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The following is a transcript of Episode #53 of the Retire Happy podcast with Roger Gainer.
All episodes of the podcast can be found at Apple Podcasts, Google Podcast, and Spotify.
Roger: A lot of people focus on beating the market and growing wealth. And what\’s really important is financial security, and in retirement that\’s about maintaining your assets, and maintaining income so that you can live the way you want. And the best way to do that, avoid losing money.
Clark: You\’re listening to \”Retire Happy with Roger Gainer,\” president of Gainer Financial and Insurance Services, Inc. Thanks for joining us. I\’m your host, Clark Buckner.
With so much uncertainty in the world today, it\’s more difficult than ever to make decisions that can help you progress toward your financial goals. In this episode, Roger reminds us why we do this podcast by clarifying the why. We also look back at some predictions Roger made, including what\’s worked and what hasn\’t. As usual, he\’ll also share some great stories and tools like the rule of 72. And how some of his most straightforward insights still stand strong today. There\’s a lot to cover, so let\’s dive in. And don\’t forget to head on over to gainerfinancial.com for more content like this. Enjoy the show.
Roger, how are you doing, man? Welcome back.
Roger: Thank you. How\’s it going?
Clark: It\’s going well. I\’ve had a few things on my mind. You know, every day, we always talk about this every month too, you know, there\’s so many things happening, so much change in the world. You turn on the news, yada, yada, you know the rest.
Roger: It\’s challenging sometimes.
Clark: It is challenging. And we usually get a chance each year to hear some predictions from you. And we later revisit those and see, hey, what went the way we thought, what might have been a surprise, anything in between. And today, I thought we could maybe do that. But to just set the stage though, I would love, for these first five minutes, just kind of clarify and realign with the whole point of the Retire Happy podcast and I would love to revisit the why. And then we talk about the predictions. I think all of that will make even more sense.
Roger: Oh, I appreciate that question because we do this podcast, I write my blog, all to try to help people have some insights into how to deal with this very, very different period of life. In retirement, what we\’re asking from our money is very different. So even though there are certain things that are true all the time about investing, the impact, the consequence of those decisions, is amplified as we approach and get into retirement, because we just don\’t have time to make up for the mistakes, right?
Clark: Mm-hmm. So what you do early really matters or what you do later really matters.
Roger: Yeah, it really matters. You know, we\’ve just finished about six months on a topic of how do we retire in volatile times, and we\’re certainly in volatile times, right? It seems like over the last 20 years, it\’s almost always volatile times, and the volatility is increasing, not decreasing. So the point of the podcast is to help people move into this penultimate economic period of their lives, retirement, where we ask an entirely different set of results from our wealth. So, you know, most of your life, you have a paycheck, we save, we invest, we try to grow wealth. But in retirement, what we\’re trying to grow is income, right?
Clark: Mm-hmm. You want to retire happy, right?
Roger: That\’s the only way to retire happy that I\’ve ever learned and my clients have taught me that. And that\’s why we\’ve really, really focused on these things because clients have been very clear. You know, they\’re confused. How do I get a paycheck out of all this stuff? You know, I got money in my 401k, I got equity in a house, I got a stock portfolio, I got money I inherited that\’s sitting in the bank, all of these things. But how does it all knit together and allow for that retire happy? So that\’s what we\’re normally going to talk about in this podcast, strategies as far as tax savings, tax diversification, income strategies, risk mitigation, all of those kinds of things is what we normally…those are the kinds of topics.
But every so often, because I think it\’s important for folks that are in this phase of life, you know, the time leading up to and just after retirement, where it\’s absolutely critical not to lose money. Prudential did a study called the \”Retirement Red Zone.\” There\’s been other academic papers on this. But the reality is, you know, if you lose money, and it takes 5 years to come back like it did from 2007 to 2013, it actually took almost 6 years to come back, you just don\’t have that time, if I\’m going to be retired. If I have another paycheck and I don\’t have to draw money out of my portfolio, then I can arguably have the time, although, who the heck wants to wait five years before you get to even, right?
