Have You Ever Been Stolen?

Jan 25, 2021 David Kennon

When serving and helping people like you get the most life out of their money, not only am I competing with the hysterical financial news media, but I am also often fending off other financial advisors who try to distract my clients.   Remember that for the past twenty years I have attended countless seminars, training sessions and conferences.  I have an intimate understanding of how the financial advising industry works.  In fact, I have been trained, extensively, on how to “steal away” a client from another financial advisor.   So, today, I am going to pull back the curtain and show you the strategies and techniques financial guys like me use to get you as a client.  Why am I doing this?  I don’t want you to get sidetracked.  Don’t let some sales tactics derail a well crafted plan. _____________________________________________   Here is the Scenario:  You are sitting down with a financial advisor for the first time.  Let’s just assume that you are currently working with a different advisor at a different firm.  How have I been trained to get you to sign over your finances to me?   Strategy #1   Tell them their current portfolio is way too risky.   If you sit down with anyone who has any money invested in the stock market, say something along the lines of, “Hmmmm… that’s strange.  We don’t usually see people at your age with this much money in the stock market.  Do you understand the incredible risk you are exposing yourself to?”   My Commentary: I have written extensively on this subject.  In short, stocks have an incredibly consistent and successful 200-year track record.   Strategy #2   Tell them they are too conservative.  That they have too much money in low-growth bonds.   If you sit down with anyone who has any bond investments, say something along the lines of, “Hmmmmm…that’s a lot of money in bonds.  Did you know that when interest rates rise, bonds lose money?  Do you understand that we are in a historically low interest rate environment?  This is practically a guaranteed loser!”   My Commentary:  First of all, you are not getting the whole story.  While rising interest rates could adversely affect some bond prices, it does not apply to every kind of bond.   In addition, when rates do rise, bonds are “self-healing.” Rising interest rates translate to increasing yields.  The yield of your bond investments will go up because newly issued bonds placed inside the portfolio will be paying the new, higher interest rates.   Most advisors can make any portfolio look terrible (even if it’s not). It all depends on “reading” the prospect. If they express fear, you attack that fear and tell them their portfolio is too aggressive.  If they express a desire to really grow their portfolio, you tell them how you have too many conservative investments.   Strategy #3   Tell them they need GUARANTEES.   When sitting down with a new prospect, simply ask them, “Are guarantees important when it comes to your money?”   Of course, everyone says, “Yes!!!”   “Well then,” I continue, “your current retirement portfolio has no guarantees.  If the investments go down and you live too long you could run out of money.  You need guarantees on your retirement portfolio. I can’t believe your current advisor doesn’t have any of this money in guaranteed vehicles.”   My Commentary:  I have written extensively on this subject as well.  In short, often times putting “guarantees” on your money results in poorer performance and restricts access to your funds.   It might sound like a great idea, until five years later when you realize the guarantees did nothing but dramatically reduce your investment returns.  Really, nothing in life can be guaranteed.  Well, I guess besides death and taxes…   I’ve also spoken about how even a guaranteed investment can lose you significant money.  If inflation is going up, you lose purchasing power.  If the economy is doing well, you lose that money too (which is referred to as “opportunity risk”).  You can lose quite a bit of money by trying to not lose money.   Strategy #4   Tell them that your investment research team is second-to-none.   When sitting down with a new prospect make sure they understand the size and stature of the brilliant financial minds you have in your corner. It helps to use words they don’t understand.   “If you were to work with us, we will be able to increase your alpha and diversify your beta.  The standard deviation is within your risk tolerance, while making sure we keep an eye on the P/E ratios.  Our investment managers utilize a core and satellite strategy focusing on sector rotations.  We have won many awards.”   My Commentary:   Nobody knows when the stock market is going to go up or down.   There is no super-smart-analyst-man sitting in a secret office at your local bank that has insights or information to which other advisors do not have access.  It’s all smoke and mirrors.  Most advisors have access to the same products and investment solutions.  In fact, it is patently illegal to possess information to which no one else has access (it’s called “insider trading”).   The bottom line:   You need to find an experienced advisor who specializes in people just like you.  The advisor should also focus an understandable financial plan as much as the portfolio itself.  And most importantly, it is the advisors job to keep you on track (sometimes I feel like a therapist- LOL).   Be Blessed!   Dave

 

Is It Time to Invest in Gold?

