RR S4 E2 [00:00:00]
BRIAN: Hi, my name’s Brian Decker. Welcome to Safer Retirement radio. I’m your host. We have here Clayton Bradshaw is joining me. He’s a fellow planner at Decker Retirement Planning and has many hats these days.
CLAYTON: [LAUGH]
BRIAN: In addition to planning, your background is heavy in marketing of late.
CLAYTON: Yup. Yup. Thanks for having me on, Brian. I like being here and doing the show, so it’s good to be on here with you today. We’ve got some pretty great things to talk about it sounds like.
BRIAN: I think top of mind for a lot of people is how much higher is this market going to go? Now, think of this, Clayton, it dropped 30 percent faster than it’s ever dropped before, even in 1929.
RR S4 E2 [00:00:39]
BRIAN: We witnessed a faster drop than 1929.
CLAYTON: [LAUGH] I think during the Great Depression, we had numbers two, three, and four of the fastest 30 percent drops in history.
BRIAN: Right.
CLAYTON: And we set that new record of number one this year, 2020.
BRIAN: Right. Also, in the Great Depression, in the years of the ‘30’s, we also saw rallies of 40, 50, and 60 percent.
CLAYTON: Sure.
BRIAN: So now, if you’re retired, you’re wondering, I just lost 30 percent of my money in less than three weeks.
RR S4 E2 [00:01:21]
BRIAN: Shouldn’t that be a red flag to you that you don’t have any downside protection?
CLAYTON: Right. Yeah, for somebody to step into this and think, oh, well, it’ll bounce back, so I’ll just hold off on income for a little while. Well, what’s happening? It’s not quite bouncing back.
BRIAN: Right. So the first principle that we have at Decker Retirement Planning is to draw income from principle guaranteed accounts for this one reason. Now, we have many principles that we follow as a math-based firm, as a principle-based firm, but this has got to be one of the tops, and that is our clients didn’t lose any money during January, February, or March.
RR S4 E2 [00:02:03]
BRIAN: In fact, our clients made money because of this one principle, and that is never draw income from a fluctuating account, or we can change it to a positive. Always draw income from principle guaranteed accounts.
CLAYTON: And so, Brian, when you’re saying principle guaranteed accounts, can you be a little bit more specific on what you mean by that? I mean, it sounds to me like CDs and savings account and the like, right?
BRIAN: Right. Now, before 2008, we did use CDs.
RR S4 E2 [00:02:35]
BRIAN: We’re a math-based firm, and so, we go to the data bases for banks and insurance companies, and whatever is yielding the highest that we can ladder, like our different buckets have different maturities. So bucket one is a liquid account.
CLAYTON: Sure.
BRIAN: There’s seven or eight banks that are earning 1.7, 1.8 percent today.
CLAYTON: Yup.
BRIAN: So we tell our clients about that, and they get that.
CLAYTON: You see, you said bucket one, so you’re talking through onto what we call our distribution plan where people should be. That’s their income bucket, right? That’s where they’re pulling their money out of, right?
RR S4 E2 [00:03:10]
BRIAN: Right. But think of that. Most people listening to this are thinking, where do you get 1.7 percent on an FDIC cash account? That’s pretty good. I can’t believe I’m saying that, but that is pretty good today.
CLAYTON: Right now, it is, yeah.
BRIAN: Yeah.
CLAYTON: Yup.
BRIAN: Okay. Number two, if we had a five to seven-year principle guaranteed account that ladders in next, and that historically is averaging around four or five, that’s pretty good today too because a 10-year CD, right now, is at 1.6.
CLAYTON: Right.
RR S4 E2 [00:03:43]
BRIAN: And, then, we feather in and ladder in a seven to 10-year account that historically is averaging around five, five and a quarter.
CLAYTON: Yup.
BRIAN: Still pretty good. Three times what CDs are doing.
CLAYTON: Right.
BRIAN: And we keep doing that. So there’s three parts to what we believe, at Decker Retirement, is a principle guaranteed ladder, and that is when you pull money out of those accounts, bucket one usually pays for the first five years, right?
CLAYTON: Sure, yeah.
RR S4 E2 [00:04:21]
BRIAN: And, then, bucket two for years six through 10, and bucket three for years 11 through 20.
CLAYTON: Right.
BRIAN: Anyhow, we have three to five different buckets that you drawing income from principle guaranteed accounts so that when the markets crash, usually every seven or eight years, how does that effect your income if you’re following principle number one, only draw income from principle guaranteed accounts.
