21 min

Chapter 5 – "Investing‪"‬ Control Your Retirement Destiny

    • Investing

In this episode, podcast host and author of “Control Your Retirement Destiny” covers Chapter 5 of the 2nd edition of the book titled, “Investing.”

If you want to learn even more than what there is time to cover in the podcast series, you can find the book “Control Your Retirement Destiny” on Amazon.

Or, if you are looking for a customized plan for your retirement, visit us at sensiblemoney.com to see how we can help.

 

Chapter 5 – Podcast Script

Hi, this is Dana Anspach. I’m the founder and CEO of Sensible Money, a fee-only financial planning firm. I’m also the author of "Control Your Retirement Destiny," a book that covers all the decisions you need to make as you plan for a transition into retirement.

The book has outstanding 5-stars reviews on Amazon. If you like what you hear today, go to Amazon and search for "Control Your Retirement Destiny." Or, if you are looking for a customized plan, visit sensiblemoney.com to see how we can help.

In this podcast, I’ll be covering the material in Chapter 5 on investing. We’ll continue the case study of Wally and Sally, and look at how the plan we created for them in Chapters 2 through 4 becomes the blueprint for how they should invest.

Let’s get started.

—————

When I meet someone new, almost without fail, the conversation goes something like this.

They ask, “What do you do for a living?”

“I’m a financial advisor,” I say, or “I own and run a financial planning firm.”

From there the typical reply is along the lines of,

“Oh, what do you think of the markets right now? What should I be buying? What are your thoughts on Apple stock? What will happen if so and so wins the next election? What should I be investing in?”

“You should be investing in a good financial planner,” is what goes through my mind.

Investing is like a prescription. It’s what you do after you’ve gone through a thorough exam and diagnosis.

This where I think most of the financial services industry gets it wrong.

Take a thirty-year-old as an example. They are investing in their 401k. They are nervous about losing money. They either fill out an online risk questionnaire or meet with a financial advisor - and this is supposedly the exam part. They express their concern about losing money if the market goes down. Then the diagnosis part. The computer model or advisor recommends they invest in a balanced fund that maintains an allocation of about 60% stocks and 40% bonds.

This is not a terrible recommendation - but to me - it seems like a recommendation made for all the wrong reasons.

At age 30, under normal circumstances, the earliest you can withdraw from your 401k is age 59 1/2 - about thirty years in the future. You would think the primary goal would be the investment mix that maximizes the potential for return over a thirty-year time horizon. Yet, almost the entire financial services industry focuses instead on minimizing the downside risk, or volatility, that you might experience in any one year.

Why? It makes no sense to me.

Why would I structure my investments to reduce short term volatility for an account I’m not going to touch for thirty years?

Contrast this with someone who is age 65 and about to retire. One popular rule of thumb says take 100 minus your age and that is what you should have in bonds. I’ve also heard a version of this rule that says take 110 minus your age. Following this type of rule, you come out with a 65 - 75% allocation to stocks and a 25-35% allocation to bonds. In many cases, it is the same recommendation made to the thirty-year-old. Is this recommendation aligned to your goals? It might be. But in many cases it still doesn’t add up.

For example, suppose in your plan you are drawing out of a taxable brokerage account first - then your IRA when you reach age 70, then your spouse’s IRA, and he or she is five years younger than you. Suppose you also each have a Roth IRA, but you don’t plan on tou

In this episode, podcast host and author of “Control Your Retirement Destiny” covers Chapter 5 of the 2nd edition of the book titled, “Investing.”

If you want to learn even more than what there is time to cover in the podcast series, you can find the book “Control Your Retirement Destiny” on Amazon.

Or, if you are looking for a customized plan for your retirement, visit us at sensiblemoney.com to see how we can help.

 

Chapter 5 – Podcast Script

Hi, this is Dana Anspach. I’m the founder and CEO of Sensible Money, a fee-only financial planning firm. I’m also the author of "Control Your Retirement Destiny," a book that covers all the decisions you need to make as you plan for a transition into retirement.

The book has outstanding 5-stars reviews on Amazon. If you like what you hear today, go to Amazon and search for "Control Your Retirement Destiny." Or, if you are looking for a customized plan, visit sensiblemoney.com to see how we can help.

In this podcast, I’ll be covering the material in Chapter 5 on investing. We’ll continue the case study of Wally and Sally, and look at how the plan we created for them in Chapters 2 through 4 becomes the blueprint for how they should invest.

Let’s get started.

—————

When I meet someone new, almost without fail, the conversation goes something like this.

They ask, “What do you do for a living?”

“I’m a financial advisor,” I say, or “I own and run a financial planning firm.”

From there the typical reply is along the lines of,

“Oh, what do you think of the markets right now? What should I be buying? What are your thoughts on Apple stock? What will happen if so and so wins the next election? What should I be investing in?”

“You should be investing in a good financial planner,” is what goes through my mind.

Investing is like a prescription. It’s what you do after you’ve gone through a thorough exam and diagnosis.

This where I think most of the financial services industry gets it wrong.

Take a thirty-year-old as an example. They are investing in their 401k. They are nervous about losing money. They either fill out an online risk questionnaire or meet with a financial advisor - and this is supposedly the exam part. They express their concern about losing money if the market goes down. Then the diagnosis part. The computer model or advisor recommends they invest in a balanced fund that maintains an allocation of about 60% stocks and 40% bonds.

This is not a terrible recommendation - but to me - it seems like a recommendation made for all the wrong reasons.

At age 30, under normal circumstances, the earliest you can withdraw from your 401k is age 59 1/2 - about thirty years in the future. You would think the primary goal would be the investment mix that maximizes the potential for return over a thirty-year time horizon. Yet, almost the entire financial services industry focuses instead on minimizing the downside risk, or volatility, that you might experience in any one year.

Why? It makes no sense to me.

Why would I structure my investments to reduce short term volatility for an account I’m not going to touch for thirty years?

Contrast this with someone who is age 65 and about to retire. One popular rule of thumb says take 100 minus your age and that is what you should have in bonds. I’ve also heard a version of this rule that says take 110 minus your age. Following this type of rule, you come out with a 65 - 75% allocation to stocks and a 25-35% allocation to bonds. In many cases, it is the same recommendation made to the thirty-year-old. Is this recommendation aligned to your goals? It might be. But in many cases it still doesn’t add up.

For example, suppose in your plan you are drawing out of a taxable brokerage account first - then your IRA when you reach age 70, then your spouse’s IRA, and he or she is five years younger than you. Suppose you also each have a Roth IRA, but you don’t plan on tou

21 min