Big 6 Questions on Retirees’ and Soon-to-Be’s Minds (Part 3)

In the third and final installment of "Big 6 Questions on Retirees' and Soon-to-Be's Minds," hosted by Correct Capital Wealth Management's CERTIFIED FINANCIAL PLANNER™ professional, Colin Day, and guest speaker John Biedenstein, answer the final two questions they keep getting from clients:

1. When will my investments start heading in the right direction?
2. What question am I not asking?

For recent investment news and our take on the current market, retirement planning, and investment, listen to our podcast Capital Conversations or view our recent blog posts.

Below is the transcript of the final part of our current Capital Conversation podcast series, "Big 6 Questions on Retirees’ and Soon-to-Be’s Minds."

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Colin Day: Hello, everyone. This is Collin Day, CERTIFIED FINANCIAL PLANNER™ professional, Correct Capital Wealth Management. And you are here for another edition of Capital Conversations with me today…

John Biedenstein: John Biedenstein.

Colin Day: He's beating me to the punch. He does that occasionally. If you're a long time listener/viewer, John Biedenstein loves to trick me or scare me into awkward situations like these.

So today, we're on part three. We're in the last part of our three part series. Our first series of podcast/video podcast. And we're finally addressing the final two questions of the six questions that we are hearing from soon-to-be and current retirees. John, how excited are you to wrap this up?

John Biedenstein: I'm very excited.

Colin Day: Okay.

John Biedenstein: So, I hope it's very informative for people.

Colin Day: I hope so too. And you are almost giving away number six. So we're going to address that one in a second. We're going to start with number five first, and that is: When will my investments start heading in the right direction?

As I said in a presentation that we did the other day regarding this topic, John, I did consult my crystal ball. Unfortunately, it came up with nothing. Because if I knew when things were going to correct themselves, or you did, I don't think either of us would be doing this job.

John Biedenstein: That's correct.

Colin Day: So, when it comes to understanding – whether it's the stock market, whether it's the economy, or however you want to judge success or failure in your personal investment accounts – it's important to remember that, “Hey, we do go through times like these.” Market recessions – there's that big “R” word that we're looking forward to going through probably sometime this year, maybe next year, depending on the prognosticator you refer to – we're in a situation where things like these happen. These recessions happen every six to seven years on average.

Considering that, when we went through an expansion since 2009 practically, all the way until COVID, and then very briefly, we were in a recession, and then when we kind of came out of it, and 2020 ended up being a very good year for those that are investing in the market. We have to remind ourselves sometimes that “Yeah, sometimes things don't work out the way that we want them to, but if we give ourselves enough space and time, we tend to work out okay.”

So in this presentation that we were talking about, we had talked about the 20 worst years of a 60/40 portfolio. So John, if I asked you what a 60/40 portfolio is, how would you describe it?

John Biedenstein: A 60/40 portfolio is a portfolio that 60% is invested in equities or stocks and 40% is allocated to fixed income generating securities.

Colin Day: Right, exactly. The reason I was referring to this particular portfolio allocation is that this is a very common allocation for retirees. So when we think about the 20 worst years of the 60/40 portfolio, the first place we need to start is 1948, actually. So, I don't know if you remember what was going on in 1929, John. You were not born yet, correct?

John Biedenstein: I was not born.

Colin Day: So, 1929, we have the Great Depression, or at least the beginning of the Great Depression. And a 60/40 portfolio, cumulatively over that 20-year period from 1929 to 1948. Performed at a 98.3% cumulative return. So annualized, John, that's 3.4%. That means that on average, over that time period, going through the swoon of the Great Depression and then coming out on the other side –

John Biedenstein: The ups and downs.

Colin Day: Yes. So over that 20-year period, it was still positive. It was relatively muted at only 3.4%. Considering what inflation was during that time period, it probably didn't keep up with that. But technically from a market perspective, at least it was positive. Whereas if we look at the best worst 20-year period of the 60/40 portfolio, that actually ended in 2019, John.

John Biedenstein: Okay.

Colin Day: So we’re talking about 2000 to 2019. So if we think about the start of that,we've got the “dot com” bust. We've got, unfortunately, 9/11. We have the Iraq war. Then we have the Great Recession. The nice thing though, John, is that in that worst performing 20-year period – again, it was the 20th best worst one – we have a cumulative return of 244%. So that's an average annual return of 6%. That's actually pretty good. When we think about aiming and targets for retirees, a 6% return is pretty good. If we can think about inflation, how it erodes purchasing power, having a 6% rate of return means we are eking out something on top of inflation.

