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ANNOUNCER: You’re listening to Safer Retirement Radio. The contents of this show are the opinion of Mike and his guests. Do not use this content for investment decisions, legal, or tax advice. Consult with a licensed financial professional, or conduct your own due diligence when making investment decisions. This show is pre-recorded before its actual air date. [MUSIC] [APPLAUSE] You’re listening to Safer Retirement Radio and now your host, Mike.
MIKE: Yes, thank you, thank you. Welcome, everyone. We’ve got such a great show lined up today, such a great show. Last week our guest Brian Decker had mentioned bitcoin and we had several calls about bitcoin, whether it was a good investment, not a good investment, should it be a part of a retirement plan, is it okay to throw some money in there for an accumulation plan?
MIKE: Even Forbes had reached out to us with some commentary on the matter. So, today we’re gonna be talking about that, but before we get started any further I do want to say a special thank you to our sponsors, Decker Retirement Planning, a very special sponsor. They’ve got offices in Kirkland, Washington, in Seattle, Washington and soon to be Renton, Washington for those south of the lake, Salt Lake City, Utah and San Francisco, with other offices, I guess that are opening up as well. There’s a reason why they’re growing, it’s all about a safer approach to retirement. So, if you want to learn more about that you can go to deckerretirmentplanning.com for more information whether it’s seminars, you can go and visit with them.
MIKE: That’s all right there and easy for you. Also, they’ve got a great podcast for you podcast listeners, “Decker’s Talk Radio: Protect Your Retirement,” a great show there. But, okay, let’s dive right in here. We’re gonna get started today with…
ANNOUNCER: A bit of clarity. [MUSIC]
MIKE: Now normally I start this bit off with a quick definition, but who wants to hear that when you can hear it from a bitcoin guy that was in a bitcoin suit talking at a park and describing about this. So, we’re gonna let this guy talk about it. Here you go, check out what bitcoin is.
MALE 1: I’m a virtual currency. [LAUGHTER] Worldwide you can send for little to no fees, open source, not controlled by any government, corporation or individual. It’s financial freedom, bro.
MIKE: Thanks, bro. And by the way if you still don’t get it, don’t feel bad. Every time I hear someone trying to explain it, it feels like someone trying to explain elegant wine and it’s their first time they’ve ever had elegant wine or some sort of nicer beverage, they just say the buzz words that they have heard and know and try to sound smart, but when reality you put it in a context you have no idea what they’re saying and neither do they.
MIKE: I like what Stephen Colbert said when he tweeted Quote: “Wow, if I invested a thousand dollars in bitcoin last week, today I would have still no idea how bitcoin works.” And that’s pretty much it. Now, I’ll give bitcoin and cyber currencies credit where credit due, okay, the whole concept does make sense. Originally we battered, or bartered, excuse me, bartered and traded for goods and services to get by. Then we brought the note into existences, or better known today as, you know, the dollar, the yen, the peso, a lot of other currencies, and the list goes on.
MIKE: Simply put it’s a commonly accepted currency that’s backed by gold and the government, or at least it used to be in 1971. For the United States at least, we went off that gold standard. So, now technically speaking, the dollar is only as credible as the U.S. government, just like today, bitcoin is as credible as the person that made it and the technology that they used to make it and the exchanges that it’s on. Now, I don’t know about you. I know who the U.S. government is. Bitcoin was put together by an anonymous group who we still have no idea who they are. But, that’s okay. More on bitcoin, on what it is, I love how G.P. Sears from Spiritual Living says it. Check this out.
G.P. SPEARS: Let me explain how bitcoin works. People worry when there’s no gold behind money, but you don’t have to worry about that with bitcoin because not only is there no gold behind it, there’s no anything else behind it either. So, technically it’s nothing. But, because the good hearted anonymous people behind bitcoin really sold a limited amount of this nothing it’s worth something. Scarcity is what makes anything valuable. So, with bitcoin, scarcity is what makes nothing valuable as well.
MIKE: So, to put that in perspective, I’m just gonna have a little fun here with a little analogy. Let’s say I made a coin, okay? And that coin, there’s only one coin, though and it’s, for the sake of this experiment, it can’t be divided up like bitcoin or other cyber currencies can, okay? Now, that one coin, let’s say I sold it to this idiot for a million dollars. Who’s laughing, right? Now, let’s say that person took that one coin and sold it to a friend for 1.2 million dollars. That person also knows a network with thousands of people who are also idiots and are wanting to by this one coin. Now they keep trading amongst themselves and because that little community of idiots, they’re all making money.
MIKE: Now I feel like the idiot, not them. It’s an absolute phenomenon that bitcoin and other cyber currencies have taken off. To me, the whole thing feels like we’re buying and selling based on the belief and the success of a non-existent enterprise. That belief is fostered by the payment of a quick return to the first investors and then the later you get in the less you could potentially make. Based on the news and articles that you’ve been reading, doesn’t that sound about right or so? That was actually a quote from Wikipedia that’s defining what a Ponzi scheme is. So, they’re very similar, right? But, for some reason this is still happening. So, let’s keep diving into this.
MIKE: Instead of describing the technical side of how it works, we’re gonna talk more about what it means to you. No one cares how the sausage is made. They just want to make sure it tastes good. The question today is not necessarily how the technological side about that as it’s very complex, it’s should you be investing in bitcoin and other cyber currencies or not? Now, generally speaking, investing is based on fundamentals of any given company. If the company is healthy and projected to do well you would think that the company is going to continue to do well and chances are the stock will go up and you will participate with that increase and the exact opposite if things were going bad, right?
