The following is the transcript from Episode 18 of Retire Happy with Roger Gainer, a financial and business audio podcast.

Roger: People always are afraid of change. It’s human nature. We’d like things to stay the same, but when we have change and risk goes up, something else happens as well. Opportunities appear.

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. The Federal Reserve recently raised interest rates and if you’re listening, you may be wondering what this means for you. In today’s episode, we’re gonna learn more about what it means to raise interest rates and how it can affect you and your assets. Along the way, we’ll zoom in on three of the main asset classes, bonds, real estate, and stocks, and how this change will affect them individually. For more content like this, be sure to visit gainerfinancial.com. Enjoy the show.

Roger, good to connect with you. I’m really looking forward to our topic today, what the raising of rates by the Feds means to you. How are you?

Roger: Hi. I’m just wonderful. Lots of fun things happening over in our neck of the woods.

Clark: As always, right?

Roger: Yeah. Well, it’s a great area to live in. We have our warts like everybody else, it is expensive. My wife likes to call it the paradise with a price, and there’s no doubt about that. But, you know, just enjoying summertime and all that that has to offer and watching these changes that are happening, and now, being implemented in the tax, and the economic changes and, you know, a couple of weeks ago the Fed came out. Raised interest rates for the second time this year and kind of surprised people and said, “We’re gonna do this twice more.” At least that’s what the indication. You never know for sure until it’s done, so we’re focusing on what all these mean for clients, we’re getting phone calls, interesting spectrum of phone calls I might add.

Clark: Interesting. What’s the quick example.

Roger: Well, quick example, I have one client send me an email about our fiat currency and the coming collapse of our economic system, and shouldn’t I be invested in gold? And I don’t wanna get in the weeds on gold today, but I started out this business as a metals trader, I traded gold, silver, platinum, and copper. I was a commodity trader, that’s how I got my start. Someday we’ll stroll down memory lane…

Clark: I like that idea.

Roger: …and I can tell you all the nightmares of the brokerage world and why I have a great deal of skepticism for the many financial institutions and brokerage houses in particular. So, anyways, I just said to them, you know, “What’s the point of buying gold for you? And if it’s a speculation, it makes sense. If you think we’re gonna enter Armageddon because a few interest rates are going up and stuff like that, in fact, interest rates rising is bad for gold and when we talk about gold I can explain why.” But, you know, I just questioned his thinking and I’ve had other people, you know, panic about refinancing their house or, you know, what stocks should I be selling? Those kinds of questions are coming up. And what we wanna make sure is that people anticipate what might be, you know, the next moves so that you’re ready, you’re light on your feet, you’re prepared, and you’re not gonna get run over. These days, money moves so rapidly around the planet, I mean, trillions of dollars move in fractions of seconds. And because of that, if you think you can react as fast as these massive computers can react, I say good luck to you because you’re probably gonna get run over as the money flow goes. It’s like, there’ll be a flood and you’re gonna be standing there and it’s just gonna run you over like nobody’s business.

So, for most of us, you know, I’m generally here and not speaking to the multibillionaires. We’re speaking to people who, in this day and age, might be comfortable, but decidedly middle class or recently moving out of the middle class into the ranks of the wealthy. But, you know, not the person with $100, $200, $300 million or more. So, for those folks, the people I’m speaking to, you need to anticipate these kinds of things because you don’t have the financial clout to fight them. So, you wanna kind of get brought along with the flow as opposed to being run over by it. Does that make sense, Clark?

Clark: I like that along with the flow. And when you’re talking about anticipating the next moves, and anticipating these kinds of things. There’s really three kinds of things when we’re talking about today, three different asset classes, right? Bond market, the stock market, and real estate. So, before we jump into that, I’m curious when you say the rates are being raised right now by the Feds, how do you explain that to maybe a child or just really simple terms what is really happening? What does that mean? And then let’s jump into those three asset classes.

Roger: Okay, great. That is a great question because most people do not understand what rates when they say on the news, the Federal Reserve raised rates today. They’re raising rates on something called the Fed funds rate. The Federal Reserve organization controls two interest rates, neither of which have much, if any, direct effect on your and my daily life. The first one is that Fed funds rate, the Fed funds rate is the rate at which a bank lends money to another bank overnight. See, at the end of the day, banks have to…it’s called book squaring, and they have to have a certain amount of cash on hand at the close of business and at the close of their books and report everything to the Federal Reserve. If the Fed doesn’t think your books are properly balanced or you don’t have enough cash on hand, that’s when things get dicey.

And then there’s another rate called the discount rate, and the discount rate is the rate at which a bank, a federally chartered bank specifically, can come to the Federal Reserve and borrow money. And there was a time in my career back in the ’80s, when nobody ever wanted to be seen going to the Fed to borrow money, it was considered a sign of weakness and other banks would stop doing business with you. I remember there was a bank called Continental Illinois, it was one of the biggest banks in the country. They got in trouble back in the ’80s with some bad loans in South America, and they were forced to borrow at the discount window. Now, within two years, three years, that bank was gone. You know, they tried to prop it up, it ended up being taken over and it was because its reputation was, you know, messed up.

Flash forward to 2008, and banks were lining up at the discount window to borrow money, the stigma is gone. And the super low rates of the last few years since 2008, you know, has allowed banks to go in and borrow heavily at incredibly low rates from the Federal Reserve under 1%, then turn around and deploy that money in other loans. So, if you’ve been wondering why you can’t get any kind of a yield on a savings account, or a short-term CD, it’s because of that. They’re getting cheaper money from the Fed. Well, that’s starting to dry up and you’re starting to see, you know, CD rates, and savings rates, I’m seeing specials 1%, 1.5%. I’ve even seen some CDs over 2%. They’re teaser rates, they’re not for very long time, but the fact is that things are starting to come back to the general public to raise capital. So, those are the two rates that the Federal Reserve controls and they tend to influence, that’s very important distinction. So, the treasury bond rates are set by the public, by the demand to buy and sell these securities. And so, you know, people look at the federal funds rate or the discount rate as benchmarks and they compare what they can earn elsewhere to those benchmarks. And banks tie some of their lending rates to those rates as well, but very, very few. Usually, they relate to something called the prime rate which is set by banks and each bank has its own prime rate, and again, they use the Federal Reserve rates as a reference point. And then in the broader mortgage market or treasury markets, it’s really supply and demand, and the competitive nature of those markets that sets the rates. But there is an influence based on what the Federal Reserve does.

Clark: Got it. Part of my curiosity is, and its simplest way to think about it comes down to the bank in being able to lend money to other banks, how do you boil it down to like the simplest…explain it to a child.

Roger: Banks have to support each other for the good of the system. And so, in a given day, bank A might lend out more money and bank B might take in more deposits. So, even though they’re separate, they’re part of the system. So bank B who took in more deposits lends money Bank A because they didn’t get those deposits and they lent out more money there by drawing down the amount of money bank A has.

Clark: And right. So, when the Feds, when they change that rate, that’s what’s gonna influence these other asset classes that we’re about to jump into. Is that right?

Roger: Well, yes, because the banks, if I gotta borrow money from…if I’m Bank A and I borrow from Bank B, my loan rates have to reflect the added expense of me borrowing from Bank B at a higher rate. Does that makes sense?

Clark: Right. That is when it will impact your consumers, your users, your customers.

Roger: For the most part, it also is supply and demand driven, so if, you know, there are alternatives that are offering similar characteristics but more favorable terms, then you’ll see rates move. Because what is an interest rate anyways? It’s just the price of money, right?

Clark: That’s the simple way to look at it. I’ve not thought of it. That’s something for interest rate of money.

Roger: Well, if you want…interest rates are the price of money.

Clark: Price of money. Interest rates are the price of money.

Roger: Just the price of money. Yep.

Clark: Well, that’s a great transition to our asset classes, and whichever one you wanna lead with, bond market, the stock market, or real estate, let’s talk about how that transfers into real life.

