How to Minimize Fees and Risk in Your Retirement Plan

9.1.23: Audio automatically transcribed by Sonix

9.1.23: this mp3 audio file was automatically transcribed by Sonix with the best speech-to-text algorithms. This transcript may contain errors.

Producer:
Any examples used are for illustrative purposes only and do not take into account your particular investment objectives, financial situation or needs and may not be suitable for all investors. It is not intended to predict the performance of any specific investment and is not a solicitation or recommendation of any investment strategy.

Producer:
Welcome to Money Matters with Mike, with your host, Mike Zaino. Get set for a full hour of financial information and economic news affecting your bottom line. Mike works hard each day to educate Americans like you on how to reach the financial freedom they've worked so hard for. And he can help you, too. So now let's start the show. Here's Mike Zaino.

Mike Zaino:
What's up? What's up? What's up? It's Mike Zaino coming to you from Fort Mill, South Carolina. Happy Saturday, people. What a great time to be alive in these United States of America. Money Matters with Mike is a show designed to arm you with information and give you plenty of meat on the bone to chew on each and every week. And today we are absolutely bringing the heat again. On today's show, we're going to talk about how to reduce fees and minimize risk and couple with the fact that you absolutely must inspect what you expect. And as always, I have the distinct honor and privilege of being joined, rejoined, I should say, by the one the only my co-host and producer extraordinaire, Mr. Matt McClure. Matt, how are you doing today, brother?

Producer:
I'm doing great, Mike. Great to be back with you after a week away from the show, but always great to be part of Money Matters with Mike Hope. You are having a great week and and weekend now on this Labor Day weekend can't believe it's already here.

Mike Zaino:
It is Labor Day weekend. And you know this this day was originated way back when when in celebration of the labor unions. That's why we actually get an extra day off and enjoy a three day weekend. But I am not getting an extra day off. I actually have a speaking engagement tomorrow in Charlotte, North Carolina. So I will probably have at least 12 hours worth of appointments on Labor Day. So I am going to be laboring on Labor Day when everybody else is enjoying a cool beverage. And, you know, some time, hopefully with friends and family.

Producer:
That's right. You know, the hamburgers, the hot dogs and time by the pool and that kind of thing, too. That's what we all hope for. But hey, you know, at least you're getting getting down to business, getting it done.

Mike Zaino:
Getting it done. And you know what else I am super excited about, Matt, and I know our listeners out there, most of you probably are as well. It is the start of college football season. It is here finally, and I am super ecstatic and cannot wait until later on this evening for our game, you know, to take place.

Producer:
So I've got my, uh, my University of Georgia mouse pad that I always use. It's right here, as always, standing by with Harry Dawg on the on the the mouse pad there. But yeah, no great great time of the year and a lot of fun for everybody involved. Hopefully a three-peat is in the offing and that's all we will say about that because it's a show about money, not about football.

Mike Zaino:
Everybody else in my listening area is going, No, we're Clemson fans. No, we're Gamecock fans, right? And that's my immediate listening area. And who knows? You know, folks in Utah may be rooting for the Utes, You know, who knows?

Producer:
So you might have.

Mike Zaino:
Whatever your team is. I wish them the best of luck and a back to back to back, you know, repeat performance for the Georgia Bulldogs. Go dawgs. There you go.

Producer:
That's right. You know, you might you might have listeners to the podcast in Ohio for for crying out loud, They might say, go Buckeyes, that kind of thing. But, you know, wherever you're listening, we really just hope that you have a great football season and all the best of luck to you as well. And you know, hey, check out the podcast. Really, wherever you listen to podcasts, you can find it. You can also find us on YouTube if you want to see if you want to see what we look like. You can do that. I don't know if that's so much of a prize or not, but you know, go there. We have special content. We have highlights from the show. You can listen to that and see that there on YouTube.com. Just search for money matters with Mike and don't hesitate to call with your questions. I know Mike loves helping listeners to the show. The number is 7045601573704560. 1573 is that number and Mike will answer when you call. And if he doesn't, he'll get back to you right away. Well, also you want to get in touch with him to receive a free report on tax free investments for a better retirement. You know, we're going to help educate listeners today and clients on ways to keep more of their hard earned money. This report is going to provide some additional detailed information to some of the things that we're going to talk about today, as well as some tips for getting started.

Producer:
So reach out. Go to. Matters with Mic.com that is the website. Or once again call 704 560 1573. Look forward to hearing from you there. All right, Mike, a lot of great stuff to come up here on today's show. We're going to get things started with our Quote of the week here momentarily. We also have some financial terms of the week to get to. You know, we kind of like to break things down and make those sort of wonky financial terms, you know, more relatable to you. So you feel like you're not being left behind. You're not being left out of anything. You understand what people are talking about when they talk about some of these things. So we'll get to them here in a bit. A major US bank has been found to be overcharging millions of dollars on the investment advisory side of things. We'll share some details there. Also, are you paying too much in fees? Chances are you probably are. So we'll tell you how you can maybe suss that out a little bit, determine if you are paying too much in fees and some ways to avoid it. We'll do some beating. The bank CDs talk as well. First, though, as promised, let's get things started off with our Quote of the week.

Producer:
And now wholesome financial wisdom. It's time for the quote of the week.

