Midyear Portfolio Checkup

by Mike Lester

Aug 2, 2021

Listen on Spotify Listen on iTunes


Speaker 1 (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 (00:31):

Hard to believe we’re already halfway through 2021. So it might be a good time to evaluate where you stand with a year portfolio checkup. But most of us don’t really know where to start. Morningstar says an investment policy statement is key. Is this something that you provide your clients?

Mike Lester (00:51):

So there’s different ways to look at that. Our investment policy statement would be, basically our version of that would be in our portfolio. So, when I get the opportunity to sit down with individuals that aren’t currently working with us and show them what we do and how we do it, I get the opportunity to dig into what active management looks like, what our portfolios have done historically, what the advantages and disadvantages are of, do you need a financial advisor? Do you not need a financial advisor? Is that advisor providing value or are they not providing value? All of these things. And so, I think we can look at a policy statement in that way. But at the same time, what phase are you in? Are you in the accumulation phase? Right? And so that is important.

Mike Lester (01:29):

So, the accumulation phase is essentially when you’re working, making contributions to your retirement plan, maybe for you, that’s a 401k, that’s your corporation, and then watching that money grow over time. So, that’s accumulation. Accumulation is very different than when you make a transition into retirement. You’re now in the preservation and distribution phase. So, two different phases there. The way your investments should look should be very, very different from accumulation phase to distribution and preservation phase, the underlying investments should look different.

Mike Lester (02:02):

Another thing is selections. So that goes into the difference. So, when you’re accumulating assets, you’re probably a more aggressive investor, you’re younger, you’re letting it build over time. Market volatility isn’t as big of a factor because you’re looking at long-term growth and your income is coming from your employer. When you get into preservation and distribution, it’s very different and probably not as aggressively invested. I’m more concerned about a good rate of return on my money, but I want to reduce or minimize the amount of risk because a big hit in retirement, again, if I pick a number, if I started with $1 million in retirement, and I lost 50% of that, now I’m down to $500,000. It’s a lot harder to earn $50,000 a year on $500,000 than it is to earn $50,000 a year on $1 million.

Kristen (02:46):


Mike Lester (02:46):

Right? If that’s your number. So you got to be careful there. And also just monitoring and changing it. So, that’s another way in my opinion of talking about active management. So whether you’re a conservative investor, a moderate investor or an aggressive investor, you never want to just be that all the time, that’s hanging in there, right? You want to be able to take it, things are going to change. Most people’s retirements are going to be 30 years or more. It’s not always going to be the same. We’re going to have good times, we’re going to have bad times. Navigating that is really where we come in. Most of our clients don’t want to navigate it themselves so they’ve hired us to do that for them. And as long as we’re providing value through higher average rates of return, net of fees, less risk, they’re going to continue to be clients. If we can’t do that for them, Kristen, frankly, they just wouldn’t work with us anymore. So, that’s what active management looks like. That’s what financial planning looks like and working with a fiduciary.

Kristen (03:35):

Now is not the time to put off taking the next step for your financial future. You can connect any time at guardingyournestegg.com. Well, if you felt left behind, when you hear about all the activity with things like game stop, meme stocks and Bitcoin, don’t. Because Vanguard says that most retirement savers are sticking to vanilla retirement plans and they’re benefiting from it. Only 10% of their account holders made a trade last year yet the average account was up 20%. The late, Jack Bogle, who founded Vanguard, talked about this as one of his top 10 investing lessons.

Jack Bogle (04:12):

Set the right course, and then don’t let all these superficial, emotional, momentary things get in your way. Another way of putting it is, don’t do something, just stand there.

Kristen (04:25):

Mike, your thoughts on, just standing there, is that a good idea right now?

Mike Lester (04:31):

Well, let’s hanging in there. And I think stay on there same as hanging in there. And he mentioned, choose a course, right? And don’t make a change. Well, the course changes over time. Your course, if you’re in your 20s or 30s or 40s is very different than the course you should be on with your investments if you’re 50 or 60 or 70. It’s just different. You could be in an accumulation phase where you’re making contributions to retirement plans. You’re looking for long-term growth and volatility in markets or market crashes don’t affect your personal retirement. They don’t affect your lifestyle because your income is coming from employment. The cost of your healthcare and your insurance is coming from your employer. You’re pretty much covered.

Mike Lester (05:10):

So, when volatility doesn’t affect your day-to-day life, because you have an income from employment, it’s not as big of a deal. But when you work with people that are retired or close to it, and volatility has a direct impact on the income that you’re going to receive for the rest of your life, or it has a direct impact on your ability to maintain your standard of living for the rest of your life, adjusted for things like inflation and taxes, just ignoring it and trusting it to eventually get better at some point down the road in my experience doesn’t work very well. So there is a difference between hang in there, if you’re in your 20s or 30s or 40s versus what we do, which is active management for people in their 50s and 60s and 70s because it’s a very, very different course.

Mike Lester (05:52):

And he’s talking about things like target date funds. Obviously, he grew an amazing business with Vanguard. But Vanguard has a very, very specific business model. It’s invest in our fund or group of funds, they’re diversified and they’re low cost. But it really is, hang in there, unless you have an advisor telling you when you should be in one particular fund and then back out of it because the likelihood of a market crash is high, you’re going to get the ups and downs in the markets. So, my job as a fiduciary, first of all, we work for our clients. It’s our job to put our client’s needs ahead of our own. But secondly, our clients are looking for active management of their portfolio. And they’re wondering, quite frankly, people that are listening to the radio show and then coming in and visiting us to kick the tires, they’re wondering if there’s any advantage to active management.

Mike Lester (06:41):

I mean, what’s the difference between what you’re currently doing in your 401k, or with your current advisor, or your TSP or whatever your retirement account is, what’s the difference between that and what we do? Well, we talk about a little bit on the radio, but it’s kind of hard for us to make it specific to an individual without sitting down and doing a financial plan where we can actually take a look at the specific investments that you’re in right now, we can project what those investments are likely to do moving forward, we can also project how much risk you’re taking to get those returns. And then we can go out and compare it to, well, what if your retirement plan? What if your savings? What if the money you’ve set aside for retirement was actively managed versus hang in there, would there be a benefit?

Mike Lester (07:24):

Well, it depends, Kristen, if we can show somebody how to get a higher average rate of return, net of fees that they would pay us to manage their portfolio, then we’re providing value. But our clients are typically, like I said, we always say, retired or close to it. So, if we can not only show them a higher average rate of return, but we can also reduce the amount of risk and volatility in the portfolio to get those returns, that’s a big value add for our clients because that’s peace of mind. Right?

Mike Lester (07:48):

Knowing you can rely on the money you’ve set aside for retirement to be there throughout retirement, to provide you with the income stream you need, the liquidity you need, the returns that you need to be able to maintain your standard of living, adjusted for inflation, which is obviously big in the news right now, also, taxes big in the news right now, that’s active management. And so, that’s where I disagree. You can’t just pick a course and stay on it forever. That course changes over time. And that’s why we invite people to come sit down with us and just take advantage of the complete financial plan thing.

Speaker 1 (08:21):

If you would like to have a comprehensive financial plan and an analysis of your current portfolio, go ahead and visit our website at retirement.tips/plan, and we can do that for you complimentary. Thanks so much for joining us on today’s show. Be sure to subscribe to our podcast, visit our website at retirement.tips for more free retirement planning and investment resources. Thanks for tuning into today’s show and we’ll see you next time on the Retirement Wealth podcast. 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 may fluctuate, and when redeemed may be worth more or less than originally invested.

Mike Lester

Comments are closed.

Midyear Portfolio Checkup