Roger: Okay. So, I wanna mention real quick, this is a little esoteric, but for some of our more detail-oriented listeners, the other thing that the Federal Reserve is doing right now is they’re right-sizing their balance sheet and without getting too deep into that, they’re selling off investments that they’ve purchased back in 2008 to stabilize the financial markets in the financial system. So, they bought a lot of stuff from the Treasury, they bought stocks they owned at General Motors at one time and things like that. So, they’ve been selling this stuff off, but they hadn’t really sold off the bonds. They’re selling off bonds now, so that will also increase supply which tends to raise the price of a bond interest rate. In other words, lowering the price of the bond raises the interest rate. That make sense?

Clark: Lowering the price of the bond raises the interest rate.

Roger: Right. The value of bonds travels opposite of the rate. So, if an interest rate goes up from five to six, the value of the bond will go down. Okay. See, they’re called fixed interest securities, right? You’ve heard that term before, haven’t you?

Clark: Right.

Roger: Okay. And all that means is our fixed income securities is also a very common name for this, for a bond. So, a bond if I’ve got $100,000 bond, and it’s got a 5% yield when it’s issued, that means it pays $5,000 a year, right?

Clark: Right.

Roger: So, it’s always gonna pay $5,000 a year. That is the thing that is fixed. But if I don’t wanna wait, say it’s a 10-year bond, and I don’t wanna wait 10 years, I need to get my cash back, so I go to sell and now interest rates are 10%, nobody’s gonna buy my 5% bond, right?

Clark: Yeah.

Roger: Not if you can go out and get 10% somewhere else, right?

Clark: Right.

Roger: But I’ll offer 50 cents on the dollar for that bond in other words, that bond still going to pay $5,000, I’ll pay you $50,000 for that bond. And that way I get my 10%. And if you’re desperate enough and you need the cash, you’re gonna sell it because that’s what the bond is worth. So, when interest rates ran up, the cost, the value of the bond went down. And the opposite is true. If interest rates went down to 2.5%, and you had a bond paying five, that $5,000, and I say, “Gee, I’d love to get that 5% bond.” That’s double the interest rate. You’d say, “Yeah, I bet you would.” But I’ll tell you what, you pay me double, you pay me $200,000. And then that $5,000 is 2.5% of that and that’s what you’re buying becomes worth, okay? So, that’s the brief explanation of how values change, but the income does not hence fixed income securities.

So, what does it mean for the bond market? Well, it means that existing bonds will become less valuable. The only time a bond is truly guaranteed is one day, that’s the day it’s matured. That’s the day you get your cash back. In between, if you need liquidity, you gotta find somebody to buy your bond. And so, with rising interest rates, the bonds I already own are not going to be attractive to an investor if I need to sell. So, they’re gonna ask me to give them a discount on my bond from what I paid for it so that their yield is equivalent to the market yield. Now, that sounds like it’s not that big a deal, right? Except most people don’t own bonds individually. So, if you own an individual bond and you hold it to maturity, you’ve got nothing to worry about, right? It’s guaranteed to pay off whatever amount regardless of what you paid for it. So, if I bought it at a discount, it’s gonna pay off a higher number because it’s the number printed on the bond.

So, in our previous example, if I paid $50,000 for that bond, but it was $100,000 bond. When it matures, I’m going to get $100,000. It doesn’t matter what I paid for the bond because that’s what the bond is worth at maturity. So, if you’re gonna hold them to maturity, you enjoy that guarantee. But most people own bonds today, unless you’re an institution, through mutual funds or ETFs, exchange traded funds. And the difference is you lose that guarantee in a bond fund. I’ve written about this a whole bunch of times because I don’t think people really understand it, including some advisors. I see portfolios being set up and I say, “Why do you have all these bonds?” And they say, “Well, I don’t want risk.” And we’ve talked before about nothing’s risky until it is, you know…

Clark: That when you’re Rogerisms.

Roger: Yeah, 1997 there was no risk in tech stocks they just went up. You could buy a sock puppet and make money because it has an eCommerce thing and people thought it was a tech stock. So, it’s the same kind of thing now, but when rising interest rates, if I own a mutual fund full of bonds, I have guaranteed myself a loss in value as rates increase. So, have we added that safety element that you were recommended to go into the bond fund? Did you get the safety you’re looking for? Odds are you didn’t because you will be losing money. Last year we saw people in bond funds lose as much as 15% in some bond funds because interest rates, you know, doubled. And Treasury rates, the 10-year went from 1.35 just before the election in 2016, to up to 2.8, 2.9 on the 10-year late last year and into this year. So, it really got over three there for a little while.

So, when you see that, that means that those bonds mutual funds are taking a beating. And depending on the type of bonds will determine the extent of those losses. Riskier bonds have other issues, things we call high yield or junk bonds, but the interest rate affects them just not as much. The stock market actually has more effect on junk bonds. So, if you own those kinds of assets you may wanna look into alternatives. If I own a bond fund because I wanna reduce the risk in my portfolio, but the bond fund is not going to provide support in a rising interest rate environment, then you wanna replace that. You still need to have the risk reduced in that situation and there are ways and assets that will do that. In fact, I have a recent white paper by a guy named Roger Ibbotson. You might have heard of him, you might not have, but he’s a Nobel Prize winning economist, that is a professor at Yale. And he also has a research group and he was anticipating a few years back that interest rates eventually would have to start going up and did this research paper. In fact, any of our listeners that want a copy, just go to our website and go to the Contact Us page and request a copy of the white paper, and I’m happy to send you an electronic copy. Just say, want the Ibbotson white paper.

Clark: Excellent.

Roger: So, that’s bonds. Positioning yourself so that you won’t get hurt by increasing rates in a bond, particularly a mutual fund, or ETF, or closed-end fund portfolio. You’re not gonna get the shelter from the storm that you were anticipating, at least not near term. Now, if the market crashes, all bets are off because people will still run to the bottom market because that’s how we’ve all been conditioned. Stocks are bad, run the bonds. The interest rates will likely drop during that time period, and thank goodness, they’ve come up so that they have somewhere to drop. I mean, that was one of the prescriptions to get us out of the recession in 2008, and we need to start stockpiling weapons because it’s coming again. And sure as I’m sitting here, I don’t know when, but we don’t have the same weapons, the financial weapons, financial strategies available that we used to have. Again, not for today’s discussion. So, you wanna move on to the next asset class?

Clark: Let’s do it.

Roger: All right. Well, let’s talk about real estate. Real estate has been pretty interesting. Just about all of my clients own real estate one way or the other. They either own a home, or they own investment properties, or they own REITs, or they own private placements, or fractional interest in buildings or the family owns a building. And it’s interesting real estate can be the greatest asset class or your worst nightmare. I bet you, if you interviewed a bunch of people who jumped into real estate in 2003, 2004, 2005, and they think it’s a nightmare because they got run over in 2008. Many people lost everything, very, very sad. But when you dissect what they did, it was how they purchased, how they financed, and how they maintained the financial side of those properties. Not every time, but most times, they heavily contributed to those losses. But when interest rates go up, it makes the cost of buying a property more expensive, very simple.

And if I can get risk-free yields in the bond market, say, I can get a treasury bond that pays me 5%, there isn’t one today, but if rates keep going up there might be one. Owning a building that’s only paying me 3% isn’t going to be nearly as attractive, and 3% to 4% around here are pretty common cap rates than the yield that’s on the value of residential investment, multifamily properties. So, you know, when you can get higher yields with less hassle, that will tend to reduce real estate pricing so that the yield on the real estate itself can now compete and an investor will get compensated for the additional risk. You know, if I buy a bond, I just sit there and collect my checks. If I buy a piece of real estate, I have to keep it painted, and I have to keep the tenants happy, and I have to fix the toilets, and I have to pay the taxes, and I have to review my insurance policy, and I have to put in clients, and at least go collect rents and on and on. So, you know, I should get compensated for all the extra work I have to do and the extra risk I’m taking on.