MIKE: There are also so many other factors into reading into these fundamentals. But, we don’t have time, nor do, I think you have the patience to really take a lecture from me on fundamentals 101 on market value. So, we’re gonna skip that part. As far as bitcoin goes, though, there are no fundamentals. There’s no government to look at. There’s no enterprise to value. It is pure speculation on volume of trades. It could not be more like the Wild West. Now, in normal markets trades are regulated so the quote: “Big boys and girls” can’t manipulate the markets for their own advantage while leaving the others high and dry behind them, right?
MIKE: There is no such shelter or protection with cyber currencies. Now, I’m about to play you a clip, this is a very real advertisement. It is not a joke, listen to this.
MALE4: A leading cryptocurrency pump group where we skyrocket the value of coins for six hours at a time. To start, create an account on the cryptopia exchange and fund it with bitcoin. For information about our weekly pumps including the name of the coin we are pumping follow our telegram channel. Once released be sure to by the coin as quickly as possible. When everyone in the group has purchased the coin we will begin advertising it to other investors on social media: Twitter, Instagram, YouTube, StockTwits, Discord and Telegram.
MALE4: Everyone is involved in marketing so that we can achieve maximum profits. Throughout the six hours you will see two to three major pumps powered by targeted marketing. This will be an opportunity for our members to take some profit. When it is time to sell our full positions, about five hours into the pump, place or sell orders above market price. During the final hour, outside investors will fill our orders as they [fomo?] into the coin that we have increased 1.00 to 2.000 percent. By the time that the six hours is up everyone in our group will have sold for profit.
MIKE: In case you’re not realizing what’s going on right here, everything they said and were advertising was absolutely illegal in any other situation. But, because crypto currencies are unregulated international, they can do whatever they want. Jerry Brito, Executive Director of Coin Center, a D.C. Nonprofit research and advocacy group that focuses on public policy for issues that are facing cryptocurrency said quote: “People are desperate for anything that can bring them instant wealth. You shouldn’t invest in stuff you don’t understand and you shouldn’t be investing in money, or with money that you cannot afford to lose.”
MIKE: I bet Jerry was incredibly disappointed when he heard about the Americans that were getting second mortgages on their house to get in on this fun. Now, when you hear that commercial, doesn’t that make you really nervous? If you’re gonna do a second mortgage on your house, which by the way don’t do this, and you’re gonna invest it in bitcoin, can you imagine if you were on the top of one of these pump and dump schemes and you just lost half of that? That would be devastating. That is the kind of frontier that cyber currencies like bitcoin and all the other ones are really playing in. It is not a clean game.
MIKE: You shouldn’t invest stuff that you don’t understand. I think Jerry said it just right. It’s a crazy time and it feels like a cyber gold rush, but instead of the gold rush, the value of gold, which is for the most part level, I know it goes up and down, but for a gold rush that’s with cyber currency it’s kind like the Six Flag roller coaster. I mean, it is going all over the place and you don’t know what the next turn is ‘til it hits. Now, with all the hype that’s going on right now and trying to give a real account of how this all works, I did make an account and I did buy some cyber currencies. I wanted to give it a fair shot, okay? I wanted to be as objective as possible when preparing for this bit.
MIKE: I looked at the different currencies, chose one that had not had a spike in awhile, again, doing my very limited market research with absolutely no fundamentals to look at and I invested and let it sit for just four day. I just wanted to watch and see what happens. Now, the process was painless. The exchanges, they’ve come a long way since cyber currencies first came about. And after four days of having it invested I sold it at a seven percent gain. That’s really impressive. Seven percent in four days is incredible. I’m still waiting to see if the cash will clear and if those funds will actually make it back into my bank account.
MIKE: So, the verdict is still out on that as they place a hold on that for regulatory purposes, which I guess makes sense ‘cause these markets would attract scammers in a way. So, they’re trying to regulate some way. But, either way, that’s just the wallet’s policy that I had used. Now, I can see, and I get it, especially for risk takers and gamblers, this kind of market could be very attractive to play. The problem is, when I looked at all these ups and downs in this particular coin that I went through, I just got lucky. There were some huge falls that happened recently that I just happened to avoid.
MIKE: With no fundamentals or big fish pumping and dumping in the markets, it feels like Vegas and I just happened to get lucky over the last four days. But, that’s not always the case. It’s kind of like in Vegas except for you’re betting on horses that you can’t actually see. You have no information about those horses, it’s just a number and all you see are the times on the board and you hope you win big. Now, changing gears a little bit, if you are gonna use bitcoin, use it with your fund money, but keep this in mind, as we have seen some major scandals in these markets since 2014, that being the first big one. These are some of the most common ways that theft occurs with cyber currencies.
MIKE: Oh, and by the way, if you don’t understand what I’m saying in this next little part that is a sign you probably should not be investing in cyber currencies. But, number one, stealing private keys; Number two, exploiting wallet vulnerabilities; Number three, operating fraudulent exchanges and investment funds; Number four, attacking legitimate exchanges directly; or number five, attacking dark web market places. That last phrase had three words I thought I would never say in this entire series, but there you go.
