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CardinalGuide.com, Cardinal Advisors, and Hans Shiel, CFP, sell insurance. This show does not offer investment products or investment advice. Oh, we've got some really cool stuff headed your way today on Finishing Well. The title of today's show, It Takes Three to Tango.
Safety, liquidity, and growth. And along with that, not only do we get Hans Shiel, our certified financial planner, we also get Tom Griffith, who is actually the guy who helps me every time. So we got both Tom and Hans today, which, you know, when you add me into the equation, it just immediately you go, Hey, Robbie, it does take three to tango. But you might also imagine that's not what I'm talking about here. But I want to talk about clearly the Trinity, right? That's something that we've all thought about over and over and over again. You know, how exactly does this work? And it does kind of take three to tango, right, Hans? Well, it does, you know, it just in your finances. And, you know, obviously, as you're following the Lord, it takes the Father, the Son and the Holy Spirit together, make up God.
Yeah, and I can't imagine my life without all three. In that the Holy Spirit, right, Jesus, in John chapter 14, when he was talking about it was good that I leave because I'm going to send the Comforter, which is the Holy Spirit that, you know, is there to guide you back into all truth and all the things that he said and point you to Jesus. And of course, Jesus said, I'm the way, the truth and the life. No one comes to the Father except through me. So he's the way to what?
The Father, which is part of the way that Jesus is the way. So, you know, just necessary stuff in order to tango, so to speak, enjoy life, but more importantly, to worship God and what comes along with that. And so interestingly, Hans Tom has come up with this concept of way of explaining what to do with your money through the idea of safety, liquidity and growth, this trinity of money, so to speak, that really turns out to be helpful. Well, let me set this up a little bit. I mean, Tom came up with this really real time in talking to some clients who were trying to understand why we were placing their money in a bunch of different things, okay, or we were doing asset allocation. And they were giving us some pushback on different things. And then Tom said, well, there's really three characteristics of money that we're going to look at, and you can get two of them in any one investment, but you can't have all three.
And that seemed like people could understand it. I can set you up with something that's safe, and then you can go get your hands on it that it has liquidity, but it's not going to grow at all. Or I can set you up with something that's going to grow in up markets that you can get your hands on the money quick, but it's not safe.
And so I'm going to turn it over to Tom, but it's really a good concept. And I think that understanding this is really going to help you understand a little better what you need to do with your money. Yeah, so really, I came up with this concept because we get the question all the time, what should I do with my money? I have this money, I don't know what to do with it. And unfortunately, the answer is it depends. And it really depends on what your goals are, what your needs are, what are you trying to do with this money?
And so I came up with this idea to have people prioritize what's most important to them. Is it safety? Are you fearful of losing the money? Is it liquidity? How easily can you access the money? Or is it growth potential? How much could you want your money to potentially grow? And like Hans was saying, there's nothing that does all three, which unfortunately, a lot of clients say, well, I want all three.
And so we'll get to that in a second. But if we think between safety and liquidity, if you want some, those are your two most important things to use. You don't want to lose money and you want it to be very easily accessible to you. You're really talking about bank accounts, checking accounts, savings accounts, money market, but those aren't earning much right now. I mean, they're very low earning places, but it's very safe. You're not going to lose anything.
And it's very easy to get your hands on it. If liquidity and growth are the two more important things to you, you want some, you want it to grow, but you also want to get your hands on it if you need it. You're really talking about traditional investments like stocks, bonds, mutual funds, ETFs.
Those things are not necessarily safe. They could go up and they could go down if the markets go down, but they're easily, if you called us up, we could sell those today and get you the money in a day or two. Then some people come say, well, I really don't want to lose money. I want it to be safe, but I want it to grow, but I have enough other money.
I don't really need the liquidity feature. That brings in things like annuities or life insurance, real estate, CDs, things that have some, they're harder to get your hands on it if you need it, but it's safer than some of the other traditional investments and you could have some growth in there if things go well. And so really setting that up, it's nice to give the context for the people to start thinking through what is important to you and what vehicles can get to where you need to go. Really what it comes down to is most people need a mix of all three. We would never recommend someone have everything in growth with no safety and just shoot for the moon, especially with our clientele who are retirees is they need to have some protection there.
We would never recommend everyone go on to something like real estate and have no cash on hand, nothing they could go spend if they needed to. And so really what comes into play and we're really is the center of this, of these three things is really a diversified portfolio that has a mix of all these things for your use specifically. Right.
Which is exactly kind of where we go back to as I was thinking about it. If you want all three, which obviously all of us do, then it's kind of take part just like with the Lord in all three, right? You got to participate and understand, but there's things within those three that are themselves all decisions, right? Right.
