What Should I Invest My Money In?

What Should I Invest My Money In?

Links Mentioned in this Episode

Complimentary Consultation Podcast 15: How to Assess Risk in Your Portfolio Podcast 21: How to Be the CEO of Your Retirement Beyond Tax-Efficient Investing

Dean Barber: Thanks so much for joining us on America’s Wealth Management Show. I’m your host Dean Barber, along with Bud Kasper. All right, Bud. Here we are, wrapping up the month of January. We’ve got one behind us.

The last couple of weeks, you and I have spent quite a bit of time talking about market valuations and risk and all that. And so, today, I think it makes sense for us to ask the question that we get asked more often than any other question, which is, what should I invest my money in?

Bud Kasper: I’d like to know the answer to that. Honestly, we’re in a situation right now after having two successful years, the 28% in 2019 and the strong return we had last year as well. So, it would make sense that we might have a pause in what the market might produce this year. 

We’re at pretty lofty levels, some record-breaking levels at this particular time, and I’m talking specifically about the stock market. If we look at this year with the new president coming in, looking at presidential cycles, it suggests that it should be a positive year.

Bud’s Take on 2021

I’ve been sharing with clients that I think the first six months will be somewhat tentative regarding where the direction may be. I think the second half of the year, we’ll see, hopefully, that the COVID numbers are coming down dramatically, and that could take one of the obstacles away. Hopefully, we’ll see the stimulus plans start to take hold.

Therefore, I’m looking for a better second half of the year than the first half. If I had to put a number on it, for what it’s worth folks, and it’s not worth about a penny that you have in your pocket, I think we have a chance somewhere of between 8% and 10% for this calendar year, by the time we’re over.

Dean Barber: Well, that’s the same prediction you gave last week, Bud. I’m glad you’re mentally sharp enough to recall what you said a week ago. That’s impressive.

Bud Kasper: Is it going to be this way for the whole hour?

What Going to Get Me that Return?

Dean Barber: No. So, here’s the question then. What’s going to deliver that? What’s going to deliver that 8% to 10%, Bud? When we look at the overall valuations by just about any measure that you want to value the stock market, it is at the highest level or near the highest level that it’s ever been.

There’s a lot of argument or banter about whether these levels are sustainable and if we can grow from here. I think Goldman Sachs did an excellent job last week of pointing out that, yes, these valuations are frothy, but at this point, they don’t see this as an imminent decline.

Others are saying, “Hey, this is the biggest bubble that we’ve seen since the 2008 financial crisis. Maybe even bigger than the dot com bubble.” But Goldman Sachs is saying, “Hang on a second. When you look at valuations and measure them against yields on bonds, those valuations don’t necessarily look so frothy.” 

We Hear the Question a Lot Lately

So, that is why. But that’s where we’re getting this question. We’re getting it a lot today and over the last few weeks. What should we do now? Where should we put our money based on what’s happening? Many people are nervous about the political environment with potential regulations that might be put on businesses, increase in taxes and those types of things, and how will that impact the stock market.

You Have to Do Some Discovery

Let’s go back to the fundamental question of what should I invest my money in? There is a correct answer for everybody, but to get the correct answer of what should you invest your money in, we need to have some discovery, right? Think about it this way. 

Bud, if you went to a doctor and said, “Doc, I’ve had this headache for a month, and it just won’t quit. Give me a prescription, will you?” And the doctor says, “OK. Sure, Bud. Let’s try this one.” So, he just gives you some prescription without asking you any questions, doing any kind of discovery X-rays, MRIs, whatever it might be.

If you have had a headache for a month, there’s something wrong. It’s not just a normal deal, right? He needs to do some discovery. For us to say, “What’s the prescription that we need to give to you on what should you invest your money on?” There has to be some discovery, Bud.

Stay Practical, Understand Your Risk

Bud Kasper: Absolutely. You’re correct with that. It doesn’t serve our purposes, our client’s purposes, or for that matter, our listeners, to be Pollyannish about what’s going on. We have to be practical. We must have some sense of direction about where we want to be at this particular point in the market cycle in terms of risk. 

That needs to be determined. We can do that by the creation of portfolios that measure the risk so that people would know what their potential upside or downside is again based on history.