You know, U.S. Treasury bond, I just know that every 30 days money is gonna show up in my checking account. If I look at a piece of investment property, if my tenant gets laid off and stops paying, not only do I not get my interest, my income, but now I got to incur additional expenses to evict the tenant. So, little different, I believe, if you own real estate, you should get compensated for that. It’s a wonderful asset class, but it’s gonna take a little while for rents and valuations to reorganize themselves relative to the interest rates available. And it’s because of the economic evaluations. On the residential side, if you wanna go buy a home, your pool of buyers will shrink because less people will be able to qualify for a mortgage. Because the mortgage payments are higher on a more expensive, a higher interest rate involved loan.

Clark: So, in other words, if you’re gonna try to sell your house, if you keep waiting, your pool of buyers will shrink, is what you’re saying?

Roger: If rates continue to rise, absolutely.

Clark: And you’re saying, you feel confident they’re gonna continue rising. We’ve already seen the Feds raise the rates.

Roger: There might be a pause and that pause would be if the stock market crashed. A little correction is one thing, a crash is something entirely different. So, you know, if we were to go down 25%, 30%, 40%, you will see people running the bonds and you will see interest rates go back down. By the way, everything that I’m referring to is about change and how we perceive the value of different asset classes. And that changes with a change in interest rates. So, the thing to keep in the back of your mind is don’t fear this. People always are afraid of change. It’s human nature. We like things to stay the same, nice and comfy, you know, I like to get up at the same time every day, eat the same kinds of foods and, you know, there’s a lot of biological reasons we like to keep things the same, the body is happy and, you know, change is a little unnerving for many, many folks.

So, that’s why the panic sets in and that’s why markets get roiled. So, change can also modify risk, but when we have change and risk goes up, something else happens as well. Opportunities appear. So, if you can stay calm while all others around you are losing their mind, and you spend this time raising cash, taking profits from profitable investments and positioning yourself for what I can’t imagine not happening in the next two, three years, maybe sooner, which is a major correction in stocks and/or real estate, now people that are ready, people that have cash, these are folks that are gonna make out like bandits. We’ve talked previously about not always being in certain markets and the cash is king. And I think you’re gonna see that coming up here in the not too distant future for those who are patient and keep their wits about them.

So, we’ve been spending a lot of our time the last two years raising cash and creating efficient strategies for cash where you’re not stuck not making, you know, but a half a percent, but you’re making more like 3% to 5% while you’re waiting for those opportunities. So, you know, in the real estate market and what’s so critical here is people get emotional over single family homes. If I’m gonna move into a house, it’s not just an economic decision, it’s not just a financial decision, it is an emotional decision. And people make buying decisions emotionally. I love it. I hate it, you know. And then they work out the numbers later to make it work. I really, really want that house. I really want that house. How can we make that happen? I hear that kind of stuff all the time. In fact, I’ve had two different clients lose out on properties they really wanted that they were gonna maybe spend a little more than they were comfortable just in the last month.

And I’d like to think that me showing them how to make sure that they’re not hurting themselves with these purchases contributed to them not overbidding for some of these things. Because that’s where I see people getting into trouble. You overpay, you don’t get your financing right, and you don’t have the supporting investments and liquidity necessary to keep your home ownership safe. And we could devote a whole session to that, maybe we will. To just how to manage your house as an asset.

Clark: The final question I’ve got for you is the strategy that you’re talking about, anticipating a course direction that will impact these different asset classes. So, raising cash, what do you do with that cash while you’re waiting patiently?

Roger: Well, it really depends. Some people have places that they can stick cash that they don’t even know they can stick cash. So, I don’t like to get too strategy specific in these…

Clark: You’ve got options and it depends, is what you’re saying.

Roger: Yes, you know, it’s all I can tell you. There’s some pretty simple stuff.

Clark: Because everyone is different.

Roger: Yeah, everyone’s different, and markets, and availabilities change. Time horizons, if you wanna park your cash for just a couple of months, it’s one thing. Then yield isn’t so important, access is. If you’ve got maybe a year, two, three, time horizon for that cash, well, then access isn’t important and we can take advantage of the time horizon and get a better yield. So, like I said, it depends, but there are a variety of cash-based options available. But we didn’t talk, while we have a couple of minutes, we didn’t talk about the stock market and rising interest rates. Because stocks, you know, that’s a big concern for everybody. There’s a historical belief that stocks only go up when interest rates are low. But we can look at history to be our guide and see that stocks adjust. You know, everything is relative. if interest rates for borrowing go up, interest rates on savings goes up.

You know, back in 1980, when the rates got up to 18%, prime rates got into the teens. I bought a triple-A rated municipal bond from the Ukiah School Districts, rated triple-A, and got 14.5%. So, that was pretty cool, double tax free. The same year, some goofball totaled my car. My car was parked in a parking lot, and the guy went berserk in a parking lot, just started smashing cars and I had to buy a new car because I had to get to work and I didn’t have the money to pay cash, so I got a four-year car loan at 14%. I actually paid it off. I don’t think too many people will be flocking to the dealership today at 14%, yet the dealership I went to was pretty busy. So, it’s all relative, is what I’m trying to get at. There’ll be winners and losers that hence opportunities. So, certain industries that borrow a lot like the oil industry is very, very capital intensive, is what they call it. They got to buy a lot of equipment, the construction business.

And anything where you’re carrying a lot of tangible things, retailers that have to go to a factor in finance their inventory on the floor, or a reset a mortgage, it will squeeze margins and certain businesses will not be able to thrive in a higher interest rate environment. And other types of stocks, it’s not gonna bother them very much. You know, tech companies that are flush with cash, they’ll get to earn more cash on their cash. And they’ll just use that cash instead of borrowing. You know, you look at Apple over the last eight or nine years, and they’ve gone and borrowed billions of dollars, even though they had billions of dollars in cash, because they were borrowing at such incredibly low rates, it just made sense for them to keep that cash. They understand the importance of cash. And so, you know, it’s gonna change stock valuations. It always does, but it doesn’t mean we can’t have market rallies. In fact, if we go back to 1949, on February of 1949, the Dow Jones Industrial Average was all the way down at 174, and interest rates were in the twos. Flashforward in 1966, and interest rates were in the mid fours, so almost double.

And in April of 1966, we hit, for then, an all-time high of 995 on the Dow Jones Industrial Average. So, we went from 174 all the way up to 995. That’s a big, big, big move. That’s almost 500% increase in the value of the Dow Jones average in 17 years. That’s kind of comparable to these days. Of course, that was the post-war boom, and there was a lot of demand for capital and that was driving up those interest rates. So, it’s not, you know, gee, we can’t make money in stocks. It means that short-term, there might be a lot of blood in stocks as this continues, and so far it’s been nice and orderly. We haven’t had any panic increases or stuff by the Federal Reserve. So, you know, it’s kind of like a slow-moving storm, it leaves a lot of rain, but it gives you time and you see it on the horizon to take cover and, you know, batten down the hatches as it were.

So, you can wait like most people will and they will procrastinate, sit on their hands, do nothing and then act surprised when all hell breaks loose, or you can start incrementally preparing for what is, I believe, inevitable. The market has always gone up and down, we have not suspended the laws of physics. Gravity still sucks. You know, things go down a lot faster than they go up. This is one of the reasons that bear markets don’t last as long as bull markets. You know, we can knock 60% of the value off of stocks in a mere 18 to 24 months to rebuild that to double the stock market can take years. So, that’s, you know, I think of it like buildings, you know, takes years to build a building and it takes seconds to knock that thing down. You’ve watched them implode a building, haven’t you?

Clark: Oh, yeah, definitely. That’s a good analogy.

Roger: Everything works that way. Gravity pulls you down and so, it always takes longer. It’s always harder to build than it is to lose. We read stories about people, spent their life building wealth and then they got scammed out of it. Nothing flat. And I know that’s horrible. But it’s is a fact of life. That’s why we do this, Clark. We’re doing this to hopefully get people to think and take actions to prevent those kinds of tragedies. And they’re tragedies, they’re personal tragedies. It’s not, you know, a national tragedy if you lose your stock portfolio, or if your house loses half of its value, but it is a personal tragedy, and that’s really where the rubber meets the road.