Producer:
And I love this quote, Mike. It is one that we reference every now and then here on the show. But we wanted to feature it today because it is very appropriate for a lot of the things that we're going to talk about. It's from Albert Einstein, who Oh, yeah, just that guy, just some hack, you know, didn't really wasn't smart or anything, you know, Albert Einstein, Nobel winner, famous physicist. And, you know, the theory of relativity equals MC squared. All of that is Albert Einstein. And so is this. Compound interest is the eighth wonder of the world. Those who understand it earn it, those who don't pay it. Very, very true.

Mike Zaino:
Profound. All right. And Einstein was a pretty smart fellow, right? I mean, anybody who who looks like he stuck his his tongue in a light socket to get that type of hairstyle has to be a smart guy. That's a joke, right? So so, I mean, his his his quote, the concept behind the quote just reflects the remarkable power of compound interest. Okay.

Producer:
Hungry for something to chew on. Here's some meat on the bone.

Mike Zaino:
We've broken it down before. On the show, we talk about compound interest a lot, but compound interest is basically interest earning interest. And so that can either work for you or it can obviously work against you because when interest is added to the initial principal amount and then interest is then calculated based on the updated total, that's either going to lead to exponential growth if it is working in your favor or exponential debt if it's working against you, especially over time, because the compounding effect can lead to substantial wealth accumulation in the positive light or substantial debt in the negative light if allowed to grow over those long periods of time. So, you know, we've talked about compound interest until, you know, I sometimes feel like we're blue in the face, but it is that important of a concept for all of our listeners to understand. And if you have any questions on that, don't hesitate to reach out and we can break it down because your your credit card statements, for an example, will show you the negative effects of how long it will take you to pay off your debt if you only pay the minimum interest.

Producer:
Yeah. And if you only make that minimum payment, I mean, that means that, as you say, the compound interest is really working against you because then you're having interest charged on top of the interest from the previous month. If you carry that balance over month to month to month and eventually that really does it all adds up. And that's why you see on that back of your credit card statement or on the additional page or wherever it might be located. Those numbers, if you pay that minimum payment, it's going to take you, you know, some 40 years or whatever that might be to pay things off. It's not it's not fun to look at. If you want your blood pressure to go up, that's it's a good thing to do.

Mike Zaino:
Yeah. And just to give us an example, just a $1,000 debt on a credit card will take at an average interest rate that the credit cards are charging. It'll take you 18 years to pay off $1,000 if you just pay that minimum interest or minimum payment due, which is basically just paying the interest off of it, that with very, very little going into principal, which is why it takes so long. And so, you know, if we're talking about credit card debt and I'll just throw this in there, you always want to take care of at least the statement balance, because if you take care of the statement balance, which may not be the total balance, at least you're not paying interest on that month's charges. So, you know, little, little bit of of light at the end of the tunnel for those that have to depend on credit cards.

Producer:
Yeah, absolutely. And you know, that's not a great place to to be in ever to have to depend on credit cards and to have to carry a balance month to month, especially. I've been there. Yeah. And as have I. And not all that long ago, you know, I was, I was there. And when you sit down and think about, oh my gosh, how much am I paying, how much am I losing? Right. In this whole scenario, it's not pretty. No.

Mike Zaino:
And it's a motivator to get things paid off a lot faster. Right. And so, you know, my wife has always said and I've now adopted this this phrase that when you know better, you do better. And so especially when it comes to the credit card usage, if you can't afford to pay it off at the end of the month, then guess what? You can't afford to buy it. Right. If we're really calling, you know, a spade a spade in this situation, but, you know, at least paying the statement balance, then you're not penalizing yourself by paying the interest. So obviously, the best case scenario, pay the balance off. But if you can't do that, pay the statement balance.

Producer:
Yeah, that's absolutely true. And you know, no amount of airline miles or points or anything like that is going to make up for all of that interest that you pay if you don't do that because no.

Mike Zaino:
One's become wealthy off of airline miles or travel points. Right. Right.

Producer:
Exactly. You carry that balance. You're just digging yourself a hole and you just bury an airplane in it probably at some point. Nick Well, great, great stuff there, Mike. And of course, if you have any questions about what we have talked about so far or what we're going to talk about coming up here on the show, MoneyMattersWithMike.com is the place to go. You can reach out there at the contact page. Just fill out the form and Mike will be glad to get back with you. (704) 560-1573. Is the number. And here's the thing, Mike. Okay. So we were talking about this a little bit before we went on the air here. And this is. And yet another situation for a particular bank that is one of the largest banks in the country. Wells Fargo. This new story just came out, Securities and Exchange Commission announcing this, that Wells Fargo overcharged almost 11,000 investment advisory accounts, about $27 million in fees, according to regulators. Boy, that's a mess.

Mike Zaino:
That is that is crazy. And, you know, I've been with Wells Fargo. I bank at several different financial institutions, but Wells holds a couple of my accounts, and I've been with them since they were First Union and then Wachovia and now Wells Fargo. And to find out that now they're actually agreeing to pay $35 million in civil penalties just to settle the matter without admitting, of course, they're not going to admit or deny any of those SEC charges. Um, you know, and they're paying those in penalties. And then they've also agreed to pay account holders about $40 million, including interest that reimburses those customers who have been overcharged. So it's it's it's you know, it's kind of staggering to find out that there are financial institutions that are just trying to get away with what they can get away with.

