Wealth from Wisdom

7 Pitfalls of Asset Allocation

March 17, 2018
Wealth from Wisdom
7 Pitfalls of Asset Allocation
Chapters
Wealth from Wisdom
7 Pitfalls of Asset Allocation
Mar 17, 2018
Carson Wealth
Show Notes Transcript

If you don’t have a properly diversified investment portfolio … you could erase years of hard work, savings and sacrifice … all in the blink of an eye. In this episode, Ron and Paul discuss how you can diversify your portfolio, do more with your money, and reduce risk.

Speaker 1:
0:00
Okay. And here's the legal Mumbo jumbo. The opinions voiced and well from wisdom with Ron Carson or for general information only and are not intended to provide specific advice or recommendations for any individual to determine what is appropriate for you. Consult a qualified professional. All indices are unmanaged. I may not be invested into directly. Investing involves risk including possible loss of principle. No strategy assures success or protects from loss. Past performance is no guarantee of future results. Advisory Services offered through Cwm, LLC and sec registered investment advisor
Speaker 2:
0:31
market hit another all time. Records as much as $10 billion in social security benefits go unclaimed every single year. Reserve announced that they will raise interest rates by 205 the skyrocketing cost of healthcare and retirement could now run 350,000 for retirement. Today is a whole new ball game. It's loaded with challenges, obstacles, and trap doors that you can do this and we can be your guide. Welcome to wealth from wisdom with Barron's hall of fame advisor, Ron Carson, straightforward and objective advice and how you could make your money go further in retirement. And now here's your host, Ron Carson. If I ask you what's your current investment allocation is, would you have any idea? Truly, no.
Speaker 3:
1:16
And another question I would have is when's the last time you truly updated it or you rebalanced it or you really look deep into what you own, especially if you have a bunch of ETFs or mutual funds out there. Would you struggle to come up with an answer? Most people have no idea what the answers are to these questions and they really don't know how their money's invested and they haven't updated their investments for who knows how long. We see this all the time, Paul. The biggie is they don't know how much risk they're taking. And I don't mean risk to the upside. I mean risk to the downside and this is how you could get yourself in real trouble right now today. This is how you could lose more than half of your nest egg. And it's happened several times. Matter of fact, I can go back and talk about the fact that 85% of the market declined.
Speaker 3:
2:11
85% decline between 29 and 32 over 50% between 72 and 74 we had a crash in 87 of 50% in 2000 and 2002 and then again in 2007 2009 and the fact is that that's the market. That's what happens. And if you're getting close to retirement, this could be devastating. Welcome to wealth and wisdom. I'm Ron Carson, my cohost today, Paul West, and thank you for joining us. Your asset allocation is your friend. Asset allocation is the single most important factor determining your success. I've seen this in my 36 years in this profession, but there's also some risks, very real risks with diversification. One is if you play it too safe, you run the risk of running
Speaker 4:
3:00
through your entire life savings because you get no return on it. And if you take too much rest, you could erase years of hard work because your timing is way off and you've crept into taking a lot more risk than your risk budget allows for. And like that. And we saw this happen again, Paul Oh seven oh nine time period people. It just crept up on them. And we'll talk about what happened in the dotcom cause I think some parallels to that period to today, but there's a right way and there's a wrong way to actually do this. Coming up on today's show, Paul and I are going to go through many of these pitfalls and what we're going to talk to you about is it theory. Paul is in the trenches every day. I'm in the trenches. We have our consulting coaches that are consulting with 5,000 advisors that are in the trenches.
Speaker 4:
3:49
We have our 74 locations around the country. Then in the trenches. This isn't theory, I would argue the Carson group probably has a better false and what's going on pulse and what's going on in the financial markets and how investor behavior is creating some real problems both in the future that we can see or start to manifest themselves today. But beware and be careful and be appropriately diversified. Yeah. Or, and I think a lot of people, um, when making decisions, I'm gonna use the B word of their biased and we all have our personal biases on how things happen and what we look at. And asset allocation is one of those areas that we have a lot of what I call scope creep. You don't realize how far out you get until it's too late or until you fall down and you make a mistake.
Speaker 4:
4:38
And there's a lot of biases going on right now. You and I are actually just talking about before we started the show today about March madness going on and about who got in the tournament or maybe who shouldn't have gotten in a tournament. They did and who did didn't that may be, should have. Um, and, but a lot of it came to my hometown familiarity by us. And of course, you know, we're based here in Omaha based in Nebraska. So there's a lot of Nebraska fans that are disappointed that the University of Nebraska didn't get into the tournament even though crate and got in. And if you look at their resumes and the records is you've got to remove the personal biases here and each one has a different record. They went through in a different allocation of wins, but some was a lot better than others and as you look at history is doesn't mean what happened this year is going to happen better for next year.
