RR S3 E36 CORONAVIRUS, STOCKS, WARREN BUFFET [00:00:00]
ANNOUNCER: You’ve found it. It’s your safer place for retirement planning. Prepare to be coddled in pure fiduciary goodness with your host and president of Decker Retirement Planning, Mike Decker. This is Safer Retirement Radio. If you’re in or near retirement, listen up and learn about a math-based, principle-based approach to retirement that is designed to help you enjoy a safer retirement. These strategies are to help protect and grow what you’ve saved and live the life you want today. So grab a pen because your safer path to retirement planning starts now.
RR S3 E36 CORONAVIRUS, STOCKS, WARREN BUFFET [00:00:36]
MIKE: Welcome to Safer Retirement Radio where you get the transparency that you deserve. I’m Mike Decker.
CLAYTON: And I’m Clayton Bradshaw.
MIKE: And today we’ve got a show packed about the coronavirus, four ways to overlook the stocks, and you’ll never guess, Clayton, about market drops. You’ll never guess what Warren Buffett said. We’re gonna bring that up today in his newest newsletter. And then the big question, real estate, home buying, it’s coming up right now. Should you pay off your home or not? We’ll discuss all that today on Safer Retirement Radio. But I want to dive into the corona market. That’s what I’m calling this situation right now, the corona market. Clayton, I know we’re recording today on Wednesday the radio show.
RR S3 E36 CORONAVIRUS, STOCKS, WARREN BUFFET [00:01:14]
MIKE: Markets are bouncing back. Monday and Tuesday and even a little bit of last week, tough, real, real tough. But I think it is one of the best things a retiree or a near-retiree could ask for.
CLAYTON: Well, Monday and Tuesday in a row were a couple of the worst days we’ve had in a few years.
MIKE: Yeah, 18 hundred points down in the Dow. That’s a huge change. Now, Clayton, do you think I’m crazy by saying it’s one of the best days, or couple of days for retirees?
CLAYTON: Yeah, let’s talk a little bit more about why that is.
RR S3 E36 CORONAVIRUS, STOCKS, WARREN BUFFET [00:01:48]
MIKE: Now, I’m not talking about investment performance, most all retirees probably took a big hit on Monday and Tuesday and it seems like it’s gonna recover just fine. No one knows for sure, it’s the future of the markets. Past performance isn’t indicative of future performance, all that. But there are three reasons why I think Monday, from a non-investment performance standpoint is critical for every retiree and near-retiree. And the first one is real suitability. When I say real suitability, I’m not talking about that fancy questionnaire that you filled out with your current advisor on what’s my suitability?
RR S3 E36 CORONAVIRUS, STOCKS, WARREN BUFFET [00:02:27]
MIKE: I’m not talking about well this is a good diversification play because it does this. No, forget all that. That’s all a bunch of jargon.
CLAYTON: And when you’re talking suitability, you’re talking about whether or not an investment is suitable for a specific investor.
MIKE: Yeah, are you comfortable with your investments? If you lost sleep on Monday night or Tuesday night, that’s a huge indicator for real suitability that, yeah, okay, there’s something wrong with your plan. There’s something wrong with your strategy. If you were stressed at all, if you’re watching the news, if you checked the markets more than usual on Monday or Tuesday or even on Wednesday, and you got relief on Wednesday.
RR S3 E36 CORONAVIRUS, STOCKS, WARREN BUFFET [00:03:04]
MIKE: That’s a huge indicator that your current plan does not work for you. It might work for someone else, but it doesn’t work for you. Unless you want to enjoy your retirement under the stress of a market correction.
CLAYTON: So you’re saying that this drop over the last couple of days is more of a reality check to make sure somebody is okay with their plan?
MIKE: Is it a reality check ever. It is absolutely a reality check and the reason why I say this is human behavior suggests that fear and greed are the real motivators of market performance.
RR S3 E36 CORONAVIRUS, STOCKS, WARREN BUFFET [00:03:42]
MIKE: And here’s what I mean, when the markets are going down greed keeps you in the market longer than you should because, well, it’ll always just bounce back. It’ll just bounce back; it’ll just bounce back and then you typically sell at the bottom of a market taking a huge loss. But greed kept you in there longer than you ought to be in there. And the markets bounce back, fear of the markets crashing then keeps you out of the market longer than you should. This is how people end up buying high and selling low, AKA, losing money consistently in the market. Wall Street’s, they’re gonna do what they’re gonna do.
RR S3 E36 CORONAVIRUS, STOCKS, WARREN BUFFET [00:04:19]
MIKE: Markets are gonna go up, they’re gonna go down. The big guys that spend all that money on the fancy advertisements, you’ve probably seen them if you’re watching the Golf Channel or a football game or whatever. You’re seeing the different companies spending a lot of money on, you know, their investment strategies. They just want to sell you a product. Those products could be risky. They might be appropriate for someone, but if you’re feeling that gut feeling of this is wrong, I’m not comfortable with this, your strategy is not suitable or appropriate for you. That’s my number one point with Monday and Tuesday of the past week.
RR S3 E36 CORONAVIRUS, STOCKS, WARREN BUFFET [00:04:59]
MIKE: Do you want to know my second point, Clayton? I know we were talking about this over the show, but for all of our Safer Retirement Radio listeners, my second point is this was a great stress test of your portfolio. Here’s what I mean, if all of your, so when a market crashes like 2008, 2000, 2001, 2002 or any of the other crashes that happen, typically every seven or eight years. It’s not typically a part of a couple of stocks that go down. When the markets crash it is a cascading effect of all the stocks, all the bonds, everything, not bonds, but bond funds is what I meant to say.
RR S3 E36 CORONAVIRUS, STOCKS, WARREN BUFFET [00:05:40]
MIKE: It is a cascading effect or a waterfall of all the investments going down. And sure, there might be some one offs. Like I know in 2000, ’01 and ’02 the real estate market did pretty okay. I understand that biotech did pretty okay in 2008. But it’s very far and few in between of what does well and the cascade effect of it going down. So how’d you do? If most of your stocks were going down the question would be could you diversify yourself and predict the future out of a cascade effect? Do you think that’s possible?
RR S3 E36 CORONAVIRUS, STOCKS, WARREN BUFFET [00:06:16]
CLAYTON: Right, and here’s what would have happened over the last couple of day.
MIKE: Yeah.
CLAYTON: The market’s dropped, everyone was trying to get out, trying to find something else. So what did they go into? They went into the Treasury Bonds.
MIKE: Panic mode?
CLAYTON: Yeah, panic mode. And they started buying into the Treasury Bond market, into those bond funds and the Treasury hit an all-time low.
MIKE: Yeah, that’s good right there.
CLAYTON: And so now, so we’re at an all-time low which puts interest rate risk at an all-time high because now as people go back out of those bonds and into the market and as interest rates go up, you lose value on those bond funds.
RR S3 E36 CORONAVIRUS, STOCKS, WARREN BUFFET [00:06:53]
MIKE: Now, Clayton, I’m usually the one accused of speaking a lot of jargon.
CLAYTON: I know.
MIKE: You just did it. Can you talk to us? What do you mean by interest rate risk? What do you mean by Treasury or interest rates going up or down? Can you just connect the dots on how that effects a retiree?