Producer:
Yeah. And the SEC said that they found that Wells Fargo failed to use the compliance systems that are designed to ensure that billing systems contained accurate data and didn't effectively monitor that the bank was not overcharging the clients. And, you know, we both work in this, you know, financial space, Mike understand how important compliance is, how essential it is to doing business on a daily basis, because everything has to be on the up and up. There are so many rules and regulations in place now and for good reason, because, you know, before the rules and regulations were there, it was easier to take advantage of consumers. Now it's really, really tough and so when something like this is found, you see what the types of penalties are. That's that's a lot of money that Wells has got to pay out just in the penalties and those reimbursements.

Mike Zaino:
It is. And you know, we'd like to think that, hey, you know what? Somebody made a mistake, a a switch wasn't flipped or a, you know, an execute button in a program wasn't, you know, pressed. Um, at least I'd like to think that was the, the what happened and it wasn't, you know, on purpose. But I mean they got caught. Right. So how long has it been going on and how much money have they been overcharging and have they made just with the time value of money by getting paid those increased and overcharged fees off of their customers. So, I mean, it really is kind of an upsetting situation for folks. And if if they're doing it, I doubt they're the only ones who are doing it.

Producer:
Yeah, that's right. That's right. You know, you kind of want to give people the benefit of the doubt here and say, you know, it was a mistake or whatever. But yeah, I mean, at least since 2014 as what the SEC said, they had been doing this. So it had been going on for quite a while. The thing is here, you know what, one of the major advantages, I should say, of working with Mike Zaino, for example, who I would recommend, of course, obviously because I work with the guy every day and I know what he's like. I appreciate that absolutely 100%. But is that there's that personalized service Because you know what, you work with someone on a retirement plan or something like that who works for one of these large, large institutions and you may or may not, you know, call the number and get the same person that you talked to the last time. Chances are you won't. You might get a call center that's in a different country, for crying out loud. You might, you know, get somebody who makes minimum wage answering the phones and doesn't really know their you know, they haven't had the training or the experience to answer your questions properly. But working with Mike Zaino, professional in this area has been doing this for years. That is really the advantage of working with someone like Mike over working with some of these these big boys. You know, being big has its advantages, but this is not one of them.

Mike Zaino:
Sometimes, yeah, sometimes you're just a number, right? Especially to the larger groups that are out there. And you know what? I have thousands of clients, but I treat every client the exact same. I don't care if you got 10,010 million, you're going to get the same Mike Zaino. And what we can help you do is analyze your portfolio and ensure that you're not being overcharged for anything that you haven't agreed to. And we can also help you identify areas of your portfolio that can be adjusted so that you keep more of that hard earned money. And if you would like to take advantage of our portfolio x ray, that's what we like to call it. Please give us a call. (704) 560-1573. Visit us on the Web. Money matters with Mike all spelled out. Dot com. You can contact me on Facebook, on YouTube. We've already gone over all the different ways you can get us in contact with us. But as always you will work directly with me. And all of our consultations are 100% free with no obligation.

Producer:
Absolutely. And that's great news because you know what? Free fits right into my budget. I know that much for sure. But, you know, these are complimentary consultations. Absolutely. But it's not just, you know, a kind of a cursory glance, if you will, at your situation. It's an in-depth thing. Talk about not only the initial conversation, which I know can be a quick thing, but then also that full retirement plan consultation when people reach out, what is that experience like?

Mike Zaino:
So so the first conversation is just that it's a it's a kind of a discovery call, maybe 15, 20 minutes. Sometimes we go about a half hour, but it's just kind of feeling each other out. I'll ask you some questions about your current situation and answer any questions that you might have. But most likely, if we agree to have a consultation and I think this is a very, very important distinction, you don't always have to come to me if you want to have a virtual meeting, use Zoom or use FaceTime or use any other video chat or you want to meet at a Starbucks and have coffee. Okay, I'm fine with doing however you want to get together. I try to make it as easy for you as possible. Let's face it, sometimes people get intimidated coming into an office, especially when they are not comfortable discussing the topic at hand. And for a lot of people, money is not a topic that they're intimately familiar with and they just want to learn how to grow and protect. So, you know, when we do sit down, we're just going to help you analyze that your individual situation, because no individual is the same as another individual.

Mike Zaino:
You might have some commonalities, but let's face it, your money is your money. Your situation is your situation. And each individual has a very unique situation. So we're going to look into and discover how much you're paying in fees will help you cut any unnecessary costs. If you have an IRA, if you have an employer sponsored plan like a 401. K, a 403. B, a thrift savings plan. If you're a government employee, we'll dive into those and see if we can make any types of tweaks for you. If you're of age where you're either starting to plan for Social Security or Medicare, those topics can be extremely confusing For those about to enter into that those age brackets where they're eligible and sometimes doing, you know, just making a small tweak in the plan can end up making the biggest difference in your ultimate cash flow on a month to month basis. So bottom line is, is we're going to compare your current situation to what's possible if you work with us and it's your money. You have to remember that because I will always remember that. And if it's important to you, it's important to me.

Producer:
And if that sounds good to you folks and I hope it does go to Money matters with Mic.com. That's money matters with Mike. All one word.com or call 7045601573704560. 1573.

Producer:
Here's the cost cutter of the week.

Producer:
Well the cost cutter this time around Mike all about fees and I think this is an important conversation to have as well because, you know, I really believe that a lot of people don't even realize the fees that they're paying.

Mike Zaino:
Oh, you said fees. I thought you said fees for a minute. I'm like, we're cost cutting on bees. Are we going to start our own hives and do honey.

Producer:
You know, you might. Hey, that that could be a good a good side hustle there.

