Alternative To Fixed Income - Asset Allocation

Um Welcome to Finishing Well, brought to you by CardinalGuide.com with certified financial planner Hans Scheil, best-selling author and financial planner, helping families finish well for over 40 years. On Finishing Well, we'll examine both biblical and practical knowledge to assist families in finishing well, including discussions on managing Social Security, Medicare, IRAs, long-term care, life insurance, investments, and taxes.

Now, let's get started with Finishing Well. Welcome to finishing well with Certified Financial Planner Hans Schaile and I got a mouthful for you. Yeah. Alternative to fixed income asset allocation.

So I've got my A's in there. I've gone out.

So yeah. Yeah, I think you're going to absolutely be amazed. At what you're going to see. Delineated today in ways of Uh creating income That's safe and a way to go, and a way that you. Aren't necessarily not receiving big gains as the market makes big gains, but by the same token, totally protected where there's almost sort of a no-lose strategy.

And when you think about that kind of strategy, if you're looking at the Bible early in Genesis, Joseph. Heard the Pharaoh's dream of this time that was going to be seven years of plenty and then seven years of famine. And he had great wisdom that God gave him in order to be a good steward of the country of Egypt. And when you think about it, he stored up the grain for that seven years as a percentage of what the people were. A growing And as a result, interestingly, that was a no-lose strategy.

In other words, it wasn't based on the markets or anybody else's. He just had it stored there.

So essentially, Egypt was not going to starve. But as it turned out, as all the other markets went in the ditch and the famine hit, because they had the grain and because they had the assets. Not only was his Discernment and his strategy benefiting Egypt and certainly his own family. But it benefited all the countries around him. Wouldn't you love to have that kind of discernment?

Wouldn't you love to have that kind of blessing? And I think today's show, when you hear about this asset allocation, Um, you'll learn. I know I did. Hans? Yeah.

So I'm just thinking the title kind of hit me. It is a bit of a mouthful. I think I'm writing my titles now. for people to actually read them. on a screen because it's a title of the video Yeah.

because it certainly doesn't come off the mouth very well. Yeah, and what I what I'm going to tell you, alternative to fixed income. Asset allocation.

So I mean, that's a mouthful, and it's just trying to be as truthful about what we're talking about.

So This fixed indexed annuity that we're talking about today. is an alternative to fixed income. And with fixed income, what we're talking about They're basically bonds. in a portfolio. When you Um invest your money and when you come to us we're going to come up with an allocation.

based upon your risk profile and just how much risk you're wanting or willing to accept. And, you know, if somebody's 30 years old. We might put uh 80 to 90 percent of their investments He had equities, and then we're going to put the other 10 to 20% in fixed income. Bonds. And if somebody is 65 years old, A lot of times we're putting 60%.

in the f you know in the equities And we're putting 40% in fixed income just because they simply have a lower risk tolerance. They're retired or they're getting ready to retire and Um They don't want their portfolio to be as risky. And so That's what we're doing most of the time. What we're talking about today is using this fixed income annuity to as an alternative So bonds.

Okay, it it is it is the safe money. And so what I'm going to try to do is just walk you through how this thing works.

Okay. Yeah, absolutely. And so, again, for the people like me who aren't familiar with some of those terms. Yeah. So when you when you say Uh Equities, those essentially are stocks.

That is stock. Yeah, the stocks.

So people in the stock market and then bonds Are kind of like when we were a kid, you know, you'd buy U.S. savings bonds and so you Bonds are where you're actually investing money that has a fixed Payback, right? Correct.

Okay. And then at the end. of a bond, they give you the whole money that you put in. Um you have to take it.

So as an example. you put $10,000 in a bond. Yeah, it pays interest of Four percent. And so each quarter you're going to get Four percent. which is going to be Oh, about a hundred bucks.

You're gonna get a check each quarter for a hundred bucks. for the life of the bond, and let's say it's 10 years.

So you get a hundred bucks a quarter. Yeah. Ten years. And then at the end of the ten years, you get your $10,000 back.

