Investment Strategy in Retirement

This is the Truth Network. 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, IRAID, long-term care, life insurance, investments, and taxes.

Now, let's get started with Finishing Well.

Well, welcome to Finishing Well with Certified Financial Planner Hans Scheil. And today's show, fun, because we never really talk all that much about it, but we get an opportunity today, is investment strategy in retirement. And so there's a lot of strategy that goes into this. And I'm excited to hear sort of what goes on behind the curtain, as we say. It's kind of neat.

And there's a video that Tom and Hans did right along these lines. And so much of what they talked about in this video was about diversification and the idea of... strategizing in investments and and it became clear to me that Diversification really comes not out of fear. That you're going to lose in some one thing or the other. It's more humility.

It's saying, you know. I'm really not sovereign. I'm not so smart to know what the outcomes are going to be. And so, why not? talk with, strategize with people that do this.

With thousands of clients with a whole lot more money than I have, and all the wisdom that they've gained over the years of doing it, that they would begin to see what strategies might be best based on the outcomes that I'm looking for in my retirement. And so, when you think about this, one of the wisest people certainly that ever walked was Solomon. And in Ecclesiastes, he gives us this strategy, which has to do with diversification, but it also really is just sound understanding. He says, Cast your bread upon the waters. for you will find it after many days.

He said, Give a portion to seven, or even to eight. For you not you don't know what disaster may happen on the earth. Or if the clouds are full of rain, they empty themselves on the earth. And if a tree falls to the south or the north, in the place where it falls, there it will lie. And then it goes on to say, he who observes the wind will not sow, and he who regards the clouds will not reap.

And I think that last verse is the one that scares me: is that if I'm so tied up into where this money's going and this kind of stuff, and I'm not looking at it objectively, then I'll be like the poor steward in the parable of the talents that. you know, dug a hole and put his money in there so he wouldn't lose any of it. Um And rather than you know Going out and get some wise counsel, Hans. Yeah.

Well, and I just want to talk for a sec about the birth of. This video. This is the first video that we've done where we talk about investment management. Yeah, you know, just where we're people assign their money Under our management, and we do that at Charles Schwab as generally the custodian. We can do it at Fidelity as well.

So we're not actually. taking over possession of the money. They're the custodian, we're more like the traffic cop.

So we're Uh telling you The word along with you picking the investments of where we're going to put it. And that's kind of a real simplification of a very complicated subject. And there's a lot of people that do business with us at Cardinal. That They don't even, or they watch our videos and maybe they bought Medicare insurance from us, long-term care insurance. Maybe they've hired us to do a financial plan.

And we've gone through the seven worries. Yeah and we've told them essentially how to do their asset allocation. We've gone through a lot of these things. And a lot of them They don't even know that we're in the business of managing people's money.

So we don't. promote it that often I guess is what what I'm telling her, we don't promote it ever. But we're doing that. in this video As well, we're doing it in this radio show today.

So And I just want to make it clear. Um That when you and Put money in investments when you invest in equities. or fixed income for that matter. You can lose money. It involves risk.

Yeah.

You know, for that reason. There's a lot of compliance stuff. that falls on us when we're Even talking about it.

So, I just want to put that out there with people that you could lose money doing this.

Well, you know, just for those of us who are relatively ignorant, which I'm definitely in that category. And I think a big part of the point, you know, is that those words just kind of go over your head before we even get started. Like, what in the world are equities? And what does that mean, fixed income? You could be like me.

I mean you own part of a company.

Okay, and Um Just like General Motors or IBM or You know, what used to be: I'm trying to get local Lahanes hosiery or. Um Bank of America stock. I mean, there's just you know, thousands of equities. or stocks that you can own. And fixed income.

for the most part are bonds. They're they're um different than equity. When you own stock in a company, You own a piece of the company. When you own when you buy a bond, you are like loaning the company money. Um Or your You know, I guess you could.

You could say you actually have first rights. to the money upon liquidation.

So if the company went out of business, The people that own bonds are going to get paid before the people that own stocks.

