Podcast: What You Need to Know About Mortgages

The following is the transcript from Episode 19 of Retire Happy with Roger Gainer, a financial and business audio podcast.

Roger:  I think the decision to finance your principal residence is one of the most impactful decisions you can make when it comes to your personal financial security. The wrong decision can cost you big time and force you into making some very, very uncomfortable awkward and negative decisions on your own behalf. So head that off at the pass by making wise decisions around your mortgage.

Clark: You’re listening to Retire Happy with Roger Gainer, President of Gainer Financial and Insurance Services, Inc. Thanks again for joining us. I’m your host, Clark Buckner.

One of the most important financial decisions you can make is to own or finance a house. Over the past decade, it’s become increasingly difficult for many people to buy a house or keep up with a mortgage that they already had. In this episode, we’ll cover the challenges of homeowners and prospective home buyers face and what you can do to avoid those obstacles. Along the way, Roger will share with us the best time to pay off your mortgage. For more content like this, be sure to visit gainerfinancial.com. Enjoy the conversation.

Well, Roger, welcome back. I’m really looking forward to digging into today’s topic is all about when is it a good time to pay off a mortgage? And is there a good time and all of the above? But first, how are you doing?

Roger: I’m doing great. Really, really enjoying some of the well some of the new things we’re doing here at Gainer Financial. We’ve been working on some new initiatives and I’m pretty excited about them. Hopefully, we’ll have some announcements in a future webcast, but we are adding services and incorporating some new folks here at the office. And so it’s an exciting time as far as I’m concerned.

Clark: You’re always doing new and exciting things. So let’s jump right in. So you wrote a post, this is a couple of years ago and it’s titled, Should I Stay Or Should I Go: Tough Choices For Retirement. And more or less it’s just examining how sometimes people get to the point where they’re forced to sell their home just to afford their living expenses and care. So our conversation today is trying to help someone avoid getting to that point when their hand is forced. And so that’s kind of the whole context.

Roger: Well, I do consider this one of the most important decisions that people make is how do we own and finance our house? For most of the people I work with, because I do work mainly with middle-class folks, their house represents a very significant asset in their overall financial life. And when I wrote that post, Should I Stay Or Should I Go, it was because I just had a succession of new people coming to see me who they were hurting. They owned a house here in a beautiful area. We live in Marin and we have very expensive real estate as most people know. And here they were millionaires because they owned a piece of property, but they were worried about paying their taxes. They were worried about maintaining the house. They were worried about having enough to eat and in some cases, they had health issues that they needed to address and they just didn’t have the cash flow or the money to do those things.

So I started researching because this was coming up over and over and over again. And then I started realizing this isn’t just something that happens here in California or Marin County. Really, it’s relative, it happens all over the place. It’s one of the saddest things in the world. You live in a house for decades. You raise your family. Now, you’re looking forward to kicking back and really enjoying the house. It’s like putting on an old pair of sneakers. That house gets comfortable after a while. Certainly, of the big issues that I talk about with my clients is can you age in place? Most people tell me, “I really want to stay in my house.” If you got a lot of stairs or you live on a hillside or something, you may have other reasons, but when it’s really unfortunate is when economic reasons take you out of the place you intended to live for the rest of your life. And I find that a profoundly sad.

Clark: To follow-up on that, so this is basically around the considerations that someone should be thinking about and when someone asks you, “Is this a good time to pay off my mortgage?” Let’s transition over to that. When people are getting their hand forced on something did they, do they still have a mortgage, and they paid it off? What’s really happening beneath that? And how can you avoid getting in a tight squeeze?

Roger: Well, it’s a great question because, and it’s one I’m really surprised. I understood back in 2008, 2009, 2010 people were just nervous as all get out by the stock market and this and that. In fact, I just had this call yesterday from somebody who was looking to buy a new house and they were asking me about financing and paying it off. And last week I had somebody contact me when we posted this blog post I received responses from folks thanking me for the analysis because they were struggling with this very issue. It’s certainly something that is on people’s minds. So how do you decide if it’s a good time to pay off your mortgage?

The first thing is like most folks I see the damage that failure to do a good job of managing debt can cause. But a mortgage debt is very different than credit card debt, student loans, car loans, those kinds of consumer debt. When you’re paying something off in installments that is losing value or not retaining value or is guaranteed to lose value, just like your car, right? You drive that car home, that brand new car just lost 20 to 25% of its value, just leaving the lot and heading to your house. Now, you’re what a lot of people call underwater the second you buy that automobile. But a house is a little bit different.