Speaker 4:
5:27
You got to play the hand that you're dealt there at all points of time. So I think for today's show is is we talk about what's the best ways to avoid some of these biases. I was just laughing. I'm sharing this with you, Ron, is I couldn't believe how many people here in the state of Nebraska, we're so biased personally that Nebraska deserve to get it in the tournament and you made a great comment was well if they just would've done a little bit more, you wouldn't even be having to have this argument and blame a committee or other people is if you just play out the way things are supposed to and make the right things happen in your portfolio is the same way. If you complain about it after the fact, after you made a mistake, guess what? Too late, right? It's just too late at that standpoint. And so I think we need to talk today about those pitfalls, Ron, so that you're not sitting here complaining about the what ifs and your instead of talking about, I'm glad I did.
Speaker 3:
6:15
Did No, I, I agree Paul. I mean march madness again, putting it in the hands of somebody else because your record was so, so again, don't put your risk level, your portfolio and the hands of the market, especially if you're on the fringe and it could have an impact to where you can't live the kind of life that you wanted to. So let's start with pitfall number one and that is, and we see this all the time, if you're listening, this could be you. Your investment as asset allocation does not match your risk tolerance, your tolerance for risk. And this could be being too conservative or being too aggressive. You want to match how much return you need, but what overrides all of that is your emotional ability to withstand a certain decline in the portfolio. Because if you panic and you do something at the wrong time, you're never going to be around to benefit from upside volatility.
Speaker 4:
7:13
No, you're not. I mean in a lot of people right now, Ron, we've had very frothy markets. I mean we've been all time highs. We were down a little bit earlier this year and now we're back up close again. And so what happens is people are looking at numbers and saying, you know what, I didn't quite achieve that level of high return. So what are they doing? They're sliding down the scale of wanting to take more risk to get better return, but they don't need it. And what's going to happen on is this is going to come up and just bite them in the rear end because when it does fall, they would have made the move when they shouldn't have. And I think that is a huge risk we're seeing for people in the market right now is they want to make more money. They heard about their friends or from any of you, if you've logged into your retirement plan account and you're going to go look and see how a specific ETF or fund did inside of your 401k plan last year and you're say, shoot, I want to do that. Well, so I mean you're going to move it. This is a huge problem people have for investment allocation is they take on more risk based on prior
Speaker 3:
8:17
and they got another pitfall. You're, you're jumping ahead. I know I got excited about it but it's going to happen, but let's just spend a more, another moment on this is go and go back to your financial advisor and say, okay, what was our game plan? How much risk should we take? If you haven't been rebalancing, you've automatically added a lot of risk to the portfolio because equities have gone up. And by the way, if that's happened and you haven't done any rebalancing, congratulations because you got away with making more return inadvertently taking more risks. The fundamentals are fantastic. And the economy right now, valuations are not cheap and that's, you're seeing this extreme
Speaker 4:
8:56
volatility. And by the way, I think surgically investing is going to make more sense than just broad exposure. As volatility is going to increase. You want to for sure know how much downside risk do I have? Am I comfortable with that and does that level of risk and allow me to have the kind of return I need to hit my goals and objectives. If you said, you know what, I can only take x downside but the I'm, I can't live on that kind of return that I get with being too conservative, then you need to adjust your life style. Don't sit there and just take on more risk and then hope it doesn't happen because that will lead to really catastrophic consequences for your future ability to live. Yeah. So I'm going to share an interesting number here with our audience today, Ron. So we're about what, I'm not even a fourth of the way through the year here.
Speaker 4:
9:47
Maybe let's just call it a fifth of the way through the year, maybe fourth. So we are now, we've already, this year had twice as many days where the market's moved 1% greater or lesser than zero so far year to date. Then we did all of last year and we're not even a fourth of the way through the year. So the volatility has come back and so don't chase return because what's going to happen is, is risk. We'll come back and bite you. 2017 was an anomaly and I'm glad risk is back now, Ron, I'm glad there's actually market volatility because 2017 was just a strange year for that and we're back to a little bit more of a new normal. So be careful of what can happen there and don't get stuck in investment allocations. Thinking about things that just recently happened. You've got to look at historical period of time, but you made the right point for those are in the trenches every single time.