Mike Zaino:
Hey, I'll tell you what. A buddy of mine, he has 35 acres and he has a couple hives and he says he harvests about £40 of honey. And he gave me a nice little jar. And it's so good. So good. And honey has so many benefits for your health. Anyway, we're not here to talk about that. We're here to talk about the cost cutter of the week. And it's not bees, Matt. It's fees with an F.

Producer:
That's right. We're not talking about honey. We're talking about cheddar this time around. Love it. So. So, yeah, so fees with an F at the beginning. Those are some things that are important to discuss, not only because, you know, we pay them pretty much every day in our lives, but we often think just pretty much everybody, at least somewhere there, unless they're working with a mike Zaino, for example, there are fees that they're paying that they don't know that they're paying because they're hidden. They're wrapped in something else they are and kind of buried. So you don't really know what they are and how much they are.

Mike Zaino:
Yeah, And one of the easiest ways I'm serious, the most simplest of ways to cut costs is to eliminate those unnecessary fees that you're paying within your retirement accounts. Okay. So there are several to, you know, fees that you need to be aware of. And the most common ones, you know, number one, mutual funds charge operating expenses. Okay. So that's that's number one. If you're all mutual funds will have that. Some types of funds have higher expenses. Then others. And you want to be in the ones that have the lowest expense ratios. And then there are investment management fees which are charged as a percentage of the total assets managed. So if somebody is charging you 1% for an example and you have $100,000 with them, guess what? You're paying them $1,000. And if you do that over 20 years, you've given them $20,000. Now let's if you have $1 million with them. Okay, then then obviously that's ten times that amount. So those are fees. And a lot of brokerages charge a transaction fee every single time that an order is executed. That means if they're buying or selling, whether it's a mutual fund or a stock, they're going to charge you on the buy and charge you on the sell.

Mike Zaino:
So you have to look for things that are called loads, whether they are front end loads and back end loads, because those are nothing more than just straight commissions. And then brokerages may also charge you just an annual custodian fee just for you to have the money there. They're going to charge you for it. And that's separate completely separate from their management fees for all the assets that you have under their management. Okay. So all of our listeners should ask themselves a very important question, which is how much am I paying in fees on my retirement savings accounts? And if you don't know that answer, that's a reason to pick up a phone and give me a call because I can quickly find out exactly how much you're paying and actually show you. And I think you will be shocked at the actual number and net number of as far as a percentage that you're paying in fees.

Producer:
I bet you've seen some shocked looks on people's faces over the the years here, Mike, about, you know, if they you know, find out exactly how much they're paying in fees.

Mike Zaino:
Yeah I mean most recently I met with, you know, a person who just wanted a second set, you know, wasn't planning on really doing anything. And when I showed him how he was paying 4.5%, literally 4.5%, he thought he was paying a half of a percent. And I'm like, well, let's look at this and let's look at this and let's look at this. And then we get them on the phone and we say, All right, what are the expense ratios? And we added it all up. It was 4.5%. And he looked at me like I had no idea. And so, you know, this this gentleman was not even there to necessarily become a client. But guess what he did? He became a client because he liked the extremely low. In fact, I put him in a zero fee product, you know, zero fee, zero management fee. And he loved the idea of not having to have any of his hard earned money, especially over time. Right. It's one thing if they're breaking it down and make it sound really small on a quarterly basis, but then when you multiply that times four quarters and you multiply that times ten years, 20 years, 30 years, 40 years. All right. That's a lot of your hard earned money that is paying them to drive the BMW is paying them to have the, you know, the golf club memberships and have their beach houses and stuff when if just redirected a little bit more smart, you know, inspection of what you're doing. We talked about inspect what you expect then you can have you know the BMW you can have the golf club membership. If that's your thing, you can have the second house at the beach. So these are the things that we try to point out for folks. So, I mean, if that's you and the shoe fits, wear it. Okay? But you don't have to wear it. If you give me a call and we'll find another shoe that fits you a little bit better.

Producer:
That's right. Mike's got got all the shoes that are available here, and we'll find the perfect fit for you there. To continue the metaphor, 704 56015737045601573. Is the number go to money matters with micom. That is the website.

Producer:
Need a higher rate of return from your safe money. Listen up. It's time to beat the bank CD rates.

Producer:
Well, Mike, we're going to talk now about something called multiyear guaranteed annuities. This is something that we've we've discussed on on the show before. It's it's probably been a while, though. But in the beating the bank segment, it's a great place to put that because this is another option even in a high interest rate environment like today, because people might look at, you know, bank CD rates and see, oh, well, these are much higher than they they were. Well, yeah, they are in in the vast majority of cases because, you know, the Federal Reserve has been raising interest rates and raising interest rates to combat inflation. That means that, you know, the rate of return on things like a bank CD will go up as well. But there are other places that still could be better, a better option for our listeners out there. Talk about this multiyear guaranteed annuity as that particular option that we want to discuss today.

Mike Zaino:
Yeah. So I mean, especially in times of high interest rates, obviously like we've been experiencing over the past year, you know, so many commercial banks are touting their boasting, oh, look at us, Hey, we're we're offering 4%. We're offering 4.5%. I've actually seen as high as, you know, 5%, which, you know, to the average person may seem, Hey, that is pretty, um, you know, attractive, but you're locking your money up for the period of time, whatever period of that time is. Well, there is another product out there that you just mentioned. We call them Omega, and the Omega stands for multi year guaranteed annuity. And so migas often provide higher interest rates when compared to a traditional bank CD, and that can ultimately result in more substantial returns over the life of that guaranteed annuity, which can be especially important for retirees seeking to generate income from their savings. So that's the first way. Number one, higher interest rates than a bank CD. The second way is tax deferred growth. So just like a bank CD, a manga will offer a guaranteed return of principal, but they also provide the advantage of tax deferred growth. And so the interest that is earned on the manga is not taxed until the withdrawals are made, which potentially allows your money and the annuity to grow that much faster.