MIKE: Now, here are a few strategies for reducing risk: Secure your private keys. And if you want some guidance on that or some ideas, just look at Visa’s PCI compliance, they’ve got a lot going there as far as cyber attacks that could help you. Number two, using highly secure wallets. And number three, researching the exchanges and other services as best you can. And I get it, it’s a crapshoot, there’s no fundamentals. But, maybe you can come up with something or some sort of pattern as it all is still very new for everyone. Another thing I want to throw out here is with the ICOs, the initial coin offerings that are happening almost every day it can be hard to keep up with trends and it can be hard to take them all seriously with some of the names that they’re calling themselves.
MIKE: Again, you want to make, you want to invest in valid or real currencies, not some scams, so here’s my list of real cyber currencies that have just ridiculous names. Here’s one: Insane Coin, which by the way instills a lot of confidence and stability, but there you go. Electroneum, Wax, Partisol, Deep Onion, yes Deep Onion is a real currency now. Snowville, Pluton, NewBits, Clams, I am hoping that Clams came from my Northwest people over there, but, there you go.
MIKE: And then Dodgecoin, which started as a joke with that meme with the dog, but it now has over 2 billion dollars of assets, it just exploded. And will billions going to these companies it could be hard to ignore the excitement. One company made over 35 million in just 30 seconds. But, with all the money flying to these cyber currencies there certainly are a few kinks to work out, for example, the last bitcoin conference that just happened, they had to stop paying bitcoin to pay for the conference. That’s a bit ironic.
MIKE: Here are, I’m gonna wrap things up here real quick, but here are a few important facts that I do want to say about cyber currencies before we end this segment. To make cyber currencies, (which for the record is called “Mining” if you ever hear that) so, mining these currencies, it takes a ton of energy. One analyst showed that bitcoin mining now consumes as much electricity as the country of Denmark, which is enough to power three million homes. For being a paperless currency, it sure isn’t helping the environment much. Now lastly, internet currencies are not a new thing.
MIKE: I just want to throw this out there. I’m not sure if you remember Flows or Beans, these were two internet bubble vendors that, with terrible names, but they provided online currency, which many dotcom proponents in the late 90’s considered to be the secret sauce that would lead to wild success of e-commerce. The idea was to create an internet currency that was not a legal tender in any particular country, but could be used to purchase items on the web. Sound familiar? Both vendors generated a lot of hype, but Flow’s commercials, featuring Whoopi Goldberg, [LAUGH] I don’t know if you remember those, if you don’t, look ‘em up on YouTube, they received the most attention.
MIKE: Unfortunately, consumers inexplicably preferred to use real money and credit cards over these cyber currencies and eventually around 2001 they went away. So, with bitcoin, will it survive or will it not? No one knows for sure, but certainly there is lot more money invested in this this time than there was last time and there’s a lot more on the line. But, cyber currencies may be too big to fail because of the volume, but no government is responsible for backing them, so they really are too big to fail so to speak. Okay?
MIKE: So, to rack up this segment, I do have a very special guest with us Brad Geddes, he’s an incredible purebred fiduciary from California. His office is actually downtown San Francisco, Brad thank you so much for coming on the show.
BRAD: Thanks for having me on, Mike.
MIKE: Brad, even though about seven percent of people have invested one way or another with bitcoin and other cyber currencies, there’s a lot of individuals who are watching very closely right now on what’s going on. Can you give them some direction on what to look for if someone eventually did want to invest in one of these cyber currencies?
BRAD: Yeah, for now, I don’t recognize investing in crypto currencies any more than you’re willing to lose. And this is different from other assets that you can buy out there where you don’t have the same risks in place and the volatility. I think there’s a common misconception in particular that I like to clear up early on when I’m talking to people about crypto currencies is that they, people think of them as an alternative to gold. Now, the comparison works when you think of it as a store of value as opposed to a currency like a dollar bill that you use to buy gum at a grocery store.
BRAD: But, it breaks down, the analogy breaks down for me pretty quickly after that. The problem with this kind of thinking is that it doesn’t take into account the potential impacts from government regulation, new technology developments, other currencies coming on the market almost every single day. Gold doesn’t have these risks. So, that comparison really doesn’t hold up for me. Another warning that I want to get out of the way early on with people is that new ICOs, Initial Coin Offerings, new coins, new tokens, are being announced almost every day. So, I usually encourage people that are considering allocating a portion of their portfolio to these assets to avoid the lesser known coins.
BRAD: You’ll hear stories online about making, people making a lot of money in these lesser known coins, and I even know people that have made money on these coins. But, unless you really know what you’re doing, I usually recommend against them.
MIKE: All right, so in your experience, do you have any clients that use bitcoin in their retirement plan?
BRAD: So, when I think about recommendations for retirement, there’s, and I’m thinking about the longer term returns for someone who’s looking to be retired. And this comes in two forms of levers that I like to talk people through.
BRAD: Any return that you get on any asset is going to come from either a risk a version, so your ability to take on risk. Obviously with higher risk leading to higher return and then lower risk leading to lower return, but also lower loses. And then the other lever is the time value of money. So, how long do you have before you need that access to that cash? So, from a retirement perspective, these two levers are really important to keep in mind. There’s a serious lack of liquidity in many of these investments and so if you’re trading frequently or if you need cash at the drop of a hat, you know, these can result in really high fees.
BRAD: On top of that there’s almost zero oversight from regulatory bodies, so that leads to a lot higher risk on that risk aversion lever that I just addressed. Many of these new in entrance actually remind me of penny stocks where frequently the incentives between the offering entity and the buyer are basically inversely related. Once the transaction is done, the offering entity is done with their obligation is the buyer is just sitting and hoping to get a return. As a general rule, when I’m talking to people about crypto currencies, if they’re interested in purchasing these, I just can’t recommend the smaller coins and I say, “Stick with the bigger market caps, the ones that are more established.”