Clark: Well, now you’re just saying a few moments ago, is all of this is dependent on your individual situation and something we always want to make sure to mention, a free resource. I know you’ve already given away one resource on this, but you’ve got the thought organizer. So, real quick, what is the thought organizer and how is that a resource one can activate today?

Roger: Well, today you can go to our website at www.gainerfinancial.com and at the bottom of the first page, the homepage, is a little pop-up that you can download your own copy of the thought organizer today. It is a tool that we’ve refined over the years and continue to, in fact, thinking about ways to make it…we’re always thinking about ways to make it better. It’s simply designed for you to get in touch with who you are, what you wanna accomplish, and what are your priorities. And what are the things that keep you up at night? Because your plan should avoid those kinds of things. So, it’s designed for you to know what’s the point of going through the hassles of wealth building. And it’s also to make sure that help you identify strategies and assets that you’re comfortable with, or that you and your spouse are comfortable with.

And finally, if you’re married or have a significant other, I urge you to fill those out separately in different rooms, don’t peek and then get back together and compare the answers. When I start with a married couple, that’s the entire first meeting, is we go over each of their thought organizers and we reconcile it, so that they have a unified vision of what they’re trying to accomplish. It’s never ever too soon to take that step and figure out what it’s all about.

Clark: Good stuff. Roger, as always thanks so much for sharing, giving us some great stories and examples. I think we were saying earlier that it was the Gainerisms, all the different examples, I always love your analogies. So, until next time, I’m looking forward to one of our future chats.

Roger: Excellent. All right, Clark, thanks again. And we’ll talk soon.

Clark: Thanks so much for listening to this episode of “Retire Happy.” Be sure to head on over to gainerfinancial.com, download your thought organizer to get started. Roger L. Gainer, ChFC, California insurance license number 0754849 is licensed to sell insurance and annuity products in California, Illinois, Arizona, Pennsylvania, and New York. 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. Thanks again so much and we’ll see you next time.

The following is the transcript from Episode 16 of Retire Happy with Roger Gainer, a financial and business audio podcast.

Roger: I saw an estimate that over 10% of all the emails being sent, are virused. So, you know, it’s so hard to take the time, but just make it a habit, folks, because you don’t wanna go through this. Believe me.

Clark: You’re listening to “Retire Happy” with Roger Gainer, President of Gainer Financial and Insurance Services, Inc. The Equifax breach that occurred at the end of 2017, put millions of Americans finances at risk. With that in mind, in today’s episode, we’re taking a short trip in time back to see what has happened since that breach. Along the way, we’ll cover the multitude of threats to your identity that are out there, as well as the different steps that you can take to keep your family and finances safe. Thanks for joining us. I’m your host Clark Buckner. Let’s jump right in.

Clark: Roger, welcome back. I’m really looking forward to chatting with you today. First of all, how are you doing?

Roger: Doing great. It’s a new year, new opportunities, a chance to make up for things that weren’t maybe to my happiness or satisfaction last year and take stock. I love this time of the year. Thanks for asking.

Clark: It is. Yeah. Happy new year and no matter when someone listens to this, whether it’s the beginning of a New Year, mid-year, end of the year, whenever, there’s always actionable insights that we get from you during these sessions. So, I know we’ve talked about this and previous folks who have heard you talk about the Equifax hack, the breach, I mean, its worldwide news and something I think we should definitely continue the dialogue on is taking a look at the late 2017 Equifax breach. But what’s happened since then, and as we’re thinking about what’s happened since then, some of the threats to continue to watch out for because that’s the ones building for retirement, you don’t wanna be dealing with the previous scams and the problems that come from those that we’ve talked about before. So, that’s the kind of to set the stage.

Roger: Yeah. Okay. Well, you’re right. You’re saving money for your own personal financial security, for while you’re working, sending the kids to college, something goes wrong, you have an accident, whatever, or you get your retirement, now you’ve got to live on these assets and you sure didn’t spend all the time saving and accumulating and strategizing just to have some thief swoop in and take what you worked so hard for. So, when I do financial planning with clients, we talk about how we’re gonna build a castle for you. And in the Middle Ages, they were really smart when they were gonna build a castle.

The first thing they built was the moat. They wanted to protect the castle from invaders. And so we always talk about protection. Yeah, exactly. Then what’s the point of building something if you make it too easy to take away, you know, here in the San Francisco Bay area while in the city of San Francisco right now it is an absolute crime wave of people breaking car windows and parked cars and stealing whatever is sitting in the back seat. So, it seems logical. Don’t leave anything in the backseat, but it happens all the time. You’re in a hurry, you threw your briefcase or a bag back there because you’re shopping, and you throw it back there and you come back and there’s broken glass on the street and you go, “Darn, I had no idea this would happen.”

Well, you made it easy for them. So, you became a target and it’s unfortunate. And all the time and effort you went into shopping for whatever that was and the money involved and the time and all that. That’s gone. Somebody just came and in a matter of seconds, it’s gone. So, you know, it only took a few seconds more to put it in the trunk than to throw it in the back seat. So, it’s the same kind of thing when we’re looking at the big picture of our financial affairs and in our planning, what we’re building, we have to protect. And that used to be things like a lawsuit protection and taxes and things like that. And there’s still all areas that we have concerns with sure, but now we’ve got these identity thieves, and it’s so much easier for people to take your identity and then take money in your name instead of their own because really, very few of these folks get caught.

So, if you call up the police department and you say, “Hey, my identity was stolen and now they got $100,000 out of my bank account.” The police will be very sympathetic, but there’s not a whole lot they could do. So, we’re all kind of on our own in this Wild West world of internet and online banking and shopping and the digital money. I go to the gas station and they don’t take cash anymore. They also don’t take credit cards. So, what does that leave me? It leaves me with my ATM card. Well, the gas station near my house, which happens to have the lowest price gas anywhere in Northern California, I’m gonna shop there because I save 10, 20 cents a gallon minimum. But they don’t…and they only take my ATM card.

So, I’m always worried about skimmers coming in and stealing my information. So, I take a little extra time. I make sure I’m not in a hurry and I look over the card reader, you know, the little slot you put your card into and see if anything looks unusual if they put a skimmer in there, or if somebody as I walk right up very close when I put in my pin number because somebody might be looking over my shoulder, or sometimes they even put little cameras. We’ve talked about this before, Clark.

They put little cameras up underneath the finger guard that’s supposed to be keeping people from seeing what you’re doing. And so these are just everyday little things. It takes only a few minutes. I have all kinds of folks I know that they say, “I don’t want credit so I’m gonna do everything with my ATM card because it’s a VISA too. So, I shop online and all this other stuff.” And we’ve talked about how it’s just an extra layer of protection when you’re shopping in those situations to use the bank’s money instead of your own because if something negative happens, at least you’re not out your money while they’re straightening out whether you were hacked or ripped off or robbed, et cetera.

But the things that this time of the year, particularly, this year if you’ve been watching the news or reading the paper, you know that we’ve had quite a few natural disasters, not just here in California but all over the country in the last six, eight months. The floods in Houston. Everything’s freezing in the south right now, which is causing all kinds of problems. The flooding and the hurricanes in Florida and Puerto Rico and the fires in northern and southern California. And now we have mudslides.

And whenever this kind of stuff happens, you get scams come in, in the aftermath, you get phony contractors that are coming in, “Just give me a deposit and I’ll secure and schedule you.” And then they disappear and there’s things that we’ve talked about in other podcasts about making sure you have cash in the bank is sharing your risk in terms of how we arrange your mortgages and things like that so that you can’t be devastated by one of these natural disasters.