Jan 19, 2021 David Kennon

How many of the following seven retirement questions can you get right?  Answer key with explanations at the bottom. Don’t cheat by looking the answers up on the internet.   1.  If you are already receiving your social security benefit and are not yet 66 years old, how much money can you make each year without being penalized? $0 $18,960 $50,800 There is no limit to income. 2.  What percentage of retirees spend five years or more in a nursing home? (source) Men- 10%, Women- 15% Men- 25%, Women- 35% Men- 5%, Women- 8% Men- 2%, Women- 7% 3.   What has the stock market returned, on average, over the past 80 years?  (source) 3% 5% 8% 11% 4.  True or false? You need at least one million dollars in your retirement savings to retire comfortably.   5.  If you receive $2000 a month in social security and your spouse receives $1500 in social security, how much would your spouse receive if you passed away? $1500 $3500 $2000 $0 6.  True or false? It’s a good idea to use your 401k or IRA to pay off your mortgage once you retire.   7.  Which is the smartest investment strategy for retirees? Gold bars stashed away in a safe A diversified portfolio of stocks and bonds A savings account paying .1% interest All of your money in a single stock, such as Apple or AT&T Ready to see how you did?   1.  (2) You can earn up to $18,960 and continue to receive your social security benefit without penalty. Once you turn 66 you can make as much money as you want. Want to make a million bucks a year AND collect social security at 67? Go for it!   2.  (4) Surprised? You’re not alone. It can feel like a foregone conclusion that you will end up — at some point in your retired years — living in a nursing home. But the data doesn’t support this fear. Only 2% of retired men and 7% of women end up spending five years or more in a nursing home. Which means you shouldn’t hoard every penny of your retirement savings after you retire just in case you need to go into long-term care.  Do you really want to live in your fears like that?   3.  (11%) Here’s why this matters. Retirement planning is about the long game. It’s about having a plan and sticking to it. Don’t let normal, even seemingly dramatic, fluctuations in the market scare you away from your plan. Historically speaking, if you stay in the market instead of pulling out every time someone on TV tells you the market is tanking, you’ll have a better chance of retiring with way more money in the bank.   4.  False. The average retiree spends just $3700 a month. And most retirees receive some income from benefits such as social security, 401ks, and pensions. If you plan ahead and work to keep your budget reasonable, there is no reason why you would need that much money.   5.  (3) Social security is actually a lot more complex than people think. For example, if you are married and you pass away, your spouse will receive whichever is the larger of the two benefits. In the example above, your spouse would start to receive the larger social security benefit, $2,000, if you passed away. If your spouse passed away, you would continue to receive your $2,000. That’s true even if you are no longer married. If you were married for ten years or more and did not remarry, you may receive your ex-spouse’s benefit once he or she passes.   6.  False. You pay federal income taxes on 401k or IRA distributions. If you use $200,000 of your $500,000 401k account to pay off your house, you will have to pay taxes on that money. A large distribution like this can put you in a much higher tax bracket, so you end up paying more taxes.   Instead, create a budget to determine how much you can safely withdraw each year — it should be around 4 or 5% — and pay down debts slowly, while using the remainder of your distribution to do things like take a cruise, spend more time with family and friends, or whatever you have on your retirement bucket list.   7.  (2) Just because you’re no longer working doesn’t mean your money shouldn’t be! Putting your money in a low-yield savings account, or hiding it in mayonnaise jars in the backyard, limits the potential of your retirement portfolio and therefore the potential of your retirement. You also don’t want to gamble it all on one “sure-thing” stock. The truth is there’s no such thing as a guarantee in the stock market. Even really big names can crash quickly. The safest and smartest strategy is to invest in a diversified portfolio of stocks and bonds, with at least half of the money in stocks.   Pass or Fail, here’s what you should do next.   Start planning for retirement now. A great first step is to sit down with your current household budget. How much do you spend each month? What is your total household income? Then, consider what might change in the years leading up to and after your retirement.   Most retirees actually spend considerably less than they did in their 50s, so it’s a good idea to check in on your budget as your retirement approaches. Finally, plan for what you want your retirement to look like. Do you want to travel? Start a non-profit? Volunteer? Retirement is about more than the golf course and early bird specials. Define your retirement on your terms, then make sure your investment strategy will get you there.   Be Blessed,   Dave