Speaker 4:
10:44
When we're doing a financial plan with the client, it's not you don't, we don't ever start a meeting around as well, here's your return and here's how you did. What do we do? We started talking about, here are your goals. Here's what's most important for you. Here's the plan we've put together. What adjustments do we need to make based on looking out in the future, not looking back in the past. That is so true, Paul. I mean, and that it's not, the market has so little to do with how people do. It's how they react to what they own and do. They have a well defined game plan and they're not guessing. And Paul, you get mail, I get mail, everybody listening gets mail and you get that statement and you open it up and you'll look at it and you go, Whoa, I haven't had a down statement in a long time. And all of a sudden you're seeing that probably just notice or if you've logged on line that your portfolio actually has gone down some for the first time in a long time. It just a reminder, we're in the unusual, unusually long bull market. The second longest in history, we've had low volatility. Paul just pointed out that that's changing quickly and this combination has lulled people
Speaker 3:
11:54
into a false sense of security, complacency, really not paying attention to the level of risks that they're actually taking. And if you go out today and just ask a hundred investors questions like, what are you doing? What do you think you should do? You're going to get a hundred different opinions. And unfortunately that also comes up a lot of financial advisors today too. That's why you want to know what was the effort, what was the thought, what was the process behind the plan? And if you're retired or even close to retiring, that could spell complete disaster. Let us show you how we could potentially do more with your investments while reducing your risk. We make the complex simple and it doesn't cost a dime. Give us a call. (888) 419-8513 the more, most important thing you can do for yourself right now, right today, is do something about it. Rebalanced. Take a look at the downside risk. (888) 419-8513 on Ron Carson with Paul West and you're listening to off from wisdom.
Speaker 2:
12:51
He seemed good times and bad times. Hands. He's got the gray hair to prove it. You're listening to wealth from wisdom with Barron's Hella famous advisor, Ron Carson. Is it possible you could pick fewer taxes in retirement and keep this money for yourself? You could learn right here and right now, unwelcome wisdom with bear and of boom advisor Ron Carson. Just like
Speaker 3:
13:16
so many things in life. There's a right way and a wrong way and that is also true when you think about diversification for your investments. Welcome back. I'm Ron Carson with my cohost Paul West and you're listening to wealth from wisdom. If you don't have a properly diversified portfolio you could erase years of hard work, savings and sacrifice and just a nanosecond and it does happen and can happen that quickly coming up, we've already covered in the first segment, the very first pitfall and we're going to go through several other pitfalls, things you need to do so this doesn't happen to you and Paul, we went into the risk budget but the next one is I think people say, well, I'm diversified. You think you have a diversified portfolio but you don't and we call this deworm suffocation. You just own a lot of the same stuff and this was especially a problem in the.com era.
Speaker 3:
14:08
If you went through and looked at a lot of the names, I could have been blue chip growth fund, it could have been the dividend capital fund. I'm just making these generic names up here, real life companies out there, and then you looked at the top 10 holdings. They're pretty much all the same and where people drilling down, did they understand that even though they had a lot of different names and they're, they're really had a lot of the same stuff. Well, you know, when they figured out and found out that they were the, the holdings were pretty much overlapped. Guess when that happened? After the decline decline, after the decline, they're like, wait a minute, how could this thing go down? Just like that thing went down. It just makes no sense. Makes no sense. So you don't choose
Speaker 4:
14:52
mutual funds that have similar strategies also just because they have a different name, they may not be in the same asset class. And here's the other issue is, well, I have several financial advisors. Well, do you know what each financial adviser is doing? A lot of times people, financial advisors included bypass performance, so they could all be investing in what just happened to be hot and the downside to having multiple financial advisors as who becomes a financial adviser. Then Paul, the client, the client hat, they do exactly. You got to run air traffic control. Yeah, and that's no fun for anyone. And I know you think and Ron in the trenches all day long, people come to us say, you know what Paul and team, we are going to keep three financial advisors because we're going to use this to compare all of you against each other.
Speaker 4:
15:45
And so my question back is, okay, but who's running that comparison? But more importantly, who's making sure advisor a is doing what's in your best interest advisor, be his advisor, see, and they're not completely counteracting each other. So that way you're really standing in a hamster wheel at the moment because you think you're on three unique wheels, but you're really on one that's just going nowhere because they're all moving against each other. This is a huge, huge mistake. I'm okay with actually Rhonda. Somebody has multiple advisers, but you have to choose one that understands how they're all working together. And we're actually one of these to be the quarterback, right? Paul has to be the headquarters. And Ron, I can't actually tell you how many prospective people we've turned away that will not adhere to that and that's fine. That's their choice, but they're just falling in this pitfall then because we're in this business all day long, whatever business you're in, whether it's industry, our agricultural or services or information technology, you know your business, but we are professionals.
Speaker 4:
16:48
I mean we are going to try to help you and we're not trying to win all of your assets. If you truly want to use multiple advisors, that's fine, but I can't not believe it. And there's actually a listener here, Ron, on the show in a couple of weeks ago and he said the word broker three times with me, my broker, I keep using my broker, my broker and and I, I was shaking. I said, can you please stop using that word? I can't believe people still use that word. If you're working with three advisors, they better be three fiduciary advisors, people that hadn't met her interest in front of their own. If they don't, they can be placing trades, they could be having problems. And I'm going to share a recent story around that I think is impactful for all of our listeners and thinking about diversification and too much.