First of all, the houses is much bigger and a lot of this notion of paying off our mortgage came from our parents, the generation that grew up and bought houses in the 50s and 60s and even earlier than that. And their parents, our grandparents, who saw their neighbor’s losing their home to the banks back in the 30s during the Great Depression.

And so this fear of being beholden to the bank became pretty common actually, “Gee, my neighbor made their payments for years, and then the bank took the house anyway.” Now, I want people to understand, first of all, that can’t happen anymore. There have been lots and lots of new laws and rules put into place to protect consumers from having their mortgages called. And I’m not going to go into exactly how the Great Depression occurred and it’s ramifications on the banking industry. But if any of our listeners want to have that detail and that background, give me a call. [crosstalk 00:08:24] It’s really a fascinating story and I’m happy to share it.

But today you cannot have the bank just say, “Pay off your mortgage in 30 days or we’re going to take your house.” That just can’t happen anymore. And the other thing is, for our parents who bought houses in the 50s and 60s, they paid 20,000, 50,000, maybe 70,000 for a house, a really big house, and it only represented a fraction of their overall financial picture. They had pensions. They had relatively larger Social Security benefit and so it was just kind of 10, 15% or less of somebody’s overall financial picture.

Today, it’s not uncommon for somebody home to represent 40, 50, even as much as 70% or more of somebody’s overall financial resources. So the decisions you make when it comes to financing, owning, paying for your house have significant, not just short-term ramifications, but long-term ramifications.

Clark:  As you’ve written before. There’s been a lot of people who think their house has been their best performing asset and it sounds like one of your responses is clearly that it isn’t true. Could you tell me a bit more about why that’s the case, especially through that lens that you’re talking about right now? Just why this day …

Especially through that lens that you’re talking about right now, just why this debt is different. Why a mortgage is just different than other debt.

Roger: I’ll use my house as an example. We bought the house we live in, in 2004. And since that time, the house has almost doubled in value. So that seems tremendous. I mean 14 years doubled my money, it’s appreciated hundreds of thousands of dollars in value. We don’t know that for sure, I’m not selling the house this week, but at least on paper it’s virtually doubled in value. And a lot of people say, “Wow, look at all those hundreds of thousands of equity you’ve got now.” But the thing to understand is first of all, over 14 years doubling your money means you made about a 5% rate of return. That’s an awful lot of things over the last 14 years that would’ve returned 5% compound returns and more.

And that 5% does not include the cost of ownership; the taxes I pay, the home owner’s insurance that I pay, the interest I pay on my mortgage, and it doesn’t not count the maintenance on the property. If we factor all that stuff in, even here in one of the hottest real estate markets in the country for the last 10, 12 years, we’re only slightly ahead. So I think of a house as an asset, like you said before, but certainly not as an investment. An investment is something that pays you.

So a house is kinda like having another kid, only sometimes it’s a lot more expensive than having another kid. You pay it. And you hope it appreciates and it gains value. It’s not a guarantee, there’s a tendency for people to always believe that their house goes up in value. I had an old friend and client recently who had moved to a new town to be closer to the rest of his family and his grandkids, and the house he left, which was a beautiful house, he was the only owner. It took he and his wife almost a year and a half to sell that house. And they had to cut the price by $150,000 just to get it sold over that timeframe.

And that price cut meant that they lost money on living there. Now, there are other reasons to own a house than making money. And unless you’re a house flipper, those things should be your primary influences on your decision to purchase a house in the first place. What we do here at Gainer Financial is we just wanna minimize the economic damage that paying for that house incorrectly can create.

Clark: You talk about economic damage, I’m curious about economic factors that may be considered based on the time that someone is on maybe paying off or not paying off their mortgage. Or maybe approaching it in a certain way. You mentioned some earlier dates; 2008, 2009, different time than it is right now. But what are some economic factors someone should be using in this general consideration mode?

Roger: Sure. Well since you brought up 2008 and 2009, one of the things that people forget is during that era, that downturn was largely caused by a lack of liquidity. So think about it, if your house is work $500,000 or $1 million and you don’t have a mortgage and that’s over half your money and you need to access that capital, you’re not in control of your money. You have a gate keeper. You either need a buyer or a banker to cash you out. You can’t just go out to the porch and knock a few bricks off, run down to the local Safeway and say, “My house is work a half a million dollars, here’s $100 worth of my property I wanna buy dinner tonight.” They’re gonna look at you like you’re crazy. So you have this asset, but what is is really doing for you?