Dean Barber: Well, and here, I think, is a better question to ask than, what should I invest my money in? We can get to that. We can answer that through our financial planning process, using our Guided Retirement System™. But the first question that needs to be asked is, what does my money need to do for me so I can do the things that I want to do for the rest of my time here on Earth, without fear of running out of money? That’s the ultimate question that needs to be answered.

Questions to Answer Before “What Should I Invest My Money In?”

Then, we have a list of 21 questions that you need to be asking yourself to understand where you are today. We need to understand where you are today. We can then begin to design and say, “This is where you should invest your money.” It’s not going to be the same for you as it is for your neighbor, coworker, or one of your relatives. Your portfolio should be specific to you.

I’d like you to schedule a complimentary consultation right here. Let’s have a conversation, either by phone, virtual meeting, or we’re happy to meet you in person. Let’s talk about what your money needs to do for you so you can do all the things that you want for the rest of your time on this Earth. All without the fear of running out of money. That’s the question that we can help you answer.

The Cocktail Party Question

Dean Barber: We’re asking the question today and trying to give you as good of an answer as possible on, “What should I invest my money in?” That’s the question we get more often than any other question. It even comes up at a cocktail party or family gatherings. People know what our business is. 

They know what industry we’ve been in for decades, and they’re like, “Hey, Dean, what should I put my money in now?” It’s like we’ve got some hot stock tip that we’re going to put out there. People ask us, “Hey, should I be buying Bitcoin right now? What do you think about that?”

Bud Kasper: Yeah. Well, I wouldn’t be asking you any of those questions for the simple reason that you’re obviously too old by using the term cocktail party. I haven’t been to a cocktail party in 35 years.

Dean Barber: That’s not true.

Bud Kasper: OK.

Dean Barber: Because I’ve been to some with you. What do you call them then?

Bud Kasper: Oh, I don’t know anymore. Gatherings or non-gatherings.

Dean Barber: Is this a new politically correct term for having a cocktail after hours now?

Bud Kasper: Well, we have a new political regime in place. So, therefore, we’ve got to make changes, Dean.

It’s Not a Question You Can Answer Easily

Dean Barber: All right. So let’s do this, Bud. Let’s talk about this question, “What should I invest my money in,” because I think it is a great question. Everyone should have a definitive answer to that question. 

The problem is that it’s not a question that is easily answered. When you think about our role as fiduciaries, we have to put our client’s interests ahead of our own 100% of the time. To put your interests ahead of ours, we must know what your money needs to do for you to accomplish the things that are important to you, without the fear of running out of money.

We Need to Understand Your Goals

To understand what that is, we need to start having some real discovery. We must have what I’ll call a very meaningful conversation. It needs to include if you’re married, both you and your spouse. If you have a significant other and aren’t married, that needs to include both of you because your financial means and your financial goals need to line up in such a way where we can actually define, “For you to do the things that you want to do without fear of running out of money, what does your money need to do in order to make that happen?”

Bud, there are all kinds of different resources that people will have when it comes to retirement. You’re going to have Social Security for the most part, unless you are a government employee. Then, you’re going to have a pension. You may have a pension and a Social Security check if you work for a company that had a pension. 

Maybe you have royalties and future inheritances that are coming down the road. You may have rental income. All kinds of things could be driving income. Once we understand the tax implications of all that, we start talking about what your money needs to do for you.

Back to the 21 Questions

I mentioned earlier this article is by Shane Barber, one of the partners here at Modern Wealth Management. He did a great job of outlining 21 questions to benchmark, “Where are you today? So that we can start to make that discovery of what does your money need to do.” Bud?

Bud Kasper: I think that many times we have to go back to the basics. Here we are starting the new year. We just had two years of great growth coming out of the stock market. The bond market did pretty well, but that depends on what part of the bond market you were in regarding what your returns look like. We go back to the basics and ask ourselves, “Where should my money be divided between these three basic asset classes: the stocks, bonds, and then cut cash, or the equivalent of cash?”

A Note on Technology 

I recently read an article that I agree with in terms of where we think there might be some focus for profit. It’s technology. If you follow tech, you know that it’s had an incredible two-year span. It did drop about 19% in 2020. I think March 23 was the date. It went from that point to using the QQQS, which is an investment that you can have that follows the NASDAQ-100. That totally encompasses technology stocks. 

