed. And so, just words of wisdom, I think are, first of all, understanding that things have changed and they will continue to change. And there is no cookie-cutter approach to investing. I don’t care what people tell you. There is no silver bullet. There is nothing that just fixes every worry you could possibly have.

Kristen Charles (32:57):

I mean, if that were real, we’d all stay home and relax.

Mike Lester (33:00):

Well, we’d all stay home and relax. We wouldn’t have a whole lot of anything to worry about. But I guess the word of wisdom would be, the one constant is change. Everybody’s heard that. Things will change. What’s going on now. And I know we’ve talked about it a little bit, this program. I’m not talking about Corona or COVID-19 anymore for the rest of the program because everybody has already heard it. I mean, we’re done with that, right?

Kristen Charles (33:23):

Yes.

Mike Lester (33:23):

Weren’t you just looking at some… you were telling me before the show about this news program and-

Kristen Charles (33:27):

Oh yeah.

Mike Lester (33:28):

… that it was the number-one thing.

Kristen Charles (33:29):

Yeah. ABC News

Mike Lester (33:29):

And now, we’re all so sick of it, we’re not going to watch the news anymore. I just want to go watch something more-

Kristen Charles (33:33):

Jeopardy or Wheel of Fortune or Family Feud is doing better because we just want to escape.

Mike Lester (33:38):

Yeah. Because people don’t want to have to hear about it anymore, right? So, everyone’s going to talk about it. But what we will talk about are our investments and what we could do. So, the constant is change. Things will change from where they are right now. People are going to ask me every single week when they come to the office, “What do I think about what’s going to happen moving forward?”

Kristen Charles (33:53):

Of course.

Mike Lester (33:53):

And I could say, “The constant is change,” But we still need to come up with a plan for that change. As things change, we need to adapt. We need to overcome. We can’t just hang in there. You can’t just assume that what was a good investment in the past is going to be good moving forward. That’s one of my pet peeves. An advisor, and I’m not picking on anybody in particular, but an advisor, a lot of times will recommend an investment based on past performance, right?

Kristen Charles (34:17):

Mm-hmm (affirmative).

Mike Lester (34:17):

And they’ll throw in this clause, “Well, past performance is an indicative of future results,” but they’re still selling it based on that like, “You should invest in this because in the past 10 years, it’s averaged 10% per year.” That’s not very helpful. Well, I wish you would’ve told me about it 10 years ago. That would have been great. Not now, after it already did it. So, we have to continually adapt. And we have to have financial plans that are very specific for our needs and what we’re looking to accomplish. So, that’s why I sound like a broken record every week.

Mike Lester (34:46):

We do talk about fun stuff, Kristen, but, at the end of the day, it comes down to taking the time to sit down, understand your portfolio, what it’s likely to do moving forward, and coming up with a good plan, coming up with a smart plan, and just finding a way to maintain liquidity, active management, and income to help you maintain your current standard of living, adjusted for inflation and taxes moving forward. Once you have that and you understand more about your plan, whether you’re a financial expert or not, if somebody will take the time to explain to you how it works, you’ll be more confident. In my experience, it’s that confidence that helps people sleep at night.

Kristen Charles (35:25):

There’s an old expression among investors, “sell in May and go away.” I mean, it’s a half-serious suggestion, that the stock market declines in the months from May to October and then rises again from November to April. I mean, overall, I think that that has been fairlyish consistent. But, Mike, with everything going on right now, is that something we should pay attention to, or is this just more financial fluff?

Mike Lester (35:49):

Well, again, I have to preface everything with, I don’t know and I don’t have a crystal ball.

Kristen Charles (35:55):

All right, show’s over. Thanks for listening, everybody.

Mike Lester (35:57):

Show’s over. However, we want to be smart investors. And so, there was a comment by the Fed chair, I believe it was here, a couple of weeks ago. And I thought it was powerful. And maybe I thought it was powerful just because I agree with it. But the statement was essentially, “I would not bet against the American economy. I would not bet against us.”

Kristen Charles (36:18):

I love a statement like that.

Mike Lester (36:20):

Right. I love it. And that resonates with me, first of all, like I said, because that’s how I feel, but also because I wouldn’t. And so, things like “sell in May, go away,” these are sort of generic terms based on history, and if only you could time markets, right?

Kristen Charles (36:35):

Right.

Mike Lester (36:35):

Which we can’t. So, do you really want to bet, particularly now that we’re getting more and more information, particularly now that we’re getting closer to a vaccine, particularly now that there’s going to be… should be, I should say, another 3 trillion in stimulus, turns out Corona maybe isn’t as bad, thank goodness, than we initially feared? Do you really want to bet against that right now in May, because there’s a lot going on, and I think there’s a lot of room to run? And I’m not saying it’s for healthy reasons.

Mike Lester (37:06):

I am afraid of this market down the road, but if we just tell all of our clients, “Yeah, you know what? I think things might get bad at some point in the future. So, here’s what we’re going to do. We’re just going to put you in cash and we’ll let you know when you should go back in.” And if this market goes up over 30,000 in the Dow again, do you think they’re really going to want to be our clients at that point in time? I mean, that’s just bad advice.

Mike Lester (37:27):

And I guess if we told people to get out and markets crashed, we’d look like heroes. But, again, it’s our job to give clients advice based on the information we have at hand in the moment. And we have a relationship with our clients. We understand that information could change at any given day.

Mike Lester (37:42):

And that being said, right now, I wouldn’t bet against this. I would want a financial plan that I understand. I would want a portfolio that I understand. And I would want to participate, but I would also want to be working with an advisor that’s willing, if needed, if things changed, to snatch me right back out of the market and protect my money.

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Exposure to ideas and financial vehicles discussed should not be considered investment advice or recommendation to buy or sell any financial vehicle. This information should not be considered tax or legal advice. Individuals should consult with professionals specializing in the fields of tax, legal, accounting or investments, regarding the applicability of this information to their situation. Past performance is not a guarantee of future results. Investments make fluctuate and, when redeemed, may be worth more or less than originally invested.

Mike Lester

Mike Lester

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