So the reality is now and again, I will put out a prediction. And really, I think of it not as a prediction, but more as a warning because, you know, as we know, past performance is no guarantee of future results, and it\’s very clear to me that we\’ve evolved, especially over the last several years and right now that evolution is accelerating, right? We have increasing interest rates. We have increasing inflation. We haven\’t seen inflation like this in 40 years. So because of the economic backdrop… And we\’ve seen these storm clouds are brewing for the last several years. I have put out several recommendations about avoiding risk, avoiding loss. So we did this back in late 2019 and then at the end of 2019, we did a look back over the decade, and a look forward to the next decade and back then, we talked about the explosion of debt, student debt, consumer debt, mortgage debt, corporate debt, just they were exploding in the late teens, right? And then a bunch of rules changed, we had a tax cut, we had the SECURE Act, all of that kind of stuff. And now you started to see things break down towards the end of that year. In the fall, we had a disruption in the banking system. Overnight, the so-called repo market froze, the Fed had a step in. The treasury market, the most liquid market in the world, our treasury securities, we couldn\’t get a bid. So suddenly, what was the most liquid market in the world had no liquidity, it froze, and it happened in just a couple of days. The Fed had to step in and start buying older treasury bonds.
So, you know, I talked about how it looked like things… You know, we saw unemployment inching up, we saw interest rates starting to inch up, we saw economic activity slowing down. And I was suggesting that it was time to…you know, that we might be looking at a recession and a slow down and get into some different types of investments. And then the pandemic hit. And we responded in an unprecedented way. And so yeah, the market dropped like crazy in March of 2020, but it roared back and increased overall in the year 2020, you know, by double digits. And we talked towards the end of 2020 about why is the market going up, if we are in an actual recession and unemployment was high, we had a lockdown, we had all this stuff, and yet the stock market was going up like crazy. And it was because the Fed was the most accommodative that it had ever been in history. It was buying lousy, lower quality assets at the tune of $120 billion a month and it was injecting liquidity everywhere it could and people plowed into riskier assets, crazy as that may sound, and it worked. It worked. And so that\’s an example of where I was wrong.
I had a few clients who were telling me in March of that year that they couldn\’t sleep. And I suggested, \”If you\’re not sleeping, if this is really gnawing at you, sell. We\’ll look for other strategies. Just move the cash right now. Your gut is chewing you up.\” And, you know, I\’ve always had a thing about people investing in what they\’re comfortable with, because there\’s lots of ways to get from point A to point B if you take the time to research that. And I told…there\’s this one client in particular, I said, you know, \”Just move the cash, let the time go by.\” Well, it turned out that her significant other started hassling her, making fun of her, \”Why would you do that?\”
Clark: Oh, really?
Roger: It always comes back. And it always comes back. And suddenly she\’s feeling caught in the middle. And, you know, it\’s that early part of the pandemic, we were locking down, nobody knew what was really going on. And there was a lot of pressure coming from other places, you know, that… And obviously, it snapped back and went up pretty dramatically in the bounce of 2020 and, of course, last year, in 2021. That was a case where I was wrong. But my recommendation, I don\’t believe, for that particular client was wrong, because they were all stressed out, A, and B, you know, they were telling me that this annoyed them, and that they wanted just more steady performance from everything.
Clark: That\’s a reasonable goal. And if you can\’t sleep at night, if you\’re carrying stress day after day, week after week, month after month, that stuff wears you down. And we\’ve talked…I\’ve loved this quote you said before, so often, early on, \”We trade our health for wealth, but later in life, you can\’t always trade wealth for health.\”
Roger: Yeah, that came out of a study group that I was in 20 plus years ago, and…
Clark: It\’s timeless.