That's a good point. And so, you know, let's look at the two safety and liquidity for, to start with, you know, within that there's several things that can get you to where you need to go. And the mix of what you pick, you know, really depends on what your needs are. What your needs are and goals are. And that's where that decision comes into play is, is it's not just like, Oh, I want this part.
Well, it's okay. Now we're down to, we've at least narrowed it there. And now we need to start figuring out what there meets what you need. Same with like, you know, liquidity and growth is like, okay, you want it to grow, but you need to access the money. We still need to think about the decisions of how much, what mutual funds, what stocks, how much do you want in each thing and part of our overall plan. And so, the, you know, the center of all of these that diversify portfolio is really the goal of what we have a lot of clients do is get to that spot that makes the most sense for them. And that looks different for all of our clients because everyone has these priorities are slightly different and their needs are slightly different. And so we might have some clients that have more of their money on that liquidity and growth side and less on the safety and then vice versa.
And so the mix of all of these things really depends on you specifically, but thinking through this helps gives us a good starting point of, you know, what's most important to you. Yeah, the, I mean, safety and liquidity, I mean, this is an area we see, we see people holding way too much cash. They're just kind of frozen up. They're, you know, the stock market has gone up and up and up and up and up and up. And at some point, you know, the theory is it's going to come back down or it's going to level off or it's going to, there's going to be some sort of drastic crash or, and people are afraid of that. And so they go to the extreme of just putting it all in the bank and getting 0.1%. And we just see lots of people holding way too much cash, way more than they're going to need. And, um, at any one time. So they've, they've, they've got an emphasis on safety.
They got an emphasis on liquidity and they've just completely ignored growth because there's a need, especially with inflation cranking up to have some of your money in something that's going to grow. So it'll be more later. It kind of appears to me, you know, it's just, you know, thinking through the three ideas that if I was going to sit down and do this kind of liquidity, like how much money do you need immediately is kind of the beginning piece of the puzzle, right. To put it together so that it fits, would you think?
Yeah. And that's $10,000 for some people. That's 20,000, 30,000 for some people. And it's maybe 50,000, 60, 70,000 for some people who are very well to do, but it's certainly not 150 or 210 or 380.
Like we've seen with some of these people, it's how much money do you need sitting there that you can go get your hands on very quickly, like go down to the bank or write a check against it. And it's my experience that there's many people that have way too much. They even have their IRA in a cash sort of account.
And it's all around safety, but there's alternatives. And this is what we do in financial planning is we sit down and look at people's, all the money they have, all the money they have coming in. And then we look at what their priorities, we help them come up with their priorities and goals and their need for income. And then we get them allocated all around this sheet where we get some money in a bank account, and then we get some money invested in stocks and bonds for many people. Some people, not at all. And then we use annuities and life insurance and real estate and a number of things to get them some of that safety and growth, but not liquid.
It's my experience too, that a lot of those clients that are mostly in that safety and liquidity, they have a lot of money in the bank. There's some shame that they come in with, and then we do a lot to try to eat their concerns. And it's okay. You are where you are.
Let's just figure out where we need to go. But inherently, they kind of know that they're missing out on something that could grow. But what's really prevented them from doing that is just the fear of loss. And so a lot of times people don't really think about the options and that safety and growth potential.
There are things out there that can be very safe, that can also grow, but you're just giving up that liquidity feature. And so to Robbie, to your point, that's exactly why you need to kind of start with, okay, how much do you really need in this safety and liquidity that you can go get easily? Because there is some number for everyone that you do just need in cash. You just accept the fact it's not earning anything, but it's your emergency fund. It's there for unexpected expenses.
If you know you need to replace a roof soon, you know that's going to be higher than someone who just replaced the roof. And so there is money you need just in cash. And so that's a good starting point. And then oftentimes it's getting them to view the other ones in the right proportion to what they specifically need. Right. And it even gets to stewardship, right?
Like Jesus taught that if you just go bury your money in the hole and you're not trusting God or doing what the servant wants, you end up with gnashing of teeth and nobody wants that. So we've got a lot more show coming up. Again, this show is brought to you by CardinalGuide.com. You can go to CardinalGuide.com to get Hans' book, The Complete Cardinal Guide to Planning for and Living in Retirement, as well as email Hans for any information you may want or book, or now, you know, don't forget Tom. You can email or reach out to him as well.
We'll be right back with more of It Takes Three to tango safety, liquidity, and growth. Hans and I would love to take our show on the road to your church, Sunday school, Christian, or civic group. Here's a chance for you to advance the kingdom through financial resources by leveraging Hans' expertise in qualified charitable contributions, veterans aid and attendance, IRAs, social security, Medicare, and long-term care. Just go to CardinalGuide.com and contact Hans to schedule a live recording of Finishing Well at your church, Sunday school, Christian, or civic group. Contact Hans at CardinalGuide.com.