It increased by 48% from the beginning of the year, but if you bought it anywhere on the downside, you picked up another 20%. Obviously, you would think that it couldn’t possibly go further. The answer is yes, it could. If that’s the case, tech is something that we think might be worth investing in this year.

The Outlook on Healthcare & COVID-19

For obvious reasons, healthcare has a chance of doing some pretty good work and consumer discretionary. Now, what do we mean by that? It’s people going out and spending money where they want to spend money, in places such as Disney World, where you have the discretion as to where you will put that money at that time. 

When we finally get through with this virus, we will start to see the people who have saved more money during this time anxiously go out and spend it. Remember, 70% of our GDP is based upon consumer consumption. It’s going to be, I think, a real igniter, if you will, of better economic activity, which should translate into the stock market. That would back up what I said earlier, that it could be a better second half of the year, Dean, rather than the first half.

Strategy is Key & Your Personal Return Index

Dean Barber: Right. But what you’re getting to is the investment strategy. There has to be some strategy behind the underlying investments. Let’s go back to how a person defines where their money should be invested. In other words, how much should I have in cash stocks, bonds, etc.? 

You determine that by knowing your personal return index. Well, how do you know that? Your personal return index is the rate of return that your money needs to get for you to accomplish all the things you want to achieve while you’re here on this Earth, without the fear of running out of money.

Finally, Back to the Questions

So let’s go back and ask some questions here. Obviously, the first question is, how much income do you need to live the lifestyle you want? And then, how much money do you have set aside to help fund that lifestyle? 

How much are you going to have coming from fixed sources, like Social Security and pensions? How much are you going to have from passive sources, like rentals and royalties? And how much money can, or will, you set aside between now and the time you retire? And, what type of money is it? Is it taxable money? Is it tax-deferred money, or is it tax-free money?

That’s critical because what you can spend is only what you get to keep after taxes. How much money is in each one of those different buckets? What expenses do you have now that will be gone at some point in retirement, such as a mortgage? Maybe you’ve got a second home that you don’t plan to keep for more than 10 to 15 years into retirement. 

So there’s a lot of different things out there. You then get to some questions that people might say such as, “Why would I even ask that? Like, ‘Do you have life insurance? Do you have long-term care insurance?’ Why are those questions even important for us to determine what does a person’s money need to do?”

Comprehensive Retirement Planning

Bud Kasper: Our firm has built itself on comprehensive financial planning. That’s, in essence, what you’re talking about here. We couldn’t even possibly go into all the details that encompassed when you do a full-fledge comprehensive financial plan. You’re right. The first thing you have to do is identify all resources and integrate them into that plan. 

As you said, Social Security, pension plans. Do I have an IRA or a Roth IRA? After you have those sources, what’s the next question? How are each of these sources taxed? Once we understand each of those tax ramifications, what we’re doing is funneling down to the ultimate solution we need to produce for clients for retirement years.

It’s a Fun Process

Dean Barber: For you and I, Bud, it’s a fun process. Some people may be thinking, “Man, that’s an awful lot for me to think of!” or “That’s a huge conversation for me to have with my spouse, especially in front of somebody else, to try getting to the bottom of this. Isn’t there an easier way?” 

The truth is, no, there’s not an easier way if you want it done right and customized to you. Like I said, we can tell you exactly how you should invest your money and where you should invest it, but we only get to that once we’ve taken you through our Guided Retirement System™.

I encourage you to schedule a complimentary consultation. We can visit with you by phone, virtual meeting, or we can do an in-person meeting. Whatever’s convenient for you. Let us walk you through what the Guided Retirement System™ does and show you how we arrive at that ultimate answer of how you should invest your money.

By the way, I want to remind everybody that we’ve got a podcast out there called The Guided Retirement Show. Episode 36 of that Guided Retirement Show is all about investment strategy. Get out there and take a listen. Find it on your favorite podcast app or YouTube.

Dream On

[Music Playing – Dream On by Aerosmith]

Dean Barber: Bud, who would have ever thought that Aerosmith would have the theme song to your successful financial future dream?

Bud Kasper: I would’ve never thought it, but boy, I’ll tell you, is that not iconic? That’s the amazing thing about rock and roll. So many of the songs are so iconic today. They’re on commercials. They plug into different situations in entertainment; it’s incredible.