Okay. I mean it's that simple. It's a known amount.

Now if you sell the thing during It's uh ten years. you know, year four, year five. You decide Look, I don't want this bond anymore. I need the $10,000. It may be worth more than $10,000.

It may be worth less than $10,000. And what drives that is what interest is done, s risk raising. have done since you bought it. But it's a, you know, the word fixed, meaning that it's already how much you're going to gain. on this thing is already fixed.

Uh on a barn. Yeah. as I said earlier, that a typical retiree Asset allocation is $6040. I mean some of the people that we manage their money for are going to be in eighty twenty. They want to be more risky.

They want to have more of their money in stocks. and less of it in bonds. is the bonds don't typically do that well. Unless we're in down markets, the bonds all of a sudden look pretty good when the stock market goes backwards. Um that's what you have them for.

So if it moderates the return. Does that make sense? Absolutely. I just wanted to make sure everybody was on that page. Yeah.

So what this is, is You put an amount of money. I mean, we're going to use in the example we used $200,000. But you can put as little as $20,000. in one of these um Um fixed indexed annuities. Um But in the example that we have in the video, we use $200,000.

And so you buy the annuity. And it's a 10-year annuity, meaning that Um the surrender charge schedule. is going to be over with. in ten years.

So you buy it now in 2025. And the annuity Here's going to have a surrender charge if you took all the money out. Um the fourth 2035. you're going to pay a penalty. That way the insurance company as some relative assurance that the money's going to stay with them for At least 10 years.

Now many people put their money in these things and they just leave it there till they die.

So many, many years past 10 years.

So you don't have to pull it out in 10 years. It's just that you could pull it out in 10 year. Damn. Um So why would you want to give or turn over $200,000? to an insurance company.

Um and leave it there for 10 years.

Well, this is obviously long-term money. This is money you're not going to need to access.

Now I want to keep in mind that the particular one we're talking about has penalty-free withdrawals. Ian The first Each year, so you could take 10% of the value of the annuity out each year. Then you pay no penalty.

So you could even set up an income with these things. or if you had some something come up and you just needed up to 10% of the money without paying a penalty. putting this two hundred thousand annuity in the fourth year, for instance, you could pull out a little more than forty thousand dollars Oh, excuse me, twenty thousand dollars. Um you could pull out Plus the accumulated interest so it would be a little more than twenty thousand dollars so it it has some liquidity But why would you want to put it there? And it's for the return.

for the interest rate and it's going to be better than bonds typically. And so The way your interest is calculated, you get interest once a year. He has that it runs whatever the S P 500 does. over the next year.

So if you bought one of these today, in September. And it got issued and let's just say we're going to use an October 1st date.

So From october first of twenty twenty five, till october first of twenty twenty six, They're going to measure the S P 500. over that year. Yeah. If it goes up, which hopefully it does, Um Let's say that the S P gains Um 20%. Let's say it was just a knock-em out year.

Yeah. If you You would think you're going to get 20%, but you're going to have a cap. of 9.5% because So instead of getting a 20% rate of return, the whole thing, you have a cap on this product of 9.5%. And you say, well, that doesn't sound very good. Mm-hmm.

I'm only getting 9.5% when the insurance company earned. Um 20%.

Well They didn't exactly earn 20%, but let's just leave it at that. Let's talk about if we had a year where the S P 500 went down 20%.

So, and in that situation, from October 1st to October 1st. You're going to lose nothing.

So The worst that can happen to you for year to year is a zero percent return.

So What it means is over the time of the annuity from October 1 to October 1 every year You're going to earn what the SP 500 does up to 9.5%.

So, if it, you know, like I said, if it earns more, you're going to get 9.5%. If it earns if it goes negative for a year, The insurance company is just out that. Um you're going to get credit, zero percent credit. Does that make sense, Robbie? Yeah, absolutely.