But we’re reading the articles now. Here we are, months down the road and some people are still waiting for insurance adjusters and FEMA and these other things to happen. And so you get a little impatient. Somebody comes along and says, “Hey, give me a few thousand bucks and I can grease the skids for ya and we can get this done.” And you’re so desperate you go, “Sure.” So, things like phony contractors, service providers, et cetera. So, today, because things are so busy, it’s hard to take the time to slow down and make sure you’re dealing with legitimate people and legitimate strategies and that sort of thing. So, and then here we are at the start of the year and everybody’s mind is turning to taxes, right? Aren’t you thinking about your taxes?

Clark: Yes.

Roger: So, gotta file them soon. You’re either gonna get a refund or pay, but we all know that April 15th is looming because of tax reform this year that happened just a few weeks back in December. Every tax advisor and tax preparer that I know is already just slammed right now. This is gonna be a very difficult tax season for those folks because of all the changes and how late they happened. And it’s gonna make planning even more critical this year. But it also means that we’re gonna see more scams. So, things to remember is the IRS is never gonna pick up the phone and call you and tell you, you owe money.

They’re never gonna take a credit card number over the phone unless you initiate the phone call. And any emails you get from social security or the bank or any this IRS, that’s not how these institutions reach out to people. So do not respond. Don’t click on any links and don’t call their 800 number if you wanna find out if it’s legitimate, because some of them are. You go look up the number for whoever theoretically sent that to you and you call them independently and say, “Hey, did you send out an email?” Because they’ll know. But if you call, obviously, if you call the number on that email, they’re gonna answer that email and say, “Of course, that’s legitimate.”

So, you need to do a little bit of work. The other tip is when you see these emails. I get probably half a dozen of these a day where it says…it came from somebody but when I look in the header on the email, the email address is actually from someone else. It’s not from either the person or the entity name. And there’s just a few letters been changed. This has become a really big deal. A big scam. And so before you click on these things on Google or Yahoo or whatever search engine you’d like to use, look at that address very, very carefully because this is where a lot of scams come from.

One of my relatives, last fall, I wrote about this in a blog post. They wanted to buy a honey baked ham from the honey baked ham store for Christmas. And have it shipped out, that’s the only one for them. And so she was in a hurry and typed in, “Honey baked ham store” and misspelled it. So, there was a…said “honey baked hams” but the address was actually a couple of letters off.

So, I think of like if you wanted to type in Google and you put in three o’s in Google, somebody has bought that web address. That G-O-O-O-G-L- E.com or.net or you know. So, people buy what are…

Clark: Variations.

Roger: Variations that are common mistakes. And so when you go, what happened to this relative, they ended up on a website and tried to place the order. They put in all the information, it looked legitimate, they put in credit card information and then they got an error message that said, “The website cannot accept your order at this time, call this 800 number to complete your transaction.” And she called the 800 number and before she said, “Before I knew it, I’d paid $89 for a bunch of stuff I didn’t want and I still hadn’t ordered a ham.” And the guy said, “Well, that’s too bad. We’ve already charged your credit card. Ha, ha, ha ha on you.” Then she was able to get to the bank fast enough. The charge hadn’t cleared. So, she put a stop on that and she didn’t get hurt, but it was only because she got suspicious and asked a question instead of she was already down the road and these people have her personal information.

Now, we’ll have to see how this all plays out. But I’ve been warning people about this stuff for years, but this year, more than ever, you’re seeing your email box filled up with these they’re called “phishing scams”, P-H-I-S-H-I-N-G and what they’re doing is they’re just baiting a hook and drop it in the water and obviously, people are clicking on these things or responding to these things because they wouldn’t keep sending so many more of them.

I saw an estimate about a month ago that over 10% of all the emails being sent our virused and that’s something like 20% of all the emails are more than done. It’s closer to 40% of emails are either advertising spam of some sort. So, you have a high percentage of those. And then a very significant percentage of those advertising messages are disease, virused or otherwise could compromise your identity or other stuff. So, it’s so hard to take the time, but just make it a habit, folks. Because you don’t wanna go through this. Believe me.

Clark: I know earlier we were talking a little bit about how this is a new year and although this is recorded after the new year, after the 2018 year has begun, this is all good advice anytime in the year, but you were saying a moment ago, you really liked this time of year when you can kind of catch your breath. You’re thinking about what’s next, how do you normally recommend the people you work with to gain that perspective to think about what is next for them in their lives? Whether it’s a new year, a new way to think about saving and building a retirement that towards their retirement. Any thoughts on that?

Roger: Well, it’s always a good time to start planning or to continue or to improve your planning. There’s never a bad time to do that because the longer you wait, the longer you are doing what you’re currently doing and that might be costing you money or in ways that you don’t even know or maybe you could do better or work more efficiently. So, there is a value to time and to taking care of stuff now. Whenever now happens to be for you. Why I like this time of the year? Come into December, you’ve got the holidays, you talk to family and friends. There’s something just about the New Year where we’re renewed, we’re refreshed. It’s a great milepost. The whole tradition of New Year’s resolutions. I just read yesterday that that was the day yesterday was the day that 90% of all New Year’s resolutions are broken. We don’t want to be breaking these. So yeah, the 17th of January is the day that most people have broken their new year’s resolutions by.

But there’s something about this time of the year, we’re not outside running around, enjoying the great outdoors. The days are a little shorter, the weather is in its [inaudible 00:17:01] if you tell me it was cold and snowing today where you at, Clark, and I’ve been talking to people all across the country. It’s a pretty miserable day out there, but that makes it a really great time to sit down with a nice cup of tea or a glass of wine, a brandy and sit down with yourself, with significant people in your life who are affected by financial decisions and just take stock. Look back over 2017. Look back over the last year. And did you make the progress you were hoping to make? What could have been better? What could have been worse? It’s a wonderful time to look back and see if you’re happy with your progress and if you are, how can we build on that? And if you’re not, what do we have to change?

So, it’s a good time to look forward. Take stock of what’s just happened, and then in the coming year, make it even better. That’s a beautiful thing about the time we live in and where we live. We have the ability to make things better for ourselves. It’s easy to complain and wish it were better, but really small steps can have huge ramifications, especially at this time of the year. One of the things that highlighted the last quarter was tax reform. Do you remember that?

Clark: Yeah. Big dialogue.

Roger: Yeah. They dialogue. Dominated the news. A lot of crazy stuff but they got “tax overhaul done.” And these tax changes are gonna be really great for some people and for other people, it’s gonna be really horrible. And so it makes this tax season even more important than most in recent memory, because you really wanna sit down with somebody now, not in October or not because I couldn’t get around to it by April 15th. So, I filed my extension and I’m just ignoring what’s happening under the new tax code, but there are moves. We’re gonna be sitting down with our folks, our tax consultant here pretty soon to think if we wanna reorganize our business because of the tax act. Do we wanna change the type of corporation we are? It could possibly save us tens of thousands of dollars. I don’t know yet.

This thing happened so quickly and was passed so hurriedly that even if people had voted on it will tell you, they didn’t know what was in it. So, we’re just finding out these things. The rules are coming out the study of the nuance in here so we can find out where are the loopholes? Frankly, there’s always gonna be loopholes and anything that’s pushed through this quickly. So, you don’t wanna get run over by it and if there’s an opportunity for you to pay less taxes or make more money without adding risk, wouldn’t you wanna have that stuff?

Clark: Mh-hmm. Well, I really like how you were saying all in all, now is a really good time to be thinking about the past, reflection on the past and also it’s a good time to be thinking forward. So, a great tool that we always like to wrap up these conversations with is a thought organizer. So, tell me why is a thought organizer, especially helpful if you’re thinking about the future?

Roger: Well, I’ll just give an example from today. I had two new clients come in or potential clients I should call them. And we…that’s the first step that they take one before they meet with me for the very first time. And with one of them, it helped her to really understand where she was around a piece of rental property, was a problem she was coming in to really talk to me about.

But there were other things that came out through her filling out the thought organizer and she said, “I just really…stuff wasn’t on my radar screen. So, now I have all this food for thought, but I’m excited. I’m 62 years old and I wanna retire here in a few years. And all I could look at was that I had still had student debt. “It’s really unusual to have student debt when you’re approaching retirement, but it’s becoming less unusual these days. Unfortunately, because if you go to grad school, a lot of people are, they have six figures in debt and it becomes brutal to try to create a retirement for yourself and to deal with that debt.