CLAYTON: Well, your income’s safe.
BRIAN: Totally safe.
CLAYTON: Because it’s not going to take that massive 30 percent hit in three weeks like everybody else that just did that’s using a fluctuating account for their income source.
RR S4 E2 [00:04:58]
BRIAN: Right. Now, our phones were not ringing off the hook when the markets were losing seven, 800, 1000 points during that down trend.
CLAYTON: Yeah.
BRIAN: Because our clients were not losing anything.
CLAYTON: Right.
BRIAN: Now, do we have liquidity? In fact, let’s go to principle number two. We’re totally off script because we were going to talk about the markets. We’ll get back to that. Maybe, we pitch social security on this. But principle number two is that we use the investment triangle. We diversify by purpose.
CLAYTON: Sure.
RR S4 E2 [00:05:32]
BRIAN: Okay. So, if you have that triangle and one tip of the triangle is liquidity, the other is principle guaranteed, and the other is growth, is there any instrument that has all three, Clayton?
CLAYTON: If there was, sign me up. I would love to know about it.
BRIAN: So that’s a no?
CLAYTON: That’s a no. Yes.
BRIAN: All right. So liquidity is principle guaranteed and liquid. That’s money market account, right?
CLAYTON: Right.
BRIAN: That’s two of them.
RR S4 E2 [00:06:04]
BRIAN: What we ladder in the principle guaranteed accounts that clients draw income from is principle guaranteed and growth.
CLAYTON: Right. So what you’re saying is you’ve got to pick two of each of these points of the triangle.
BRIAN: Right.
CLAYTON: And, then, you’re kind of defining what each of those two would look like.
BRIAN: Right. Principle number three in a retirement plan is liquidity and growth, and that is stocks. Do our clients have stock market exposure? Yes. Did they make money? Yes, they made money. In the first quarter, our clients made money. That’s a discussion for another podcast.
RR S4 E2 [00:06:42]
CLAYTON: Right.
BRIAN: But it’s worth knowing that just like getting 1.7, 1.8 percent on a cash account is good, making money on a risk account is also spectacular in a market like what we just had.
CLAYTON: Yup.
BRIAN: But we’ll talk about that another time. The third thing is to get four or five percent or more on a principle guaranteed account is also good. So, when you combine that together, so we have cash, saved money, and risk, that is what we’re doing for our clients’ portfolio.
RR S4 E2 [00:07:18]
BRIAN: So, when the market’s going up, do our retired clients participate?
CLAYTON: Yeah.
BRIAN: Okay. When the markets go down, do they participate in losing money?
CLAYTON: Well, you don’t in your safe money, right, your emergency cash. [OVERLAP]
BRIAN: That’s a FDIC.
CLAYTON: Yup, that’s protected. You don’t in your principle guaranteed buckets that we talked about.
BRIAN: They cannot lose money.
CLAYTON: Right. And, then, we set the example with the risk account earlier this year on what happens when a market drops.
BRIAN: The risk account, we use computer trend following models.
RR S4 E2 [00:07:51]
BRIAN: When the markets go down, they’re able to go to cash or they can make money as the markets drop. Again, a conversation for another time. But that’s central to the portfolios that we use. Now, if this is of interest, if your portfolio doesn’t look like that, in other words, if your portfolio resembles a pie chart with pieces that you think diversification is going to bail you out, how did that work? How did that work in March and April? How do you think it worked?
RR S4 E2 [00:08:25]
CLAYTON: It didn’t work, right?
BRIAN: No.
CLAYTON: It didn’t work. So, for anybody that’s listening right now, give us a call, 833-707-3030. Again, that number 833-707-3030. Give us a call. You can schedule just a free 15-minute consultation with one of our planners, with one of us, so that we can talk you through what a plan looks like and what it can look like for you to show you how you can have that same security that our clients have been able to enjoy through this market volatility that’s been going on.
RR S4 E2 [00:08:58]
CLAYTON: So I know we kind of took it aside there to talk about the distribution plan and how our clients are set up for retirement by using that. But we wanted to talk about the market and the possible directions that the market can go from here. So you were mentioning earlier, we’ve got a couple different letters. We’ve got the V-shaped market, the W-shaped market, the U-shaped market, and the L-shaped market. I know that’s an alphabet soup, but let’s talk about them.
BRIAN: Let’s talk about that. In professional football, in the NFL, if you’re a quarterback, the coach tells you to try to run the ball if you can because, in passing, three things can happen and two are bad.
