10 Principles Of Investing Success

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This is the Truth Network. 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 Scheil. Today, this is a show you've all been waiting for, 10 Principles of Investing Success.

Like, wow, I mean, all 10 in one show. And so, you know, I've had a chance to sneak preview of what these are. And as I did that, I was thinking, you know, biblically, the first one is embracing market pricing. That's principle number one. And so, as I thought about embracing marketing pricing, and what they're going to talk about is, you know, things are worth what somebody will pay for them. And if I had learned that in the car business of 40 years, it became glaringly obvious every day you're in the car business, that especially when it comes to used cars, they're worth what somebody will pay for them. And quite often, you know, I found customers had a struggle when it came to their own car of embracing market pricing. But interestingly, when it comes to people, right, I wonder, like, if we could embrace market pricing from a standpoint of, you know, Jesus paid a price. And in other words, here's somebody who had the assets, literally did have the assets to buy.

And yet, he plopped it down. And so, when you think about the price that he had for every person that you will ever meet, as C.S. Lewis pointed out, you never met a mere mortal. Well, from Jesus' point of view, everyone you ever met, he considered them to be worth dying for, because they have such potential. And so, my prayer is that for me, and I hope for you as well, that we could embrace market pricing when it comes to people, like, right, that we really saw the value in people that Jesus did, because even those people that were putting the nails through his hands, he was saying, forgive them, Lord, for they know not what they do, because what he wanted was for them to embrace market pricing.

I mean, he just did. He wanted them to see what had been paid for them so that they would see the value of the life that they could have in Christ. And so, I love this principle, and I love all 10, actually. And it's sort of a philosophy, right, Hans?

It's not just one principle, but it's something, when you grasp all 10, they kind of fit together nicely, like a piece of puzzle. Well, yeah, we got this from, Tom found it from Dimensional, one of the mutual fund organizations that we work with. And it's their 10 principles of investing success.

And if you look at the YouTube video in the show notes, we actually put out their brochure. But Tom handed this thing to me, and he says, this is us, and this is what I want to put in the financial plans, because what we've been struggling with is, you know, in a good way, we've been struggling that we've got a lot of people calling us up, wanting our services, and we're dealing with people all over the country on Zoom, and they want our financial planning, and they want all the things that we're doing. And most of them understand that investment planning and investment management is just one of the things we do. And it's a significant thing, but it's not, we have a whole lot of clients that we actually don't manage their money, but then they do a whole lot of other things with us, like annuities, long-term care insurance, Medicare, we help them, tax planning, that kind of thing. And we actually don't invest their money, because they either want to do it themselves, or they have unrealistic expectations. And we kind of sifted that out, and we've managed to take them on as clients. They have us as a resource, but we're not responsible for the investing, because I don't really want to be, you know, somebody really has a, you're going to make me a whole bunch of money, or I kind of, like, I have this idea about the stock market, and I think it's going here, and I want you to be the one that decides what stocks we put it in, to take advantage of my theory, that kind of stuff.

We're just not interested in really being on the receiving end of that, or charging the fees to do that for somebody. So these 10 things are very much in line with the way we think. And if you listen to these, and you want to consider having us manage your money, or you just maybe want to use these to do your own management of your money, or to go back to whoever's managing it now, and kind of talk to them about these things.

So I hope you get something out of this today. So let's just go start going through them. The first one, Robbie already gave that to you, is embrace market pricing. And around the world, in 2021, that's every day, $774 billion in securities changed hands, or that is the market. You know, there's buyers and sellers, everything that changes hands has one person selling at the same price, they have the same person, another person buying. So the market is a pretty large thing that we're talking about embracing. And all we're simply saying in this point is the market is fully aware of all the information that is out there about these $774 billion worth of securities, is that most securities are traded pretty widely on a daily basis. And that's what establishes the price of a given security. And then an index, like the Dow, or the S&P 500, is just simply a basket of stocks that are pre-chosen.

And it pretty much tracks, they track pretty close together. There's differences from day to day, but that is the market. And we're just simply saying is we embrace that.