You hope it’s appreciating, you do have pride of ownership, but when you stop and think about the rate of return your own equity is earning, it’s zero. Now, I know there’s some listeners right now that are going, “Wait a minute, wait a minute. My house went up in value, that means I made money on my home equity.” But if you stop and think, the value of the house going up has nothing to do with whether I have a mortgage or I don’t have a mortgage. The house goes up and down in value based on the market, not my financing. So that’s how you know that your home equity is guaranteed to earn you a 0% rate of return.

Now, Clark, if I came up to you as a potential client and I said, “I’ve got this fantastic investment. You get to make monthly contributions. If you miss a few months of contributions however, you might forfeit all the contributions you made to this account previously. By the way, when you put money into this account, every time you make a deposit your taxes are gonna go up. And oh yeah, the money that’s in the account, you can’t get it back. It’s not liquid. Maybe in the long-term you might be able to receive some of that, those deposits back. But in the short run you can’t get them back out once you’ve made those deposits. And oh yes, your money is at risk, you might lose money, you might make money, but you won’t know for years, and years, and years, how much would you like to invest?”

You’d probably ask me to leave immediately. But that’s what most mortgages are doing. You’re paying down your principle, and every time you make that payment your taxes go up because the amount of deductible interest goes down. That money is now part of your equity, but you are not in control of that equity, you cannot get it back. And your guaranteed rate of return of 0%, it’s not that hard to make more than zero. I mean zero’s great if the market’s dropping by 50%. But if we can make interest of even 2, 3, 4% that’s way better than earning zero. That zero become a stranded asset that’s really kind of a drag on your overall performance.

So Clark, liquidity is one of the most under-appreciated or over-emphasized elements of financial planning. Most people want liquidity in areas where they don’t need it, or maybe it’s to their detriment. We’ve talked about that before with higher risk type assets. But with home equity and that loss of liquidity, if you just dial back 10 years and you look at so many people that lost their homes or lost their real estate investments, it was because they didn’t have liquidity when things fell apart.

I hear from people all the time, “Well I’ve got an equity line, I don’t need liquidity, I can write myself a check anytime.” Well it wasn’t that long ago, back in 2008 and nine that the banks froze everybody’s home equity line at the outstanding amount of debt. So if you had a $250,000 home equity line and you borrowed $35,000 say. One day you went to write yourself a check and they said, “Oh you’re maxed out on your equity line, which has now only got $35,000 of available credit.” And the banks had to do that because they didn’t know what the value of the collateral is. That collateral, that’s the key concept here, what makes the debt on a home or a piece of real estate different than the debt we talked about earlier on a car payment or on your Visa card.

It’s that notion of collateral of a store of value that is backing the debt. So we use a different sort of process. And I’m not a big fan of debt, I mean sometimes we use that leverage because we have to, to buy the property. But in the long run, managing a mortgage can actually make it safer. So if we got two neighbors; neighbor number one buys a house for $1 million, pays cash. Neighbor number two, they could pay $1 million in cash, but instead they take out an $800,000 mortgage and they put their $800,000 into a very conservative account earning say 3 or 4%.

Clark: And when you say a conservative account, is this … What kind of account is that?

Roger: Well we don’t wanna speculate with your home equity.

Clark: No speculation, okay.

Roger: So we’re not gonna buy penny stocks, or go play in the commodity markets. We’re not gonna be looking for IPOs. We’re not going to be looking for IPOs and that sort of thing. It’s your home equity, you don’t want to put it at risk.

Clark: But what you’re saying, instead of just putting it straight up on paying that house, just keep it somewhere really safe, but it might be having a little return?

Roger: Right, which helps to reduce the cost of owning the house, actually.

Clark: So, 34%? That’s not going to be a savings account. Again, I guess we can’t speculate.

Roger: We have lots and lots of very conservative options that are going to earn three to 5% without risking your principal. If any of our listeners want to talk about what those kinds of things are I don’t talk about product on these broadcasts.

Clark: Right, we need to come talk to you.

Roger: I don’t want to be specific.

Clark: Everyone’s different, every situation is different, right?