CLAYTON: Yeah, so whenever somebody, kind of that typical pie chart model, you go into a bank or a broker and you say, “I’m looking to diversify my assets and I want safety in my portfolio.” So what they’re gonna do is they’re gonna put you into bond funds. These are mutual funds that track the bond market.
RR S3 E36 CORONAVIRUS, STOCKS, WARREN BUFFET [00:07:28]
CLAYTON: Now, interest rate risk is the risk that as yields go up, prices on your bond funds will go down and they have an inverse relationship. As one goes up, the other goes down and vice versa. And so as interest rates dropped over the last couple of days to the all-time low there were people that were holding those bond funds that thought, “You know what? I made a little bit of money and the market’s down.” But then there was an immediate swing back the other direction and now those people that got in for what they thought was safety are now losing money because those yields are going back up.
RR S3 E36 CORONAVIRUS, STOCKS, WARREN BUFFET [00:08:01]
MIKE: Let me come at it from a different angle, if that’s okay. Then we’re gonna get to my third point on the corona market and the Monday, Tuesday catastrophe that was so good for retirees on a reality check standpoint. If you don’t want risk like a stock or a bond fund or a mutual fund or ETF’s or whatever’s in the market where do you go? Let’s use CD is a very commonly understood investment. CD’s right now, a five-year CD is 2.15 percent roughly speaking over five years. Do you feel like you’re getting a steal of a deal, Clayton?
RR S3 E36 CORONAVIRUS, STOCKS, WARREN BUFFET [00:08:37]
CLAYTON: I think my savings account is really close to that. [LAUGH].
MIKE: And the follow-up question is could you live off of that? If you had to have safety, are you gonna life off of CD’s at that kind of rate?
CLAYTON: No, because they’re lower than inflation.
MIKE: There’s one couple I met that were so conservative, they had everything in cash. Now, I’m not agreeing with that at all, but that’s how conservative they were, and they had millions of dollars to be able to do so. Sure, they’re living way under their means. But that’s the sentiment people feel. They’re having to take more and more risk today because interest rates are not providing other investment options that seem viable for what retirees want.
RR S3 E36 CORONAVIRUS, STOCKS, WARREN BUFFET [00:09:21]
MIKE: Okay, I understand that. But still, let’s stress test your plan, how’d you do? Was it diversified correctly? Do you think you could diversify yourself out of a 2008? No, it can’t happen. And so if all of your assets are invested into something like a 401k or a pie chart that’s really has one objective and that’s to grow, I really would challenge that that may not be the best plan for you. And here’s my third point, what did your plan tell you to do in a situation like this? Now, it’s a loaded question. Okay, markets are down almost 2,000 points in two days.
RR S3 E36 CORONAVIRUS, STOCKS, WARREN BUFFET [00:10:01]
MIKE: Now, I know Wednesday they’ll probably recover, as of this show we don’t know what’s gonna happen on Thursday or Friday. But markets are down almost 2,000 points, what is your plan tell you to do? What’s your written plan? How do you handle these situations? Can you stay retired if this continued down? If it goes back up, what are the different options?
CLAYTON: Well, and when the plan was set-up another thing to consider is taking these black swan events into account.
MIKE: Yeah.
CLAYTON: I mean we saw earlier this week that new cases in China are on the decline for the coronavirus.
RR S3 E36 CORONAVIRUS, STOCKS, WARREN BUFFET [00:10:37]
CLAYTON: But the CDC just announced that they’re worried about a possible, and I’m not trying to spread panic or anything, but they did say that they were concerned about a possibly pandemic here in the United States.
MIKE: Yeah, I’m pissed because the Bond film being filmed is on hold right now because coronavirus is in Italy. And they can’t film there right now until it’s gone. I can’t get my next Bond film. When all is said and done though, when I ask this question typically, and I don’t mean it to be a condescending or loaded question. I genuinely want to know what does your plan say on how to handle these situations?
RR S3 E36 CORONAVIRUS, STOCKS, WARREN BUFFET [00:11:12]
MIKE: Safer Retirement Radio listener, whether you’re in the car, listing to us on your phone or whatever, 12 percent of you have an actual written plan and most of those written plans may have a suggestion on how to handle a situation like that. The rest of you have an investment strategy, not a plan. That’s guessing through retirement and it doesn’t work. That’s why the principles are there to help you write your plan. For example, if you follow the first principle that you only take income from principal guaranteed sources, from sources that can’t lose money.
RR S3 E36 CORONAVIRUS, STOCKS, WARREN BUFFET [00:11:48]
MIKE: Okay, then maybe you got 50 to 70 percent of your assets in investments that are earning five to seven or plus percent each year, but they can’t lose money, wonderful. Now, that means that this hit does not affect your income for the next 20 plus years. How do you feel now? Your plan says your fine, you’re not losing sleep anymore. Second principle, to use the investment triangle to diversity your assets. Now, we’re gonna talk more about that later in the show but here’s what I mean. You’ve got some assets set aside for income, you’ve got some assets set aside for long-term growth and you’ve got some assets set aside for emergency cash.
RR S3 E36 CORONAVIRUS, STOCKS, WARREN BUFFET [00:12:24]
MIKE: And the investment triangle helps you understand how to do that diversification to create your written plan. So your long-term assets, let’s say it’s about 30 percent of your portfolio takes a little bit of a hit. You’re still less than a percent off on your overall portfolio assuming that none of your accounts earned any money. Are you losing sleep if the world’s falling apart but you’ve only lost a percent at most? No, that’s what the point of a written plan is. That you understand when this happens, not if, but when this happens that you are set up to go and you’re good to go. The third principle is to use a distribution plan.
RR S3 E36 CORONAVIRUS, STOCKS, WARREN BUFFET [00:13:01]
MIKE: A pie chart is not a distribution plan. A distribution plan is a written plan that tells you month by month how much income you’re gonna have and where it comes from. When you follow these principles, you’re good to go. I mean for goodness sakes, Monday and Tuesday, Clayton, did you know we did not get a single call, one single call about concern in the market? Did not happen. Because our clients have a written plan. I mean you just imagine this, just everyone real quick, all Safer Retirement Radio listeners, imagine this. Imagine you get a phone call, it’s from your friend from that neighborhood, your last neighborhood from a long time ago.
RR S3 E36 CORONAVIRUS, STOCKS, WARREN BUFFET [00:13:36]
MIKE: You know that friend that you enjoyed all the barbeques with and the neighborhood parties and all that. And you all, you and your significant other and them and their significant other, you became really close over these years. But you had to move for that one thing. But your friend’s calling you up and says, “Hey, remember that trip we kept on talking about? Yeah, we’re going on that and we would love for you to go.” Now, you pause real quick to reflect. You’re retired now, they’re retired, you’re looking at the markets, and the markets are tanking right now. Can you go on this trip?
RR S3 E36 CORONAVIRUS, STOCKS, WARREN BUFFET [00:14:10]
MIKE: If you have a written plan like the ones that we do at Decker Retirement Planning, you bet you, you can go on that trip and you can answer your friend and say, “Yeah, let’s go, Maldives, Timbuctoo, Himalayas, Greece, Italy, wherever. Let’s do it” ‘Cause we have a written plan that handles market downturns like this.
CLAYTON: And to our listeners, the number to call is 833-707-3030.
MIKE: Yeah, if you want a written plan, if you want to see what a safer retirement looks like call us. It won’t cost you a dime.