So, even though that was her second biggest problem, there were other things standing in the way, and she was just focused on that. But by taking a step back through the use and the completion of the thought organizer, she looked at me, she said, “I hadn’t ever thought about these things, but I can see where if I do X, Y and Z, it’ll take care of this and I’ll be in this better position.” So, that’s really what the thought organizer. It’s like taking stock. It’s just designed to get you to think and think about am I on track? It’s kinda fun to do it from time to time. I sat down and my wife and I did it last year. We hadn’t done it for about four or five years and it was very insightful to see A, how our answers had changed since the last time we did it and how our priorities had changed. We’re a little older and the kids are a little older and the situation is different.

So, what our priorities are while still basically the same, it’s allowed us to some insight to make those little bit of changes to keep us on track to where we wanna be.

Clark: It’s a great place I think to start wrapping up. It makes sense. And even for someone who is as organized as you, it’s what I’m hearing is it’s still important to take time to think about what the future holds. What a concept. But hey, that’s all. I answered all the questions I had. So, in order to get the thought organizer, how would you direct someone to do that?

Roger: Go to www.gainerfinancial.com. And scroll down the bottom of the page and you’ll see this little thing bob in there and you click on it and follow the prompts. It’ll tell you what to do to download the “thought organizer” And at the same time if you wanna subscribe to our newsletter, you can do that too. But the “thought organizer” I just want as many people as possible to take advantage of that tool and to gain the clarity that comes through taking stock of your situation.

Clark: Thank you very much, Roger. I look forward to talking to you soon.

Roger: All right, Clark. Thanks again. Always great talking with you.

Clark: Thanks so much for listening to this episode of “Retire Happy.” Be sure to head on over to gainerfinancial.com to download your thought organizer to get started. Roger L. Gainer, CHFC California Insurance license number 0754849 is licensed to sell insurance and annuity products in California, Illinois, Arizona, Pennsylvania and New York. 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. Thanks again so much and we’ll see you next time on “Retire Happy.”

The following is the transcript from Episode 15 of Retire Happy with Roger Gainer, a financial and business audio podcast.

Clark: Risk is present all the time and the difference in my experience between people who are successful and people who are not is how they approach and manage those risks. You’re listening to Retire Happy with Roger Gainer, President of Gainer Financial and Insurance Services Inc. Risk is everywhere. So how do you respond to risk? How will you protect your investments? In this episode, Roger walks us through the different types of risk, and a few tools on how you can better navigate all the things we’re taught in the marketplace of what we should and shouldn’t do. He also offers some of his best practices on how to establish a logical approach to maneuver through risky and uncertain times. Thanks for joining us. I’m your host, Clark Buckner. Let’s jump in.

Roger, great to have you back on the call. I can’t wait to talk about today’s topic. It’s all about risk. So first, how are you doing?

Roger: I’m doing great. We’re getting a little rain around here. Thank goodness. So maybe we’ll have good crops and otherwise, we’ve had some new additions to the Gainer Financial family, and we’re very excited about having those folks on board and watching them develop. So yeah, positive stuff.

Clark: Excellent. Well, today’s topic is all about risk. And I’ve heard you talk about risk before, but I’m really eager to hear really zooming in what it is, what it isn’t, why some people, some of your clients, people you interact with, why some people just have a hard time with it and how it can really paralyze them and control them, but in the other breath, how some people can conquer that and not let it, you know, keep them from finding success and being able to retire happy. So how about we just start off with talking about generally what is risk in your words? How do you describe that?

Roger: Well, risk, as defined by most folks today, is the risk of loss. Now this can be a loss in an investment, this can be a loss, your house burns down, those poor folks up in Sonoma and Napa counties with all the fires and then down in Southern California, you know, that was a risk that hopefully most of them, I know not all of them, plan for and had a strategy in place. Anything that can upset the applecart of your life, is those are the risks to things working out the way you planned or the way you hoped or the way you, you know, would have preferred. So it’s those things that get in the way. I like to say that life is messy and we can’t predict where it’s coming from.

And when we go through risk management discussions with clients, the first thing we’re trying to determine is what risks can you accept and manage on your own, and what risks do we want to hedge, if you will. So that’s usually the first line of risk management of that nature is insurance, your homeowners insurance, your car insurance, your health insurance, disability insurance, long-term care insurance. Those are risk management tools. But when we start going through the list of different kinds of insurance products and insurance policies, people start rolling their eyes and they say, “I’m insurance poor. I write so much premium checks, so many premium checks. It just drives me crazy how much money I give to insurance companies.” You ever feel that way, Clark?

Clark: Yeah, yeah, I can relate to what you’re saying.

Roger: I have an insurance license and I feel that way. So I can’t imagine somebody else not feeling that way. So what I mean by the previous statement is we want to change the relationship with insurance companies. That’s a starting point in almost every engagement. And we determine where insurance fits, because I used to carry a book around that had a picture of a castle, and back in the Middle Ages when they build castles, they didn’t start with the castle. The first thing they built was the moat, and then the second thing they built was the wall, and then inside of that is where they built their castle. That’s where the valuable stuff, you know, was brought in because they could protect it.

That picture used to remind me that if we’re gonna build wealth, if we’re gonna build a future, if we’re gonna build a lifestyle, we better protected, otherwise someone’s going to come and take it from us. That’s the nature of the world today. Now, it isn’t like the Middle Ages where, you know, guys on horses with spears and bows and arrows come McAllen and swords. Today that can be, you know, another driver fire. It can be a market manipulation, it can be, you know, any one of a number of things. And so we have to evaluate those things, because I don’t wanna make a plan for somebody that’s so delicate if one thing goes wrong, the whole plan falls apart. Yeah, that’s the way most people’s plans are when I first sit down with them. Any one thing, a market correction, a lawsuit, losing a job, can destroy their entire financial security.

Clark: So you’re talking about where it fits. When do you think about what doesn’t fit? Is that part of the thought organizer? How does that all fit together?

Roger: It’s part of the thought organizer in that, you know, we want to understand what you’re feeling is about certain kinds of risk. Because like I started with risk is everywhere, but how we deal with it can either end up with us being a victim of that risk or benefiting from it. Another synonym for me in a lot of risks is opportunity, especially when we’re talking about markets, investments, and those kinds of things. You know, when the appearance of risk is ratcheted up, usually that’s when there’s money to be made. Think back to 2008 and…by 2009 nobody wanted to be in the stock market. I mean, I talked to people, said, you know, “Hey, look at how far down it is. You know, we may not be at the bottom, but we sure got to be a lot closer than we were in a year and a half ago.” Most people could not accept an investment in stocks at that point, yet in retrospect that was one of the safest times to buy stocks really in the last 25 years.

Clark: Interesting. At so one glance something may seem really risky, but in fact, it can actually be safe. So what does that say about how we look at opportunities that may be “risky”? And how do you start to think about changing your lens, so what you do see is closer to reality versus something that is skewed out of fear?

Roger: Well, you know, we’ve talked a lot about…you even brought it up just a few minutes ago, the thought organizer. When you understand what your objectives are then you can determine and ask yourself, “Does this risk serve my purpose? Is this going to move me ahead if I take this activity?” So sometimes risk management is defensive and sometimes it’s offensive. It was offensive for people to buy houses, foreclosed properties back in in 2008 and 2009, but it was a hard thing to do. See, we have to understand our personal emotions and how that determines what risk really is. I would put it to you that in 2005, there was zero risk in residential real estate. Didn’t matter where you bought it, didn’t matter what part of the country, and pretty much didn’t matter what you paid for.

Houses just were going up in value and that was that. So people just bought indiscriminately. They didn’t really think about what they were buying, and they didn’t really concern themselves with price because they had to get in. That’s FoMO, the fear of missing out. And that can make us take risks that we didn’t really thoroughly appreciate. But, you know, even though we were all cocky and confident in the future of those prices for residential real estate, we know what happened in 2007 and it was pretty ugly, because there is no risk until there is. There was no risk in 1998. You could have bought anything with a dot com, anything that said tech company on it. There was a company that basically their only product was a sock puppet and their stock went insane. They were delivering dog food, for God’s sakes.