Dean Barber: That’s a kind of a theme song for how you should start your planning and retirement because we want you to envision your ideal financial life. Dream big. Right? Think about all the things that you’d like to do, see, and accomplish. 

Maybe there are charities that you’d like to support, things for grandchildren, whether it’s college, whatever it might be. Think about everything and throw it all out there and say, if I could have my ideal retirement, this would be it. 

Put Those Dreams in Your Plan

Once you have that ideal retirement in mind, we can take you through our Guided Retirement System™ and say, all right, let’s look at all of the resources you have. We start asking some of the questions mentioned earlier, and then we’re going to have a conversation about you having that ideal retirement or reprioritizing things. 

You can have some things, or you can have most, but not all. Or maybe we can have everything, but we have to cut back just a little bit on what each one of those may be.

Once we start to understand that big dream, that ideal retirement, then we can get back to what we’re talking about here, which is what should I invest my money in?

Bud Kasper: Yeah, because the first question is, how do you envision your retirement? Give me your ideal situation, and then let’s vet through all the information that we need to have as financial planners so we can see whether it’s possible or not. 

Education is a Critical Piece

I think we’re the longest-running financial planning show on the radio within the Midwest. When you think about that and all the information that we’ve shared on this show, there’s only one intention. That is to provide people a good, sound, reasonable education. 

One of the biggest things that I think has come across from the people that I’ve talked to is about taxation. Taxes are such an incredibly critical part, and many people don’t think that taxes are manageable. They think it’s just a matter of fact. 

I have to pay whatever they tell me I have to pay. Oh no, no, no. Tax planning is something that is so incredibly critical to the lifestyle that you can have. If we can stop paying Uncle Sam needlessly more money than what we need to, then we most certainly could enjoy that money in our retirement.

Another of the 21 Questions

Dean Barber: You’re exactly right, Bud. You start thinking about all those things, what’s ideal and how do you want it to be, and then begin talking about tax efficiencies. That’s one of the questions on those 21 questions is, is your portfolio tax efficient? 

We need to understand that. That’s why we have multiple CPAs sitting next to our CERTIFIED FINANCIAL PLANNER™ Professionals that are putting together this overall retirement plan. And, believe it or not, how your money is taxed and how much you have in the different tax buckets is a huge part of the puzzle that asked the question, what should my money be invested in? 

So we have a great article out it’s called Beyond Tax Efficient Investing that was written by one of the partners at Modern Wealth Management, our lead CPA, JoAnn Huber. Also, the article on where should I invest my money, that’s out there. I encourage you to read both of those. While you’re out there at our website, go ahead and schedule a complimentary consultation. We can have a phone visit with you, do a virtual meeting, or do an in-office meeting. You choose all of that right there on the website, schedule your time. It’s all very, very simple.

Check Out The Guided Retirement Show

Bud, you mentioned that we are one of the longest-running educational, financial planning radio shows in the Kansas City metro area and probably in the Midwest. We also have a podcast out called The Guided Retirement Show. 

There are a couple of episodes relate that to what we’re talking about today, so I’d like to mention those for our listeners. One is episode 15 of the Guided Retirement Show; it’s How to Assess Risk in your Portfolio. We dive in a lot deeper because we’re free from commercial breaks or anything like that. So go to the Guided Retirement Show on your favorite podcast app and YouTube.

Episode 21, I think, is fascinating, How to be the CEO of your Retirement. I happened to be interviewing the retired CEO of Conagra. We relate the job of a CEO to your job as the CEO of your retirement. Fascinating to listen to both parts there, so I encourage you to find the The Guided Retirement Show on your favorite podcast app.

Bud Kasper: That specific show was incredibly intriguing. People often think that at that level of the corporate structure, they might have other resources that you don’t have, but they have the same issues. From that purpose, we go in and go through the same process to discover, look where the opportunities are to make money, and save money.

Show Me a CEO Who Does it All

Dean Barber: Right? Bud, think about this: show me a successful CEO who tries to be their chief legal counsel, chief tax person, or who tries to be their chief investment officer. Show me a CEO who tries to do all that in any way, shape, or form successfully. That doesn’t exist. The CEO knows that they need to have subject matter experts in each one of those areas. 