You're not going to lose money on it. But You know, where can you go right now and get an interest rate of 9.5%? Like you can't. You know, as the SP does do super well, you're still, you know, really kind of hitting it out of the park at nine and a half percent because where are you going to go get that without any risk? Right?

But by the same token if if it if it just does mediocre and does three, four, five percent, you still get the three, four, five percent as if your money was in the stock market. If the stock market got eight percent, you get the same thing as if your money was in the stock market. But if it bottoms out, There's no bottom. And therein lies the beauty of the. you know, from my standpoint, because I'm in that age group and I understand like, man, because you're not in a position to make it back if you take some big, huge loss right now.

Um Oh, right. Yes. You know what a lot of people, once they start to understand this, they say, well, How does the insurance company do that? I mean, they're paying you the upside. Sure, they're limiting it the very high upside, but They're paying you the upside, but they're not taking back the downside.

Pian.

Well for starters The stock market historically is going to go up. More years Then it goes down or goes backwards.

Okay. But it's still often enough. that it's what most people worry about. In their portfolio, when they have money invested in stocks and bonds, and they're They're just all of a sudden we have a year like two thousand and eight. where it goes big time backwards.

and people lose a bunch of their life savings.

So that pushes a lot of people to C D's. leaving money in cash at interest rates or a lot of it. Um puts them into bonds. in things where that's not going to happen to them. This would be a great time, by the way, to point out that this show is being brought to you by Cardinal Guide.

CardinalGuide.com. And so, if you go to CardinalGuide.com, you're going to see the seven worries tabs. And one of those worries, obviously, is income for a lot of us. It's a big worry. And so, you know, rather than worry, here we've got some information to help you do that.

And at that seven worry tab, again, income, you're going to find a video along this same lines of alternative to fixed income asset allocation, which again has a beautiful board and a lot of examples, a chart to show you how all this works out. It's really cool. A lot of information there at cardinalguy.com along these lines and many lines because. There too, you'll find Hans' book, The Complete Cardinal Guide to Planning for Living in Retirement. as well of course is the famous contact.

Hans and Tom Page. Where you can get that one-on-one advice. Again, all brought to you by Cardinal Guide, CardinalGuide.com. We'll be right back with a whole lot more alternative to fixed income asset allocation. I'll be right back.

Investment advisory services offered through Brookstrone Capital Management LLC, abbreviated BCM. a registered investment advisor. BCM and Cardinal Advisors are independent of each other. Insurance products and services are not offered through BCM, but are offered and sold through individually licensed and appointed agents. Cardinal Advisors is not affiliated with or endorsed by the Social Security Administration or any other government agency.

Well, welcome back to Finishing Well with Certified Financial Planner Hans Scheil. And today's show. Alternative to fixed income asset allocation.

And so, all that is to say.

Well, you know, we're gonna allocate our assets w when when we're trying to figure out our money in retirement. We're just gonna asset we're gonna uh ass we're going to allocate certain amounts to riskier things and some to less risky things, right? Isn't that the idea, Hans? It is.

So Why would somebody buy this type of thing? First of all, we're not going to do it with all of your money. We're going to recommend that you do this possibly with part of your money. And the part of your money that you're going to put in here is the part That you Don't have invested in equities. It's typically going to be the sum of the amount that you have invested in fixed income.

And you're going to do this because you're seeking a better return than you're getting on your bonds. Yeah. that that better return is going to be a maximum of 9.5%. Um And a minimum. of zero.

In other words, you can't lose anything once interest is credited. It's guaranteed too. under the zero percent guarantee. It's measuring the S P 500 growth. Year to year.

It's called an annual point to point. Um And so We use this, you know, in an example that we gave if we had a million-dollar portfolio. 60% of it was in equities. or six hundred thousand dollars and we had Fixed income. 40%.

So you got 40% of your million dollar portfolio or 400 grand in bonds. A lot of people are just looking at these things and they say, why do I have these? You know, well, you have them. to protect yourself and protect your money. Yes, the market.