Roger: It is timeless. It really, really is timeless. So when I make a prediction, it\’s to avoid catastrophic loss. When I make a recommendation, my recommendation right now, if you haven\’t done it already, and we\’ve harped on this several times, starting last fall in October, we talked about the fact that the Fed was going to taper, was going to stop buying that $120 billion a month, and I strongly urged people to get out of bond funds, all kinds of bond funds, because in an increasing interest rate market, bond funds are guaranteed to lose money. And we\’ve seen that so far this year. We\’ve seen a lot of bond funds that have lost more than 10%. Well, most people buy bond funds for what reason? Because they want to reduce the amount of risk. They want to protect against losing money. And in a declining interest rate market, that works. But in an increasing interest rate market, that doesn\’t work. Now there are ways to mitigate the risk. But you have to use tools that will actually benefit from increasing interest rates. And bond mutual funds are not that tool. So what if I\’m wrong? What if interest rates go back down? Well, you\’re not going to be out a whole bunch of money. But if we see more and more of a run on bonds, especially things like corporate and municipal bonds…and treasuries, it\’s the biggest market in the world, it is very liquid, and as far as bonds are concerned, just because everybody\’s trading the same bond back and forth, so everybody understands what they\’re buying and selling. But when you get to a municipal bond or a corporate bond, the wording is different depending on what they\’re trying to accomplish, the bond seller, and, you know, corporate bond issue might trade a couple times a year. So there are added risks that we\’ve discussed as far as liquidity is concerned with those types of bond funds.
If you want to own bonds, great, go buy some bonds, but bond funds, because they don\’t have a maturity in a rising interest rate market, they\’re going to lose money. And some junk bond funds or high yield funds, as they have been called in recent years, they\’ve had an extraordinarily hard time really since the end of last year. So, you know, that is what I want to get across to people, you know, past performance is no guarantee of future results. But, you know, can you afford to lose 10%, 20%, 30% on the bond portion of your portfolio? Because if interest rates go up another 200 basis points and the 10-year gets back to closer to where it arguably should be, in that 4% to 5% range, that\’s what\’s going to happen. And then you can certainly buy bond funds then because you\’re going to make a lot more money, but avoid the loss to get from A to B. Another cliché, sometimes zero is your hero.
Clark: Ooh, what is that?
Roger: That means it\’s better to make nothing than to lose money, so getting a 0% rate of return. Now, my clients taught me that back in 2008, when I would come in, and clients weren\’t losing money, and they leave messages telling me, you know, \”Roger, I have friends that are just distraught. And I know I\’m not making any money this year, but I haven\’t lost a penny. And I really feel like zero is my hero.\” That was a voicemail left on my machine at the office. And, yeah, sometimes zero is your hero.
So as we look forward, because past performance is no guarantee of future results, we have to look at what\’s coming, you know, what\’s likely to happen. Because as I mentioned earlier, in this podcast, we\’ve got inflation, we\’ve got higher interest rates, we\’ve got conditions that we saw in the 1970s and we really haven\’t seen them since. So we can get some lessons from 40 years ago, but we also know that technology is different now, we have different investments. There was no such thing as an ETF back in 1979, 1980, you know, that sort of thing. But, you know, those higher risk, higher multiple stocks could be challenged here. And Robert Shiller, I\’ve mentioned him on the podcast before, most people know him through the Case-Shiller Index of residential real estate, but he has another index that is quite famous in investment analysis and financial circles. It\’s called the Cape, C-A-P-E, Shiller Index. And it\’s a 10-year rolling average of the S&P 500, and basically, this tool is used to predict future returns. And we talked about this back at the beginning of 2020, that index was predicting we would be earning less than 6% on the S&P 500 over the coming decade. Obviously, we\’d beaten that here in the last couple of years, like we just discussed. And what I want listeners to realize is, if that well respected predictive tool is correct, we\’re going to do even worse than 6% because it\’s got to work out over time. So could I be wrong? I could absolutely be wrong. But if in order to have some double digit years, we\’ve got to lose 20%, 30%, 40%, we\’ve got to have a recession, we\’ve got to have a drop in the market, do you want to take that roller coaster? And more importantly, can you afford to take that roller coaster if you\’re about to retire or you\’re in retirement? I would put it to you that absolutely not.