So But The whole idea of fixed income is it just it's fixed. the amount that you're going to receive, like a bond is going to have a coupon of like four percent. And that means you're effectively getting 4% interest. And that means that it's not going to be 1% and it's not going to be 9%, it's going to be 4%. Um So It's not that simple, but a fixed income Yeah.

theoretically safer than owning stocks. Make sense? Yeah, well it it really does. I mean I never even understood that pro that being bonds, then So annuities and life insurance, so those kind of things, it doesn't even fit into those categories. For today's purposes, no.

But when we're We use annuities of different types as a substitute for fixed income.

Okay, so there's some advantages. to taking your fixed income money. money that you would otherwise buy bonds. And instead of that, You buy annuities. that are gonna pay you a more defined interest rate.

But they're going to pay an income, but Or another way to put it is annuities look much more like fixed income than they do equities.

Okay. We use them as a substitute. With a lot of people we do business with. Um there's more advantage to take part of the fixed income money and allocate it to an annuity because it's going to accomplish some better things for us. Yeah.

Absolutely. Yeah, so there's a whole lot of people that hire us to do financial planning, which is different than investment management.

Okay, financial planning is For us to put down together a comprehensive financial plan Which lays out the future.

So it attempts to predict what's going to happen. And then when bad things happen. to predict the happening of them and then to prepare for it. in how we structure our investments. and insurance products.

So financial planning is all of that. And it's what we talk about all the time on this show. We talk about Social Security, Medicare, long-term care, IRA 401. income planning and investment planning estate planning, income tax planning. I mean, it's all of that stuff.

Yeah.

only one small piece of it That's really central, but it's still a smallish piece of that whole thing is investment management.

So within financial planning, we do investment management. And with many of our clients, We don't actually do the investment management. They got their money somewhere else. We're just telling them. what they ought to do with their money, what they ought to do with their investments.

how they ought to structure them. How much fixed income they ought to have. how much equities they ought to have. And then what category of equities So all of that fits in the financial plan. but they may very well do that with somebody else.

So yeah, when when I was watching the video, which was awesome. Um and helpful. It would have been more helpful, actually, if I'd known what fixed income was at the time I watched it. But nonetheless, it was still helpful. You guys did a chart for everybody that you talked to, and you took.

Their income. And what you said about the chart, you said quite often the people don't even know. How they're set up. Most of the time, they don't. They're like you.

They don't know the difference between fixed income and equities. When I give them a quick explanation, Some of them say, oh yeah, I know what that is, but they really don't. Um And so when we do a financial plan, for all people that hire us to do a financial plan. We look at all their stuff, all their statements, every single stock that they own, every single bond that they own. And we plug it all in the Software And so we get, we're going to see where, you know, where are you at?

It's just like. I'm going to end a sentence with a preposition, but it's just, where are you? But I'm going to throw the ad on there just to be a little funny. Where are you at? But it um people have a tendency to do that.

So and in the example we're using in the video. This guy, who did not know where he was, He had sixty four has sixty four percent of his money in equity. and thirty-six percent in fixed income.

So that was news to him just to begin with.

Well, I can see why, because if I'm like everybody else in the world. And I don't suppose I am, but nonetheless, anytime I had a 401k or I was doing something, They you They say, Well, we'll handle it for you, whatever company's doing it for your company. You just put the money in it and they decide w where it's going, and I have no clue. Yeah, and somewhere in there when you did that You filled out a little thing like a risk profile questionnaire. I'm just telling you, you did.

You probably blew through it real fast. This would be a good point, by the way, to talk about. This show is being brought to you by Cardinal Guide at CardinalGuide.com. They've got this video right along these lines. It's a beautiful thing.

It's investment strategies in retirement. And it's there in the income tab, right, Hans? It is. And so, if you go to the income tab, you're going to see this investment strategy in retirement. Again, Tom is going through this.

You'll see the charts and you'll see what we're talking about. Really, really helpful stuff. Again, if you go to cardinalguy.com, you're going to see these seven worries. This is one of them: the investment, excuse me, the income. Worry.

And then you'll also find, of course, the Contact Hans and Tom page, which I'm sure this will lead you to the fact that, man, I need some help with this, so contact Hans and Tom. Easy way to go. And, of course, Hans's book, The Complete Cardinal Guide to Planning for and Living in Retirement. We'll be right back with a whole lot more on investment strategy. in retirement.

Investment advisory services offered through Brookstone 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.

Welcome back to Finishing Well with Certified Financial Planner Hans Scheil and today's show investment strategies in retirement. And so, Hans, I know we were talking about your charts and How how people don't balance 'em.