When you’re the CEO of your retirement, it means that you need to layout your vision to your team clearly, your team being your CERTIFIED FINANCIAL PLANNER™, your risk management expert, your tax expert, your legal experts. That’s what we’ve put together the Guided Retirement System™ with those specialists under one roof.

But the first part of it is you got to layout your vision. That’s what we’re talking about. That’s where these 21 questions in the article that Shane wrote on, Where Should I Invest my Money? Because we want to get you that answer. Once you get that answer, once you know, okay, now my money’s positioned where it needs to be for my spouse and me to do all the things we want to do to live the life we want to live without fear of running out of money. That’s a beautiful thing, Bud.

We Have the Educational Materials

Bud Kasper: It is a beautiful thing. If you go to our insights section, we have so much content. The first thing you’re going to see on our home page is that we want you to live your one best financial life. Maybe you don’t know what that looks like right now, but we can help put that together for you. A lot of times, we used to use the story about a puzzle. What’s the important part of putting together a puzzle? It’s the picture of the box that the puzzle parts are in because that is the picture we need to build around.

Dean Barber: That’s just it, Bud. That’s it. Shane kind of puts a tongue in cheek question here. He says, “Would you like the last check that you write to bounce?” What’s that saying? Do I care about leaving a legacy, do I care about leaving money to kids or grandkids or whatever, or am I going to enjoy all of the money that I’ve saved and do it for myself and my spouse? That’s another question that needs to answer before we say where you should invest your money. 

Tax Time Is Cool, Right?

One of the cool things that is happening right now is that people are gathering up financial documents to prepare to file their 2020 tax returns. As you’re gathering those documents, that’s all the stuff that a CERTIFIED FINANCIAL PLANNER™ needs to look at to complete a financial plan to give you the answer of what your money needs to do. While you’re in the process of doing that, schedule a complimentary consultation, and let’s get your question answered. 

Seasons Turn in Investing Too 

Dean Barber: Today, we are asking the question, where should I invest my money? Well, as the seasons turn, you know what? The seasons of investments also turn, do they not, Bud? 

Bud Kasper: They sure do. I think that’s the real question going into this new year. I mean, we did come off of two years of pretty darn good returns, Dean. The question is, now at these lofty levels of the market, is this going to be a good year or not a good year?

Well, that’s an important topic. It’s crucial for our listeners to understand having controls established for their retirement plan. Do you know all the nuances associated with how to get the best results for yourself and your family?

Proper Asset Allocation

Dean Barber: I think that there are times where if you believe in asset allocation, portfolio diversification, you understand that about 91% of the return in your portfolio is going to come from proper asset allocation. Then there’s a small fraction, the stock picking, market timing, etc., but those are small in comparison to the results of proper asset allocation.

What that doesn’t take into consideration, though, is there are periods when you want to overweight or underweight to specific sectors of the market.

A Quick Example

As an example, if we were to take the five years leading up to the summer of 2020, we want it to be underweight in small cap.

Right now, small-cap is leading the pack as far as the performance looks like over the last six months. So, this may be a time when you want to be overweight in small-cap.

When we say that we can design the portfolio that’s just right for you, it doesn’t mean that it’s a portfolio that you pick one time, and you set it and forget it. That’s a recipe for disaster. You need to be paying attention to what’s happening within the economy, marketplace, political environment, etc., and be willing to adjust your portfolio to be more tactical in nature during certain times.

Sometimes it’s OK just to set it and forget it. That set it and forget it might be for a year, perhaps a year and a half, maybe two years, maybe three years. But eventually, you’re going to want to rebalance. You’re going to want to reallocate, commit more to equities, or pull back on your equity exposure based on where we are in a certain market cycle. 

It’s a Recurring Process

Dean Barber: Those are things that happen later on after you identify what your money needs to do. I want to point out here that it’s not as simple as just a one time, thing where we’re going to figure this out and then never think about it again. 

That’s what happens with so many people. They get advice one time, and then they just leave it alone. Or they take a look at their 401(k) one time throughout the year, and they reallocate, and they say, well, this is good. 

Bud Kasper:  You’re exactly right. It’s the cyclicality of asset classes that define the stock market. So, what are those? Well, large-company stocks, mid-sized companies, small-sized companies. Are we value, are we growth, or are we a blend, a combination of the two?