We, you know, and I think we jump onto number two, it's really just a push off on number two. It says don't try to outguess the market. I mean, we don't try to outguess, we don't try to say the market's here, we think by May it's going to be here, and we think by August. Now, it doesn't mean we don't have an opinion.

It doesn't mean we don't listen to other people that do that on TV and in writing and everything else. So we're going to pay attention to that when others are telling us the direction of the general market. We're going to look at our own economic data, we're going to listen to economists.

So we're going to have a sense of that, but we're not trying to use that data to say this is what we think it's going to do this year. Now, I love what Tom said in the video, and I don't have the exact statistic in my mind, but I think what he said was, you know, if you try to outguess, you know, the experts, he said, you know, that these professional traders, that all they do is they trade day in and day out. At the top, like only 6% of those guys beat the market. So if those other 84% of people that do it every day in our life, they're not beating the market, you know, trying to guess where it's going, I'm guessing I don't have too good a shot at that, you know, and of course we saw that same thing in the car business. Well, the point is, most people know that, is it's low, a low percentage of people that actually trade and are in charge of a mutual fund actually beat the market, outperform the market, and what he added on was is the people that have been in the upper quartile for the last five years don't keep that same place. I mean, in other words, when you look at the next five years, they're gone and there's different people in there.

It's a very difficult thing to maintain. And then furthermore, by the time you get done deducting their fees, a lot of them, they didn't beat the market. So just even professional traders typically cannot outguess the market.

And so I'm sure you're saying, well, what do they do? And we'll get to that. But, you know, embracing the market, not trying to outguess it.

Number three is resist chasing past performance. Let the markets work for you. So, I mean, people come in all the time and they say, you know, we want to get in Amazon, we want to get in Microsoft.

We've had lots of that lately because of what happened last year. But, you know, they just start naming Apple and names that they're familiar with that have gone up considerably in the past. And that's about all they have. That combined with the fact they're familiar with their iPhone, they buy things on Amazon, they use Microsoft Office. And so they just think, oh, I want to own that. And there's a chance that those market, those stocks have already received their gains.

And so we're going to look to see what the professionals have to say about them, diversify. We're not going to take on somebody's money to manage when they have no more information than that, than a desire. So don't, we're going to look at past performance, but resist chasing it like it's going to, history repeats itself. It doesn't always. Let the markets work for you. I mean, the markets, if you leave your money there for a long time and you have a good, sound strategy, that's who makes money in the market.

People getting in, getting out. Maybe there's some professional traders that maybe you have a situation where you did that in the past. But when we're talking about retirees' money, we're going to want to commit this money for a significant period of time, or we're not going to put it in there in the first place.

Okay? Consider the drivers of returns. What we want to focus on is what causes a stock to go up and what causes it to go down. And those drivers of increases or decreases on companies, for equities and stocks, it's company size. It's company size. It's company size. It's the relative price. And it's the profitability. So there's all kinds of ratios on all those things.

There's history. There's projections that they make. There's market analysis on individual securities. If we're talking about a mutual fund and a basket of securities, all those statistics are there and all the commentary. And then there's ways that we can decipher the drivers of performance. And we actually don't do that on individual securities ourselves anyhow, is we work with professional money managers, like I spoke about Dimensional.

And we work with people that actually do the trading. Well, there you go. Well, you can see we're almost halfway through the list of 10.

And we got a ways to go in order to get to the end of that list. So you want to make sure and stay tuned. In the meantime, we want to remind you that this show is brought to you by cardinalguide.com. If you go to cardinalguide.com, you're going to see the seven worries tab. And one of those worries is investing. And hopefully you're not worried about it because you're going to help join with us in embracing these and seeing that there's some good strong strategies along these lines. And that's why Hans wrote his book, The Complete Cardinal Guide to Planning Foreign Living and Retirement, which is also there at cardinalguide.com with all sorts of these strategies actually listed in the same chapter.

And again, you can always contact Hans, which is very important, there at cardinalguide.com. So when we come back, what do we got six more to go? We do five more to go.

