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EP19 RichOnPlanning - GOALS

Planning Matters Radio / Peter Richon
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May 3, 2019 3:57 pm

EP19 RichOnPlanning - GOALS

Planning Matters Radio / Peter Richon

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May 3, 2019 3:57 pm

A plan turns a hope into a goal. We all need our money to provide us with certain things; growth, safety, liquidity, income, protection, tax-efficiency...but, money is a terrible multi-tasker. In order to achieve these things, we have to assign each dollar a specific task and make sure it is doing its job. Peter and Amber Richon discuss your money goals and how to make sure that your dollars are working to help you accomplish your lifestyle goals.

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If you fail to plan, plan to fail.

How do you want your future to look? We want you to plan for success. Welcome to Planning Matters Radio. Welcome in, ladies and gentlemen, savers and investors, to another great edition of Planning Matters Radio brought to you by your friends at Rishon Planning.

I am Peter Rishon, president and founder along with my lovely wife, Amber Rishon, back again on your radio talking about financial goals. How do we define those goals and how do we make sure that our money is working to achieve those goals? Now, we all probably have many different goals with our money, but Amber, as we talk about often on this program, as I discuss in my book... Money's a terrible multitasker. Money is not great at doing multiple jobs at once. One dollar is not great at doing many things for us. So how do we accomplish multiple goals with our money, Peter? Well, the answer is in some diversification, some allocation, and some of the locations in which we can choose from to place our money. But Amber, money generally does four things for us.

It can grow, it can be safe, it can be liquid, or it can provide an income. But any one dollar is going to have a hard time doing all of those things simultaneously and, in fact, really pick two that are most important. And then you can narrow down your choices and options for where to place that dollar depending on what goals are most important to you. So diversification is part of the story, but first and foremost, we have to understand the goal or the goals that we have with each dollar in order to make that informed decision on how to place our money, how to save it or invest it. So on this program, we're going to examine some of the common goals that we have with our money and some of the options on how to achieve these important goals.

So stay tuned, as always, a lot of important information coming your way. If you would like to get a copy of my husband's book for the first five callers, we will offer that book to you. Just pick up the phone and give us a call at 800-338-5944.

Again, that's 800-338-5944. Yeah, my book, Understanding Your Investment Options, actually goes through just about every option you have for where you can place your money and talks about what the top things that that particular option can help you achieve. But let's do this in the reverse order. Instead of looking at the option and then what it will accomplish for you, let's look at what we want to accomplish and then we can talk about what option, what investment selection or savings vehicle can help you achieve those goals. If I had to pick one thing that I would want my money to do for me, I would say it's grow.

Absolutely, and that's probably the top answer that I hear when I ask somebody, so what do you want this account to do for you? What do you want these dollars to do for you? Growth is typically the number one answer, which is a fantastic answer. We all want our money to work. We all need our money to grow over time. I think people miss one key element to that, though, and that's what is the purpose of growth? Growth for what ends? Why do you need or want this money to grow? Is it growth for retirement? Is it growth for college? Is it growth to keep up with inflation? What is the real purpose that you want these dollars to grow for you? And are we willing to take any risk to accomplish that growth?

Correct, because there's a balance there. Now we have always heard that in order to get greater returns, we have to take greater risk. But just to be clear, that is risk of losing money or having less than we started with or than we previously had. So in shooting for those higher returns, we could potentially actually end up with poorer returns than some safer options we might have had. So risk is a real factor when trying to accomplish growth?

Absolutely. So we need to also gauge what is a reasonable rate of return. What kind of return do we need with this dollar?

What kind of growth are we aiming to achieve? And that can also give us a general gauge of how much risk we should be appropriately taking. For instance, if I only needed a 1% rate of return, if I'd like my money to be there and maybe have a little bit of growth, but more importantly, to be safe and to be liquid, then I probably wouldn't go out into the stock market and invest that money.

I probably would be just fine putting it in a bank checking account or a savings account. Because my need isn't for higher rates of return, my priorities, my goals are for safety and liquidity. And even if I needed a slightly higher rate of return, if I was aiming for my expectations were between 4 and 7% returns, I don't have to take an excessive amount of risk. But when we start shooting for 8%, 9%, 10%, 12%, 15% returns, that's when we begin taking on a higher and higher degree of risk. And yes, there's the possibility of achieving those returns, but there's also the possibility of having 10%, 20%, 30% less money or maybe no money at all, depending on how risky we were being trying to achieve those higher returns. So is this an appropriate trade off?