Clark: That\’s good. And so often, I think we also return back to the basics. And I think sometimes, especially when you introduce so many other people in this industry, sometimes it can be overcomplicating, and that doesn\’t need to be happening. It\’s the basics. It\’s diversification. It\’s…
Roger: Consistent growth is what…you know.
Clark: ..consistent growth.
Roger: Growing and compounding your money.
Clark: Being practical. That\’s something you often are talking about. So as you start to think about the strategy from let\’s say, 1980 to 2020, I\’ve heard you talk about the game hasn\’t changed, necessarily, but there are…
Roger: Well, we\’re still trying to do the same stuff, Clark, right?
Clark: Trying to do the same stuff.
Roger: I\’m trying to build wealth, I\’m trying to have a secure retirement, I\’m trying to make sure my family is okay and, you know, that I\’m going to get to enjoy life. And that is clearly becoming more and more difficult for people. Lots of socio-economic reasons for that, but at the end of the day, we\’re still trying to do the same thing. But we have to adapt and understand that there are different tools, that the background for markets changed, et cetera, et cetera.
Clark: That\’s good. So as you start to think about what we\’ve learned from the past, even with 2020, and the unprecedented times we\’ve gone through, what do you think we might be able to expect? What are your thoughts right now as we\’re going into the future?
Roger: Well, the things that…you know, I look at valuations are awfully high in a lot of different investment class…investment types, whether it\’s stocks, real estate, those kinds of things. So I would say we\’re looking for value, things that are not overpriced, relative, and you have to change your evaluation parameters because interest rates are higher. And that does make a difference in the equations when figuring out relative value. So avoid the riskier stuff. Our markets have had very strong performance, the strongest probably in the world or just about. So you might want to look at other markets, as far as stocks are concerned. In the world of real estate, look in the niches. There are little spots here and there that still have upside. There are some areas in income properties that are extremely richly valued right now. And I would be very cautious in those areas. If anybody wants to discuss what those areas are, I\’m happy to take your call.
But, you know, if you\’re paying close to record prices for something, you\’re asking for everything to go perfectly, right? So if I\’m overpaying for a building, and we hit a recession, and suddenly my tenants are out of a job, they\’re going to stop paying rent, and the value of my property is going to go down. So when I spend a lot of money to buy an asset, you know, here\’s a stock that has been between $100 and $150 for the last 10 years, and now I go out and I pay $180 for it, I\’m asking for something extraordinary to happen, something that hadn\’t happened before for it to get to $200 or $250. And it might happen, but you\’re asking for a lot of things to go right. So you have to identify what can go wrong, and then make a decision, you know, a judgment as to whether there\’s more probability of right than wrong. Like you said, a little while ago, people have a tendency to overcomplicate this. I know my industry does, because they can charge you more if they make it complicated.
Clark: Sure, it happens.
Roger: That\’s a beautiful thing as far as the industry is concerned. So, you know, I guess to tie all this together, Clark, you know, you\’ve got to make decisions than just sitting there on your hands, doing nothing, leaving everything in cash. If you\’ve got an extraordinary amount of cash, I suppose that could work, you just spend your cash and hope you don\’t run out of money before the account runs out of cash. But in general, you want to have strategies in place that will serve you no matter what happens to interest rates or inflation. If you\’ve got to be able to draw more money, you have to plan for that. That\’s what we\’re doing in income plans right now. I\’m working on three different income plans. And we have a client\’s total expenses covered, but we have significant assets that we\’re growing to be that inflation hedge as well. That\’s got to be built into the plan. So if you\’re gonna make a mistake, make a mistake on the side of caution. I want to make a…kind of, in conclusion, I want clients to understand how important this is, okay? We\’ve talked before about the rule of 72s, right?
Clark: Right. Yeah, we have, but I love hearing you describe the math and the magic behind the math.
Roger: Okay. Well, the rule of 72s is simply a way of if you divide an interest rate into the number 72, it tells you how many years it\’s going to take for your money to double. So if you\’re making 10% on your money, it\’ll take 7.2 years to double. If you\’re making 7.2%, it\’ll take 10 years to double. Follow me?