That's CardinalGuide.com. Welcome back to Finishing Well with Certified Financial Planners. Now today, we have both Hans Schile and Tom Griffith. Our show today is It Takes Three to Tango Safety, Liquidity, and Growth. And, you know, it's helpful when we actually take it through sort of a case study. So Tom, share a story with us.
Sure. So we have a client who's a radio listener, but we won't name names, but she came in and she sold her house or she was in the process of selling her house and was going to have a big influx of cash because she was moving to go help take care of her mother. And so she didn't need the cash to buy a house because she had a place to stay. And so she really posed the question, what do I do with this money?
She had an IRA as well from working and some other cash that she had just saved up. And so we really posed this question to her, well, what's most important to you? And, you know, like I was mentioning earlier, she said all three. And so we said, okay, well, let's really think through what is most important, like if you just had to prioritize these one through three. And the three that she came up with were safety as number one, growth as number two, and liquidity as number three, because she really just didn't need this much money to get her hands on.
And so we said, okay, well, let's sit down and think through what this could look like. And so with safety being one and growth being number two, we went to that intersection between those two investments and we looked at her money. We took a portion of it and we purchased a fixed index annuity that has no, has a floor of zero. So you can't lose any money in that based off the market performance.
It's not going to go down. And so that kind of meets those goals of the safety. It then gets some of the upside potential when the market goes up. So she gets an investment that has upside potential, some growth with some downside protection, that safety, and we use a portion of her money for that. The other part, so we had, we still needed to fill in these other buckets. And so for the growth and liquidity, we took that IRA and we use a model portfolio that we use with a lot of clients where we have a mix of stocks and bonds that she is investing in. And that way we can really take some potential, still have some more growth potential. It's not as safe as the annuity, but have some liquidity where she needs money easily.
That's where she's going to go get to. Because the one thing with the annuities that I failed to mention is that in the early years of that contract, if you wanted a big chunk of that money, there are surrender penalties. So most of them will allow you to access a 10% free, but if you wanted half of that money back, you're going to have to pay some pretty hefty penalties to get to that. And then the, but so we did the stocks and bonds for that liquidity and growth bucket. And then we still needed some money just in checking and savings accounts in the safety and liquidity portion, because she had some unexpected expenses. She just didn't know what it was going to cost to go live with her mother.
I mean, there's some unforeseen things that will come up. And so we needed to leave enough money there where we weren't taking any risk with it. We weren't earning anything with it, but it was just there for spending for her.
How much was that that we left? It was about it was about 30,000 and checking and savings accounts. The other reason we could have got to that number is there was for her specifically, there was a potential that she was going to move to Florida at some point in the future to go live near her daughter. And so we wanted to leave enough cash there where she could put a down payment on a new home and not use up all her cash. And she was looking at buying like $100,000 place to live and just something real small. And so we wanted to leave at least 20,000 that if we needed to get it to do the down payment, we could still leaving with her 10,000 or so of cash with the idea that we're going to be replenishing that with the IRA, making withdrawals from a tax standpoint where she pays very low taxes on that, replenish the bank account, and then still have the annuity over there where it's growing when still being very safe. And I just noticed that you started $1,000 a month payment to her. Yeah. From her what is their stock account or her growth and liquidity account. That was pretty easy.
Yep. Because she has just moved to Florida. And, you know, if need be, we're going to start accessing the 10% on the annuity.
But I don't think we're really going to need to do that. I don't think she will need that for a while. And the $1,000 coming out of the IRA, just at her tax bracket, she's going to pay no taxes on that. And that's really money that's going to come in, help give her some supplemental income. And she's just going to be, you know, she'll be living fine. So you get her all three, just through a mix of investments. Right. And then tailor it specifically to her and what her needs are, because we're didn't anticipate her going to Florida this quick. She was really going to go to Florida after her mother passed away, but then something didn't really work out with her living with her mother and taking care of her. I don't know all the details of that, but the plan was flexible enough that liquidity was important.
It's just there and now she's exercising that. So we want to talk So we want to talk about another client who we met a year and a half ago. It was right before the pandemic or right when the pandemic started. And we met with them face to face and they had $300,000 to $400,000 all in cash. And it had been in cash at that time for about three years. Because, and I'm not sure how much of it was in cash before three years ago, but they sold all their stocks back in 2016 when we had an election because they were really worried that it was going to go way down.
And then just the opposite happened. And then we met them a year and a half ago and they were still happy that they still had their three or four hundred thousand dollars, but they knew they were going to have it because it was all in the bank. And then we proposed just doing some of this, not getting back into stocks because they didn't want any part of that, but we were going to put part of this money or a significant amount of it into an annuity or a couple of annuities where they would earn much better interest than they're getting from the bank. And then they don't need access to three or four hundred thousand dollars.