Absolutely. During the course of our financial progress, there is going to be some level of risk that we appropriately take on and assume. Now, I've seen recent reports that say that the millennial generation is actually more risk adverse than their baby boomer counterparts.

And that's kind of opposite of investing in financial fundamentals. The longer the time horizon that we have until we need the money, the more risky we can be comfortable being with those dollars and shooting for higher growth. For instance, if a 25-year-old or a 30-year-old lost a quarter or a half of their retirement accounts because of a major market downturn, they've got the time horizon to let the market recover and build that account back up. But if a 55-year-old, a 60-year-old who's retiring within the next 5 to 10 years loses a quarter or a half of their retirement accounts, that's going to be impactful on them in their time horizon of when they intend to begin using that money.

They might not have the time to allow that account to fully recover. And so generally, in financial planning, as we move closer to the time that we need to use the money, we need those dollars to be there, we should be taking less risk and therefore we also need to be more comfortable assuming that we will probably be achieving slightly lower returns. But that's not the point. We don't want the money that we have available today that we could use to disappear when we need it the most. Will Rogers once said, it's not the return on my money that I'm so concerned with, it's the return of my money. And he was speaking to the point that when he made a deposit or an investment, he would like to make sure that he got at least that much money back. Warren Buffet, a very famous investor, says his first rule of investing, number one rule, don't lose money.

Rule number two is see rule number one. So he also believes that he would like to see the return of his money and puts that as a higher priority over the return on his investment. But taking risk is a necessary part of financial progress.

I do believe it is to some extent. I believe that many investors have become very comfortable with taking maybe more risk than is appropriate. The baby boomer generation, those retiring now, those ages 55 to about 70 years old, have had during the course of their lifetime very favorable market conditions. The market during the 80s and 90s had a historic bull run. And since 2008, we've had another historic bull run in the market. So their overall experience has been very favorable.

They've gotten great returns. But as that generation moves more from investing and buying equities and securities toward living off of their savings, selling those investments in those securities, I worry that the supply and demand curve might mean that the market is a little bit more volatile than it has been over the course of their investment history. While the millennial generation, on the other hand, because they saw volatility and a couple big market corrections and downturns early in their investment experience, they tend to be much more conservative. It's almost like a depression error mentality saying, well, I don't want to lose this money.

I want to be so conservative. They should absolutely understand that investing during downturns in the market when you have a long time horizon is your best opportunity for the most growth on your money. So yes, to answer your question, it's an appropriate part of your total financial progress. But you have to gauge how much and when you are taking that risk. And you also have to define reasonable expectations for the growth that you're trying to achieve. So what is a reasonable expectation for upside or downside potential?

Well, you can't really gauge that. And over the radio, with this generic format, I can't say that it's a reasonable expectation to get X percent because everybody's got a different risk tolerance. If I had $50,000 to invest and you had $50,000 to invest, even within our same family, our answers for how much we would be willing to lose might be very different. And in fact, I go through an exercise very often with couples to try to find where they have differing risk tolerances, acceptance of risk, and also what rate of return they are really aiming to try to accomplish, oftentimes very different. But even more problematic, oftentimes what I find is when we go through this exercise and try to arrive at what somebody is comfortable with in the amount of risk they're taking, and then I look at their portfolio, there's a huge difference there as well.

People may come to the office and we go through this risk assessment and we arrive at a conclusion that their risk tolerance is pretty low. They're pretty conservative investors. They don't want to go through another 2000 dot com bubble bust or they don't want to go through another 2008 type of great recession loss or even a 2018 where they lost 10 to 15 percent of their portfolio pretty quickly. They don't want to see those kind of losses. And then I look at the investments in their portfolio and they're positioned to lose 20, 25, 30, 35 percent or more if we have similar type of conditions into the future.

So they don't match. Their portfolio does not match their risk tolerance. And that's an important conclusion to come to. And right now is a great time to come to that conclusion because we are still hovering around all time highs in the market and you can do something about it proactively and avoid losing money or the potential of losing more than you want to. So today we've been talking a lot about financial goals and investing money in the stock market, taking more risk should we take more risk. But Peter, we don't always have to put our money at risk to achieve growth. No, but you have to have reasonable expectations for the amount of growth that you're going to achieve without taking risk. There are plenty of options out there. I've actually seen some great reports recently that showed kind of the math behind some of the options out there.