Mike Zaino:
This is one that I love. Okay, Creditor protection. So depending on the state and the individual's circumstances, a multi guaranteed annuity may provide better creditor protection than a bank account or a CD, which is going to safeguard your retirement assets from legal claims, which is huge. Now, this is the one that I do like the most. Okay. Flexibility. Some migas offer options for partial withdrawals without any surrender charges or penalties or fees. Okay. And that provides flexibility for unforeseen circumstances or emergencies. And when you compare that to a bank CD, they're going to impose penalties if you have to touch your money earlier than originally agreed to. So then, of course, there's financial security and knowing that A can provide retirees with a sense of that security blanket, okay, because they offer guaranteed returns and guaranteed income options, which helps alleviate the concerns about the volatility of the market and how it, you know, negative performance might affect their retirement fund. So in all, it's about diversification. We've talked about this a bunch on our show. And when you diversify and include a multi year guaranteed annuity within your retirement portfolio, all that is doing is enhancing your diversification, which is extremely important for managing your risk and achieving a balanced investment strategy.

Producer:
Absolutely right. And you know what? If you are interested in migas, what they could do, the rates that are currently available, just give my Zaino a call. He can discuss with you your goals, identify which option would be the best for your specific situation. That is really what it's all about. Is tailoring a solution to you because it's not a one size fits all thing here. Everybody's different. Everybody's situation is different. So just give Mike a call. The number there, 704 560 1573 (704) 560-1573. Go to money matters with mic.com. That is the website. All right. So let's get to those financial terms of the week, shall we, as we like to sort of, you know. Clear away the fog, pull back the curtain, whatever sort of metaphor you want to use here to let you in on some of these financial terms and tell you what they mean. We've been doing this here for a few weeks now, and it's a good thing, I think, to just kind of make some terms that can seem very complicated, help boil those down to something that people can understand because, you know, you don't want to feel like you're left out, at least I don't know.

Mike Zaino:
And last week we talked about beta and standard deviation, and I made the joke that, you know, a lot of people, when they start hearing these words, they just kind of tune out, their eyes glaze over because they don't understand them. But, you know, having at least a baseline knowledge of what they are and what they mean and how they could impact your portfolio, I just think is important. Okay. And so, you know, there are people out there that are like, Mike, I don't want to have to know that stuff. I just want to know that my money is safe and that it's going to grow. If that's you, well, then I got you. And there are other people out there that do want to learn more. And guess what? If that's you, I got you. So we're going to talk today about correlation number one, which is a statistic that measures the degree to which two securities move in relation to each other. Okay. So a correlation of assets is crucial for retirees and investors to understand because it's going to directly impact the diversification and risk management strategies within your investment portfolios. And so a few reasons that proper correlation is important. The first one obviously is risk management. So by measuring how closely two assets move in relation to each other, you can determine whether or not there's a low or negative correlation and those tend to move independently. Okay. And so by investing in assets with different correlation patterns, retirees and investors both can reduce their overall portfolio risk. Because if one asset class experiences a downturn, another may perform well hoping to mitigate any losses.

Producer:
Yeah, I mean, it's kind of like, you know, if you were invested, say, back right around the year 2000 in a bunch of dot coms and that's just where everybody was in it. Oh, this is this the next big thing. This is great, grand and wonderful. And then the.com bubble bursts. You all of your assets were positively correlated. And so you're going to basically lose the shirt off your back at that point as far as your investments go, because everything is going to to just drop the floor is going to come out from under it. Yeah. And a lot of people did experience that.

Mike Zaino:
They did in 2001. They also did in 2008 when the housing crisis, you know, I had buddies that were in real estate and they had, you know, hundreds of properties like literally and all of their money was tied in real estate. And then they had the loans at a value of X, and when everything just the bottom fell out, right? And now they were being reappraised at a value of Y, which was so far and, you know, beyond anywhere close to what their loan amounts were, they were so far upside down, they, they were up the creek like literally up the creek. And so, you know, that's why it is so important to make sure that your risk is managed. And when we talk about risk management, you don't have everything exposed to where one event, one market event or one economic event cripples your portfolio.

Producer:
That's right. And another big topic, right in that same vein, there is diversification, which we mentioned a few minutes ago. And that really is sort of along those same lines. It's about risk management. It's about really, you know, helping mitigate any losses that you could possibly or potentially experience.

Mike Zaino:
Right. Everybody's always heard, hey, don't put all your eggs in one basket. And I'm not sure that people truly understand what that means. Right. And so it's diversification is going to involve spreading your investments out but across different asset classes. Okay. And so asset classes are things like stocks, like annuities, like mutual funds, like real estate, like precious metals. And so you don't want to just move from one stock to another stock because that's within the same asset class with, you know, from one mutual fund to another mutual fund, because again, that's in the same asset class. So understanding the correlation between the asset classes is essential because if two assets are highly, positively correlated, they may move in the same direction, which potentially amplifies losses during market downturns. And then. Inversely, assets with low correlation provide much more effective diversification and often produces much better protection during the turbulent times.