RR S3 E36 CORONAVIRUS, STOCKS, WARREN BUFFET [00:14:44]
CLAYTON: When you call in, we’ve got a friendly voice that will answer the phone, they’re gonna take down your information and we will reach out to you and get you scheduled to sit down with one of our fiduciaries.
MIKE: Can I tell you what it’s not? And this is very important ’cause some people come in with a little bit of anxiety because they’ve been to the other guy who is a high-pressure situation. This is not a high-pressure situation, we’re not gonna ask you to make any commitments. All we want to do in this visit is to understand your hopes, dreams, your wants, your needs, in retirement, apply the principles and then help you achieve these goals, so you have a written plan. We’re not gonna charge you a dime for this visit.
RR S3 E36 CORONAVIRUS, STOCKS, WARREN BUFFET [00:15:22]
MIKE: We’re not gonna lock the door, swallow the key, there’s no pressure, no sales, none of that. We are fiduciaries which means we’re legally and morally bound to do what’s in your best interest. I mean would you rather go see a doctor who wants to take care of your illness or do you want to go to a pharmaceutical salesman who, regardless of your illness, has the pill that you’re gonna take? That’s kind of the difference here, we’re the doctor who is legally bound to help your retirement plan get better so it doesn’t get the coronavirus. Was that too pun-y?
CLAYTON: [LAUGH], and when you come in, these visits they’re great. Because it’s a relaxing environment.
RR S3 E36 CORONAVIRUS, STOCKS, WARREN BUFFET [00:15:57]
CLAYTON: There’s no pressure, our fiduciaries, we’re gonna just sit down with you and we are gonna talk to you about what’s important to you, what you’re looking for, what you need, and understand your situation. No decisions have to be made. It’s just a matter of understanding what you’re looking for to then start building out the plan. Now to sit down with one of our fiduciaries, sit down with us, give us a call, 833-707-3030. Again, that number 833-707-3030.
MIKE: You’re listening to Safer Retirement Radio where you get the transparency that you deserve. I’m Mike Decker.
CLAYTON: And I’m Clayton Bradshaw.
RR S3 E36 CORONAVIRUS, STOCKS, WARREN BUFFET [00:16:33]
MIKE: And we were just talking about the corona market and how it’s affecting people and that there are three reasons why Monday and Tuesday of last week were essential for retirees and near retirees. Kind of a reality check of what’s going on and if their retirement plan or investment strategies can handle, if they can keep up with it. We’re gonna talk right now about four ways to own a stock. We want to give perspective to the markets as they are today. But coming up soon, you’ll never guess what Warren Buffett said about potential market drops. Stay tuned for that and more here on Safer Retirement Radio. Clayton, what are the four ways that someone can own a stock?
RR S3 E36 CORONAVIRUS, STOCKS, WARREN BUFFET [00:17:12]
CLAYTON: So I’m going to talk today about the indexing strategy, the Warren Buffett method, the dividend strategy, and then the two-sided models. So to start off talking about the indexing strategy, this is a common one and it has been made easy through some of the popular, there’s a popular app that’s out there, that’s kind of an upstart from San Francisco that’s provided a low-cost or a free way to do indexing. And this is where you just go and you buy the S&P 500. And you do that through an inexpensive ETF, and exchange traded fund. And, Mike, you’ll have to forgive me.
RR S3 E36 CORONAVIRUS, STOCKS, WARREN BUFFET [00:17:47]
CLAYTON: I might get a little technical here so cut me off if I say something that needs some explanation so we can talk a little bit more about it. So an indexing strategy, that’s gonna be the most efficient way to buy let’s say the S&P, that’s the 500 biggest companies in America. You go and you buy the SPY or whatever there’s a few of them out there. And this is what a lot of people are used to that a lot of people have been doing in their 401k’s. So this is…
MIKE: And SPY, by the way, it’s buying the index, the S&P 500. For all those who didn’t connect that.
CLAYTON: Thank you. And this is what a lot of people are used to with their 401k.
RR S3 E36 CORONAVIRUS, STOCKS, WARREN BUFFET [00:18:24]
CLAYTON: It was an easy way to throw some money into a fund to track the market and you’re up when the market’s up, you’re down when the market’s down.
MIKE: Hitting expectations regardless.
CLAYTON: Yeah.
MIKE: ‘Cause the expectation is can you keep up with the S&P? Except for when the market crashes then you don’t want to keep up with the S&P.
CLAYTON: Right. And so there is a time when this strategy can work, in your 20’s, 30’s, and 40’s, indexing is an appropriate strategy for a lot of people. Again, consult with your financial advisor, make sure that it’s within your risk tolerance. You gotta take…
MIKE: Just call us.
CLAYTON: Yeah. You’ve gotta take some of those steps, just call us and we can look at it for you.
RR S3 E36 CORONAVIRUS, STOCKS, WARREN BUFFET [00:18:59]
CLAYTON: But that’s the indexing strategy in a nutshell. Works for some people, doesn’t work for others. It doesn’t work for those that are heading into retirement or are retired because if the market is up and you’re drawing money out of it you’re compromising your gains. If you’re drawing income out of this strategy, you’re compromising your gains. When the market’s down you are accentuating your loses.
MIKE: And that second part is why it’s so critical. Accentuating your losses is how retirees go broke. Because if you’re taking your income and your accounts earn four percent and you take four percent, whatever. Your principal is the same.
RR S3 E36 CORONAVIRUS, STOCKS, WARREN BUFFET [00:19:33]
MIKE: But if your accounts go down 50 percent in a year and your still taking income, are you taking four percent of your current assets? Which means you just got half the income? Or are you just taking it at twice the amount you probably should and now your income’s really expensive. It’s a lose, lose situation for anyone that thinks that that’s a viable solution. And I want to give credit to William Bengen. For all those who don’t know who William Bengen is, William Bengen is the guy that invented the four percent rule. And he did it roughly after or during the wonderful bull market, and that means up market, in the ’90s.
RR S3 E36 CORONAVIRUS, STOCKS, WARREN BUFFET [00:20:10]
MIKE: I mean monkeys were throwing darts making more money than other fund managers because it was so great. I mean it was hard to do anything wrong there. And then the 18-year market cycle changed, we went flat. And William Bengen had the courage and integrity to discredit his own rule. That’s an honest man. My only qualm is that the industry is not letting William Bengen be honest. Because they are saying, “Oh, well.” And then they’re rationalize. Well, it’s actually the two percent rule, or he meant this. No, he didn’t.
RR S3 E36 CORONAVIRUS, STOCKS, WARREN BUFFET [00:20:49]
MIKE: He was an honest guy, he discredited and the industry’s still touting out a discredited strategy. That really gets my goat.
CLAYTON: Well, and it’s easy for him because they can say, all right, well, if you got your assets just take four percent a year, three percent a year, whatever. But that strategy of taking just a flat percent every year for your income, if you’re retired that’s where you can get hurt.
MIKE: It’s just risky. That’s it, sure it could work. If markets only went up, how many of you Safer Retirement Radio listeners think markets can only go up? I know it’s hard to think otherwise after the 10-year bull market we just had. Excuse me.
RR S3 E36 CORONAVIRUS, STOCKS, WARREN BUFFET [00:21:28]
MIKE: But how many of you honestly think the markets will only go up during the 30 years of your retirement? Crickets, typically when we put that perspective. So what are you gonna do? Let’s keep going.