Roger: Right. And what’s appropriate for one, may not be appropriate. Today, I really just want to emphasize the strategy, and being in control of your personal financial situation. See, if you keep that 800,000, I don’t need a banker or a buyer to cash me out. I’ve already got the cast. Oh, by the way, I know it’s hard for people around here to believe, but like I said about my friend who lost money on his house, if that equity is outside of the house, and the house value does go down, I still have my equity. I didn’t get squeezed, so I actually-

Clark: That is very interesting. I never thought of it like that.

Roger: Yeah. Okay, I’m in control of the equity. And in a lousy market like we had in ’08, ’09, when you couldn’t find a buyer unless they were going to pay you 30 cents on the dollar, that’s what people were buying houses for, 30, 40 cents on the dollar, sometimes less. If I had that equity I could go out and find a non traditional buyer, because I don’t need them to cash me out, I just want to get off title. So I can go and do a lease option, I can do an installment sale, I can lend back the down payment, they can go get a conventional loan. So, in a bad market, I broadened my potential market for buying my property. So, there’s all kinds of layers to this. But one of the concepts I try to teach is called lost opportunity cost. That’s the silent killer of building wealth. And lost opportunity cost, as we’ve taught before, Clark, every dollar you touch you can only do two things with it. What are they?

Clark: I guess you can spend it or save it?

Roger: That’s it. Those are the only two things you can do.

Clark: Okay, good.

Roger:  You get an A today. And when we save it we want to earn a rate of return. When we spend it we lose the opportunity to earn a rate of return. So, that’s the lost opportunity cost, that’s the cost of financing. So, if we paid cash for that house, that million dollar house, and i can make 5% somewhere else, my house better go up in value by $50,000 a year just for me to break even. And that’s not counting the ongoing cost of ownership. So, one of the things I’m hearing a lot of on the radio, and on television, and seeing ads in the paper these days, is for shorter term mortgages. And I just want to put out a little warning on that. People are saying, “Don’t you want to get out of debt? Take a 10 year mortgage, take a 15 year mortgage, and pay it off.” Well, I would encourage you to take a 30 year mortgage and bank the difference. And if you earn about 3% on that difference you’ll be able to pay off the house in less than 15 years.

But, 15 years from now you just don’t know if that’s your best move. So, this buys you much more flexibility and control if we pay off that mortgage on our balance sheet. If I know at any time I can pick up the phone and I can transfer the money out of an account and pay off that mortgage, and most accountants will tell you, you’re balance sheet is in balance. There’s not debt net. And that’s a critical factor to understand, because now, using the same asset as the guy who paid cash, I am diversified. I have money for opportunities, I have money to face downturns, I have liquidity for opportunities. And the other thing that people don’t understand is something called Gresham’s Law. Gresham was an economist to the British Crown, I believe back in the 17th century, and he came up with Gresham’s law, which says, “Good money is forced out by bad.” If you think about it, back in 1973 I could send a first class letter for eight cents. Today that same letter costs me almost 50 cents. So, that’s what we mean by good money being forced out by bad.

A dollar tomorrow is not going to be as valuable as a dollar today, it’s not going to buy as much. Does that makes sense, Clark?

Clark: Right.

Roger: So, the bank loves these short term mortgages, because today’s dollars are going to be the most valuable ones. So, if they can get your more valuable dollars back they get to turn that dollar over, and over, and over again. It’s much more profitable for them. If we have 3% inflation that means that my mortgage payment out 24 years from now is only going to be worth 50 cents versus today’s dollars. You follow that?

Clark: That’s right.

Roger: I want to pay the bank back with less valuable dollars, I want to keep as many valuable dollars for myself. Does that make sense?

Clark: Yes, that makes sense. It’s one of many valuable tactics, and strategies, and options that I know you work with your clients on. So, the final thing to mention, a next step someone can take with you, is something I’ve heard called the mortgage master analysis. So, what is that, and how could that potentially help someone think through their current situation, and look at all the options?

Roger: Well, a mortgage master analysis helps you to understand the true cost of your mortgage. Because mortgages do get some tax benefits, you need to include the value of those benefits in your analysis. So, I’m offering anybody listening, they can come in and we can run an analysis so you can see the actual cost of your mortgage, and you can compare it to other refinancing options. As a full disclaimer, I do not do mortgages, I do not sell mortgages. I do know a lot of great mortgage brokers if you don’t have a great one, or I can help you to train yours to give you the kind of mortgage that really serves your overall financial plan. I hear people advertising a 15 year mortgage actually costs less, will save you hundreds of thousands of dollars in interest, and that plain isn’t true. And I can show you, and demonstrate, and help you to understand that, so that you can free up money to help secure a happy retirement for yourself. So, just call the office. It doesn’t take a long time, we gather a little info.