So if you were to hear that, John, “Hey, even in the 20th best, worst period for a 60/40 portfolio, would you take 6%?”

John Biedenstein: I would take 6%. Candidly, I'm in this industry, I've been in the retirement plan space for a long period of time. If I put my old defined benefit actuarial hat on, that was kind of the actuarial set rate of return that a lot of pension plans used. So, candidly, it's a good performance target. It's good performance over that long period of time where you, again, take in the bad days and ride out the good times and bad times.

Colin Day: Right. And if you think about this, I mean, these are the worst 20-year periods and, you know, we move one year out of these periods and things are not in the bottom of the 20th percentile of the past hundred plus years.

John Biedenstein: Right.

Colin Day: So these are the worst, which then means that time in the market is going to do better for you than trying to time the market as to when to move in and out. I think that's the best lesson here.

So, John, why don't you take us home? We are finally there. We're at number six.

John Biedenstein: Number six is...

Colin Day: What is it?

John Biedenstein: What question am I not asking?

I know, especially retirees, you might be having lunch with your fellow retirees. You might be playing golf with your fellow retirees. Somebody always has that idea that they're thinking about and you say, “Oh, I didn't think about that. Maybe I should think about that.” The important thing is, I think, to let some of that go in one ear and let it go out the other ear. Again, you really need to focus on – if you've developed the plan and you focus on it and keep your focus on, “This is what I'm trying to do.” I've got the three buckets that we talked about earlier. Some of it, let it come in and come out.

Now, I will tell you if somebody talks about – four or five years ago there wasn't a lot of talk about high yield savings accounts. Savings rates at brick and mortar banks were higher. So that is something, as of late, that’s worthwhile for people and we are seeing some benefit to it. So, I guess, let some of it go in and out, but also, if you think it's a valid point, bring it up to us and see if we can help you. What do you think?

Colin Day: Yeah, absolutely. I can use an example from a client who called in and said, “Hey, I just had lunch with my friends and one of my friends brought up this type of insurance policy. Colin, why don't I have that insurance policy? Should I have this in my deck of cards, so to speak?” And the reality was that, “Okay, well, sure, that might be applicable to this particular individual and in their space.” Thinking about their situation, it wasn't necessary. It was a type of long term care policy. We don't have to get into details, but the reality was that this is a policy that exists and is appropriate for some people, but it's not appropriate for everybody. So I think getting the feedback and then asking professionals within your network the questions, that's the powerful thing. If you've got a question on your taxes you go to your tax professional for them. You don't generally go knock on your neighbor's door – unless they happen to be your CPA of course, like John – and ask that question. So it's really important to rely on your professional networks. I said this I think in the first of the series that we did. When you're dealing with pundits, those people who are getting paid to take you to the next ad break, and you're getting all of your financial news just by listening or reading things online, well, you gotta take everything they say with a grain of salt. It might not be applicable to you.

So it's perfectly fine. We want to hear from you. We want to understand your situation and give you the best education possible. So you are more than welcome to always reach out to us and at minimum get our opinion and to see if whatever you've heard lately fits into the picture. Sound fair?

John Biedenstein: Sounds fair.

Colin Day: Alright. Well thank you to everybody who listened to or watched all three in the series. If you have feedback for us or if you have questions for John or I, we can be reached at correctcap.com. Feel free to like and subscribe. And, for John Biedenstein, thanks again.

John Biedenstein: Thanks.

Disclaimer: The opinions expressed in this program are for general informational purposes only and are not intended to provide specific advice or recommendations for any individual or on any specific security. It is only intended to provide education about the financial industry. To determine which investments may be appropriate for you, consult your financial advisor prior to investing. As always, please remember, investing involves risk and possible loss of principal capital; please seek advice from a licensed professional.

Correct Capital Wealth Management is a registered investment advisor. Advisory services are only offered to clients or prospective clients where Correct Capital Wealth Management and its representatives are properly licensed or exempt from licensure. No advice may be rendered by Correct Capital Wealth Management unless a client service agreement is in place.

Capital Conversations by Correct Capital Wealth Management

Thank you for joining our three-part podcast series. We hope you've found it helpful, whether you're approaching retirement or already enjoying this stage of life. If you have questions or would like personalized advice tailored to your specific needs, don't hesitate to reach out to Correct Capital Wealth Management for a team dedicated to supporting your financial journey. Call us at 877-930-4015 or contact us online to speak to a financial advisor today.