And ladies and gentlemen, you've probably heard about them. You can make stock market linked gains, but you don't have any risk of losses. Those are fixed indexed annuity vehicles and they're not the only option here to be more conservative yet see growth.

But that's what you're hearing a lot about on the radio. And some of these give you the ability to share in the gains of the market, but avoid the losses. You are not participating directly in the market, so you do not suffer market losses when the market goes down.

And I've seen back testing on this. A recent report that I saw went back to 1994 and basically looked at every 10 year interval from 1994 all the way through 2019 and took the full 10 years. And by and large, if you avoided all of the losses during any of those 10 year periods, but made only half of the gains of the market when it goes up, you arrived in about the same place.

You got close to the same returns. I'm trying to scramble on my computer now and bring up that exact report, but you don't have to take all of the risk or suffer any of the losses if your expectations for gains aren't quite as ambitious either. And that's why it's important to sit down with an advisor to assess what your potential risk and rate of return could be. If you're interested in sitting down with one of our advisors, please pick up the phone and give us a call at 800-338-5944.

Again, that's 800-338-5944. I'd be happy to talk to you about options that can offer you more potential returns, but also understanding that you've got to expose your assets and your dollars to a little bit of risk in order to achieve that. Or if you've got higher priority on the safety and the preservation and the protection of your dollars, which as you are nearing or entering into retirement should rightfully and justifiably become a higher priority, there are some great options out there that can do that as well.

We can look those over with you. Some of them give you an upfront jump start, a little bonus to get you going. Some of these can be four, five, up to nine or ten percent upfront bonus. You deposit $100,000, you want to keep it safe, and now instead of $100,000, you've got $110,000. From there, it moves forward, allowing you to share in the gains of the market, but protecting you against the downside.

It is a great option to look at, to consider if those are your goals. Peter, let's talk a little bit more about protection and safety. Right. A secondary goal, and really the reasoning behind growth being the most common answer is that people want their dollars to be able to provide protection for them into the future. That's really the motivation behind wanting growth, but protection is a whole different thing than growth. We'd really all like to protect our lifestyle, and this is more about lifestyle than it is about the dollars. Money's important, folks, but money's not the most important thing. It is a tool to support our values and what is most important to us. In order to get protection for our lifestyle, we buy health insurance, we buy life insurance, we buy disability insurance, and home and auto insurance are just a few examples of where we are willing to spend money to purchase and buy this provided protection. It's not just through insurance, though. Every dollar that we save or invest, every time we set our alarms and show up to work, it is towards the goal of providing financial and lifestyle security. For a large portion of our lives, it really is the work that provides this lifestyle protection, but at a certain point in time, hopefully, the money that we've been able to save and accumulate provides an equal protection. Having a financial and specifically a retirement plan in writing is what gives us the guiding principles of how to navigate maintaining that lifestyle protection, the paycheck, Amber, that we talk about protecting on this program so often. Once the paycheck is no longer there, once we're no longer showing up and setting the alarm to go earn a paycheck, our dollars, our employees, they have to provide that paycheck for us.

That's right. What you need is a plan, something that is set forth in writing for you and or your family. So pick up the phone and give us a call. 800-338-5944.

We'd love to sit down and have a chat with you. Now, a distinctly different goal. On the surface, it sounds the same, but it's safety. So protection, we just talked about, it's kind of for lifestyle. But for our dollars, the way we achieve that is through safety. And when you put money in the bank, if you stay under FDIC limits, you generally think that money's pretty safe. And you can get your hands on it generally when you need it.

So it's safe and it's liquid. If the market tanks, if we have some catastrophe on Wall Street, another 2008 type of great recession, the money in the bank isn't affected by that. You don't lose value. So these are the dollars that we don't want to lose. Money to pay the bills, right? That goes into and out of the checking account. Money for emergencies, maybe that's set aside in a savings account.

Money for major purchases, also, again, in a savings account. Typically, we don't take on a great amount of risk with the money that we need immediately. We also understand that we limit our expectations for the growth on this money. Checking accounts, savings accounts, aren't going to offer us fantastic growth. And in fact, if you've got excess money sitting in those accounts, you're losing purchasing power because inflation is happening faster than the interest rate is growing your money.