Clark: Right.
Roger: Okay. So I\’m 30 years old, I start my life of investing. I\’ve been saving since I was a teenager, I stuck money aside in the bank and a piggy bank and bought a few stocks, grandpa gave me some money on my birthdays. And now I\’m 30 years old, I got $100,000 and I invested in a nice mixed portfolio that miraculously earn 7.2%. And over the next decade, my $100,000 becomes $200,000. Now, if at that point, there\’s a 25% correction, I\’m down $50 grand, right? But I\’m 40 years old.
Clark: You\’ve got time.
Roger: [crosstalk 00:25:19.100] 30 to 40, I got time to make up for that. I\’ve still got a paycheck, so my bills are getting paid. And $50,000, well, it\’s never pleasant to lose $50,000, I can make up for that out of wages. I don\’t even have to double down, you know, do the casino thing, I can make it up out of wages. But let\’s ride the same train here from 40 to 50, that $200,000 is now $400,000. And from 50 to 60, that $400,000 is now $800,000. Now I have that same 25% correction, and I\’m out $200,000.
Clark: Oh, my goodness.
Roger: Okay. And I\’m 60 years old, I can\’t make that up on wages and the amount of money I can draw on in retirement. So there\’s a concept that says the longer we\’re in the market, the greater the risk, because the numbers get bigger.
Clark: That makes sense.
Roger: Okay, it\’s the same mathematical loss, but $200 grand at 60 is going to hurt way more than $50 grand at 40. All right.
Clark: That makes sense. I mean, it\’s the early times, or it\’s the later times, depending on where you\’re at, it\’s always a good move to fill out the Thought Organizer, something we often talk about. Really quick, in your own words, what is the Thought Organizer and how can someone fill that out for free today?
Roger: Today, they can go to our website at www.gainerfinancial.com, scroll down to the bottom of the landing page, and there\’s a little button you can click on and download the Thought Organizer. Thought Organizer is a great tool. It\’s to revisit from time to time. If you\’ve done a Thought Organizer four or five years ago, a lot of times, you know, because life evolves, different things are happening in our lives, both in and outside. And so knowing where you stand in relation to the evolution of your personal life, that\’s where this tool can really help. If you have a partner, a significant other, a spouse, you should each fill one of these out separately and then compare answers, a great discussion tool. But this is a tool that helps you understand your why, what\’s the point of all of this? How do I feel about these things? It\’ll help you pick the right tools, the right investment choices, it\’ll help you to understand what your priorities really are. And if you focus on those, generally speaking, everything will take care of itself, and it\’s what I\’ve found over the years. So take advantage of the Thought Organizer and I think it\’ll really help you make those decisions to avoid significant losses.
Clark: Good stuff. Roger, as always, thank you for taking the time and walking us through that. And it\’s really, I think, impressive of you to say not only \”Hey, this is where I was right,\” but also, \”Hey, this is where…\” not only you but a lot of other people did not anticipate, COVID, but…
Roger: Well, we\’re all gonna be wrong sometime. We\’re human. But what I want to make sure is that when we\’re wrong, the damage done is not irreparable.
Clark: That\’s good. Thank you, Roger.
Roger: Thank you, Clark.
Clark: Roger L. Gainer, RICP, ChFC, California Insurance License Number 0754849 is licensed to sell insurance and annuity products in California, Illinois, Arizona, Oregon, Washington State and Georgia. Roger L. Gainer is an investment advisor representative providing advisory services through HFIS, Inc., a registered investment advisor. Gainer Financial and Insurance Services, Inc. is not owned or affiliated with HFIS, Inc., and operates independently. The contents herein are the opinion of the speaker and should not be considered as tax or legal advice. This podcast should not be considered a solicitation for investing or advisory services. Strategies mentioned here are not a recommendation to implement or purchase those products or strategies. You should contact your own advisors as to the appropriateness for your specific situation.
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