Five more to go. We'll be right back. 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, The 10 Principles of Investing Success. And so we'd gotten through the first five and in the first half of the show, so it seemed perfect that we got five more to go. Yeah, so number six is practice smart diversification. Yeah, that means many market segments. So we're going to be in some high-tech, we're going to be in some industrial, just a whole mixture of different markets of we're going to want to be in stocks and bonds that move in different directions or they move in different amounts. That's called diversification, you know, where you're in different things that are going to react differently to different situations. We're also going to want to and we encourage people and we like people to get a global presence.

That doesn't mean we divide it up equally amongst all the countries, but we want to have some international exposure as well because the different countries around the world and sectors of the world tend to move at different paces and it provides diversification. So does that term apply to things like annuities? Is that like if you were to be in the market but also in annuities and maybe in life insurance, does that consider diversification or this is just within diversification, within investing that way? Well, no, it can.

I mean, in the context that we're talking today, it doesn't. Okay. But we use, many times we use annuities as a plug for fixed income or bonds, meaning that the interest rates were so poor on bonds and then we had such exposure like we experienced in 2023 or 2022 with bonds losing principle that we use annuities many times for that fixed income portion. So yes and no. I mean, within the work we do, annuities certainly are diversification.

Okay. The seventh one is avoid market timing. Which segments outperform year to year? And so it's kind of like we're going back to number one and number two again, but we're talking about timing and if you look through all the different segments of the market and you look at their annual performance, it looks like a checkerboard and I'd really have to show you that visually that it, some things are up one year, even the next and down the next and then the other ones that were down in that beginning year were maybe up in the even year and then up in the third year and so you want to be in all the different market segments or most of them because it's going to smooth out your returns where they're going to compensate for each other.

Number eight, we need you to manage your emotions or at least acknowledge them. We'll help you manage them and what the whole crux with that is is a lot of people make their investment decisions and they move around the market according to their emotions and I would say everybody does that to a certain extent, even we do, but we need it to be more logic based and the logic comes from the financial plan and so we create financial plans for people with people together according to their preferences and what their goals are, how much money they have, how much income they have, how much taxes they need to pay and we use investments to fulfill those goals or to reach those goals and part of our financial plan is there's going to be dips in the market. If we have your money at risk and we're in charge of managing, we're going to plan for periods of time when the markets are down and as well we're going to plan over the long term for an up market or otherwise we wouldn't be doing that so we want to point back when you're highly emotional, when you're full of joy and exuberance and you've just made money and kind of like everybody was in 2020 and 2021 and the markets are just up and people are wanting to buy more, when you're there we're going to try to bring you back to the financial plan and say you know we've got the right amount of money in there, we don't want to throw other money into the market now just because you're feeling good when we might be paying too high of prices and then the reverse of that is like everybody was feeling last year, they're still feeling where they're just nervousness, they get fear, a lot of people are inclined to start selling and you know the only way we're going to have clients selling their stocks now is if they're really wanting to just get out of the market on a permanent basis and we have a number of people doing that, that they just they want out and then you know we of course try to push them back and we're saying look you know you've been here, we thought it was going to do this but we push them back and no they want out and they want to stay out, well then we're going to get them into something more safe with a fixed return and put that in the financial plan but actually right now you could make the argument that it's a good time to be getting in because stocks are cheaper than they were a year ago. Now don't anybody call me up and say I heard you say on the radio now's a good time to get in, I want to dump all my money and I want to do it with you Noah, I didn't say that, I'm just saying you could, one could make the argument based upon the performance of the market over the last couple years that now would be a good time if you were going to dump some money in but just remember we don't do that for people, that's not what we're all about. You're embracing market pricing so yeah.