Producer:
If you are not highly diversified or diversified enough, you know you could experience like, say, if you are really super heavy into tech stocks, let's say, for example, and the Nasdaq loses 20%, but you are even more highly in invested in stocks than the Nasdaq represents, which the Nasdaq is tech heavy to begin with. You could lose, you know, 30, 40%, whatever. You know, you could even lose even more than the markets. If you have all your eggs in that one basket, you drop that one basket, the eggs are going to break, you know, And so you want to have your eggs in different basket. So if you drop one of them and those eggs break, you still got all the other eggs. That's kind of what it boils down to, right?

Mike Zaino:
And if you can ever find that unicorn, right, the asset class that is able to provide you with stability and you might actually want all your eggs in that basket. So the saying, don't put all your eggs in one basket unless you truly understand what it's actually talking about. You may have all your eggs in one basket and just not know it.

Producer:
Yeah, There you go. And stability of returns super important as well because if you are properly diversified, if you are well diversified, then the, you know, history has shown and the thinking there is that you're going to be more likely to, you know, have those losses mitigated and then also still, you know, experience some some good growth in those investments as well.

Mike Zaino:
Yeah. So so when I think of stability of returns, I kind of go back to the tortoise and the Hare fable, right? And where you have the hare that is just sprinting and then kind of gets lazy and takes a nap and then here comes the tortoise just trotting along and eventually passes him. And everybody knows who wins that race, right? And so that's where I start to talk to people about trying to time the market and trying to do like get rich quick schemes, you know, some really speculative type of investments for most folks right now, if you have enough income and your portfolio is projected to provide enough income and then you have extra money that you can gamble with. All right then, hey, no problem. If that's you, fine. But the majority of our listeners are much more conservative and a well-diversified portfolio consisting of assets that have low correlation can lead to much more stable returns over time. And that stability. Matt It's especially important for those retirees who rely on their investments to generate income during retirement. By reducing the portfolio's volatility, retirees can plan better and much more effectively manage their expenses.

Producer:
And it's all about having a plan really mean that is what this boils down to from a kind of a strategy standpoint is to have a strategy, is to have a plan and to reach out to Mike Zaino to get started on your plan that's going to be tailored specifically for you. And once again, money matters with Mic.com is the website next term here, I know is one that is always interesting. Slash very scary to talk about. Yes. Because it can be it can be a scary thing like for people who retired, say, 2007, 2008, it was sequence of returns. Risk is that term, by the way. And it was not a good thing. That works in their favor at all. No.

Mike Zaino:
And so so if you don't understand what sequence of returns risk is, please stop what you're doing right now. Pull off to the side of the road if you're driving, you know, if you've got some distractions, stop what you're doing. Because this in and of itself has the ability to make or break you when you are starting your retirement journey. Okay. And sequence of returns risk is the risk that retirees and pre-retirees face when experiencing poor investment returns early in their retirement years, which can lead to a total annihilation of their portfolio and significantly affect their ability to sustain their desired lifestyle throughout retirement. So you mentioned Matt retiring, somebody that retired in like 2007 or 2008. Well, what happened in 2007, 2008, the financial crisis? And we saw losses, huge losses in 2008 and 2009 and 2010. So three consecutive, you know, punches to the gut, uppercuts to the jaw and a right cross to knock those people out. And it did knock those people out. They lost a lot of money. And so the impact on your portfolio is huge. If negative investment returns occurred during the initial years of retirement, your portfolio's value could be if you're exposed, significantly reduced. And then when you're still withdrawing funds to cover living expenses while your portfolio is shrinking, that just exacerbates the problem as the remaining funds have less potential to recover when markets eventually do improve and we know they will.

Mike Zaino:
But if you're in that, you know, retirement red zone, the five years before retirement or the five years immediately in retirement, unfortunately you no longer have the luxury of time and your ability to contribute to an employer sponsored plan is gone. Right? Especially when you retire. You can't contribute because you have to have earned income in order to do so. So the long term consequences of a depleted portfolio that happens early on in retirement, well, unfortunately, that can lead to a higher likelihood of you running out of money later in life, especially if we have another 2008 event where it took almost ten years to get back to even. Okay. They have referred to that decade as the lost decade. And that can force retirees to. Make drastic changes to their lifestyle or rely much more heavily on other income sources like Social Security, which we discussed last week, may not be there in the form that it currently is. In the year 2033. So, you know, all of these things are very, very important to consider. Sequence of returns risk is one of the biggest for those, you know, deciding when to pull the trigger on retirement, why it's nonreversible unlike an individual who is in their working years, who can continue contributing to their retirement accounts during the market downturn, well, guess what? Retirees don't have the ability to replenish their portfolio, especially once they start drawing from it.

Producer:
Yeah, that's right. You know, you are out of the out of the workforce. You are in retirement and you have stopped your contributions to those plans. So then you're just kind of stuck at that point with what you have, especially if that plan was something like a 401. K 403 B, et cetera. So that is the basic concept of sequence of returns risk. Let's delve into it just a little bit more, Mike, because it is so important to drive this home and paint a clear picture for people. I love this this sort of illustration. We've we've talked about a version of this before here on the show a few times. But. It really does bring it home. How much a loss in your portfolio early on in the years of your retirement especially, can have those long term lasting effects, Negative effects, because, boy, it takes a lot to build back from those.