Speaker 4:
17:28
So a recent person contacted us and said, Paul, I got an asset allocation now and I've got stocks, I've got mutual funds, I've got fixed income, I've got gold, I've got other alternatives. Well, well of course when we unpeel the onion here a little bit and look at it, yeah, they had stocks not dissimilar again to their ETF holdings and inside of their mutual funds, guess what? There are mutual funds that were ran by wells Fargo where they were currently custody that, so they were also all of their, um, alternative asset classes were in the most expensive mutual funds possible. So what they thought was diversification or asset allocation really was a super expensive way for wells Fargo and the other mutual fund providers to make more money. And so these clients, after we showed them an educated, they made the decision, Ron, not us, they say, hey, we're not really asked.
Speaker 4:
18:25
Allocated this isn't good. So they made a decision to move and you're not gonna believe this is how frustrating the world is. Um, and we understand the client's perspective here and there's been a lot of publicity out about what's in the client's best interest. Of course, a lot of it has been self inflicted by firms like wells Fargo, but these people initiated a transfer, said we're leaving, they signed paperwork to leave wells Fargo in the middle of January and now we're here in the middle of March and it's still not fully completed. And every eye not dotted correctly or t not crossed or whatever it is, isn't getting completed. And this is just frustrating for our industry. And I think that's why we started well from wisdom Ron was, is we want to educate consumers about important things. Like this is one, if they're not going to help you on the way out, that's a big problem. But two, if we're going to tell you you've got a full asset allocation and you may, because you got stocks, mutual funds, but they're benefiting more by what they're putting you in, is that being disclosed to you? It's probably not
Speaker 3:
19:26
actually. It's not. It wasn't buried somewhere right where it's like it was quote unquote suitable. By the way, Paul, I mean we're picking on wells Fargo right now, but just go with us a little further. Whether it's Merrill Lynch, Morgan Stanley, are these firms that are continuously in the news from gouging their clients? Why do you know this is, this just baffles me. Why would he play stay there? Do they, do most people just not know what's really going on out there or do they think very advisers different and their advisor May in fact be a really good advisor and doesn't even know what's going on behind the scenes? You know, you worked for what I call the evil empire. Um, and the, and the best advisors are leaving those conflicted models and they're going pure ria or hybrid and becoming a fiduciary yo for their client and getting away from it.
Speaker 4:
20:21
Well, when's the last time you've actually heard Ron a fiduciary adviser going
Speaker 3:
20:25
one of those firms? Oh, leaving. Oh yeah. By the way, I've never seen it ever. I've never heard of an ria going into the wirehouse world. I guess it's probably happened because they wanted a big check cause they'll pay you. And by the way, for listeners out there, ask your advisor, did you get money for, go on to whatever firm you're with because guests who's ultimately going to have to pay that back, it comes from the client, from a products that they put you in that the company does a calculation on. You got to do so much of this product or that product in order to pay this forgivable loan that we gave you or ask your advisor, are they currently on a retention bonus plan with their current a brokerage house? Because we have 10 questions to ask an advisor. Yeah, we do. Yeah.
Speaker 3:
21:12
And you go to Carson group.com and call us and ask, call us and we'll get that to you. But it's really good. By the way, I'm listening to a book right now, Paul, and I'd recommend all of our listeners is called the centrist manifesto and not to get political here, but I think it will resonate with most people. Boy does with me because it's, it's where this country is not right now. We're being governed by an extremist on both sides and not the center, but that's also how your portfolio is healthy is probably in the middle of being way too conservative is going to lead to not good results. Mean way too aggressive is going to lead not to great results. The best results. Think of it like this cause I've heard, oh, if you diversify then something goes up and goes down. I never make any progress.
Speaker 3:
21:58
Just the opposite. I want you to think of a Yoyo. You saw jojo. Paul, can we practice? I want you to do this. Go walk the dog, go home tonight and go upstairs while you're doing your Yoyo. All right. That's exactly what asset allocation is intended to do for you is, or a relay race. So right now, I just got the Peloton bike a couple of months ago, which I love the Peloton, right? Someone leads it for a while, let everybody else rest catch up, and then something else will lead and if you just take the net effect of all of that energy, it just makes you stronger and less volatile. But ultimately you end up in the same place where a better place. A lot of times people come in and they're like, Ooh, I'm taking all this risk, but they're not even set up to get that greater return.