CLAYTON: So, Mike, the next strategy I want to talk about is the Warren Buffett method. I know you mentioned earlier that we were gonna talk about something that Warren Buffett said, we’re gonna get to that in our next segment. But I do want to talk about his investing strategy.
MIKE: Yeah, let’s set the foundation of what Warren Buffett does. He’s one of my favorite investors. I’ll admit, I can’t invest like him because I don’t have billions of dollars to buy up companies. I’m giving away the strategy up a little bit, but I feel like he’s playing Monopoly in real life. And he’s probably just loving it.
RR S3 E36 CORONAVIRUS, STOCKS, WARREN BUFFET [00:22:08]
CLAYTON: Yeah, he’s, you know, and there’s a lot of people that’ll go out there and they want to replicate what Warren Buffett does. And we’re gonna talk a little bit more about this, but it’s a flawed approach trying to copy somebody like Warren Buffett. Now, Warren Buffett, his strategy is to go out and he picks these value companies, these great companies that are mature, they do well. And he knows that he’s gonna get slow, consistent results by purchasing their stock. Now, when he does that, he, number one, has the funds to be able to go and buy hundreds of thousands of shares of these companies. And it’s enough that when a company realizes that he is buying their shares, they listen.
RR S3 E36 CORONAVIRUS, STOCKS, WARREN BUFFET [00:22:47]
MIKE: Yeah.
CLAYTON: They’ll listen to him; they’ll listen to the way he wants things to be run at the company to make some money.
MIKE: If you had a hundred shares of Apple, do you think Tim Cook, right?
CLAYTON: Yeah.
MIKE: Yeah, Tim Cook will listen to you?
CLAYTON: No, [LAUGH].
MIKE: If Warren Buffet said, “Hey, Tim, I’ve got a few ideas.” Do you think Tim’s gonna make that meeting? Probably.
CLAYTON: Yeah, absolutely.
MIKE: And Tim Cook’s a smart cookie, I mean he knows what he’s doing. But if Warren Buffett calls and says, “Hey, I have some things I think would help you.” He’s gonna take that meeting and he’s a huge shareholder. I think of American Express, Warren Buffet basically bought American Express. Now, he didn’t actually buy it, it’s still a public company and all. But he’s got some pull in that board room.
RR S3 E36 CORONAVIRUS, STOCKS, WARREN BUFFET [00:23:28]
CLAYTON: Sure.
MIKE: Do you? No.
CLAYTON: Right, and so for somebody that can only buy a few hundred shares, copying Warren Buffett’s method isn’t gonna work. He is just on a different planet in terms of wealth.
MIKE: And I want to point this out too, Warren Buffett is still working. He’s still receiving a paycheck for his work. When you retire are you gonna still be working? It’s just different. Shall we go onto the next one?
RR S3 E36 CORONAVIRUS, STOCKS, WARREN BUFFET [00:23:58]
CLAYTON: Yeah. So the next one’s the dividend strategy. And the dividend strategy is where you buy a company that pays a solid dividend. And years and year ago…
MIKE: Yeah, like ATT.
CLAYTON: Yeah, they’re referred to as the grandmother stock for a very long time. Because they paid out that dividend and it was just you just owned AT&T. That was just a given in your portfolio because you knew you were gonna get that dividend. But there’s something called creative destruction. And this is where a company creates something newer and they bring in a new product, in the case of AT&T it was the cell phone.
RR S3 E36 CORONAVIRUS, STOCKS, WARREN BUFFET [00:24:33]
CLAYTON: AT&T had the telephone networks on lock-down. They were controlling everything to the point that they got broken up and remember the baby Bell’s and all of that?
MIKE: Yeah.
CLAYTON: When the cell phone came out, AT&T’s model had to shift dramatically. And they’re consistently paying stock dividend, that strategy faltered. And so for those that are depending on those stock dividends that’s where it can be a massive problem.
MIKE: When markets do down, Clayton, how do dividend strategies get affected?
CLAYTON: Well, if a company doesn’t declare a dividend, or they cut their dividend, that stock price, everyone’s gonna sell and that stock price is gonna drop.
RR S3 E36 CORONAVIRUS, STOCKS, WARREN BUFFET [00:25:13]
CLAYTON: And that’s gonna take a massive impact, that’s gonna make a massive impact on your portfolio.
MIKE: Okay. Do you think with interest rates being historically low the dividends are competitive?
CLAYTON: Not at all.
MIKE: Okay. [LAUGH], this is straight talk. [LAUGH].
CLAYTON: This is something, and this is obviously you can hear kind of the passion in my voice about this. Because I see folks that come in that they’re used to doing one strategy and sure, this indexing, the Warren Buffet strategy, the stock dividend strategy, these are appropriate strategies for investors that are trying to accumulate funds. It can work.
RR S3 E36 CORONAVIRUS, STOCKS, WARREN BUFFET [00:25:51]
CLAYTON: But when you are heading into retirement, if you’re approaching and doing that same strategy that you used to make all of your money you have a much greater chance of getting hurt in retirement and potentially having to, as I like to say, retire from retirement. You’ve got to go back to work.
MIKE: Full circle.
CLAYTON: Which nobody wants to do and as retirement planners, that is the worst thing we can see somebody go through. And we set everything up to make sure our clients are a protected as possible so that they don’t have to succumb to that problem.
RR S3 E36 CORONAVIRUS, STOCKS, WARREN BUFFET [00:26:26]
CLAYTON: And that’s why we talk about the strategies, that there is a shift as you approach retirement, as you go into retirement. The shift should be made if you want to have a successful retirement.
MIKE: So, go ahead.
CLAYTON: The final strategy I want to talk about are the two-sided models.
MIKE: And what is a two-sided model?
CLAYTON: So, I’ll use the, I like the analogy of the ocean of the tides to give an idea of how these models work and what they do. So I’m sure our listeners understand how the tides work, right? You learned this is elementary school, the tides come in, there’s a shift and then the tides go back out. But all along, you’ve got those waves that are crashing in, that noise, right?
RR S3 E36 CORONAVIRUS, STOCKS, WARREN BUFFET [00:27:05]
CLAYTON: The waves are coming in, regardless of what the tides doing. Now, the markets do a similar thing, the markets go up, there’s a shift, and then the markets go down. But all along, that markets going up and down, you’ve got those intraday movements, those little peaks and valleys. If you see the little spikes and the little dips of the market going up and down. Those are the waves of the market. These models, these two-sided models, these trend following models are mathematically based, and they are designed to strip out those waves of the market. They’re designed to follow that overall trend or that overall tide of the market.
RR S3 E36 CORONAVIRUS, STOCKS, WARREN BUFFET [00:27:46]
CLAYTON: So when the market is trending up, when the tide’s coming in, these models want to be a part of that. And that’s when you want to own that, and that’s what these two-sided strategies are going to do. But when the market’s going down, when that tide’s going out, these models can recognize that based on the math that they use. And they can track that and help protect you or get you out of the market depending on where those trends are going.
MIKE: Now, all you Safer Retirement Radio listeners, I want you to imagine this. This is a, quote, “based on a true story,” so it’s not every detail, action is perfect. I want you to imagine this because these were stories we were receiving from models and experiences that Brian had in 2008, okay?