Mike Zaino:
It does so so you have to keep in mind that that compound interest can work both for you and against you. Okay? And so if we take a portfolio and let's just say that portfolio loses 20% in a down year, well, if the next year it gains 20%, people are going to sing, hey, I'm back to even. Right. But you don't you're not back to even if you lose 20%, you actually have to gain 25% just to get back to even. And so we've we've drawn some different numbers here and I want the audience to understand them. So if you lose 20%, you have to gain 25% to recover. If you lose 30%, which has happened in the markets before it happened, heck, March of 2020, the, you know, portfolio value, 30% gone for most people. Well, guess what? You got to gain 43% just to get back to even if you lose 40%, you got to gain 67% just to get back to even. And the one that we've mentioned 100 times before on the show, if you lose 50% of your portfolio, you actually have to get a 100% return and mad. That is just to get back to even. That is why it is important that people understand the sequence of returns risk that their their portfolio is subjected to.

Producer:
Absolutely right. And it's also, you know, brings home, you know, the need for protection against sequence of returns risk here. And so I bet, you know, people are listening saying, okay, that is the scary scenario. That could very well happen because we don't know when it's going to happen. My crystal ball is still broken, but how do people protect their retirement plan from the sequence of returns risk? Yeah.

Mike Zaino:
So, I mean, the number one reason I would think would be, you know, diversification and having a diversified portfolio that includes both growth, but as well as defensive assets that can help mitigate the impact of poor market performance. Now, your portfolio also has to be designed for guaranteed income. Now, what is guaranteed income? Well, that means come hell or high water, that money's coming in every single month, month in and month out. So guaranteed income sources like annuities, can provide consistent stream of income regardless. Like it doesn't matter what the market is doing, because that's a contract that you have with with any of the behemoth insurance companies out there. And then always, always, always make sure that you have an emergency fund because simply maintaining that fund outside of your normal working and operating capital that you have in your checking and savings account and outside your investment portfolio can provide you with a cushion during a market downturn to where you're not having to tap in your into your retirement accounts, okay. And not have to sell those investments off at lower prices than you wanted to sell in order for you to recover from the downturn. So, you know, if you're tired of worrying about your future, if you are ready to work with somebody who sits on the same side of the table as you do, okay, then please give me a call. Go to the website, reach out any way that you have to. I genuinely love meeting with our listeners and helping y'all on the road to financial security in retirement. So I can help you stabilize. I can help you strengthen your retirement plan, and all you got to do is take some action by picking up a phone and giving me a call.

Producer:
And the number is 704 5601573. Or you can go to the website, reach out that way as well. It's Money Matters with Mic.com. And Mike, you know, we saw this story here in in the News about this hedge fund manager who is expecting more market volatility. And we'll dive into this here in just a second. But I think this is a perfect kind of springboard from what we were just talking about, because, you know, if you are on the cusp of retirement, this is something that is going to have you very concerned about that sequence of returns risk, because there is some some renewed uncertainty here, at least according to to a guy who has has predicted such things in the past anyway.

Mike Zaino:
So anybody that has seen the movie The Big Short is familiar with Doctor Michael. Burry who successfully wagered and I mean he bet big. Many years before the US housing bubble happened in 2008 because he saw the writing on the wall and his act of shorting the housing market, which was absolutely unheard of before because housing is stable in the United States. Right? That became the focal point of the book. And later on the film called The Big Short. Well, guess what? Now, Dr. Burry is betting against the United States stock market. Okay. He filed a 13 F filing with the SEC. Scion Asset Management disclosed a substantial amount of put options against ETFs. Those are exchange traded funds. And what do those do? They track major US stock market indices. Okay. Put options. Provide the holder the right to sell an asset at a predetermined price. So he is betting that the market is going to drop. And then the value of the put options typically increases when the price of the underlying asset drops. And so with a combined value of $1.6 billion, those put options accounted for almost 94% of Burry's portfolio at the end of June. So he is going all in. Okay. And if you are wary about the market's future like Dr. Burry is, there are investment opportunities outside the realm of stocks?

Producer:
Yeah, and there really are. You know, a couple that we, you know, have mentioned, of course, here on the show in the past. The first of those that are outside the realm of stocks is a fixed indexed annuity. And it you know, when you say but it's got the word indexed in it. Yeah you know what it does track in an index. It follows an index but it's not the money is not actually contained within that index. Right. It is.

Mike Zaino:
And so while it tracks the index and the index can be anything like the S&P 500 can be like the Nasdaq. Goldman Sachs has an index. Barclays has an index. There are lots of proprietary indexes or indices out there. You can actually both ways is is correct, but your money doesn't actually participate in the market. It just mirrors the market. And the best thing about it is you're protected by having a floor of zero so that when the indices are performing well, then you're going to capitalize on a reasonable rate of return. But when they go negative, zero becomes your hero. And if I have two investors, investor A and investor B, and we kind of can can correlate this to the sequence of returns, let's say investor A makes 30% one year because his stock just skyrockets and then loses 30% the next year and then makes 30% the next year and then loses 30% the next year and then makes 30% the next year. Right. He's on this 30% roller coaster of up 30 and down 30 for five years. And then I have somebody in a fixed indexed annuity who the first year he made 5% reasonable rate of return. The next year he didn't lose a penny. Okay. Then the next year he made 5% and then the next year he didn't lose a penny. And then in that fifth year he made 5%. Which investor investor A on the 30% roller coaster or investor B on the stair step. Which do you think has the most money at the end of those five years, assuming they invested the same amount to begin with? I give you a hint.