They were spending more on UPS shipping than they were on the dog food itself, and they had free delivery. Needless to say, it didn’t last very long. But if you bought that company in in 1997, it went up because there was no risk. Everybody said, “This time it’s different.” Anytime you hear those words, your little radar should go and start flashing. This time it’s different. We’ve been hearing that now with all kinds of markets. You know, this time it’s different. Gold’s gonna go to $3,000. This time it’s different. The stock market’s gonna end up at 30,000. You know, we do need corrections. Well, the more things change, the more they seem to stay the same. And if you don’t learn from history, you’re gonna be swallowed by it, frankly.

Clark: This time it’s different. And you find people that’s what they’re telling you, and that’s what… Like when people come to you, what kind of…I shouldn’t use word “baggage,” but when you meet with potential new clients, and what are the kinds of things that they bring that maybe they need to get over first? You talk about the emotional fear people have, all of that.

Roger: Well, there’s a belief system. You know. Wall Street particularly is one of the greatest marketing organizations ever put together. They have people believing that the only place to be, the only place you can make money today, in the long run, is in the stock market. Yet most wealthy folks in this country, most folks that are on the Forbes 500 list or the Inc. 1000 list or whatever list of incredibly rich people that you wanna look at, they made their money in one of two ways. They started a business or they invested in real estate. There’s not a whole lot of folks, unless they started a brokerage firm like Charles Schwab or something like that, that made their fortunes in the stock market.

Usually, then there are few, but it’s like how many people make their fortunes in casinos playing poker? There’s a few, but most people can’t cut that mustard, right? They’re gonna get swallowed up in the world of professional poker, because of all the same reasons they get swallowed up in the stock market. Emotions, taking chances that they don’t understand. That’s a great segue actually. The great poker players, they understand how to manage risk. They either manage it through good money management when they’re betting and know when to hold them, know when to fold them kind of a thing. They don’t stay in every pot. They decide when it makes sense to, you know, call and raise and when it makes sense to just stay on the sideline and live for another day.

And I would put it to you that people of wealth, they get this. They understand that you got to take risk but take it on your terms, take it when you fully understand that risk and, you know, and then take bold action with discipline and objectives and stick to your discipline. Now that’s very hard for most people because we are encouraged not to live that way. We’re hit with over 100,000 marketing messages every day, whether it’s eating a better bowl of ice cream or driving a nicer car. You know, these are all roadblocks to clear thinking. So we’ve been taught strategies by Wall Street to just accept the risk, because heck it’s time in the market instead of timing the market. You ever hear that one?

Clark: No. That’s a new one for me.

Roger: Okay. Well, Wall Street would have you believe that it is important for you to stay in and never sell your investments, because if you sell your investments you might miss one of the 10 best performing days and that’s when most of the market gains are made, is on those days. Now, mathematically, there is some truth to that. I have a little chart here that says, if you go on December 31, 1927 and put $1 in the S&P 500 that in 2015 that $1 would have grown to $11,000 and change, so 11,000% return. That’s very impressive. And if you’d missed the 10 best days, you would have had only a gain of about 380%. So that is a significant downside.

However, this particular study went on to look at the other side of that coin. This is the part that Wall Street doesn’t have you look again. What if you miss the 10 worst days? If you missed the 10 worst days in that time frame, your rate of return would increase to 37,000%, not 11,000%, 33 times better performance by just missing the 10 worst days in market history. And interestingly enough, if you missed the 10 best and the 10 worst, your returns would still increase overstaying invested. So it just shows you the weight of losses yet people… I hear it all the time, “I have to stay invested. I have to stay invested. I have to accept risk.”

I just got an email from a client yesterday, who said she went in to talk to her people at Charles Schwab, and they insist she has to be in bond funds. And I explained to her the risks of bond funds today, they’re much riskier than what the reward is. So, you know, to me it’s just not a good deal right now. And she was told by Schwab, “We have no other way to de-risk a portfolio than to use bond mutual funds.” And it’s bond mutual funds that have a lot of risk at this point in the interest rate cycle, at this point in the bond issuance cycle. And this isn’t a call a podcast about the bond market, but there’s a tremendous amount of risk in the bond market. Many people think that that’s gonna be the trigger for the next 50% correction.

Clark: Very interesting. Man, so to zoom out and…

Roger: I didn’t mean to catch you speechless there.

Clark: I’m trying to keep up. I’m taking lots of notes here. So as we’re thinking about really taking a different look at what risk is. We’ve talked about some of the ways that you’ve seen people try to overcome those roadblocks to clear thinking, the other like we’re seeing just unbelievably high amounts of marketing and advertising every day telling us, “You should do this. You should do that.” And you gave this phrase, “Stick to your discipline.” So one of the final questions I wanna be talking with you about is I know earlier we talked about the thought organizer, and for anyone who’s not familiar with that please explain it. But then how can you start to stick to the right kind of discipline? How do you go through those practices, I suppose, to find a better discipline and then be able to stick to that and be confident that you are in the right discipline?

Roger: Okay. Well, the first and I would say most important advisor that you have is your gut. Okay. If something doesn’t feel right, ask more questions, ask lots more questions. And if you don’t like the answers, get up and walk out, move on. There’s a lot of options. There’s way more options in… I like to say I have a bigger toolbox than Fidelity or Charles Schwab, just because we work with all kinds of tools and not just stocks and bonds. And it’s really selecting those tools that are gonna serve whether it’s your discipline or your vision, it’s that vision that really creates the discipline. And if I can’t be comfortable with what my money is in if it’s keeping me up at night, I’m not gonna be clear thinking, I’m gonna be nervous.

I talked to a lot of people who jumped out of the market. I talked to one just last week. Said, “On the eve of the election, I was so nervous. I pulled everything out of the stock market. I just was so worried about what was gonna happen and I’m frozen. I can’t get back in. I don’t know how to get back into the market. I feel like I’ve lost missed everything.” And for him, I said, “You probably shouldn’t be in the market. We should probably look at other things because you’re frozen by this fear.” Let me explain how most people are accepting these risks without knowing, Clark. A lot of our listeners participate in something called a 401 (k). And how do we fund a 401 (k)? It’s funded by a payroll deduction. Every time you get paid, usually that’s twice a month for most people, they deduct some percentage or specific dollar amount and they put it into a mix of investments. Those investments for almost every participant is a mutual fund or a series of mutual funds that they select from and create a portfolio. Now that sounds like a pretty good idea. In fact, they call it $1 cost averaging.

So the point is, you’re being forced to buy when you don’t wanna buy, which is, you know, for some people, that’s a good thing, right? Because they wouldn’t be buying if the market was low and because you’re not thinking, “Okay, so I don’t have the discipline. I don’t trust myself. You know, this is the only way I’ll ever buy when the markets are down.” The problem with that is that you’re buying when the markets are up too. And really, let’s think about it right now, given that we’ve been nine years, not nine months, nine years without a greater than 20% correction, and that’s the longest continuous time without that kind of correction in the post-World War II era.

And the fact that about every five to nine years we get a correction like this, it says to me that we’re a lot closer to a correction, a significant correction, than we are to, “Why seen the market double from here.” Okay? You have people that are piling in because of that FoMO, F-o-M-O, fear of missing out and that, you know, gosh, we just gotta be there because look at it go and it’s going without me. So I just have to get in, whatever that takes. And yet, logically, now would be the time to de-risk your portfolio. I mean, logically, we’ve had a huge run-up last year. And if I think dispassionately and I look at history, the only time we see 25% and 30%… I shouldn’t say the only time, but for the most part, when we see 25% or 30%, 35% jumps in the stock market, it’s coming out of a big market correction.