RR S3 E36 CORONAVIRUS, STOCKS, WARREN BUFFET [00:28:28]
MIKE: Just imagine for a moment, you’re at your favorite lunch spot. You’re meeting a friend, and you’re there a little bit early, and you’re looking at the menu. And you’re looking at the menu because it’s something to do; you already know what you want. You’ve been here a million times, and it’s your favorite spot. And your friend comes in, and you notice something’s a little bit off. You notice that something, it just doesn’t feel right. So you say, “Hey, is everything okay?” Your friend responds and says, “No, what do you mean? Aren’t you worried too? Markets are down over 50 percent. Heck, my job, I’m going back to work.”
RR S3 E36 CORONAVIRUS, STOCKS, WARREN BUFFET [00:29:05]
MIKE: “I’ve got applications. I’ve got an interview later today after this meeting, or after our lunch visit, because I can’t afford to handle this.” And you think to yourself, and you go, “Well, I’ve got a plan for this.” You look at your accounts; you’re using two-sided models. You don’t see a 50-percent correction in your accounts; you see that you’re up for the year. You’re going, “Oh, well, I guess good luck with that.” You sympathize with them. But you’re good.
RR S3 E36 CORONAVIRUS, STOCKS, WARREN BUFFET [00:29:37]
MIKE: So you’re gonna continue on doing what you want to do in retirement, going to lunch with friends, picking up new hobbies and all that. If that’s the retirement that you want, then I hope you can call us. When I say I hope you can call us, what do you have to lose? 50 percent of your assets in the next downturn? We’ll tell you what Warren Buffett’s gonna say in just a moment here. But here’s my point, call us, see what you may not know. Because what you might not know now could save the entire retirement plans that you have moving forward. It could keep you going. I hope you call us.
RR S3 E36 CORONAVIRUS, STOCKS, WARREN BUFFET [00:30:11]
MIKE: 833-707-3030, call us right now, 833-707-3030 for a no cost, it’s a free visit to sit down, talk about two sided models, talk about the principles of retirement. Talk about the core values that create a safer retirement.
CLAYTON: And when you call, somebody’s gonna answer the phone, it’s a friendly voice, they’re just gonna gather a couple pieces of your information so we can get back with you and get you scheduled to meet with one of us. With one of us as fiduciaries so we can sit down and discuss your needs and wants. I know I talked about these four ways to own stocks; we can talk about what’s appropriate for your specific situation.
RR S3 E36 CORONAVIRUS, STOCKS, WARREN BUFFET [00:30:49]
CLAYTON: That’s what our fiduciaries are here to do, is understand what you need, what you want, what’s important to you in retirement. We’re here to look for gaps, we’re here to look to find out if XYZ, black swan event happens, if something happens in the market, how is it going to affect you?
MIKE: Yeah, and just some clarity here, fiduciaries, the legal term for a financial professional who’s legally bound to do what’s in your interest. Legally bound to do what you, what’s best for you, you’re in charge. Not the guys on Wall Street, not the guys that are having those expensive ads that you keep seeing on the TV. Fiduciary, independent, local, legally bound to do what’s in your best interest.
RR S3 E36 CORONAVIRUS, STOCKS, WARREN BUFFET [00:31:27]
MIKE: And those black swan events, Monte Carlo, and other simulations can’t predict them. They’re called black swan events, that’s industry jargon for unpredictable, unforeseen catastrophes that affect the market. I hope you call us; I sincerely do because these are life changing conversations. There’s a lot on the line, like your life savings and your retirement and all the hopes and dreams that you want to accomplish in that retirement. So I do hope, sincerely, you call us, it won’t cost you a dime. It’s a no pressure environment, relaxing, doesn’t cost you a dime. But it’s life changing, 833-707-3030, this is for a safer retirement review.
RR S3 E36 CORONAVIRUS, STOCKS, WARREN BUFFET [00:32:03]
MIKE: We look forward to those calls and scheduling that visit with you. This is Safer Retirement Radio where you get the transparency that you deserve, I’m Mike Decker.
CLAYTON: And I’m Clayton Bradshaw.
MIKE: And we’ve been talking about the corona market, how it’s affecting retirees today and the potential risk that if it keeps going. And we’ve also been talking about the four ways that you can invest and own a stock essentially today. The next one we’re gonna talk about is market drops. And if you’re just tuning into the show and want to catch the full show, I just want to have a little shout out, we do have the show set up via podcast as well and on our website, deckerretirementplanning.com.
RR S3 E36 CORONAVIRUS, STOCKS, WARREN BUFFET [00:32:38]
MIKE: As well as wherever you get your podcasts, just look up Safer Retirement Radio. Clayton, I think it’s time to say what Warren Buffett said, I couldn’t believe this. But this is what Warren Buffett came out in his newsletter and said the following, “That rosy prediction.” He’s talking about how he’s bullish in the market, as in he thinks markets will go up. “That rosy prediction comes with a warning.” And what’s interesting, Clayton, is of the massive newsletter that he has, there’s a very small and critical warning.
RR S3 E36 CORONAVIRUS, STOCKS, WARREN BUFFET [00:33:13]
MIKE: Almost the most important part of the newsletter was just a few sentences and here they are, “Anything can happen to the stock prices tomorrow.” What happened right after he sent this newsletter out? They tanked. Occasionally there maybe major drops in the market, perhaps of 50 percent magnitude or even greater. Okay, well, historically speaking it happens every seven to eight years. But the combinations of the American tailwinds will make equities a much better, long-term choice for the investor who, and then he qualifies it, so everyone listening right now.
RR S3 E36 CORONAVIRUS, STOCKS, WARREN BUFFET [00:33:52]
MIKE: Let’s do a self-analysis, can you do one or the other or both? If not, then buy and hold is probably not suitable for you and talking about two sided models maybe more appropriate. The first one he says is an individual who does not use borrowed money. Okay, well, if you’re not someone who can short the market that makes sense. If you’re not someone who can do hard lending, that makes sense. If you’re not someone who has access to like is there fancy investments access or tools, that makes sense. I’m comfortable with that qualification.
RR S3 E36 CORONAVIRUS, STOCKS, WARREN BUFFET [00:34:31]
CLAYTON: Well, and, Mike, I also read this too as somebody who’s not in debt.
MIKE: Not in debt, and we’ll talk about house debt later. But not in debt. Isn’t borrowing from their friends to try and make-up their portfolio losses. These are risky things that if you’re not a qualified investor it makes sense that it might not be good for you. That’s an appropriate qualification. Here’s the other one, [CLEARS THROAT], and also the individual who can control his or her emotions. If you have, if a four percent market crash, market correction, whatever you want to call it.
RR S3 E36 CORONAVIRUS, STOCKS, WARREN BUFFET [00:35:11]
MIKE: Like what happened on Monday and Tuesday, actually it was more than that. Some people are down 10 percent. If that upset you and your emotions are like, “Oh my gosh, I gotta sell, I gotta sell, I gotta sell. This is terrible, I’m losing my life savings.” Then you are not prepared to handle a buy and hold strategy for the markets that are ahead of you. That is not suitable, and I would consider it to be near financial malpractice if someone wants to put all of your assets at risk when Monday and Tuesday made you uncomfortable. That is not an appropriate investment advice. And even Warren Buffett, the king of buy and hold, is saying that’s not suitable for you. because what he says, “Beware.”