BRAD: I think this includes coins like bitcoin, Ethereum, it includes Ripple, is a good example. I actually own a bit of each. So, with, mainly with the warnings aside, the upside to these can be pretty enticing and too enticing, in fact, for me to ignore fully. So, keeping in mind the rule that you should really only invest what you’re willing to lose, I think there’s a place for crypto currencies in the longer term portfolio. Now, this is not a retirement asset for someone that’s, you know, 60, 70 years old and they’re going to be focusing more on the income portion of their portfolio pretty quickly.
BRAD: But, for a longer term portfolio, maybe less than five percent or so, if there is a future for these crypto currencies, then it’ll be a big one. So, the small amount could pay off. Also, one other thing that I keep in mind and that I point out to people is that we’ve seen basically for a decade now that traditional financial institutions have been proven wrong consistently in their predictions for these assets. Now, for the reasons I’ve already mentions their comments may still prove correct, but their track record so far isn’t great.
MIKE: Thank you so much Brad, incredible advice. So, to wrap up this segment, before we get to our incredible interviews today, I just want to go over some basic advantages and disadvantages of bitcoin.
MIKE: Advantages would be: greater liquidity relative to other crypto currencies, if you’re talking about bitcoin specially; increasingly wide acceptance, or wider acceptance as payment methods, and those are growing; international transactions are easier than regular currencies; generally lower transactions fees, again that depends though, also on the exchange that you’re using and what you’re buying; but, anonymity and privacy, which, again, I don’t know why you would need that unless you’re doing some illegal activities. But, that would be considered a benefit.
MIKE: Also, independence from political agents and creators. That again, I don’t think the dollar is that controversial, but everyone’s a little different. Built in scarcity, which is probably one of the more fun ones to talk about. It’s just cool to be a part of something like that. Disadvantages would include exposure to bitcoin specific scams and frauds and those are increasing. The black market, they do actively hurt bitcoin just because of its reputation or manipulation. There’s also susceptible to high price volatility, as we’ve been talking about and I’m sure you’ve seen in the news. There’s no charge backs or refunds.
MIKE: There’s potential to be replaced by superior crypto currencies as a lot of them are fighting to be the top dog right now, and the environment ills of bitcoin mining, which we talked about earlier. To kind of end all of this, I want to say what Robert Schiller had said in an interview about bitcoin being a bubble. He says, “Dabbling in bitcoin lies somewhere between gambling and investing, after all true investing requires a rational appraisal of an asset’s value that is simply not possible at present with bitcoin.”
MIKE: “It’s not just that very few people really comprehend the technology behind bitcoin, it is that no one can objectively probabilitize to the various possible outcomes of the current bitcoin enthusiasm. Bitcoin is an example of ambiguity and the efficient market theory does not capture what is going on in these markets for crypto current.” And all right, that’s all we’re gonna say on the matter for bitcoin. We’re gonna move on here. We’ve got some great interviews with Ben Koval and Bruce Tynan coming up here in just a second. Ben Koval just entered the studio right now. Ben, thank you so much for coming on the show.
BEN: Thanks for having me.
MIKE: Hey, so Ben, as a purebred fiduciary you’ve seen a lot, okay? When clients come in and they’re showing you all they’re assets and you start planning with them do you find that sometimes there’s certain investments that they’re just so emotionally attached that it could possibly hinder their actual decision making?
BEN: You know, that’s an interesting question because I find two different types of people. The first type of people are ones that went through their entire working years not really paying much attention to their investments, so they don’t overly care what’s in them. Now, that’s relatively rare, however, that’s the first type of people that I see.
BEN: Now, the second type of people are the ones that had a hand in what they were investing in. They made decisions based on companies they liked or products they liked or the social aspect of how these companies operated, which was fine as they were working, when they had time on their side for riding waves of market crashes. In retirement, of course, this changes. It’s a much different approach that needs to be taken when it comes to your assets. Some examples would be Starbucks or Microsoft, Boeing stock, especially up here in the Seattle area.
BEN: These companies have been around and a lot of these people have actually worked for these companies at some point in their life. There becomes an emotional attachment to this stock. This leads to a pretty big problem, especially when it comes to investing your money in retirement. The two biggest issues people run into when they invest in the stock market is fear and greed. Fear will keep you out of the market when you should be in. Greed will put you in the market when you should be out. This is emotional based investing and it has no place, especially when you have no more working years to replace bad investment decisions.
BEN: Now, I’m not saying you shouldn’t have any of these types of stocks in your portfolio. You absolutely can, you just have to make sure that you’re okay with that money dropping by 40 or 50 percent every seven or eight years. Our approach is a little bit different, though. We’re not using emotion as an aspect for how we invest. We’re using simply math. The best earning investments are the ones that should be in your portfolio.
MIKE: So Ben, you mentioned that second group of people here, do you find that with their investments they’ve picked out and been involved in that they believe that they’re getting these incredible returns because they believe their financial planner or were lead to some belief that’s not actually true?
MIKE: And how is it when you have to break the news to them?
BEN: This is an extremely point you just brought up. You need to be able to check the validity of all the financial advice that you’ve been receiving. A large part of that is checking the returns. Now, every once in a while I have clients in here that will come and talk to me about their investment choice that a bond fund for the past handful of years has averaged five or six percent per year.
MIKE: Sure.