So we saw that back in 2010 and 2011, we saw big rebounds off the bottom. But it’s easier because your percentages are great because the numbers are smaller. If you understand that math, you know, you’re gonna have, it’s easier to have a 25% up year when the market is at, you know, 8,000 on the Dow Jones instead of 25,000 on the Dow Jones. So the other time we see those is towards the end of a bull market. When that fear of missing out, people jump in, valuations get a little crazy, optimism runs rampant. We think, “Oh my goodness, you know, it’s gonna go up forever.” Just like real estate was gonna go up forever in 2006, the stock market’s gonna go up forever. Just like gold five, six years ago was gonna go up forever.

You know, it was headed at $2,000 and then $3,000, and $4,000. And we always read those articles. And it’s because of immediacy bias, and whatever’s happening right now to us is gonna happen forever. And we know that things work in cycles. So if you’re buying all the way down, well think logically why that people who are the market makers would want you to be doing that. Yes, it’s dollar cost averaging, but it’s also providing liquidity to the market insiders who wanna get out. They need to know that there’s money coming in the market on a regular, regular basis. And most 401 (k’s) don’t allow you to de risk anymore. They’ve taken a lot of the more conservative options out of their offerings through encouragement by Wall Street because frankly a CD does not make anybody a commission.

So those kinds of assets used to be 25, 30 years ago used to have guaranteed options in most 401 [k’s], those are gone. In fact, the only one I’m totally aware of right now, well, it’s true, one is from an old employer of mine that I’ve still got money, they’re earning 5% guaranteed with no risk to principal. And I just can’t move it because I can’t do that anywhere else. And the other place is in the government’s 410 (k) plan for federal workers called the Thrift Savings Plan, the TSP and they have something called the G Fund and the G Fund has a guarantee of principal. Doesn’t’ pay much interest. It’s paying around 2% right now. But if the market crashes, you’re gonna feel pretty good if you’re not losing all that money.

So the question that I want our listeners to ask asked themselves right now is, “Do I have a plan in place to protect myself from another 50% correction?” You know, we got a shot across the bow two weeks ago. We saw volatility come back in a way that, you know, everybody’s kind of forgotten that markets go in two directions. So we got that little bounce back. It’s going on as we speak. We we’ve come most of the way back from that sell-off of late January and early February, but, you know, how much higher is it gonna go? I don’t know. But is there more risk to the downside? I would put it to you that it is. Logic tells you that every day, the market goes up, bring as sense closer to a day the market will go down and vice versa.

But people forget this. So it’s so much easier to take profits than to take losses. It’s so much easier to reposition when the markets are functioning well like they are now and there’s liquidity and there’s high volume and good participation, and you wanna ideally sell into strength, into an up market as opposed to into a down market. So for all those reasons right now is a great time. It’s probably the best time you’re gonna have before a major correction occurs to put strategies in place to protect yourself from a potential 50% correction. Now, do I know when it’s gonna happen? No. Do I know that it’s gonna be 50%? Absolutely not. In fact, last time it was over 60%. It might only be 30%, but do you wanna go through all of that?

Clark: A lot of ways.

Roger: So what’s the strategy? How are you going to protect yours? Because nobody’s gonna care as much about yours as you do. Okay? No matter…

Clark: I think that…

Roger: Yeah, go ahead.

Clark: Yeah. I also start wrapping it up because I know you’re you’ve got a packed out calendar, and I think we’re at close to the end here. And I think I think you are about to bring us to the final invitation that we like to talk about, and that’s the thought of organizer. And so when you’re talking about follow your gut, like listen to your gut, pay attention to how you’re feeling, and if you have questions to keep asking them. So the next step in all of us this, I know we’ve been talking a lot about risk and none of this is designed to scare anybody, but it’s hopefully what I’m hearing from you is this is an encouragement to really think through why are you doing the things you’re doing. And a great tool that you’ve created, a good first step to take is the thought organizer. Just really quick, how can someone access the tool the free tool, the thought organizer? And how is it a good first step for someone? And then we’ll wrap up after that.

Roger: Okay. Well, the thought organizer is available on our website www.gainer.financial.com. And just scroll down to the bottom of the first page and there’s a little form right there that you can ask to have it downloaded. And we put in a little bit of information, and there it is. You can download it, print it out, or you can fill it out. It’s a fillable form. If you have a partner, a spouse, then I recommend that you each fill that out separately and come and compare them to each other to find consensus. It’s a great way to head off a divorce or a nasty breakup, because you didn’t know something about your partner. And it’s a great way to get on the same page and clarify your thinking. So you have context. You know, that the person that’s got 30 years to go before retirement has a completely different perspective than the person that’s got 30 days until retirement.

So being able to clarify where you are and what you’re doing all this for, your why, like we’ve talked about before, and that’s where the thought organizer comes in. Once you fill that out, I would encourage you then to go to your advisors, whether it’s an investment advisor, financial advisor. And now that you have that context, ask them, “What’s the plan to protect me from the next 50% correction?” And hopefully, they come up with something more than, “Well, we’re just gonna increase your exposure to bond funds.” I could probably devote an entire day to bond funds. I’ve written some blog posts about bond funds. They’re not a tool that’s horrible all the time, but I believe that people just do not understand the risk that they are exposed to right now from most bond funds. Not all, but most bond funds have way more risk than people understand. This goes back to accepting risks on your own terms.

Clark: I think it’s a great cap right there is it’s all about accepting risk on your terms. And I know you were saying…and you’ve got a lot of different tools, and each set of work are doing your and your team is doing. It’s all customized and it all based on their risk tolerance, right?

Roger: It’s not just their risk tolerance. Really, that term brings up some nasty visuals, yeah, you know. on…

Clark: A lot of red flags. So let me let me rephrase…

Roger: How many times can I punch you before you say, “Auw?” That’s a pain tolerance. It’s really what they’re asking with most risks tolerant questionnaires.

Clark: That’s a good correction. Right. Okay, I guess what I was trying to say is you’re really making it customized based on their needs. Is that more accurate?

Roger: Well, based on their attitudes, their objectives, you know, picking the tools. Frankly, if you wanted to play golf, would you run right out and, you know, buy Tiger Woods’ golf clubs, or would you rather have Tiger Woods swing and then go out and get some golf clubs? I know Tiger has had some down years but most people know who he is, and one of the great golfers of all time. Me personally, I’d take a swing. Once I know how to swing, I’m gonna play pretty good golf with anybody’s clubs. But having clubs and not having the swing to go with them, I’m not gonna score any better. It’s the same thing with picking investments. You know, people come to me. “Oh, my uncle told me to buy that stock.” “Well, would you buy it today? “I don’t know even know what the company does. I know it went up a little and went down a little and I’m not sure what to do with it. I inherited this portfolio.”

Boy, I’ve seen a lot of that today. “My folks passed on and I have these portfolios at Fidelity.” “Well, have you laid any changes?” “No.” “Well, why not?” “Well, I’m honoring dad’s legacy.” “You’re not honoring dad’s legacy by losing money to the market, that’s for sure.” But most people say, “I don’t know what to do.” And they the advisors, they’re not asking the right questions and they’re not getting feedback. They’re just like hoping. So they’re running through life with their fingers crossed. Ask your advisor, “What’s the plan? How are you gonna protect me? How is this portfolio gonna work when things go bad? Do you have a strategy?” And if the answer is, “I don’t know” Then you might wanna get a second opinion. And if you wanna use me for a second opinion, I’m happy to offer a complimentary consultation. If I can be of assistance, then we can talk about setting up an advisory relationship.

Clark: Excellent. Rodger, thank you so much. As always, I’m looking forward to our next conversation.

Roger: All right. You take care.

Clark: Thanks so much for listening to this episode of “Retire Happy.” Be sure to head on over to gainerfinancial.com to download your thought organizer to get started. Roger L. Gainer, ChFC, California insurance license number, 0754849, is licensed to sell insurance and annuity products in California, Illinois, Arizona, Pennsylvania, and New York. Roger L. Gaynor 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. Thanks again so much, and we’ll see you next time.