Answering Basic Investing Questions

Those are fundamental questions that we call the style box of stocks. We have had one-offs. The one-offs that I would share with our audience is that we had an 11-year run where large-cap growth has been the dominant player. That doesn’t happen very often.

From personal experience and talking with managers of ETFs and mutual funds, I can tell you that they have been shocked that growth has been the dominant player for this long period, 11 years.

Now, that didn’t mean that value-based stocks, which is the opposite side of the spectrum from growth, didn’t make money. They didn’t make as much money as we did over on the other side. So the question is, is this the time that we should shift?

Well, logic would tell you it can’t continue forever, so maybe that would be a good move. You brought up the other side. Should I be in a large company, midsize companies, or small companies? Each of these has a life expectancy in and of itself in terms of dominance, and how you address that most certainly cannot be a buy it and forget it scenario. You must monitor these, know what’s going on, and make subtle adjustments that fit your personal retirement needs.

The Ideal Portfolio Has to be Malleable 

Dean Barber: That’s exactly where I wanted to take that. Again, where you should invest your money will be different from where your neighbors should invest theirs or where your coworkers or relatives should invest theirs. Your money should be invested to allow you to accomplish all of your financial objectives, short term, intermediate term, and long term, that are important to you. There is a portfolio design that can help you achieve all of those goals, but it takes a great conversation, and quite a bit of work on the financial planner’s part to arrive at the ideal portfolio.

Once we get to the ideal portfolio of the right allocation, we get into the discussion that we’re having here. Which sector should we overweight in now? Which sector should we underweight in now? We see your plan will work with anywhere between 40% and 60% of equities. I’m giving an example. So, markets are a little frothy. Let’s pull back and go down to 40% in equities right now to keep you safer.

The PRI (Personal Retirement Index) & Ideal Portfolio

Dean Barber: Those are all things that go on behind the scenes once we’ve identified your personal retirement index along with what your ideal portfolio is. I want you to discover this because there’s a certain amount of freedom and confidence that comes with knowing what this is and putting it into practice.

Schedule a complimentary consultation right here. We can have a consultation via a phone call, and we can do it through a virtual meeting or do it in person. You can schedule that and choose how you want to visit us right here on the website. Make sure and read all of the great articles that we’ve written to help you get smarter, get more informed, and intelligent. Because the more educated you are, we know this, the better chance you’re going to have to be successful.

Back on Education 

Bud Kasper: Exactly right. That triggered a thought in my mind just a moment ago. What we want you to do is to get a college degree in retirement planning. You can do that through our insights section. 

Fixed Income in 2021

Another issue that comes up is that I’m going to be challenged with this year, and that is, in 2021, what kind of fixed income should I have in my portfolio? 

Dean Barber: I honestly think that if you’re in the fixed income sector in 2021, we need to be leaning more toward collateralized mortgage obligations to floating rate debt, those types of things. Those are the ones where we can still get some decent yield. There are also ones that still represent some decent value that isn’t overpriced and ones that will tend to do better in a rising interest rate environment.

Your Plan is Specific to Your Goals

That’s my thoughts there. Obviously, we’re not here to give investment advice. That’s never what we want you to do. We don’t ever want you to take anything we’re saying here as far as, no, that’s what I should do. It has to be a lot more personal than that and fit into exactly what you want to do.

Dean Barber: And that’s why we developed the Guided Retirement System™, which is our proprietary system that allows us to put together your roadmap for financial success. And find out more about that while you’re reading this article by scheduling a complimentary consultation right here.

It’s a Complex Process

Bud Kasper: Yes, there’s so much involved with this that people need to dive in deeper and become better educated. We have so much content for you to look at. Bring yourself up to speed, get some confidence in yourself, allow us to help guide you through your retirement years.

Dean Barber: That’s what we’ve been doing for, I don’t know how many years, it’s been about 17, 18 years, right here on KMBZ. Anyway, thanks for joining us on America’s Wealth Management Show. We hope you learned something today. We hope to get to visit with you soon. I’m Dean Barber, along with Bud Kasper. We’ll be back with you next week, same time, same place. Everybody stay healthy, stay safe, and go Chiefs. How about that?