So I call that lazy money or I've heard it called losing money safely. And I think that while we've got the sense of security of protection that those dollars are safe, if we had $100,000 sitting there in the bank and we had to write a check for the loss of purchasing power that occurred on that each year, we probably would feel a little bit different about the security, the warm, fuzzy blanket feeling that that provides for us. So if we've got 1% interest and 3% inflation, keeping that capital there just cost us 2% each year. And we've got to understand that while safety is important for some money, it also lessens the potential return or the growth on the money. So we need to temper expectations for how much that money is going to grow. So what kind of returns can we expect when keeping our money safe? Well, right now we're in a 1% interest rate environment.

We have been for quite some time. I have seen recently ads for teaser rate CDs for the first year, for the first $25,000 you can get to 2.5% and not a bad alternative for money that you want to keep safe. Generally, if you go out a little longer term with something like a CD, then you can get a little bit higher rate, but you're also limiting another goal with your money there, which is liquidity. If I want to get my hands on that money right now, I've got to pay a price to get it out early. So a one-year CD versus a five-year CD, the five-year CD has probably got a better rate of return, a better interest rate, but it also probably cost me a little bit more to get that money out early. So a good question for you and our listeners would be, is it worth the trade-off for keeping the money that we don't want to lose safe?

Absolutely. If we don't want to lose it, if having those dollars there is more important, then it is worth the trade-off. But when we identify that we've got one need taken care of, it frees up other money to do other things for us. So if we've got our emergency account, if we've got enough in our checking account to cover those expenses for a foreseeable period of time, three to six months, that actually frees up more longer term money to go out and do other things. We can now take on a little bit of risk, deploy those dollars to accomplish other goals, and that's the way that you get your money to multitask. You don't try to have one dollar be all things at all times.

You section off a particular piece of your portfolio and assign it one task to do. And what that does is it takes care of that need for you, and now we can take all the rest of the other dollars and achieve different goals. Again, if you would like to look over your portfolio or get started on one or grab a free copy of my husband's new book, Understanding Your Investment Options, pick up the phone and give us a call. The number is 800-338-5944.

Again, the number is 800-338-5944. So moving through a few more of these relatively quickly here, because we got to get in a couple that I really wanted to hit on. Liquidity is another goal that we have with our money. Accessibility is important with some dollars, but then it's not as important with other dollars. Some dollars we earmark for retirement in our 401Ks or our IRAs, and we understand those dollars aren't going to be liquid to us for some period of time into the future, but we make that trade because we get other advantages. We get tax advantages, tax efficiency. We can sometimes get better growth rates. And so every day, whenever we're putting money away into those earmarked retirement accounts that we can't touch until 59 and a half, what we are doing is we are trading liquidity for some other potential goals. Maybe growth, maybe tax efficiency. So does limiting accessibility automatically associate with higher returns?

Not necessarily. So just because I put my dollar in a retirement account, I could put that dollar in a regular brokerage account and invest in the exact same investment. When I'm limiting my accessibility by earmarking a dollar as a retirement dollar, what I'm going for there isn't higher returns. That's the investment itself. What I'm going for there is the tax efficiency, which is absolutely another goal with our money.

We want to be as tax efficient as possible. Amber, you've heard it's not what you make, it's what you keep. What's the biggest thing standing in the middle there? Uncle Sam. Absolutely. Crossing that troll bridge. The troll bridge. That's right.

Yeah. Uncle Sam is what stands in the middle of what you make and what you keep. And therefore, we want to be as tax efficient with our dollars as possible. That's why I'm a big advocate and fan of and personal participant in Roth IRAs. They are a great way to be tax effective. Roth 401Ks, you can pay your taxes upfront and get Uncle Sam out of the picture with that retirement growth forever.

All the growth, 100% of it, is yours. But then the rate of return isn't necessarily any better or worse than any other place you put your money. That's going to be decided by the investment allocation that you choose within the retirement account.

So both are going to be important. And again, in order to come up with the proper mix of different investments and different types of accounts, we have to understand first and foremost what are our goals with this money. And that's just part of the conversation that never seems to occur. When people come into my office and they talk about their experience with their advisor, the conversations that have been had, it's generally about, well, we're going to get you this rate of return. We think that we have found the proper mix of assets and investments. We believe that we can target a higher rate of return. And it doesn't boil down to, well, what do you actually need your money to do? What do you know this plan is going to accomplish?