RR S4 E2 [00:09:37]
BRIAN: You’ve heard that, right?
CLAYTON: Yeah.
BRIAN: If you pass the ball and they catch it, that’s a good thing. If you pass the ball and they miss it, that’s a bad thing, loss of down. If you pass the ball and they intercept it, that’s very bad. So two of the three are bad. Now, with the market where it was February 19th, the market high, we have a market valuation that has only been higher one time and that was 1999.
RR S4 E2 [00:10:11]
BRIAN: There’s three times when the forward-looking price-earnings ratio was 21 or higher, 1929, 1999, and February 19th of 2020. In the next 10 years, in 1929, the market still had not regained back what it lost. In 10 years from 1999, Clayton, the markets had not regained what it had lost.
CLAYTON: Sure.
RR S4 E2 [00:10:45]
BRIAN: Just like in the NFL, if you’re a buy and hold strategy with the pie chart, you’re hoping for history to do something that’s never happened before and that is go up from where it peaked within the next 10 years. It’s never happened before. So what we hope people do is know that buying and holding is an accumulation strategy, totally fine in your 20’s, 30’s, and 40’s.
RR S4 E2 [00:11:18]
BRIAN: But, if you’re buying and holding and you’re over 55-years-old, that is a strategy that’s going to hurt you because what you’re counting on… so, Clayton, if you’re over 55 and you’ve got a buy and hold strategy, it’s worked really well for the last 12 years, right?
CLAYTON: Sure, it’s been great. I’ve been loving life.
BRIAN: Yeah, so the next 10 years, history speaking, according to market valuation, is not going to be kind to you, unless you make a change in strategy. This is huge.
CLAYTON: Yeah.
RR S4 E2 [00:11:51]
BRIAN: And this is a reason for anyone that’s listening to call… what’s the number to call?
CLAYTON: It’s 833-707-3030 is the number to give us a call so we can talk through this a little bit more.
BRIAN: Okay, so we’ll go into detail on the portfolio. But, on the markets, there’s going to be either a V-shaped recovery… historically, what that means is the markets dropped and oh, whoops, that was a mistake, and it comes right back. Here’s a good case in point.
RR S4 E2 [00:12:23]
BRIAN: Q4 of 2018, the fed said that they were going to stop lowering interest rates and start raising them. Chairman Powell said that, markets lost 20 percent just like that, went down. He said, “Oh, I changed my mind.” And they came right back up. That’s an example of a V-shaped recovery.
CLAYTON: Sure.
BRIAN: Okay. I don’t think after you have 20 plus percent unemployment and many people in small business losing their jobs, not just losing their jobs, losing their business, that means losing money that they can’t restart their business, I don’t think that a V is possible.
RR S4 E2 [00:13:09]
BRIAN: That’s just my two cents. What do you think?
CLAYTON: Yeah, I’ve kind of felt the same way that given the kind of prolonged expectations of how long this is going to take to bounce back to get back to normal. I mean, I saw something from the Utah governor earlier this week that he kind of laid out his plan for getting back to what he referred to as normalcy, or normal. I mean, we’re in April, and it was going to be through the end of the year.
BRIAN: Okay, so if you’re an investor and you think a V-shaped recovery is going to come about, good luck. I don’t read that a lot of people believe that.
RR S4 E2 [00:13:44]
BRIAN: The second option is a U-recovery. So a U is when you take the hit. You have a recovery. Sorry for the pet lovers, but this is called a dead-cat bounce. This is where the markets recover about 2/3 and we’re right there today, and then we go back and test the lows of March, what is it? 29th, 27th, somewhere in there.
CLAYTON: Yup.
BRIAN: Where the markets test the lows. That means that we go down around 20 percent from here, and then, we chop along.
RR S4 E2 [00:14:22]
BRIAN: And then, slowly but surely, we come back. That’s a U-recovery. That happened in 2000, ’01, and ’02. That was a three-year, 50 percent drop, slow recovery. That happened from October 2007 to March of ’09. That was an 18 month or so drop, and then a slow recovery.
CLAYTON: So with these year recoveries, about how long does it take when we go through a U-recovery to bounce back? Is it 18 months?
RR S4 E2 [00:14:57]
BRIAN: Historically, it’s 18 months.
CLAYTON: Okay.
BRIAN: But remember, again, that we have history saying that once you get to a valuation where we were, 10 years later, it’s never happened. Now, one of the things that skews it is low interest rates. So there’s three tailwinds that have caused the markets to go up. One is higher earnings. Do you think the earnings are going to be higher in the next three quarters?