BEN: Every time I hear that I know it’s not true. Bond funds right now are one of the worst investment choices and as interest rates go up they will continue to lose money.
BEN: One of the easiest ways that you can check that validity of what you’re being told is take a look at the specific fund yourself. Go online, there are dozens of sites where you can check how a stock or a mutual fund or an ETF has been performing. Take a look, verify for yourself. I had one person in here specifically who said that their bond fund, which was a PIMCO bond fund was averaging four or five percent for the past three years. It was a very eye opening experience when we went to my computer and I took a look at the specific fund that he was mentioning and see that it was up .5 percent for the past three years on average.
BEN: That’s a huge difference, a huge disparity. The most common investment where I see this being a problem where people weren’t told the specific truth of how their return is calculated is variable annuities. Now, I know we’ve talked about variable annuities a lot here. It’s because they’re so toxic. A lot of times the insurance salesman will come out and they will tell you a guaranteed return of five percent per year, seven percent return. That’s not accurate. They’re giving you a return on the accumulation value, not the cash value.
BEN: This accumulation value truthfully is a made up number that they’ll end up drawing a specific percentage of in the future for lifetime income stream. It’s not obtainable cash. And so, it’s very misleading for individual investors when they are told that you get a seven percent guaranteed return but it is not on the cash account. When you actually calculate the return on a lot of these variable annuities because of the very high fee structure that’s in them, up to five, seven percent, you’re not seeing much of any return on a cash value side.
BEN: And this accumulation which has been growing at five or seven percent, you will get three percent of that per year for the rest of your life. When you run the actual calculation to your life expectancy, or even to age 100 you’re seeing a return close to a savings account. These are horribly toxic investment choices that a lot of people misunderstand how the return works.
MIKE: Oh yeah.
BEN: Now, that scenario, I lay squarely on the financial professional.
MIKE: Mm-hmm.
BEN: These products need to be more forth coming with how they work. They need to be more thorough in how they explain them.
BEN: But, this also puts, again the point that you as an individual investor need to know the specifics of how these work. Understand the difference between accumulation value/cash value. The best advice I can give anybody looking at investment decisions is if you do not fully understand how these individual investments work then you should not invest in them. Make sure you understand before you jump in.
MIKE: Ben, that’s some powerful advice. Thank you so much. Now, I want to go back to the emotional topic that we started with here. If you invest emotionally what do you gain and what do you lose from your standpoint, being a purebred fiduciary?
BEN: There are advantages to emotionally investing. These advantages typically revolve around how you feel about your investment strategy.
BEN: It puts you in connection with your money in a deeper way. Maybe you’re investing in these companies because you used to work for them or maybe you like the products that they offer or feel that they are socially responsible. Whatever the reason might be, emotionally investing puts you at a deeper connection. It can make you feel like you’re doing good out there, you’re investing in a company whose morals and standards you feel help benefit the country as a whole r people as a whole.
BEN: The problem, however, with emotionally investing has to do with the return that you typically receive. If you’re invested emotionally into a position it makes it more difficult for you to see clearly through the logic of the situation. It’s easier for you to justify staying in that position longer than you should because you feel that, oh, they have such a great product. They’re such a great company. There’s no way that they’re going to long term lose funds. There’s no way there’s gonna long term be a bad investment decision for me. This type of thinking can cause you a lot of issues in retirement.
BEN: It can cost you real income. It can cost your beneficiaries inheritance. Overall, emotionally investing is a very dangerous, dangerous place to be once you’ve taken your last paycheck. You can’t have that risk long term. It needs to be managed more effectively. It needs to be managed more mathematically.
MIKE: All right Ben, so let’s talk about math. If you invest mathematically, what do you gain and what do you lose?
BEN: If you invest mathematically, as opposed to emotionally, what the end result is, is maximizing gain. You’re able to eliminate the two factors that cause people the most issues when investing in the stock market.
BEN: And I mentioned this earlier, it is fear and greed. Now, once you have a mathematical approach to how you invest your money, you are strictly looking at the best earning potential. That will maximize your income. That will minimize your risk, long term that adds up to higher gains. But, one of the strongest advantages that you have to mathematically investing is preserving your sanity. I’m sure there are many people out there listening right now who have a, what I would consider, unhealthy attachment to their stocks, to their portfolio.
BEN: Where you’re checking it daily, you’re checking it hourly, you’re checking it every couple of minutes to see how the market has responded, how it’s turned your assets up or down. When you’re in retirement, this is not what you should be worrying about. You should not be worrying about the day to day on how your assets are performing. You should be out there going on trips, playing with the grand kids, developing the newfound hobbies that you love in retirement, gardening, whatever it might be. A mathematical approach to your assets in retirement gives you that freedom, gives you the ability to no longer worry on the day to day of how your assets are doing.
BEN: A mathematical approach will also preserve the financial safety of the loved ones if you pass away. Or if, heaven forbid, something happens to your mental ability to process information. A mathematical approach will still keep you on the path for the highest earn with the least amount of risk.
MIKE: Makes sense.
BEN: Now, the down sides of having a mathematical approach is you are slow and steady in the race. You’re not gonna have the very risky venture that you invested in and all the sudden you made a hundred times your investment. That’s not what a mathematical approach gives you.
BEN: It’s going to give you more consistency in your returns, which will overall maximize the benefit. You also lose some of the emotional aspects to your investments, for better or for worse. The best way to compare these two philosophies, emotional investing to mathematical investing is let’s say you’re gonna go an buy a new car. You go on the lot and you see a flashy red sports car. You talk to the salesman about it and you look and you open up the engine and you see it’s probably gonna have some work that’s needed to be done.