 

Is the “American Dream” a Lie?

Jan 11, 2021 David Kennon

What is the dream retirement supposed to look like? This is a question I’ve often wrestled with over my professional career. I constantly tell retirees to live fearlessly and boldly — refusing to give in to the fear of running out of money.   But, once the fear of outliving your money has been extinguished, what’s next?  Margaritas by the pool?  Golf every day?  Dinners out and sleeping in? It’s this — the “what comes next” of retirement, that is the real struggle.   Sure you might have some projects around the house and a couple of vacations on the to-do list, but that is not going to fill up the rest of your days.  It is essential for human beings to feel useful.   Where did retirement come from?   The concept of retirement itself is a modern, man-made phenomenon. Did you know that our modern understanding of “retirement” was created as recently as 1881 by Otto von Bismarch?   According to an article in the San Diego Tribune, “When farming dominated the economy, most men worked as long as their health held out. As they aged, though, they often cut their hours and turned the most physically demanding chores over to sons or hired hands. In 1880, when half of Americans worked on a farm, 78 percent of American men worked past age 65.”   While I’m glad you don’t have to work in the fields until the day your drop, it doesn’t change the fact that human beings were not designed to work for forty years and then live a life of leisure for twenty or thirty years until they died.  Human beings were designed to be fruitful and active as long as their physical health held out.   Retirement is NOT non-stop leisure.   That is the lie, and if you buy into it, before long you too will feel the same sense of unease. “Is this all there really is?”   Ever since the Industrial Revolution, Americans have heard the same message: Work hard for forty years, even if you hate the work, because when you retire, then you can start to be happy.  THEN you start living your life.   Does this way of thinking even make any sense? Who invented the concept of the dream retirement, anyway?   Who has told us that palm trees, warm breezes, leisure, and endless afternoons of golf lead to a fulfilling retired life?   Salespeople.   Family vacations and cruises during retirement are fantastic opportunities, but the tourism industry is bloated with offerings designed just to pinch as many of your pennies as they can.   Florida’s entire economy is built on the hope that retirees continue to move here!  You work your whole life at a job you don’t like, dreaming of moving to the sunny shores.   None of these industries are trying to help you live a satisfying retired life. They are trying to sell you something.  Don’t let their vision of your retirement define your own experience.   Make retirement YOUR dream come true.   So, assuming you’re not a farmer in the 1800s, what do you do?   You plan for retirement. Not just your finances, but your life goals and aspirations. What are you going to do with all that free time?   Deepen your relationships with your family. Take that family vacation. Go camping. Visit national parks. Babysit grandkids, or great-grandkids. Spend time talking and sharing stories. Focus on deepening the relationships in your life.   Serve. You have skills that are desperately needed in the community. Find an organization that is doing something you believe in, then pick up the phone and see how you can help!  You have a lifetime worth of experiences and skills.   Write your personal memoir. Do you have a story that you’ve always wanted to tell? With today’s technology, many people are finding it easy to self-publish professional-looking autobiographies.   Start a business. Ideally, once you retire you will no longer be driven by financial necessity.  If you don’t need to worry about making huge profits, a small business can be extremely rewarding and fun. Here’s a great article with some ideas to get you started.   Teach and mentor. You have a lot of life knowledge. What are you passionate about?  Start a free course a local library or club. Mentor young people to help them gain perspective on current events or learn professional skills.   Just enjoy the free time.  I don’t want to discount the fact that many of you dislike your job so much, lying in bed all day might be more appealing (but after a couple of weeks of that, you are going to get pretty antsy).   Live that better life right now.   Don’t believe the hype. The American Dream of retiring to the beach just isn’t all it’s cracked up to be. Your retirement can be whatever you want it to be, as long as it’s fulfilling and meaningful to you.   And the best part is, you don’t need to wait until you retire to enjoy your life.   You can do all of these things right now.   Live a life filled with loved ones, new experiences, and opportunities now, and when you retire you won’t be asking, “What do I do now?”   Instead, you’ll ask, “What haven’t I done yet? What ELSE can I do?”   Be Blessed,   Dave