Uh you know, market downturn. Yeah, it can take years to earn one of those back. And so you have this mixture and a sixty forty mix is a lot what we use for people around retirement. in their 60s and Actually, it's probably going to flip when people get up in their 70s and 80s where we're going to get to 40% equities. and 60% bonds Um So in the suggestion that we made just in this example is that we would take half of the fixed income.

Half of the 400,000. Yeah. leave half of it in fixed income and put 200,000 Or 20% of the total. in something like this. And like we've been talking about.

And so you're going to get the upside of the market. with a cap on it. and you're going to have none of the downside of the market. um where you're going to lose money when you have bad years.

So my question, you know, is some listening. Trying to fathom. is why would you leave any of the money in bonds? I mean, don't they have the same kind of Structure in other words, you can't just reach out and grab the money, it's not all that liquid either. Um so why would you leave the money there if Unless it I guess if the market really did go bad, at least bonds are still making some income.

Well, if the market really went bad, Typically, they're going to lower interest rates, the Fed is. And Just to try to spike on the economy. And when you have lowering interest rates, bonds actually Um Grow in value.

Okay, they go the opposite direction.

So Um You know, the the I mean, there's a reason that 40% of the money is sitting in bonds. to begin with, and I'm showing you a new idea.

So I'm not taking the new idea. But it's not new to 'em. These things have been around for a long time, but it's just So You know, it's just To a degree when I'm making a suggestion I'm not going to go in and grab all of the money. I mean, I just.

So so I'm I'm making a suggestion of taking half of the money. Right, I get it. In other words. over here is this hedge against everything going completely out of w Kilter. And over here, we have, if things still continue to be pretty good, this is going to be a great investment.

And so it's a little. I guess just a little hedge on. The original idea. That's exactly it. I mean, you don't want to put all your eggs in one basket.

That's why we've got sixty percent in stocks. We got 40% in bonds. And now we're going to take the 40% in bonds. and put 20% in a fixed income Fixed indexed annuity, and we're going to leave 20% in the bonds that they're in. And if we sat here and had this conversation long enough and you were sitting with me, we're going to put the whole 400 grand in the fixed.

indexed annuity i mean I've done that with some people. I just don't want to start there. Right, I get it. I understand. Um and I might even use Two different strategies.

I mean, we I might go to Omega. with the two hundred thousand and then still put the 200,000 in this, because I'm always looking for ways to diversify. and to get our risk So that you know, if something bad happens to equities, We want something good to happen. in another area, okay, to balance it. Exactly.

Ov you know, here's their source of income as their at this point in their life and it's fixed, right? And so these things become critical. And like anything. These things Have a downside. Everything has pluses and minuses.

And so I just want to go over those before we run out of time here. Number one, at least if you do business with me and us here at Cardinal, This must be part of a larger plan.

So we're not going to just sell you an annuity. and just take money that's sitting in the bank or in investments and just roll it over into this. and say here you go. We're going to do some level of financial planning. And we're going to be able to justify to ourselves, to you, and to any regulators that We offered this to you as part of a larger plan that it's accomplishing something.

that without it we would be lacking.

Okay. Yeah. The second thing is there's surrender charges. I mentioned them in the beginning. They start out in the first couple of years at 10%.

So you bought this thing. And then a year from now. You told me, uh look, I I don't I don't want this anymore. I want people who send me my money. The insurance company is going to take 10% of it away from me.

So you you don't want to stick money in here that you're not prepared to leave in here for quite a while. I mean, they dwindled down over the 10 years and the last year they're 2%. And as I mentioned, you can also Take 10%. out in a penalty-free withdrawal. than any year.

Okay. Just know that is it's got some liquidity. But there's surrender charges if you try to get all the money too quick.

So that's a that's a downside to this. Um And then just what's tied in with that one is liquidity. Those bonds you know, if you had those bonds in a portfolio that I was managing, We could you know, we could sell them and there'd be some small fees in selling them and turn 'em into cash. very quickly and easily, and there would be no surrender penalty.