BEN: It’s gonna take a lot of your time, it’s gonna take a lot of your effort and it’s gonna be a continual process for you to maintain it. That is more of the emotional aspect to investing, something that is flashy that draws your attention to it and then you are invested, you are in it for a long time from an emotional standpoint. A mathematical approach is more like going on that same lot and seeing a car that will work perfect for your needs, that will get you where you need to go, not gonna be flashy, not gonna be what turns people’s head, but it’ll maintain a consistency for your transportation needs.
BEN: Which one you go with depends on your spot in life, it depends on what you’re trying to achieve. Do you want to take the risk of having your engine catch on fire at the middle of the freeway and you’re stranded? But, also the potential to at dinner parties point to your car and say, “Hey, look at what I have. Look at what I’ve been able to achieve?” Or, would you rather have more confidence that this vehicle will get you exactly where you need to go when you need to get there? In retirement more people go towards the consistency. They want to have as high return as they can while minimizing their risk and that is the primary purpose of a mathematical approach.
MIKE: Now Ben, for our Safer Retirement Radio listeners right now that are listening in on this show, how can they go about their investments mathematically? Do you have any advice of what to look for, what to do, who to talk to, any of the above that can help them right now with their investments?
BEN: Well, the first step is to understand the environment that you’re operating in. So, when we’re talking the stock market, I’m sure many of the listeners here know that the stock market goes through periods every seven or eight years of market correction, where the market will drop 30 to 50 percent. It’s been almost like clockwork every seven or eight years.
BEN: Now, we are at year 10 of the seven-eight year market cycle. The last crash was in 2008. So, that puts us in a relatively dangerous spot when it comes to where the market is based on the history. Understanding that aspect alone will help from a mathematical standpoint with investing. Now, those market crashes aren’t such a big deal when you’re working. When you have a paycheck coming in to you, then a market crash, you can ride the wave. After the market crashes it could go higher afterwards and then you will be just fine. The problem is when the market crashes and you’re retired.
BEN: Time is not on your side any more. That money is more short-term need. Understanding the flow of the market and the history of its crashes could help you to have a better approach when it comes to how to invest these assets. A good tool to use is non-correlated sectors, meaning don’t put all of your money in the S&P 500, the NASDAQ 100. These sectors typically fall together. You want to try to give yourself the best approach to minimize this risk. An example here would be commodities, gold and silver.
BEN: Traditionally if the stock market crashes, commodities like gold and silver will go up. That’s how it was in 2008, that’s how it was in 2000. Being able to invest in these non-correlated sectors gives you a more mathematical approach to limit the potential down turn.
MIKE: Ben, that’s great general information. Thank you so much. But, I’ve got a very specific question and you’ve mentioned several times about risk, mathematical and you’ve hinted at a lot of different things here. But, let’s find out, you’re a purebred fiduciary, your clients at Decker Retirement Planning, what are you doing for them?
MIKE: How do you look to the market for you clients, for the investments and how are you preparing while we’re in this market top for them to have that downside protection?
BEN: Now, we again are a math-based firm. That’s what we focus on is looking at the mathematical approach to investing to get you the most gain. We do this more as a statistician approach. We will look at the two largest databases out there and a couple of the smaller ones, so Wilshire database and Morningstar database, looking for money managers and mutual funds and simply who are the highest earning that we can use?
BEN: Once we vet them through the process we verify their returns and see they’ve been through a market crash then we add them into our risk management. The interesting thing about this is the highest earning of these managers and mutual funds for the past bunch of years has been what’s called two-sided trend following algorithms. That’s a whole lot of jargon, but essentially it stands for computer algorithms that are designed to make money in both up and down markets. They’ve been around for a handful of years. We didn’t invent them, but that’s what we’re using because they are the highest earning period.
BEN: Now, how they work is a lot of times based on the trends and the best way that I can explain it is similar to the tides. So, when you’re on the beach and you’re watching the tide come in, that’s a trend. It’s a trend you can see. When the tides go out, again that’s a trend you can see. These money managers and mutual funds are reading the market like the tides. Now, based on that trend they will trade on the waves accordingly. An example here would be like the 2000 crash. The 2000 crash was sector specific. It was the tech stocks, if you remember the tech wreck?
MIKE: Yeah.
BEN: Now, these managers were reading the trends in the market place and they were trading out of the tech stocks as they were crossing down their averages. They were able to move into sectors that were still going up, bio-tech, commodities, like I mentioned earlier, gold and silver, material companies. And so, it allowed them to make and not lose money. That’s how they’re designed to work is to minimize your risk based off of the trends that happen within the market place and it’s a strictly mathematical approach. It’s an algorithm, a computer program.
BEN: This eliminates fear and greed from the equation and gives our clients a higher, more steady return. On the flip side, when the market goes up, these models are designed to ride that trend up as well. So, as the market goes up they make money. These models have been mathematically the highest performing out there, and that’s who we use. The result has been, since 2000, we have seen a 16 and a half percent per year gain from our client’s portfolio and risk money. The market during that same timeframe has been right around 5.6 percent per year.
BEN: The biggest difference between the mathematical approach and the market has to do with preservation of capital in the down years. When you don’t lose money when the markets go down, compounding makes a huge difference and that’s where that 16 and a half percent comes in. What I love most about our approach is that it’s mathematical period. If there’s something better that comes out there that has the higher returns. That’s what we’ll use. That is our approach and that is how we invest our clients’ money in the market.