RR S3 E36 CORONAVIRUS, STOCKS, WARREN BUFFET [00:35:49]
MIKE: After that, he says, “Beware.” Warren Buffett took a hit in 2008, he also owned a significant portion of the companies that he was invested in and helped them recover from 2008. Are you gonna sit in on the board meetings to make sure that your investments recover appropriately? Or are your investments gonna be like the Lehman Brothers and go kaput? Just a fair question, and it is a fair question because buy and hold is not a bandwagon effect. Its you’re on your own island hoping that all the people on their own islands are gonna be able to make it.
RR S3 E36 CORONAVIRUS, STOCKS, WARREN BUFFET [00:36:24]
MIKE: And if markets go up and down and you buy and hold, which is a one-sided strategy that only works in your favor if markets go up, then how in the world can you last a market correction?
CLAYTON: Well, and, Mike, like you said earlier, I think Warren Buffet does a lot of great things. I like Warren Buffett. But when the advice he’s giving, it is to a very select few. He weeds out people that don’t use borrowed money and he says people that can control their emotions, right? Which very few, for the record, can.
CLAYTON: Right.
RR S3 E36 CORONAVIRUS, STOCKS, WARREN BUFFET [00:36:57]
MIKE: We see it time and time again. There was a fidelity investment that had incredible returns and the majority of the investors who invested in this lost money. Why? Because they kept selling at the wrong times and buying that the wrong times. Because their emotions got in the way, it’s human nature.
CLAYTON: Well, and the thing with Warren Buffett, Warren Buffett could take a 90 percent hit on his portfolio and still have more money than I will probably ever see in my lifetime.
MIKE: [LAUGH].
CLAYTON: He is worth that much money that for him, he knows that he will be okay because of how much money he has.
MIKE: Yeah, he’s publicly said, “This is a game, I want to accumulate as much wealth as possible.
RR S3 E36 CORONAVIRUS, STOCKS, WARREN BUFFET [00:37:35]
MIKE: Because that’s how I can help our country and people all over the world as best as possible.” Accumulate all of it and then donate almost all of it. That’s a noble thing to do. I know there’s some controversy behind it but that’s the game he’s playing right now. It’s not can I save up for enough for retirement? He’s like he’s saying, “How much can I grow this before I die.” That’s a very different, no one listening right now is really, [CLEARS THROAT], excuse me, unless you’re in Washington and your Bill Gates listening to us right now, or Jeff Bezos. No one else is in that game.
RR S3 E36 CORONAVIRUS, STOCKS, WARREN BUFFET [00:38:09]
CLAYTON: Yeah so there’s with his strategy I think it’s important for retirees to remember that none of us are like Warren Buffett. There’s only a select few out there that have near the amount of money that he has and because of that the strategies that he can employ and that he can follow, he is able to stick with it.
MIKE: Can you walk us through the historical patterns of the markets crashing? Just so we can set the stage of what to expect?
CLAYTON: So we’re in the longest bull market in history. But on average, we’re about every seven to eight years for a market crash or market correction. I love the word correction, a market correction where it drops 20 plus percent.
RR S3 E36 CORONAVIRUS, STOCKS, WARREN BUFFET [00:38:45]
MIKE: Yeah.
CLAYTON: And everybody calls that a correction like they make it sound like it’s a positive thing. When in reality it’s detrimental to people’s accounts and can be to their retirement. So you look back at 2008, we had the real estate bubble burst. That was a 50 percent drop over a year and a half. Seven years before that was 2001, that was the middle of the dot com bubble that had burst. Seven years before that was ’94, Iraq had just invaded Kuwait, interest rates shot up. Seven years before that, I’m sure most of you remember October of ’87 that was Black Monday. That was a 22 percent drop in a single day.
RR S3 E36 CORONAVIRUS, STOCKS, WARREN BUFFET [00:39:22]
CLAYTON: Seven years before that, ’80 to ’82 it was a 46 percent drop, something along those lines. Seven years before that, right. And it’s a pattern that has more or less been established. So 2009 plus seven puts us well overdue for a market, [CLEARS THROAT], crash. Now, in 2015 we had a bump, we had one again the fourth quarter of 2019. And so the market when it is starting to go, it’s going very fast and very quickly. And so when it actually hits that full correction and we do drop 20, 30 percent who’s to say it is going to stop there?
MIKE: Can I make my prediction?
RR S3 E36 CORONAVIRUS, STOCKS, WARREN BUFFET [00:40:00]
CLAYTON: Let’s hear it.
MIKE: This is not financial advice, this is a prediction based on intuition, okay. And for the record, our clients are not investing off of this guess. This is just my just for fun guess on how the next 10 years are gonna play out. Is that fair? Is that a good disclaimer?
CLAYTON: [LAUGH].
MIKE: Okay.
CLAYTON: Let’s hear it.
MIKE: I don’t want to send people down the wrong path.
CLAYTON: Sure.
MIKE: I want to be very open in saying this is just my thought and in 10 years I’m gonna play this video back and say, “I told you so or I was wrong.” Actually, I won’t say I told you so, that’s mean. My prediction is that the next three years are going to struggle in a similar pattern.
RR S3 E36 CORONAVIRUS, STOCKS, WARREN BUFFET [00:40:36]
MIKE: It’s gonna be two or three years similar to what we experienced in 2000, ’01 and ’02. And here’s what I mean by that, the markets will struggle with the scare of the coronavirus this year. In 2021 there will be another black swan event that will take our overpriced market that’s already struggling because of the coronavirus and trade difficulties of the factories in China, illness all over the world, that will then trigger it to go down even more. And then by the end of 2022, is my guess, is when we’ll hit the bottom of the market and be able to start recovering. Markets are overpriced, there’s not many other places we can go to keep growing the way we are.
RR S3 E36 CORONAVIRUS, STOCKS, WARREN BUFFET [00:41:16]
MIKE: It’s just it’s gonna correct and other things will hit the markets down. Slow, steady, painful, long term, okay. Then the markets I think are gonna recover, my guess is it’s going to be something to do with space exploration that Elon Musk or someone is getting space travel out there and there’s all these new inventions or ideas of getting out into space. Or biotech is gonna make a breakthrough on growing limbs or something like that to where everyone’s okay with the ethical side of it and we figured out how to implement it with humans. It won’t be implemented in actual our bodies.
RR S3 E36 CORONAVIRUS, STOCKS, WARREN BUFFET [00:41:52]
MIKE: But it will have breakthrough, lots of money will be able to go there and we’ll grow our assets accordingly and it will breakthrough from bottom of 2002 until probably 2026 to ’28 is the short stint that it will happen. And between 2026 or ’28 that the student debt crisis will have enough defaults that all the bonds that are packaged up, kind of like the bonds that were packaged up with real estate will start going bust. And we’ll have another credit crisis before 2030 essentially.
RR S3 E36 CORONAVIRUS, STOCKS, WARREN BUFFET [00:42:33]
MIKE: Before 2030 we’ll have another credit crisis that will hit very hard, very swift and will significantly hurt our economy making this decade a flat decade. Now that’s my opinion, we’ve got MIT and other institutions that aren’t saying that exactly. But they are suggesting that we’re entering into a flat market cycle. Flat market cycles destroy many retirees, their retirements. Because it’s hard to make enough money to grow your assets faster than what you’re spending if markets over a 10-year period are just flat. For anyone that retired from 2011 on, you have not experienced a full reality.