We are, we are and we're looking at your goals, your risk tolerance, what you're trying to accomplish and we're not taking unnecessary risks, we're going to really need to see why you're taking this risk and how long you can leave it in there before you really enjoy this reward before we even take on the money. So number nine is looking beyond the headlines. I mean I, you know I say that I read all the headlines, I read a lot about what's going on right now like this business with the banks and the Silicon Valley bank and I'm reading all of that but I'm not calling up all my clients and you know reacting to the headlines. I have clients calling me and I preach calm, I mean I you know and I try to give them the story behind the story but if I have a client that is really wanting to react on the headlines and they give me the order well then I act on it. But generally speaking we want to look beyond the headlines, we want to read them, we want to absorb them, we want to constantly be looking at the news but if you start doing that you're going to be buying and selling and it's going to be nuts. Darrell Bock Yeah one thing I have learned being in media that so much of news when it comes to news is you know they're in the business of making money on the news and so they by you know making much of not so much you know it brings listeners and as they bring listeners it brings you know at revenue from ad sales and so you know I just tend to really be careful and I'm sure it's the exact same thing when it comes to headlines in that you know the people making the headlines are making money by making headlines. They're not trying to help you make money in the market. Jim Collins Well they're not and then there's plenty to be scared of right now.

I mean I just you just you know what you don't I guess some people read the paper but now you're looking at your device or whatever it is reading the paper is kind of a scary thing. I don't see a lot of optimism in the news you know right now but that's also when optimism is low again might be a good time to get in. So I you know I'm just generally going to say those are all data points. We're not going to let that drive what we're doing. The last one is focus on what you can control okay. That's what we really want to do so we can control the investment plan. We can put together a plan and that plan is based on all this stuff that's going on right now but it's your plan and this is the investment plan we're going to lay out. It's going to have your risk tolerance in there, how much risk you can stand, how much you want to stand.

It's going to have your goals put in there. It's going to be the appropriate percentage of your money at risk and that's what you were talking about annuities earlier. We have a lot of people who get their lunch money as we'll call it, their money that they're living off of. They're getting that in some annuities and they're substituting that for fixed income which is going to leave the percentage or the amount of money that they can afford to put at risk and then we're going to need to see a long timeline on that and then we're going to invest it and what we can control is the investment plan that we put together. We can't control whether it comes to fruition but we can certainly control the plan and then we need to get a sense of your risk tolerance. You can control that.

We can measure it, okay, is to really try to understand how much risk you can really absorb financially, emotionally according to the plan. We can manage expenses. I mean we can control our expenses. You can control your expenses within your investing. We can control the turnover. We can control how much we turn over the investments that we buy. We can control or influence is a better word than control taxes so we have some element of when we recognize taxes, what we invest in, how they're taxed and we need to control discipline through dips and swings. That's where we're really focused on what can we control and we're going to do that with a client and then that's number 10 and we're going to finish with that but what I pointed out early is no one or two or three of these things is more important than the other. This is a body of work and this is our investment flaws.

What I'd like to do quickly if we got time is just to run through all 10 of them quickly. Okay, so we're going to embrace market pricing. We're not going to try to outguess the market. We're going to resist chasing past performance. We're going to let the markets work for us. We consider the drivers of returns, what actually creates an up return. We're going to practice smart diversification and get you well diversified. We're going to avoid market timing. We're going to manage our emotions and help you manage yours and try to be the words of wisdom and we're going to look beyond the headlines and we're going to focus on what we can control.

Wow, there you go. There's all 10 and of course you can find a whole video on this subject which is also very enlightening there at the investment tab at cardinalguide.com. So if you go to cardinalguide.com, click on the investment tab, you're going to find right a YouTube video on this whole subject with show notes of all this information and Tom, you know, with all sorts of helpful information as well. Again, it's at cardinalguide.com as well as the way to contact Hans or Tom. We had cardinalguide.com in the book as we always talk about Hans's complete cardinal guide to planning for and living in retirement and we do want to say as well that, wow, I mean all 50 states you're licensed and more and more you're seeing clients from all over. Oh yeah, we're spending a lot of time on Zoom and it's pretty cool.

It just feels to me like the people are sitting across the table. And what an opportunity wherever you are to reach out, you know, to cardinalguide.com. We'd love to see it. So great show Hans, thanks.

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 Whale is designed to provide accurate and authoritative information with regard to the subject covered. 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. We hope you enjoyed Finishing Whale 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, and 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 Whale radio show on the website and send us a word. Once again, that's cardinalguide.com. Cardinalguide.com. This is the Truth Network.