MIKE: Ben, that’s absolutely incredible. Thank you so much for coming on the show, for sharing this information and for being with us today on Safer Retirement Radio.
BEN: Thanks for having me, Mike.
MIKE: All right everyone give it up for Ben Koval. [APPLAUSE] Now, everyone listen up real quick to all the Safer Retirement Radio listeners right now, this is a very special offer that Ben and his team are extending. You heard about mathematically investing and getting those gains. You heard about the 16 and a half percent annual returns, dividends reinvested, which is incredible, especially since 2000. They, Be and everyone agreed to open the phone lines right now for the next 10 minutes, accept your calls so you can come in and visit with Ben or one of his fellow purebred fiduciaries at no cost to you.
MIKE: This is huge. It could be a huge game changer in helping you get the transparency you deserve for your retirement plan. So, right now you can call 800-261-9446 or you can just dial #250 on your Smartphone and say the key word “Retirement Help” to get access for the next 10 minutes to schedule a time to visit with Ben or one of his purebred fiduciaries. And this goes all over the nation. Just had a guy from Kentucky reach out, had some folks from Minnesota, from Florida, from all over, which is absolutely incredible. They’re here to help you, so when you call in you’ll get my people and what we’ll do is we’ll gather your information so then we can create the introductions and get you to the right purebred fiduciaries like Ben Covell.
MIKE: That number one more time is 800-261-9446 or on your Smartphone just dial #250 and say the key word, “Retirement help.” Now, you must have at least 300,000 of investable assets to qualify and be within five years of your expected retirement or already retired to qualify for this incredible deal, again, that number’s 1-800-261-9446 or #250 on your Smartphone with the keyword, “Retirement help.”
MIKE: All right everyone, so we’re gonna transition to a new topic here. We’re still talking about the emotions that can get people worked up and make the wrong investments when you’re doing investments for your retirement planning or really any investment at that matter. But, what I want to talk about right now is more specifically the emotional decisions that people can make that aren’t necessarily investment related, but can absolutely destroy a retirement plan in so many different ways. So, we’re gonna welcome our next guest, Bruce Tinnin, from the Great Northwest, born and raised, and Bruce, we’re so glad to have you on the show. Thank you so much for coming on.
BRUCE: Thanks for having me.
MIKE: To give a little background on Bruce, Bruce is a purebred, licensed fiduciary. So, we’re so glad to have him and Bruce is gonna give us the facts as they are with his years of experience in the financial world. So Bruce, aside from the investments, there are a lot of ways that people can destroy their retirement. One is called the “Bleeding heart.” Can you define it for our listeners and then talk about how it could destroy someone’s retirement?
BRUCE: A Bleeding Heart is simply a person who gives away money that they cannot afford to give away.
BRUCE: Typically, when I run into this case, they’re people that give away money to family members or friends, typically their children and sometimes they can’t afford to do this. Now, I want to start by just saying that there is absolutely nothing wrong with helping your family members, with helping out your friends, nothing wrong at all. But, it’s important to make sure that in retirement you have enough income to provide for your own needs and if there’s any surplus after that, that could be used to help out family members and friends that need it.
BRUCE: I like to use the oxygen mask analogy when it comes to this. When you’re flying in an airplane and if that airplane ever loses cabin pressure the oxygen masks they will automatically fall down and when this happens you are instructed to put the mask on yourself first before you put the oxygen mask on the person sitting right next to you. You need to make sure that you can breathe and that you’re taken care of before you are in a position in which you can actually help out others. And when it comes to financial planning, it works the exact same way.
BRUCE: You cannot financially help anyone if you yourself are in ruins. You need to make sure that you cover all of your own needs and expenses first and then if there’s any leftover then it’s fine to help somebody else out. What I’ve seen most working here, I’ve had many potential clients that come in and they have problems actually with paying of their children’s credit card debts, maybe their student loans, sometimes they buy them cars and these type of actions can often derail somebody completely from their retirement goals.
BRUCE: So, to prevent this you have to have some discipline. You do not want to take away the life lessons that your children have learned all throughout their 20’s about being financially independent, budgeting, saving. They can still work when they’re in their 20’s, 30’s, 40’s. They can still earn wages and use their wages to get themselves out of these difficult financial situations. But, when you’re in retirement you can no longer work, you can no longer earn a wage, all you have is your savings and that’s it and when it’s gone it’s completely gone. So, you have to be more disciplined.
BRUCE: I’ve run into several potential clients that have had problems by being bleeding hearts. I’ve had one gentleman come into my office and he explained to me that he had no retirement savings whatsoever. He was in his early 70’s, his job was very labor intensive and he sold his house a couple years ago and he had a ton of cash from the sale of his house, but he gave it all to his kids to help his children pay off their debts hoping that they would take care of him in retirement.
BRUCE: It turns out his children; none of them were in a financial situation in which they could take care of their father in retirement. So, he was really struggling because physically he could no longer do the job that he’s been doing throughout his entire career because he was in his early 70’s. He got a very small amount of income from social security. None of his children could help him out. He was renting a condo and the rent prices keep on going up every year, but his income is not increasing it’s actually decreasing every year because he can’t work the same amount of hours that he could when he was much younger.