Speaker 3:
22:43
And so you want to get, that's why asset allocation is important is you want to get the maximum amount, amount of return units for the least amount of risk units, and you want to optimize those. Yeah. Oh, I think about the Peloton or working out strategy is Ron, all of you have the same goal, right? Is wish to get a good workout, be healthy, live a good life, and do that. But I think a lot of people have what we call this familiarity bias, and that is you make investments based on you. What you're most familiar with or comfortable. So an example, you pick stocks based on what part of the country you live in because you're familiar with those. Could you see them on the news and you know a bunch of people that work there, and I'm not saying they're bad stocks by any means, but you tend to over allocate to that because overconfidence, significant amount of overconfidence and we get that here by the way, in Nebraska all of the time with a Berkshire Hathaway and other things that people want to choose stocks based on where they live.
Speaker 3:
23:43
And I love the passion for local. You and I both have an immense amount of passion for Omaha, for the state of Nebraska, but you also have to be smart about that. You don't want to put all of the various things now in your eggs, in your basket because you're familiar with something or you drive by the headquarters. Therefore it must be good if you drive by. It is a huge mistake we see people make across the country. And so Paul, if there's one takeaway from today's show, and I mean just one thing is you need to pay attention to this. You need to rebalance your investments right now. This isn't something you should put off for a day, 30 60 90 days. That's something you need to do right now because of people who put this off are the ones that are going to pay the pain and consequences of the next whatever event that we have in the market at this stage of the game.
Speaker 3:
24:27
It may be too late to recover depending upon where you're at. Let us show you how it could potentially do more through your investments, getting better risk with less volatility or better returns with less volatility and there's absolutely no cost, there's no downside, there's no cost to do this. Give us a call. (888) 419-8513 that's (888) 419-8513 the most important thing you can do for yourself route right now is the update and rebalance that investment portfolio. (888) 419-8513 that's eight eight eight four nine 85 13 could you do more with your money while reducing your risk? You can and you should and we're going to tell you how on the next segment. I'm Ron Carson with Paul West and you're listening to wealth and wisdom. How could you make your money go further in retirement? Learn how next unwell from wisdom with their intelligent fame advisor run Carson. He's a published author and has been featured in Forbes, investment news, the Wall Street Journal, CNBC, and more.
Speaker 3:
25:37
Now, back to wealth from wisdom with Barron's hall of Fame Advisor Ron Carson. Do you know how your money's invested? When's the last time you updated? Rebalance a really took a deep dive and looked at what was actually in your investment portfolio? Most people don't have the answers to these questions and this is exactly the thing that you need to know. Otherwise you can get yourself into real trouble right now. Have you made a random series of decisions or do you have a unified game plan that makes sense to you relative to your downside risk? Your listening to wealth and wisdom. I'm Ron Carson if my cohost Paul West, and thanks for joining us today. We've already talked about risk budget, we've talked about when you think you're diversified, when you're really not diversified, and the next one Paul on the list is not consistently updating the game plan and this is something that should be done at least once a year. Rebalance, but also has anything changed in your life? The goals and objectives, the same as they were a year ago. And by the way, if something big changes in your life, one of the very first calls you need to make us to your financial adviser to recast or at everything.
Speaker 4:
26:44
Yeah, I mean I want to think about many of you in your businesses is you as you work, don't you update your business plan at minimum every single year. Don't you build a budget every single year? Don't you go then look at quarterly numbers or monthly numbers? Most likely. Why aren't you doing the same personally? And I know at the end of the day you don't want to stare at all of it then have a professional help look at those things with you. But the biggest mistakes we see Ron our was when things don't get updated frequently. I mean, and you know this and running a business for how many years? Same for me. If we don't update our business plan, what happens to us, we were going to go stale, static and that's horrible. Horrible for our clients because if we're not evolving and updating our things here as a business, that's not to our clients benefit. So we have to just for yourself personally need to be doing the same things.
Speaker 3:
27:34
And I, you know, Paul and I use this, I was in Seattle on Friday and was given a talk to a group of advisors and I said our profession for the first really for the, for the first 20 years at least maybe 25 years was a soap opera. Not a lot changed. Things were moving fairly slow. You didn't have to innovate. You just showed up. And the markets generally went up and there wasn't a lot of work that had to be done and so clients during that same time period, you know, buy and hold and you didn't, you know, companies we've continue to pay a higher dividend and they would take market share and the big companies really had a huge advantage and I think the first real shot across the bow, it's when Enron completely imploded. You're talking about concentrated stock position, our local community, but also things are starting to change so quickly that a company that was a leader a year ago, look at how quickly blockbuster went bankrupt and and in this is accelerating and accelerating pace, which means you need to really pay attention to what's in the portfolio.