So they're you know, equities, bonds in a managed portfolio are fairly liquid. in the sense that they can be sold and turned into cash. Annuities can't. Annuities are going to be tying your money up for a period of time. That's another reason why we're only recommending half of it.

And then The fourth thing is that the cap rate could be lower in the future.

So that nine and a half percent Cap. on your crediting of interest over a year. That could be lower. depending upon Some performance and volatility in the market, and that sort of thing.

So that's not guaranteed. It also could be higher.

Okay. Right.

Well, I didn't know that.

So These are just another tool that we have. to offer people Protection against market losses. Which A lot of seniors just they're in fear of and and and rightly so. And so Um People that come into us, we're helping them, giving them advice in all seven worries in all seven areas. Um And a lot of them They want to make sure that they live to 85, 90 years old, that they're not going to run out of money.

Yeah. We have a lot of tools to make sure that that doesn't happen, and this is one of them. There you go.

Well, this is a good time to remind you that this show is brought to you by Cardinal Guide, CardinalGuide.com. And if you go to CardinalGuide.com, you're going to see seven worries tabs, which are actually the chapters of Hans's book, The Complete Cardinal Guide to Planning Foreign Living and Retirement. But at those seven worries tabs, you're going to find all sorts of information like today's subject, which is income. And so in income, you're going to find a video, just exactly the same title, Alternative to Fixed Income Asset Allocation. And there will be a chart, information, all sorts of wonderful resources to help you with your own allocation of your assets, as we're learning today.

And then, of course, there's Hans's book and a, you know, I should always mention that I don't sometimes forget, there's a workbook that goes with it.

So it's the complete Cardinal Guide to Planning Foreign Living and Retirement. And then the contact Hans or Tom page to kind of have them sit down with your own. asset allocation to try to get that covered. And as you were talking, I was thinking also, you know, life insurance may fit into that fixed plan as well as a way to as another one of your tools, right? And so there's a lot of beautiful ways to get this done.

And again, I love. That these guys are studying up on them, the new tax laws, etc., every minute. And it's all there at CardinalGuide.com. Great show, Hans. Thank you, and God bless you.

Alternative to fixed income: asset allocation is approved with the addition of the annuity guarantee disclosure. Any comments regarding safe and secure products 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 products guarantee are subject to the claims paying ability of the issuing company and are not offered by Brookstone. The opinions expressed by Hans Scheil and guests on this show are their own and do not reflect the opinions of this radio station.

All statements and opinions expressed are based upon information considered reliable, although it should not be relied upon as such. Any statements or opinions are subject to change without notice. Investments involve risk and, unless otherwise stated, are not guaranteed. Past performance cannot be used as an indicator to determine future results. Any strategies mentioned may not be suitable for everyone.

Information expressed does not take into account your specific situation or objectives and is not intended as recommendations appropriate for you. Before acting on any information mentioned, please consult with a qualified tax or investment advisor to determine if it's suitable for your specific situation. Finishing Well is designed to provide accurate and authoritative information with regard to the subject covered. Investment advisory services offered through Through Brookstrone Capital Management LLC, abbreviated BCM, a registered investment advisor. BCM and Cardinal Advisors are independent of each other.

Insurance products and services are not offered through BCM, but are offered and sold through individually licensed and appointed agents. Cardinal Advisors is not affiliated with or endorsed by the Social Security Administration or any other government agency.

We hope you enjoyed Finishing Well, brought to you by CardinalGuide.com. Visit CardinalGuide.com for free downloads of this show or previous shows on topics such as Social Security, Medicare, IRAs, long-term care, life insurance, investments, and taxes, as well as Han's best-selling book, The Complete Cardinal Guide to Planning for and Living in Retirement and the Workbook. Once again, for dozens of free resources, past shows, or to get Han's book, go to CardinalGuide.com. If you have a question, comment, or suggestion for future shows, click on the Finishing Well radio show on the website and send us a word. Once again, that's CardinalGuide.com.

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