RR S3 E36 CORONAVIRUS, STOCKS, WARREN BUFFET [00:43:15]
MIKE: You’ve experienced what the good markets look like, not what the flat or down markets look like. My word of caution is that unless you have a written plan that can help guide you through the good, the bad, and the ugly that you’re taking more risk than you may realize.
CLAYTON: Now, for our listeners I want you to picture this, let’s say you and let’s say your spouse has always wanted to go on a nice trip somewhere far away. But since your recent retirement you just haven’t felt comfortable. You couldn’t feel like you just didn’t feel like you could make it word financially, and still continue to have the money to survive in retirement.
RR S3 E36 CORONAVIRUS, STOCKS, WARREN BUFFET [00:43:55]
CLAYTON: Now, imagine having a plan that tells you down to the month how much you can spend until age 100. That trip now becomes a reality. And if you’re like our clients you have a written plan and you can see how much you can spend, and you can start hitting your bucket list.
MIKE: Hit that list. Travel, have so much fun. All of that is put into a written plan and for everyone listening right now I want to extend you a special offer. If you want to see what a written plan looks like, if you want to see what a written plan with the principles of retirement looks like and you can see how you can handle the next market crash or the next four market crashes while capturing significant upside.
RR S3 E36 CORONAVIRUS, STOCKS, WARREN BUFFET [00:44:38]
MIKE: And build a plan where you can have your cake and eat it too, then I hope you call us right now. Because it won’t cost you a dime to come in and get that safer retirement review. It won’t cost you a dime to understand how this all works. It won’t cost you a dime to reduce your risk, increase your income and even minimize taxes. We’re helping people get to a zero tax bracket in retirement. That’s huge, all of that is possible with a written plan and you can get on right now at 833-707-3030, call right now at 833-707-3030.
RR S3 E36 CORONAVIRUS, STOCKS, WARREN BUFFET [00:45:13]
MIKE: And here’s what the visit is, it’s a relaxing time for you sit down in one of our offices where you can go over your hopes and wants, your dreams and needs, you can understand what your fears are, what your concerns are. How did you handle Monday and Tuesday of last week? What was going on? What’s your current plan? Are there flaws with that? We’re fiduciaries, that means we’re legally bound to do what’s in your best interests, morally, legally, you’re in charge. We’re local, we’re independent, we’re here for you. As opposed to the big guys on Wall Street who are there to sell you a product, we’re here to help sustain your lifestyle.
RR S3 E36 CORONAVIRUS, STOCKS, WARREN BUFFET [00:45:55]
MIKE: The lifestyle that you want to enjoy, your plan, your retirement, your life. That’s what we’re here for, the local, independent guy who’s gonna help you write your plan to handle the good, the bad, the ugly. Call us right now, 833-707-3030. One more time that number, 833-707-3030, when you call in, you’ll get a comfortable voice, friendly, kind, they’ll get your information. And then they’ll give it to us on Monday so we can reach out and schedule a visit over the weekend. And we look forward to talking to you and having that no cost visit for a safer retirement.
RR S3 E36 CORONAVIRUS, STOCKS, WARREN BUFFET [00:46:32]
MIKE: Number one more time, 833-707-3030, this is Safer Retirement Radio where you get the transparency that you deserve, I’m Mike Decker.
CLAYTON: And I’m Clayton Bradshaw.
MIKE: And this show is by Decker Retirement Planning, if you want to catch this show you can go to deckerretirementplanning.com or wherever you get your podcasts and search for Safer Retirement Radio. Now, today’s show we’ve been talking about the coronavirus and I’m gonna call it the corona market. It’s really hurting our markets right now and how that’s a good reality check for your retirement plan, is it suitable? Is it good for you or does it makes sense to make some change?
RR S3 E36 CORONAVIRUS, STOCKS, WARREN BUFFET [00:47:08]
MIKE: We’ve also talked about the four ways you can own a stock, all of them are just delightful but what’s right for you? That’s up to you to decide but it’s important that you have the information to make that decision. We also talked about Warren Buffett, how he’s warning investors that are buy and hold it and don’t have the ability to handle a 50 percent correction, that they can’t ride it out. Okay, maybe buy and hold’s not suitable for you. But, Clayton, let’s talk about springtime is just so fun. Flowers are coming out, you know, it’s like a restart of the year, rebirth.
RR S3 E36 CORONAVIRUS, STOCKS, WARREN BUFFET [00:47:45]
MIKE: Spring probably means something like that in some other language, I don’t know. But it’s a fun time of new beginnings. A lot of people plan their retirements in the spring because they want to just have things in order. Home buying is also a big topic in springtime and a part of the conversation we have with a lot of our retirees is do I pay my home off? Do I keep it and take the payments? Or do I sell my home and downsize? And I want to preface that, the sell my home and downsize conversation is your home too big for what you need right now. It’s not usually a monetary conversation, it’s do you want to keep up your home with its current size or do you want to downsize so it’s just easier keep up?
RR S3 E36 CORONAVIRUS, STOCKS, WARREN BUFFET [00:48:24]
CLAYTON: Mike, I get this question a lot when I meet with folks, is they look at the plan and they think, “All right, well, I can have this much income or I can sell, I can pay off my home.” And that question for me right now, especially with us being in a low interest rate environment. Interest rates are pretty close to historic lows, and because of that I don’t think right now it makes sense to pay off your home. ‘Cause I get a lot of people that they like that I call it the Dave Ramsey approach, you get out of debt. You do the debt free yell, I think that that burden’s off your shoulders, right?
RR S3 E36 CORONAVIRUS, STOCKS, WARREN BUFFET [00:49:02]
MIKE: Well, what are rates today? What have you seen for a home?
CLAYTON: A 15 year fixed is three and a quarter.
MIKE: Right now?
CLAYTON: Yeah.
MIKE: Or roughly speaking, depending on your FICO or whatever and stuff.
CLAYTON: Yeah, roughly speaking, yeah, situation, yeah.
MIKE: Okay. Three and a quarter, would your investments outperform that? If the answer is yes, then my question is does it make sense for you to lose out on the extra investments because you put it into your house? Now, I want to be very clear, it is not a good idea to pay off your house and then take out a second mortgage to invest it. Do not do that.
RR S3 E36 CORONAVIRUS, STOCKS, WARREN BUFFET [00:49:38]
MIKE: I know that there are some companies that have tried to do that, and they get in trouble. So, [LAUGH], when we talk about paying off your home, I want to be very clear. If you pay off your home that’s your nest egg, that could be your backup plan if you need to sell it for a health catastrophe or whatever that wasn’t planned for. If you have the pie chart risk plan or whatever is happening but to use your home as an investment and squeeze every dime out of it kind of like what are those called, reverse mortgages? I just, I don’t agree with that practice.
CLAYTON: Yeah.
RR S3 E36 CORONAVIRUS, STOCKS, WARREN BUFFET [00:50:12]
MIKE: Mathematically speaking it’s tough to rationalize that, it’s tough to even quantify that kind of a decision. So if you pay off your home, best practice is to typically to then have that home stay paid off. And your investments are your investments and you separate the two. How do you see it, Clayton?
CLAYTON: Yeah, I agree. I think if you’ve got a second home, if you’ve got a rental property you can treat that second property more like an investment. But when it’s your primary home, when it is your home, not a house, when it’s the place that you live.