And I'd much rather have a plan that's based on I know what's going to happen in the future rather than one that I believe, I think, I feel, I hope. And that's what a lot of plans really come down to. Finally, here as we're wrapping up this program, another goal this time of year, big on especially parents' and grandparents' minds, college planning. A lot of kids were nearing the end of the school year here.

They're going to be graduating real soon. And so things that maybe aren't an immediate purchase, but we would like to make sure that those dollars are working hard for goals into the future might be to set up some type of college expense account, college savings or investment account. There are lots of great options there. If you want to earmark dollars for college expenses, 529s are a good idea. Roth IRAs can also be utilized. This is one area where you might be able to achieve multiple goals with the same dollar. And I'd love to talk to you about how Roth IRAs could potentially be utilized as an additional college savings vehicle. So give us a call. I know that's on the minds of many, but it's better to do that planning early, but it's also better late than never. So if you are trying to work on building up some type of college savings account, give us a call and we can happily talk with you about your options, how to make that as effective and efficient as possible.

800-338-5944, that's 800-338-5944. Folks, this is a great time to take your planning seriously. Markets are at all-time highs, giving us the advantage of higher values in those accounts that we can now take some of that risk off the table, protect some of those dollars. There are places that you can put those dollars to work for you that still have the opportunity for growth, but you can control and lessen the risk associated with potential turbulent markets and volatility in the future. Taxes are historically low.

My personal belief, they will be going up into the future. So why not implement strategies today to take advantage of these low tax rates? For those that have already built up a large tax-deferred balance in those retirement accounts, there are things that you can do to pay less in taxes over the course of your lifetime, and we can help you identify those strategies and implement them to make sure that you are taking advantage of today's low tax rates. Finally, we offer all this on a complementary basis, so cost is not an objection here. You need to take your planning seriously. I don't want you to say, well, I think it's going to cost an arm and a leg in order for me to get a plan put together, and we even give you the incentive of the book for free. If you'd like a copy of the book, Understanding Your Investment Options, if you'd like to look over, review your portfolio, if you'd like to sit down with a planning review and strategy session, pick up the phone, give us a call at Rashan Planning.

My wife, Amber, myself, Peter Rashan, we'd be happy to sit down with you, talk with you, understand what your goals are, and then outline for you what options are available to help you achieve them. 800-338-5944. That number again, 800-338-5944. We'd love if you'd visit us on the website, Subscribe to the podcast, listen to previous editions, lots of great tools and calculators. You can go on and you can request a virtual review. Be sitting in your own home. We'll be on the computer or on the phone helping you look over your finances. There's some resources there, videos, calculators, all kinds of good stuff. Visit the website,, or give us a call now 800-338-5944.

That's 800-338-5944. No pressure, guys. We really just want to get to know you a little bit better and invite you into our family. If you are interested, we would love to sit down face to face and get to know you a little bit better. Again, it's been lovely talking to you guys again this week. Pick up the phone, give us a shout. We'd love to hear from you.

800-338-5944. I guess we'll see you next week. We look forward to hearing from you soon or talking with you next week again here on the program. Planning Matters Radio from Richon Planning.

This has been Planning Matters Radio. The content of this radio show is provided for informational purposes only and is not a solicitation or recommendation of any investment strategy. You are encouraged to seek investment, tax, or legal advice from an independent professional advisor. Any investments and or investment strategies mentioned involve risk, including the possible loss of principal.

Advisory services offered through Brookstone Capital Management, a registered investment advisor. Annuity guarantees are based solely on the financial strength and claims paying ability of the issuing company. Withdrawals of growth from annuities may be taxable as ordinary income in the year it is taken. Individuals should review contracts for specific details of the product's features and costs. Early withdrawals may subject the owner to penalties, fees, or taxes. Fiduciary duty extends only to investment advisory advice and does not extend to other activities such as insurance or broker-dealer services. Advisory clients are charged a quarterly fee for assets under management while insurance products pay a commission which may result in a conflict of interest regarding compensation.
Whisper: medium.en / 2023-12-07 00:00:45 / 2023-12-07 00:12:12 / 11

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