I mean, just anytime soon. We still keep some of it in the bank. So, and they still haven't acted on that.
I mean, they're just frozen up with the safety thing. And, you know, I mean, we just, we run into this in a lot of clients. And a new client that is acting on this, we have some people that have just come into a lot of cash because they sold their home in California. And they're living in Orange County and very successful. But these are still just pretty much average people. And she's a realtor.
And she, you know, had obviously done real well. And they made a lot of money on their house and just in the real estate market. And so they found themselves with almost two million dollars of cash because they didn't have any mortgage on their house. They bought it way back when, when it was small and they just paid it off, or they paid it off over the years. So these people have got a bunch of cash, which is a nice position to be in.
But then what do you do with it? They don't want any part of losing any money on that because it was in real estate before. They thought about buying more real estate, but they've already got a house in the place that they relocated to. And so they were also worried about the, you know, the real estate prices have just risen significantly over the past year.
And so they were worried that that might pull back some. And so they didn't really want to go get into a lot more real estate at this point. So what we used for them, this is not qualified money. This is not IRA money. This is just good old-fashioned money.
And they don't owe much taxes on the gain on the house because we've helped them with that. And so we went to the bucket approach. You know, we went to the, we put, took a million and a half dollars and put it in three buckets, $500,000 in bucket one, $500,000 in bucket two, and $500,000 in bucket three. And bucket one is just invested in stocks and bonds, very risky.
So now, because they want some exposure in that. And bucket number two and bucket number three are all annuities. And they're for the future and they have very low liquidity on those.
But there's very little chance they're going to need a million and a half dollars, you know, like next week. And so they can get at any part of that $500,000 that's in bucket one anytime because it's, you know, it's invested at TD Ameritrade and it's in various things that are going to grow up, mostly stocks, mostly growth stocks. And they're also using bucket number one and the liquidity provision to pay themselves an income on top of their Social Security checks and some pensions that they have. And so, you know, we were able to solve their problem and we're not paying taxes on any of the growth in bucket two or bucket three because it's annuities and it's just deferring and it's just they're going to have to pay taxes on that growth at some point. And then bucket two is really set up to turn on an income, a lifetime income at some point. And then bucket three is just money that's designed to grow but safely grow where they're not going to lose any money in bucket three.
So we were able to get them all three things around the circle, all three pieces of, you know, the three to tango. Hans, you lost me a little bit in the last three that you just described on which bucket was which because when you said that the one would give them, you just lost me. Okay. Well, let's go over that again real quick. Bucket number one is money that's invested in stocks and bonds, mutual funds, ETFs, okay? So they could lose some. Mostly ETFs. Right.
They could lose some in that one but they're going to get growth on that one. Okay. Yeah. And we don't have anything safe in there because that's what bucket number two and bucket number three are, is they're the safe money. Okay.
Okay. And then bucket number two, we put them in annuities and the annuities are designed and have a guaranteed income that can start at various points in the future. So not only is it safe and growing but it also has a guaranteed number that they can turn on at any point and it's going to continue getting a monthly check for the rest of their life. And then bucket number three are the same type of annuities but they don't have income riders on them or the charges for income riders and it's really just growth for its own sake and they can take distributions at will and it's just kind of the money that's very safe and growing, not very liquid but it's just there for the future and they actually could turn on an income out of that as well. And these clients, in terms of the mix between safety and liquidity, they have other money that was not part of this bucket strategy that they just have off to the side that meets that goal of the safety and liquidity, just money in the bank.
And so the three buckets that we described did not include that mix because they just have other money that does that. There you go. Wow. That cleared it up for me.
Thank you. I was trying to follow but that's good. Well, as you can see, it does take three to tango.
If the idea is to get safety, liquidity and growth, how cool is that that you can mix these? And again, you can see that it'd be real helpful to have some help on how all this works. So that's why cardinalguide.com. And of course, Cardinal Advisors is where you'll see a YouTube video coming up on this whole topic of the takes three to tango.
So you're going to be able to see that here in a couple of weeks. But we certainly appreciate you listening. And again, just go to cardinalguide.com for Hans' book, as well as any comments or questions you might have.
Cardinalguide.com. Thank you, guys. What a great show. Thank you. Thank you. Finishing well is a general discussion and education of the issues facing retirees. Cardinalguide.com, Cardinal Advisors and Hans Shile, CFP, sell insurance.
This show does not offer investment products or investment advice. 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 Hans' 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 Hans' 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, cardinalguide.com. This is the Truth Network.
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