Speaker 3:
28:40
And this is also true if you have ETFs or mutual funds is are you in a sector that's going to quickly change? I was reading an article over the weekend from singularity. There's a, by the way, you can go to singularity.com and there's a great newsletter they'll push out every week to called singularity hub and their belief is energy is going to be completely free. Electricity will be free very soon. Think of that. Yeah. Now that's great for the consumer, but if you're in there and you'll say, oh, I got to you, big utility holding, that's all I owned because they're safe and they're conservative. I don't know. Do you want to really own, if energy is going to be free, do you want to own a lot of uh, like especially electricity, you want to an ally a lot. Electricity stocks maybe now is the time to actually start to get out of them. When we were a singularity, one of my best friends owns a big, it has a huge, had a huge energy investment, most of his net worth and he had just on
Speaker 4:
29:42
it, sold it to another person and when they were talking about energy is ultimately going to be free in this country. He looked at me, just have the biggest smile on his face because he was ahead of where this was actually going. And you know, and if you just look right in the short term, nothing you need to do, you have some time to exit. But this is where you need to really get in and take a look at what you own. Yeah, I know he spent some time talking about bitcoin on the show, Ron and blockchain and these are things your advisor should be aware of and be thinking about for you and whether they're right or not. And I think Ron, it's probably the right time to share with everyone. Speaking of Singularity University, um, we actually have one of their senior faculty members now that's going to come out and do a session for our listeners.
Speaker 4:
30:24
So if you on who attend, you need to call in and we can get your name on the list, but it's on April 9th and April 10th here in Omaha. And they're going to talk about crypto currencies, blockchain, bitcoin, what's the right allocation for your portfolio? What does it look like? But also how to de risk yourself a little bit, Ron, because we see a lot of that happening and talk about when things become a trend, right. We've talked about bubbles and bubbles that have happened throughout time. So here is an image I saw over the weekend that fascinated me. So this was at a gas station in Georgia and it said, here's the sign out front. I'm showing it to Ron and you can't see, obviously you're listening. It says Bitcoin and light coin are sold here at a gas station. So if that tells you what's happening in the world, if they're sold to, they also take it.
Speaker 4:
31:10
Yeah, I don't know. I feel with it. I said sold here. Do not say by here. So I'll look into it. I just saw the image and I saved it. But that just tells me the trends coming. We're not sure if bitcoin in light coin are going to be the winners in the trend, but we need to be looking at that because what's going to be the rest of you? But that's part of updating your plan. Two years ago. No one was having that conversation shoot about six months ago, no one was having the conversation. Now we're starting to have it a lot more. If your portfolio is not moving as fast as the outside world, your portfolio is in for some big trouble. Ultimately, this isn't a soap opera anymore anymore. There was a heck of a lot going on. And let's go into the next one.
Speaker 4:
31:48
And this is emotions. Pitfall number four is letting emotions get the best of your knee jerk reactions. Big bold moves one way or the other. Um, and buffet said it best. He said, beat fearful whenever, when others are greedy, be greedy, when others are fearful. Keep in mind, this is great, good common sense advice, but I always find some of the simplest stuff, the most effective stuff out there, Paul, people don't use because they're humans. And this is why coming back and having a plan, we'll keep your emotions actually in check because you understand what it is you're actually striving for. But, um, you know, emotional bad emotional decisions have destroyed far more wealth than any market as every begun to. Yeah, I think emotions is a key part of it. And, and by the way, Ron, a lot of people's emotions are based on they can make the right decisions. So many of you are do it yourselfers and that's fine. That's your choice. But what we see is the empirical evidence shows that do it yourselfers do not perform as well. And so I'm going to share with you vanguard. Ron released a study called advisors alpha and in the study they actually show because of behavior.
Speaker 3:
32:57
The irony here is vanguard is like the biggest do it yourself and they're saying it doesn't pay to do it yourself.
Speaker 4:
33:04
Yeah, I'm looking at the most recent study they put out here. It's called advisors Alpha. So if you want to Google it, you can see it. So 150 basis points, 1.5 basis points per year is trivially to behavioral coaching. So one and a half percent, one and a half percent. So if you think I'm paying an advisor too much at 1% or one and a half percent right there, they saw that 35 basis points is improvement from rebalancing. Here we go, the asset allocation and making changes and adjustments, 75 basis points and choosing the right assets don't have your bias to specific stocks or specific mutual funds or specific gold or whatever else. Also lessening your expense ratios is another part of that and helping you think through it. So behaviorally you think, I know enough, I picked apple or I picked Facebook or I picked Amazon, therefore I must be way better than everyone else.
Speaker 4:
33:57
You might've been for a short period of time, but in the long run, and that's what's great about the do it yourself study here from vanguard is in the long run, your behavior is going to catch up to you and your biases of how you're thinking you're better. Everyone else is going to hurt you at some point. And that's the beauty of this study, Ron is, is don't let your emotions get the best of you. Don't let your ego get in the way. And you may not think it is, but it's seeping in there at some point. It absolutely is gray.