BRUCE: He looked at me, he asked me for just any kind of help or any advice, anything that could help him out and I had to have a very tough conversation with this gentleman. I had to explain to him that there was, unfortunately, nothing that I could do in this situation. I mean, he had his house paid off, he downsized, he moved into a condo, which is not an uncommon retirement strategy. But, he made the mistake of giving all that cash, hundreds of thousands of dollars, to his kids hoping that they could take care of him, but they couldn’t take care of him and he just had, now he has to work until he eventually passes away. I’m not quite sure exactly what he’s gonna do.
BRUCE: But, that’s a worst case scenario. Like I mentioned in the beginning, nothing wrong with helping out family or friends, but just make sure you can cover all of your own financial needs first before you give any surplus away or help anybody else out who’s in need.
MIKE: Bruce, in your company’s podcast, for Decker Talk Radio it’s called “Protect Your Retirement” and by the way, you can find it on iTunes or Google Play, it’s been said that greed keeps people in the market longer than they should and fear keeps people out of the market longer than they should. What do you mean by that?
BRUCE: First of all, when it comes to investing, a few things are more detrimental than human emotion, namely the emotions of fear and greed. Now, everybody knows the very fundamental basics of investing. You need to buy low and then you need to sell high, that’s how you make a profit. Everyone knows this. Everyone knows this, but a lot of people, they end up doing the opposite, they end up buying when things are high and then they sell when things come down in value. This is what fear and greed does.
BRUCE: The markets are surging upwards, they hit all new record highs, people get excited because the markets are at record highs and this is when they decide that they want to start investing their money. But then when the stock market goes through a crash, not just the stock market, any market, when it goes through a crash and prices are coming down people have a tendency to panic. Fear sets in and they end up selling when they shouldn’t and they’re in a position when they’re buying high and selling low.
BRUCE: So, like I said, nothing is more detrimental than human emotion, especially fear and greed. Fear and greed or just human emotion in general is something that needs to be taken out of the equation completely.
MIKE: So Bruce, we’re in a market top right now, how are you communicating to your clients at Decker Retirement Planning to help them emotionally prepare for the market downturn that could happen and what are you using to help them protect from that down turn?
BRUCE: In order to help prepare our clients for a market downturn we reduce the amount of risk that they’re exposed to significantly simply by taking all of the assets that they currently have in an asset allocation pie chart and investing the bulk of those assets into laddered principal guaranteed accounts. A principal guaranteed account is any type of investment that is guaranteed by either a bank, an insurance company, a municipality or the federal government.
BRUCE: By using this strategy our clients are in a situation where their income is coming from principal guaranteed accounts every month throughout the rest of their life. And because these investments are principal guaranteed they’re in a position where they don’t have to worry about stock market crashes, interest rate hikes and interest rate risk or if the economy tanks because their income is coming from laddered principal guaranteed sources throughout the entirety of their retirement.
BRUCE: Now, there is a bit of money that we do have at risk. By having a little bit of risk in the plan it could significantly increase the amount of net annual income for our clients. But, to shrink the amount of stock market risk that they are exposed to with their risk assets we prefer to invest in something called “Two-sided risk models.” A two-sided risk model is a computer driven, quantitative model that is designed to make money as the markets are going up. But, they also offer downside protection for when the markets are going down.
BRUCE: We want our clients to be in a position where they could still participate in the gains of the stock market but also have downside protection to help protect their assets from a market crash. This way our clients could capture some of the gains created by the upside volatility of the market, but avoid some of the losses that would be expected with the downside volatility of a market crash or correction.
MIKE: Oh, just brilliant. Bruce, thank you so much for coming on the show, everyone let’s give it up for Bruce. [APPLAUSE] Now, everyone listen up here, this is just wonderful.
MIKE: Bruce was talking about some very important topics, namely of the last bit about drawing income from principal guaranteed accounts and what’s absolutely incredible is Bruce and purebred fiduciaries take you through everything that technically qualifies as a principal guaranteed account and then lets you pick what you want to do for your plan. It’s just brilliant. So, what I’m gonna do, and this has been okayed by Bruce and his staff is we’re gonna extend an offer, we’re gonna open the phone lines for the next 10 minutes for you to call in and get, at no cost to you, the guidance on how to put together a proper pan so you can sail through these market crashes that typically happen every seven or eight years.
MIKE: Just call right now, 800-261-9446 or dial #250 on your Smartphone and say the keyword, “Retirement help.” Those are the two different ways that you can get to my people who will then gather the necessary information for me to make the introduction to you so you can speak to Bruce or any of his purebred fiduciary staff and talk with great transparency about your retirement plan. It’s all about getting the transparency you deserve and I’m gonna say that number one more time, 800-261-9446 or dial on your Smartphone #250 and say the keyword “Retirement help” to get on board here at no cost to you.
MIKE: Now, you must have at least 300,000 of investable assets to qualify and have, or be within five years of retirement or currently retired for this to be at no cost to you. And that’s just because there’s really not much they can do if you only have 10 grand to your name as a retirement plan. There’s not much you can do in that situation. So, for those that do have at least 300,000 of investable assets, it’s all to you. Well, that about wraps up our show today. Everyone, thank you so much for listening. It’s been an absolute pleasure. Thank you to our guests Brad, Ben, and Bruce. I guess three different B’s today ironically enough.
MIKE: But, tune in next week, more great information, we’re talking about the pitfalls that insurance salesmen will hook, line, and sinker try and get you in to buy these terrible products like income annuities. If you’re just listening now and you’re about to buy one, don’t. Wait ‘til next week, it will be worth your time. Thank you so much, everyone. Have a great week. [APPLAUSE]