Mike Zaino:
It's not the guy on the roller coaster. It's the guy that's taking the stair step because he never lost a penny. And fiAs, that's a fixed indexed annuity. They also have a 100% reserve requirement. What does that mean? That means for every dollar that they have in a that a customer or a client has in a fixed indexed annuity, the insurance company has to have that much cash on hand and then some called a reserve requirement. Okay. So that provides the investors a an extreme security blanket. And guess what? No insurance companies have ever gone out of business because other companies will come and absorb their obligations. Okay. They can also be set up, folks, for guaranteed income for life. And in the old days, annuities, you had to pay money for them to pay you your money back, which is ridiculous. And then when you died, they got to keep the rest of your money. That is not the case with the fixed indexed annuity, so you have upside potential downside protection. You have named beneficiaries who receive the balance of your account upon your passing, and while you're still alive, you maintain liquidity with access. Says two lump sum cash if you need it. We love the fixed indexed annuity as a way to kind of hedge against the potential market Drop that Mr. or excuse me Dr. Burry is predicting.

Producer:
And if you want to get started on that road to, you know, a better financial future for yourself, and if you have been educated today, which we hope that you have and will continue to be as you continue to listen to Money Matters with Mike, go to the website MoneyMattersWithMike.com that's MoneyMattersWithMike.com or call 704 560 1573 and Mike Zaino will provide you with a free of any cost and free of any obligation retirement consultation. It's this week in history. Well this week in our history Mike some very interesting things happen and some big things. You know, I mean, we were talking earlier about the dot coms that all came around kind of in the mid to late 90s. One of them that is still around is eBay. Well, on September 3rd of 1995, eBay was founded and it was just a hobby really for its founder at the time until this happened. And I love this is Internet service provider told him that he was going to have to upgrade to a business account because of the high traffic on his website.

Mike Zaino:
No doubt. What today it's in 32 countries that facilitate those consumer to consumer as well as business to consumer sales just through the eBay website. It's it's incredible.

Producer:
Yeah, it is absolutely wild. Another big thing happened on September 4th, Mike. And this one, huh? We just lost a great here not all that long ago. That has to do with this particular event in our history. That was The Price is Right, which began airing as a revival. There was an original show, an original version of it, but the one that we all know and love with Bob Barker.

Mike Zaino:
Come on down.

Producer:
That's right. Thank you. Rod Roddy became a thing in 1972. On September 4th, it aired more than 9000 episodes, rated the greatest game show of all time by TV Guide. And of course, the great Bob Barker just just retired from the planet that his on August 26th of this year at the age of 99. Boy, what a legend.

Mike Zaino:
What a legend. I mean, again, that that that hit show was named the greatest game show of all time. And I know I thoroughly enjoyed it. And I make the joke now that when, you know, I'm having to fill out a anything online and they ask for my age, it's like I have to scroll and, you know, down and I feel like I'm pulling that big old huge wheel just to get down to, you know, the year that I was born. So, you know, we're going to miss Bob Barker, and always The Price Is Right will never be the same without him.

Producer:
Absolutely right. And then one more thing here. On September 4th of 1998, Google was founded by a couple of college kids, Larry Page and Sergey Brin, when they were getting their PhDs at Stanford. And of course, Google. I mean, when when your the name of your business becomes a verb, I think you've made it.

Mike Zaino:
Yeah, I think so. It's become just a little big, right? A little bigger than the garage it was founded in.

Producer:
Absolutely. So. Well, that is going to do it for this time around here on Money Matters with Mike. Mr. Zaino, I appreciate you and all your insights, as always, sir. And we'll talk at you again next time.

Mike Zaino:
Matt, it's great having you back after being out on assignment last week. Thank you for everything that you bring to the show. But mostly I just want to thank our listeners out there. It does not, you know, go unnoticed that without you, guess what? We don't have a show. Okay. So if you got anything from this show today, please make sure to leave me a comment on MoneyMattersWithMike.com. Go to the Facebook page and leave me a comment. Share us with your audience because a rising tide lifts all boats. Whatever you're doing this weekend, including Monday, I hope you stay safe. Enjoy it to the best of your ability and as always, make it a great day.

Producer:
Thanks for listening to Money Matters with Mike. You deserve to work with a financial and insurance expert who can offer strategies for protecting and growing your hard earned money to schedule your free no obligation consultation. Visit MoneyMattersWithMike.com or pick up the phone and call 704 560 1573.

Producer:
Not affiliated with the United States government Mike Zaino does not offer tax, legal or investment advice. Consult with your tax advisor or attorney regarding specific situations. Opinions expressed are subject to change without notice. These opinions are not intended as investment advice, nor do they predict future performance of any product. All information provided is believed to be from reliable sources. However, we make no representation or warranty as to the accuracy of any statement. This information is a. Be educational in nature and does not provide a guarantee or a specific result. All copyrights and trademarks are the property of their respective owners. AmeriLife assumes no responsibility or liability for the content of this message. The information contained herein is provided on an as is basis, with no guarantees of completeness, accuracy, usefulness, timeliness or the results obtained from the use of this information.

Producer:
Fixed annuities, including multiyear guaranteed rate annuities, are not designed for short term investments and may be subject to restrictions, fees and surrender charges as described in the annuity contract. Guarantees are backed by the financial strength and claims paying ability of the issuer.

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