RR S3 E36 CORONAVIRUS, STOCKS, WARREN BUFFET [00:50:45]
CLAYTON: That is where you want to take a little bit more care to make decisions, you want to have a place to live obviously in retirement. And I’ll have people come in and a lot of times the conversation at some point most people are gonna downsize in their lifetimes. Whether it’s in their 60’s maybe they finally are empty nesters, the kids are out of the house and they don’t want to deal with the yard.
MIKE: Yeah.
CLAYTON: Other folks, it’s their 80’s, right? The knees and the back don’t want to deal with the stairs and the yard anymore. And they just need to get into something that’s more manageable.
RR S3 E36 CORONAVIRUS, STOCKS, WARREN BUFFET [00:51:19]
MIKE: Well, I’ll tell you what, my first home was a townhome. And I was working just crazy hours, I was studying, I was doing all sorts of things. I loved the fact that I didn’t have to take care of the yard or anything. It was all done for me. That was so nice. I mean, [LAUGH].
CLAYTON: Yeah.
MIKE: And townhomes are a wonderful option, you’ve got condo’s, you’ve got retirement communities with HOA’s that take care of all that. There’s a lot of different options out there. But what is right for you is important for what’s right to you. Now, Clayton, let me just throw out a couple of examples. Okay, we said earlier in the show a five-year CD is roughly is about two, two and a quarter percent at best.
RR S3 E36 CORONAVIRUS, STOCKS, WARREN BUFFET [00:51:56]
MIKE: If you were, and let’s say you didn’t want to be in the market, and you wanted to be in investments like CD’s. Do you think it’s better to pay off your home or to invest in a lot of CD’s?
CLAYTON: Well, if the CD’s are paying less than your interest rate, probably paying off your mortgage would be the better option.
MIKE: Are there other accounts that are principle guaranteed, which means they cannot lose money but still have upside participation that are doing better than a two and a quarter CD?
CLAYTON: Well, yeah. And we know this because we comb the data bases, we look through everything we can.
RR S3 E36 CORONAVIRUS, STOCKS, WARREN BUFFET [00:52:33]
CLAYTON: That’s part of our research that we do as fiduciaries, as advisors that are morally and legally obligated to put our client’s interests ahead of our own. We go through an extensive amount of research to make sure we know where all of these options are. And there are a handful of options that are doing much better than three and a quarter. And because of that, there’s options, right? But how does it look on the bigger picture and this is where the distribution plan, those written plans that we talk about come into play.
RR S3 E36 CORONAVIRUS, STOCKS, WARREN BUFFET [00:53:08]
CLAYTON: This is why these are so important because you can look, and you can talk about these different situations. And when I have people come in, I have done this before with folks. Where we’ve looked at, all right, what does it look like if you sell your rental property now? What does it look like if you pay your home off now? What if you do it in 10 years, or 15 years? Because for some people, they like the practice of maintaining their property, they like doing that. But they recognize, let’s say it’s a rental property. When they get into their late 60’s, early 70’s, I talked to some people they know they’re not gonna want to have to handle the stress that comes with a rental.
RR S3 E36 CORONAVIRUS, STOCKS, WARREN BUFFET [00:53:42]
CLAYTON: They don’t want to take those two, three AM phone calls, “Hey, the water heater just went out.” Or there’s flooding in the basement, I need you to deal with it. There’s a time in your life where I think people are okay doing that. They’ve got the energy; they’ve got the ability to manage all of that. And some people think it’s fun. But for other people, for those that want to fully enjoy their retirement, in my opinion, I think you get a lot more joy out of not having to stress about whether or not a renter is burning your house down.
MIKE: Yeah.
CLAYTON: So those are things to consider. And a written distribution plan can show you to the month what that looks like financially for you.
RR S3 E36 CORONAVIRUS, STOCKS, WARREN BUFFET [00:54:19]
CLAYTON: How is it going to impact you? The other thing to worry about or to consider at least is some people come in and they say, all right, I’ve got, I don’t know, 500 thousand, a million dollars, a million five in my 401k. I have 200 thousand dollars left on my house, I want to pay it off, what does that look like? Okay, well the other consideration is the taxes that you’d have to pay on it. What’s that gonna do to your tax bracket, what’s that gonna do to your taxes for the year? Is it going to be worth it? And these are all things that can be looked at and factored in on the written distribution plan.
RR S3 E36 CORONAVIRUS, STOCKS, WARREN BUFFET [00:54:54]
MIKE: And if you want this clarity of the different options and the different solutions on how to proceed, our job is to quantify it so you can see it in a simple format that anyone can look at that and make a decision. It’s quite simple, we do all the work, it’s there for you to see a written plan of each of the different options and then you can decide to proceed. If you want that, call us right now at no cost to you. We’ll do that visit for you, 833-707-3030, that number one more time, 833-707-3030. When you call, you’re gonna get a friendly voice. They’re gonna get your information and then pass it along to us so that on Monday we can reach out to you.
RR S3 E36 CORONAVIRUS, STOCKS, WARREN BUFFET [00:55:33]
MIKE: Clayton, for you and for everyone listening right here just imagine with me for a brief moment. Imagine that you’re at that store, that store of your new hobby and you’re getting that thing that you needed to keep doing that new hobby that you had, and you’re retired. And it’s just so fun, you’re going to the store because you’re just so excited. This weekend, you’re gonna keep doing that new hobby and you just need this one thing to keep going on that new hobby. At the store, you bump into your old friend and you say, “Hey, you know, what’s going on?” You’re just catching up. And then you notice as you’re catching up that your friend just went back to work. And you say, “Well, what happened?”
RR S3 E36 CORONAVIRUS, STOCKS, WARREN BUFFET [00:56:10]
MIKE: Well, my retirement didn’t work out, I just I felt like we were living a lifestyle that we couldn’t sustain. We thought it would work this way, it didn’t. We didn’t make enough in our investments and so we’re having to go back to work part-time to subsidize the income that we have to stay and keep the lifestyle that we had. And you think to yourself, we did those calculations, we saw our income down to the month and then a tax and how it would be, how we would receive it and how it could sail through the market crashes for whenever those happen. Or in a flat market cycle or an upmarket cycle or a down market cycle.
RR S3 E36 CORONAVIRUS, STOCKS, WARREN BUFFET [00:56:45]
MIKE: It didn’t matter, you think to yourself, “Gosh, I made the decisions before I retired or while I was retired and things were good. So I didn’t have to make the tough decisions later on.” Who do you want to be? Safer Retirement Radio listener, you want to be the guy that’s picking out, or the girl picking out that thing for that new hobby that you have and staying retired? Or do you want to run the risk of guessing and then possibly having to go back to work part-time to subsidize your lifestyle that you don’t want to change? You don’t have to live in that fear. You can call us right now, 833-707-3030, our job is to quantify that and give you a written plan that can show you whether you can or cannot do that.
RR S3 E36 CORONAVIRUS, STOCKS, WARREN BUFFET [00:57:27]
MIKE: And for those who cannot, we then walk you through how to get to that phase. There’s no risk. There’s no assumptions really. This is just math. We’re building this for you. This is what we call a safer retirement. Call us right now, 833-707-3030. That number one more time, 833-707-3030. It won’t cost you a dime, but it can change everything in your retirement. Thank you all so much for listening today on Safer Retirement Radio. I’m Mike Decker.
CLAYTON: And I’m Clayton Bradshaw.
MIKE: And we’ll be back, same time, same place next week and via podcast on Fridays.