CLAYTON: [LAUGH] It will be interesting to see where these businesses are going, but no. I don’t.
RR S4 E2 [00:15:32]
BRIAN: No. I bet you my house that they’re not.
CLAYTON: [LAUGH]
BRIAN: Number two is the fed has been stimulating the economy. Now, after they just wrote a four trillion-dollar check, do you think that they’re excited to continue to stimulate?
CLAYTON: [LAUGH] Yeah, no. It’s not going to happen.
BRIAN: Yeah, there’s not much left in that. The third reason that markets go up is lower interest rates. The 10-year treasury is at 0.6. That’s pretty close to zero.
CLAYTON: Pretty close, yes. [LAUGH]
RR S4 E2 [00:16:05]
BRIAN: Okay.
CLAYTON: That’s incredibly close to zero.
BRIAN: Yeah. So the three tailwinds now become headwinds, and anyone thinking that the next 10 years are going to resemble the last 12, in our opinion, they’re retirement may be at stake if they’re wrong. So we hope that you have a plan, that in their portfolio, Clayton, looks like what we described in this podcast, that you have part of your planning cash, but that your liquidity is earning 1.7, 1.8 percent.
RR S4 E2 [00:16:40]
BRIAN: We hope that you are drawing income from laddered, principle guaranteed accounts, so when the markets get cranked like they did, it does not affect our clients. And third, we hope that your risk money are in computer-trend following models so that when the markets go down, you’re able to make, not lose money, like our clients this year.
CLAYTON: Sure. Well, and Brian, and I see this and I know that you’ve seen it as well, you’ll have people come in, and they’ve got one or two kind of pots of money that they know they own it, but they don’t know what the point of it is.
RR S4 E2 [00:17:15]
CLAYTON: They don’t know how they’re going to use it in the future, but they know that, at some point, they were told it was the best option for them. And, so, they said, “Okay, sign me up.” But, now, what do they do with it? And, so, I love working with those people because I get to help them and say, “All right, you’ve got these pieces. Here’s the best place for you and where that fits into the plan, and we can help structure the rest of the plan and kind of fill in those gaps around it so that you actually have a solid foundation. You can go forward in retirement, comfortable, because you actually have a plan and you can see what that plan looks like.”
RR S4 E2 [00:17:48]
BRIAN: Right. Perfectly said. Anything else on the markets that come to mind? I know we’re almost out of time.
CLAYTON: Yeah.
BRIAN: The principle guaranteed, the different layers, the triangles, the two principles we covered.
CLAYTON: We’ve kind of talked about a lot of different points. So just to kind of sum up, we talked about the markets. We talked about what a distribution plan looks like. For anybody that’s curious on kind of how the markets going forward could affect your portfolio, give us a call if you want to see what that distribution plan can look like for you.
RR S4 E2 [00:18:20]
CLAYTON: I mean, that’s one of my favorite things when I put one of those distribution plans in front of clients. They can see, all right, I know, now, starting at retirement, how much money I can draw every month, net of tax, all the way to age 100. They can see it. It’s right in front of them, and they can know, yeah, I can retire. I can do this now.
BRIAN: That’s very important what you just said. So, way too often, sadly, people in retirement think that their retirement plan is that pie chart.
CLAYTON: Yeah.
BRIAN: And that does not work in a down market.
CLAYTON: Right.
BRIAN: You have to believe that the markets are going to go up from here for the rest of your life, and that is not going to happen.
RR S4 E2 [00:19:00]
CLAYTON: Yeah, and it never has, right? We’ve seen the kind of the ups and downs that the market gives us. So, if you want to learn more about a distribution plan and how it can look for you, give us a call. Our number’s 833-707-3030. Again, that number 833-707-3030. And just schedule a quick, 15-minute call with us. It’s free. It’s no obligation. You chat with one of us. We’re licensed financial advisors, and we’ll talk you through kind of your situation and what the market’s kind of doing to you and what, potentially, the next steps are going forward. So we’d love from you.
RR S4 E2 [00:19:33]
CLAYTON: Again, that number 833-707-3030. Brian, do you have anything else to add?
BRIAN: That’s it. Thanks for joining us. This is Brian Decker signing off for Safeer Retirement radio and Clayton Bradshaw. Thanks for joining us.
RR S4 E2 [00:19:47]
[END OF FILE: RR S4 E2]