Speaker 3:
34:25
I absolutely agree. And just imagine Paul, if you're retired and you're forced to sell, going back to the last financial meltdown that we had, a, because you have to take your RMD, you have to take money out of your qualified plan and being forced to sell and that kind of a market, you may never get that money back again. So today, if you don't have a strategy for your RMDs, the same exact thing could happen to you and it could be really painful for your portfolio. The way to avoid this is by having a strategy for RMD in your early sixties well before you're forced to actually take these monies out, we'll prove to you how are little known strategies could legally help you save thousands of dollars when you withdraw money from Your Ira or your 401k in retirement, and there's absolutely no cost, you have nothing to lose. Give us a call. Eight eight eight four nine 85 13 the choice is yours. You can pay the IRS or you can keep this money for yourself. For w one eight (841) 900-8513 (888) 419-8513 Paul, we come back up. We've already covered a lot of these pitfalls. We've got four of them. We're going to cover pitfall five, six, seven and some lot of other good information. I'm Ron Carson with Paul West and you're listening to wealth than wisdom. Yeah,
Speaker 2:
35:48
trust, transparency, accountability. These are the values that drive Ron Carson and Carson wealth. You're listening to wealth from wisdom with baron, tall fame advisor, Ron Carson. He's a published author and he's been featured in Forbes, investment news, the Wall Street Journal, CNBC, and more. Now back to wealth from wisdom with Barron's hall of Famer, Divisor Ron Carson.
Speaker 3:
36:17
Your asset allocation could be and probably is a single most important factor. Matter of fact, many studies show it. It's between 90 and 94% of your return can be attributed directly to your asset allocation, so that is a big percentage of your success or failure in retirement. Welcome back and you're listening to wealth and wisdom. I'm Ron Carson with my cohost Paul West, and thanks for joining us today. If you play it too safe, you rest running through your entire life savings way too soon. And I've seen this happen and if you take on way too much risk, you could erase years of hard work savings and just a moment when the market actually has a meltdown. We're going to continue to talk about the dangers of not having a real diversified portfolio plan. Also, what's your sales strategy? What's your hedge strategy? How do you know? You know, in this day and age when anything can happen and we're in the news loop that you know, things will be communicated in a nanosecond. Do you really want to go to the bed where you really have your portfolio's not hedge? And Paul, that's one of the things we use a lot is always having strategies in our airplay, small capital strategies, knowing that people can sleep well, they're not going to get as much as the upside, but they're going to really protect the downside.
Speaker 4:
37:33
Yeah. I think a lot of people, Ron, understand when we communicate in the way that everyone understands what hedge means of protective portfolio, the simplest way to explain it is, is we're creating downside protection. So think about comfort is, you know when, when you're climbing up on a roof or using a ladder, there's probably a certain amount of distance that you're comfortable with fall that you know you're not going to get injured and hurt. So, or there's certain amount of distance that you need someone else to hold the ladder just to help you feel more secure. Well that's what we're trying to provide people is that downside protection is we want that ladder to feel so secure that you're not going to get hurt if you fall and we don't want you to fall very far. So that's why we have irreplaceable capital strategies. Cause think about it right now.
Speaker 4:
38:19
If you're acid allocated in a way where you're taking more risks than you should be. We've already been talking about that, but what happens in the market downturn, but you're taking a monthly pay check out of your portfolio and now you need to keep taking money out the same dollar amount to live, but it's 20% less. Yeah, that's pain that worse or worse. Yeah, it can be a lot worse. So you've got to, you know, one of the things, let's talk about here is having other income sources outside of your investment portfolio run. Exactly. Or specialty strategies that have nothing to do with the market. We did it with a housing fund. We've got a potentially this bridge. No, you know a bridge loan note fund. Just ways that have nothing of the stock market but can provide you a really solid, I'll tell her alternative income source.
Speaker 4:
39:03
Yeah. I mean because you have more control over taxes when you're retired and you've got to be careful with that too, is you don't want to put all of your investment vehicles into a tax deferred account because then you're stuck at that moment of always paying taxes and having to figure out what to do with it. So other income sources, like you said Ron, of course, fixed income using bonds as a vehicle, a w in the rising interest rate environment, we built a lot of bond ladders, Ron. Um, we help people think through those, the short term and looking at the yield curve so that somebody can do, maybe we should go on to number six, which is not using social security as your tool to combat risk. It's been an income source, but a pitfall is, is that you think, oh well that's my complete safety net and it's going to bat on my risk.
Speaker 4:
39:46
And that doesn't tend to be the case all the time. And actually social security needs to be factored into your overall, what is my, my, my gate, my master plan? Because it is part of the overall portfolio. Should be viewed as such. Um, and using it and turning it on appropriately when you're going to use it. Or even a backstop to say, if my portfolio, if I, if you've, if you've taken on too much risk and you haven't started social security, it also could be a good time to say, I don't want to sell into a bad market, or the fact that we're down more than 20% and I'll then maybe it does make sure since then, even though you're going to give up the 8% accrual on social security, it may in fact make sense to turn that money on so you don't have to start selling equities at a discount.