 

The Dominance of the Chinese Economy?

Jan 4, 2021 David Kennon

It’s been a while since we’ve delved deep into historical stock market data.  Therefore, this week I am going to bore the heck out of you.  (just kidding)   With the unrelenting bad news all around us, let us allow data and history determine our actions.  Let’s stay away from knee-jerk, fear-based, emotional investment decisions.   Fact:  In the past 50 years, the stock market was down ten out of fifty years.   Fact:  Only five of those ten times saw a double digit decrease. (10%+ loss 10% of the time)   Fact:  The stock market, as a whole, has averaged a 10% return for 200 YEARS.   Fact:  The stock market is never “due” for a crash.  1942-1972 saw no crash. 1974-2000 saw no crash.  2000-2008 saw no crash.  2008-2020 saw no crash.  Were there “mini-crashes” where you might have lost 10% temporarily?  Yes.  But nothing serious enough to mention.   Fact: If you invested $100,000 in 2010 you now have $355,000.   Fact:  If you invested $100,000 in 1990, in 2000 you would have accumulated $499,000.   Fact:  If you invested $100,000 in 1960, twenty years later it would have grown to $495,000.   Fact:  The United States makes up 40% of the world stock market.  China is third at 7%.   Fact:  Stock market declines of 5-10% generally require a single month to recover.   Fact:  The stock market can be dated back to 1602.  It has worked for 400 years.  This is not a new concept.   Fact:  The wealthiest 10% of Americans own 84% of the stock market.   Fact:  Before the financial crisis happened in 2008, the most valuable companies on the stock market were ExxonMobil, General Electric, Microsoft and AT&T. Now the most valuable are all technology companies: Apple, Amazon, Google and Microsoft.   Fact:  1930-1940, 1940-1950, 1950-1960, 1960-1970, 1970-1980, 1980-1990, 1990-2000, 2000-2010, and 2010-2020 all had overall positive returns.     Fact: From 1900-2000 the stock market returned an average of 10.4%.   Fact:  $1000 invested in 1900 would be worth $19 million today.   Fact:  If you started saving for retirement 30 years ago and dropped $100,000 into a money market, it’s current value would be around $203,000.  If the money had been invested in the stock market, the current value would stand at $1,700,000.   Fact:  Few people put all of their money into stocks.  Bonds are also a key component to most portfolios.  Generally speaking, bonds go up when stocks go down.   Fact:  If the stock market ever went to zero we would be living in a post-apocalyptic wasteland.   Fact: In August 2000, Fortune magazine published “10 Stocks to last the decade”. By December 2012, a portfolio containing those 10 stocks lost 74.3% of its value. (in other words- nobody can predict what stocks will go up and down).   Fact:  Most day traders garner the lowest returns. Between 1992 and 2006, 80% of active traders lost money, and only 1% of them were profitable.   What a reality check, right?   Be Blessed,   Dave