Well well they don't know, they just don't balance their They're not properly diversified. Yeah, if you don't even thoroughly understand what you have. and you don't have professional help. that you trust you're you're you're you're kind of in the dark and so We get a lot of clients that come in. And they don't even necessarily hire us for this.

They already say, I already got a guy. I got somebody that does my investments. But then they start listening to us and they're coming in they're interested in taxes and tax reduction and estate planning and long-term care and How to manage their 401k. And so we said, why don't we put together a comprehensive financial plan? that looks at all this stuff.

and your investments, and then we'll write it down. and we'll deliver it to you, and we'll tell you what you need to do. to end up making decisions that are all in line with the plan. I mean, that's That's what we do. And so, what this video is about, this radio show today.

is the investment management piece of it. And we kind of got stuck on the first part of the show just going over the differences between equities or stocks. and fixed income And this example we're using, this was news to the guy. He's at 64%. equity thirty for six percent fixed income And what we were proposing in the plan is that he moved to seventy percent equity, thirty percent fixed income.

But what's not being said is we had taken A good bit of his money out of the equation and put it in an annuity that's going to generate an income for life.

So he was actually He looks like he's increasing his risk. But he was through the whole financial plan he actually ends up with lower risk. But That being said, What are we going to do with the 70% equity? That's really what the video is about. And I'm going to try to cover that in short order here.

Okay. So But let's just say this guy had a million dollars. Yeah, and 700,000 of it. Is going to be in equities or stocks, and 300,000 of it is going to be in fixed income.

So we're going to talk about what we're going to do with the seven hundred thousand dollars. if he turns it over to us. for investment management.

Okay. Okay. And so Of this seven hundred thousand or seventy percent equity, What we're typically going to do is we're going to put 80% in U.S. equity or U.S. stocks.

20% in international stocks.

So I could get into why, but it just... You know, the It it's really the safer place to be is in the U.S. But to exclude the international is to miss out on some opportunities.

So that seems to be the right Balance for most senior citizens.

Now we're open if somebody wants something different. Then That We certainly can do it. We're just trying to show you what we typically do.

So and we are doing for this example, eighty percent in stocks 20% in international.

Okay. And if that's all we got, Um There's a lot more to it than that. Uh So Um, so what, what? How are we going to choose these stocks? And the first thing I'm going to tell you is.

We're going to purchase Stocks for you on your behalf or with you. In ETFs. That's a exchange-traded funds.

So An ETF is kind of like a mutual fund, similar to a mutual fund, but it's different. And it allows you, the small investor. to buy hundreds of stocks. all in one ATF.

So it allows for very broad diversification.

Okay, man making sense so far.

Well, you lost me, if I was honest.

Okay, well, when you said you're buying all these different stocks in the same ETF. That's the part that lost me. The ETF.

Okay, an ETF. It's called Exchange Traded Fund. And what ETFs are are a basket of stocks. That perform in a similar way or that Um are of one industry, of one sector. Uh uh It's just it's like a mutual fund.

But it's different because it's exchange traded.

So, and we're using ETFs. because they're very cost efficient. and they have broad diversification.

Okay, if I am understanding.

So You know, I've heard people talk about, right, I'm going to buy communications. All right, me being in media, I understand that. And so or or Um Energy stocks. Right. And so what it's what it sounds like this ETF is is some A conglomerate, I guess, buys a bunch of stocks that are well diversified within the idea of energy.

And so when energy does well, this ETF and energy is going to do well. Does that make sense? Yeah.

Just described it. For this guy with his $700,000 He's probably going to end up with A hundred Two hundred. different ETFs Wow. Brilliant. Oh yeah.

And You know, Tom does all this, Tom and company on a computer, but obviously. Yeah.

They're all different. types of ETFs. Yeah.

You know, we're losing people because you don't have to understand all this stuff. I just want you to get the general point. is ETFs allow you to own a whole Bunch of different types of stocks and a bunch of different individual stocks. all put together in one basket and it's very cost efficient. Because you're not really people picking these things.

It's all done by computer, so it has a It's very cost efficient.

Okay. Oh, it makes perfect sense. And actually, I think, if I'm not mistaken, that you look inside of your 401k for most people. You know, they all are using they're not saying like this is Lowe's or General Motors or Ford. They have some fancy name.