Speaker 4:
40:29
Yeah, no, I agree. Ron, I know we've talked all the time about on this show, so we're not going to Belabor it today is everybody. So security is different every single on of yours. And so you need to really get a customized social security analysis or on, I can't tell you how, how many times somebody has walked in the trenches here, part of Carson Group, one of our advisors across the country and they say, yeah, I put, I started drawing upon social security and we ask, who did you consult with? And the answer is, well, I just walked in the office and I mean, and it's so frustrating to me because, and we're going to keep talking about the show. We're going to get to listening to the show. Then they come in, it's like you didn't, you really weren't listening because you've got to not do that.
Speaker 4:
41:10
Right. You know, get, uh, a professional optimization, use the software, let us do it for you to make sure you're maximizing your benefits. Yes. If you walked into your house and smelled gas, Ron, you smell natural gas, what would you do? I would, I would call the gas company and get the heck out of the house. Yeah. And we'd probably get out and then call. Okay. That's a better version. But I mean, you're taking safety. I don't understand why people are walking into a potential flammable situation of getting rid of all this money that they spent their lifetime achieving because they don't want to make a call to a professional. You call the gas company to make sure you've got the right plan to get back into the house to be safe and to maximize your own safety there. I'm trying to draw an analogy here for people is why wouldn't you call a professional first of all security analysis before you walk in and make a decision that is non fixable. It is. You cannot do that
Speaker 3:
42:07
[inaudible] over no mall. Again, none of that on social security. So
Speaker 4:
42:10
think about this is you use the gas analogy is if you're going to go look for subtle security, call someone first. You got to get an a professional opinion before you walk
Speaker 3:
42:18
going that office. So the final one, pitfall number seven is choosing investments based on past performance. And this is a problem for our profession, not only among investors, but a lot of time among advisors. And you know, past performance is not a great indicator of future results. Sometimes. Great. It's, it all depends on the asset allocation. Is that as an asset allocation going to stay in favor? What's a better question to ask? When you evaluate where you should invest is is it doing what it was supposed to do and did it stick to its investment objective and do they have a repeatable process? Those are really the questions cause then you can count on them to actually do what you expect they're going to do during a market downturn. And you know more, there was a story in the Wall Street Journal about Morning Star and people actually buying just based on the star, but again, and actually they went on to show the highest start funds actually where some of the worst performance. So you know there is, I would say if you're going to do anything, don't buy the five stars, go by the two and three stars. Right. I mean and see how they actually perform because probably just had an asset, a class it was out of favor is why they got a little ranking.
Speaker 4:
43:39
Yeah. There's actually, you're on a great piece called dogs of the Dow of there's periods of times people have looked in, picked the worst performing stocks the prior year to see how they did. Unfortunately, there is no correlation between that. You just got to look at the best selection for you for the, for the
Speaker 3:
43:54
future, not the past. Well Paul, we've covered seven pitfalls today and if just if our listeners, we'll just look at each one of them, apply them to their own portfolio. There's a lot of value that we're going to be able to create cause today is a time to really make sure your downside risk and also income successful retirement, they're not build on assets, they're built on income. And I'm going to say that again, successful retirements are not build on assets that are built on your ability to generate an income that you, that is sustainable. And unfortunately those traditional goto options, a 60 40 and all these other general rules are absolutely dead. But there's some great news out there. There are some surprisingly great options today. Options you probably haven't heard about, you don't even know exists. It can help you generate more income and lower the overall risk of your portfolio. Let us prove to you how we can turn your current savings and investment into an income workhorse. There's no costs and there's absolutely no obligation. The one of the first callers now at (888) 419-8513 you could generate more income than you think and reduce your risk. Sounds too good to be true. It's possible. The answer is yes, and we can show you how. Eight eight eight four nine 85 13 that's (888) 419-8513 I'm Ron Carson with Paul West. And you're listening to wealth and wisdom
Speaker 2:
45:16
risks, social security, income taxes, estate planning. Every week we talk about how to make your money go further in retirement right here on wealth from wisdom with Barron's hall of Fame Advisor, Ron Carson.
Speaker 1:
45:30
Okay. And here's the legal Mumbo jumbo. The opinions voiced and wealth and wisdom with Rod Carson or for general information only and are not intended to provide specific advice or recommendations for any individual to determine what is appropriate for you. Consult a qualified professional. All indices are unmanaged. I may not be invested into directly. Investing involves risk, including possible loss of principle. No strategy assures success or protects from loss. Past performance is no guarantee of future results. Advisory services offered through CW m L L C an SEC registered investment advisor.