And I'm guessing. Those are ETFs. Right, right. Just, you know, so I can relate, you know, just to a commoner. Incidentally, the fixed income.

The 30% in fixed income, which we're not talking about today, or the $300,000. Those are in ETFs too, of different types of bonds and durations and just risk factors and all that kind of stuff.

So I just want you to understand And that's not unique to us. The whole world's doing that out there. Right. Okay. The common person doesn't really know that or really care.

They don't have to know that. But I want to get down to the gist of the what was in the video. is how are your ETFs here? you know, doing this through Tom and Brookstone Capital Management. You know, us, how is this different than the next guy?

And so We have a strategy. A typical strategy, and we're going to use this thing called equity factors.

Okay, and it just You know, it was invented by this Eugene Palma and Kenneth French in 1992. You don't need to know all that stuff. We're trying to give the theories behind And so the factors, there's three main factors that we use. There's a quality factor. a value factor and a size factor.

So Yeah. The quality factor is based upon profitability and stability.

So durable business models and sustainable competitive advantages.

So we're going to We're going to choose the quality companies. And we can show you this statistically. We're going to choose companies. based upon value. We're going to separate the value stocks from the growth stocks in the SP 500.

and tilt toward value.

So you say what, you're tilting away from growth?

Well, yeah, because the growth involves more risk. We want to go for the underlying value. That's just a a factor in what we Pull you in. And then There's the size factor is we use mid cap funds versus small cap bonds. too much risk in the small capitalization funds.

We're going to use the mid Mid camp on. I can't give an education in just a few minutes on like what our investment philosophy is, but So when we're taking this seven hundred thousand dollars, We're going to diversify it amongst a bunch of companies. And then we're going to go for companies with a quality factor a value factor and a size factor. and we're going to tilt toward that. Doesn't mean we're going to exclude companies But we're going to have more of the kind of companies we're looking for.

Am I making sense? Right, but you're also not doing that in a cookie code. In other words, you're listening to what the client Is feeling from a standpoint of risk. And some people are really conservative, like, man, I don't want to risk anything. And you're taking all that into account with your understanding.

of But uh These Exactly so. We're tailoring this. to each individual client. I'm just kind of giving you where we start. Because a lot of clients will ask us, so what is your investment philosophy?

How do you manage money? And so I just gave it to you. But you know, if you come in here with something you want us to do, well we're going to do it. But most people are like you, we got to start out just explaining the difference between equities and fixed income. Yeah, a lot of clients.

We get about halfway through this and that, you know, a lot of them say, I want you guys to meet go for it.

Okay. I'm way down. I'm one of those guys. Yeah.

We don't have any need to walk you through. We're going to walk you through the minimum of it and let you know what you're buying and the risks and all that kind of stuff. But we're going to give this to you in doses. Yeah.

I just wanted to finish on like this guy You know, he's at seventy, thirty, but by the time he gets into his seventies, we're going to probably recommend that he get to sixty forty And when they get to the eighties, they're going to be at least at 50-50.

So as people age, their ability to absorb risk and to recover from risk. or losses. Is lower, and so we're going to tilt this thing to more safety. is the age.

Okay. Um Right, I understand that completely.

Well, again, we've run out of time before we ran out of show, but we want to remind you that, again, the show is brought to you by Cardinal Guide. And if you go to cardinalguide.com, that's cardinalguide.com, you're going to find these beautiful seven worries tabs that have, again, videos and radio shows all connected to them. And today's show is in the income worry. because it has to do with our investments. And if you click on that, you're going to find the investment strategy and retirement video that goes right along with this, that shows you the charts and the things that we've been talking about.

And again, has lots of information in the show notes that you can access there as well. Again, if you Hans's book is there at the website, The Complete Cardinal Guide to Planning for and Living in Retirement. And there's a beautiful workbook to help you get some basics in it, which I'm sure they will really help me. Although I had forgotten that, apparently, if I'd read it, which I did read it. And then, of course, the Contact Hans and Tom page, the most important thing to me is just like, man, I need help.

Go there and contact Hans and Tom at the. Oh, cardinalguide.com.

So go to cardinalguide.com. Great show, Hans. Thank you and God bless you. 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 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.

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