You bring in a mortgage statement, we plug it into the software and we walk through the tutorial so that you will understand exactly what’s going on.

Clark: Got it. Thank you, as always, Roger. Enjoyed our conversation, and I can’t wait for our next dialog around these really important topics.

Roger: Thank you, Clark. Things definitely stay interesting around here.

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 #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.


Roger holds the coveted and well-earned designations of Chartered Financial Consultant (ChFC®) and Retirement Income Certified Professional (RIPC®) from the American College. He is also a licensed insurance agent for life and health insurance, a Certified Paralegal for Estate Planning, and a current board member of SASM.

Podcast: What the Raising of Rates by the Feds Means to You

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.


Roger holds the coveted and well-earned designations of Chartered Financial Consultant (ChFC®) and Retirement Income Certified Professional (RIPC®) from the American College. He is also a licensed insurance agent for life and health insurance, a Certified Paralegal for Estate Planning, and a current board member of SASM.

Podcast: Myths of Wall Street

The following is the transcript from Episode 17 of Retire Happy with Roger Gainer, a financial and business audio podcast.

Roger: If you wanna be happy for the rest of your life in retirement knowing that you’re not gonna run out of money is the cornerstone of that happiness.

Clark: You’re listening to “Retire Happy” with Roger Gainer, president of Gainer Financial and Insurance Services Inc. Whether you’re new to investing or even a professional, making the right decision at the right time with your finances can get tricky, so in this episode we’re gonna uncover the five most common myths associated with financial planning and investing. We’re gonna discuss how to avoid getting caught up in these different myths and how you can make smart informed decisions with your money. Thanks for joining us, I’m your host Clark Buckner, let’s jump in. Hey, Roger, welcome back we’re looking forward to talking with you, how are you?

Roger: Doing great. Still having a little rain here which just means we push the drought off a little bit longer.

Clark: Yup. Well, hang in there and buckle up because today we’ve actually got a pretty lively and extensive agenda on the “Retire Happy” podcast and we’ve got five different risks and myths more or less, so that includes risks and Walls Street myths. And so within those, we’re gonna talk about five different items. So, I’m just do a little teaser here and then, well, I think we should jump right in. So one of the myths that you hear often about is time in the market, another one is indexing, another is ETF and mutual funds panacea, number four understanding liquidity, and finally making sure you don’t run out of money. So, we can start in any order you want, but I’m really eager even though we can’t do a deep dive in these. Let’s follow your lead on, kind of, guiding us through what do we need to know about, what’s just a made-up thing, and what’s something that we should really be paying attention to. How’s that sound?

Roger: Okay, well, you know, I appreciate you want to hear about these different topics because I really think that these five issues are things that people are, generally, misled if you will. The “conventional thinking” really puts people in very difficult situations. Not through fault of their own, just through the faulty thinking and logic behind these arguments that put people into those situations. You know, Wall Street, I believe, is one of the greatest marketing machines ever assembled and crafted in the history of our planet. And this mechanism has convinced people to do and acts in ways that really is detrimental to their wealth. Wealthy people understand these issues and they handle risk differently than the middle-class, you know, we’ve touched on that topic before Clark. And, you know, we’re taught to accept risks that either we’re not aware of or we don’t understand, and we can jump right in on the first one, time in the market. Clark have you ever heard somebody say, “It’s not timing the market it’s time in the market?”

Clark: Yes.

Roger: Well, and the theory behind that is that the market grows over time and maybe that’s fine if you’re in your 30s or 40s, but I work a lot mostly with people who are in their 50s, 60s and 70s who are really focused on living off their assets. And for those folks particularly, but even if you’re in your 20s, 30s and 40s, the longer you’re in the market the greater the risk. Now that does seem counterintuitive, but I’m a big math and science guy and the math is very clear, the longer you are in the market and it’s going up, the closer you are to a correction. And the longer we go without that correction, mathematically, the more severe the correction is. And right now, as I’ve mentioned before, we’re 9 years without a correction of 20% or longer. That’s the longest period we’ve ever experienced in the post-World War Two era. And the argument for time in the market versus timing the market is that you’ll miss the best days, and if you miss the best days you’re gonna lose a lot of the performance. Now I have a study right here in front of me that says, if you had invested $1 in the S&P 500 index on December the 31st, 1927 and held that to December the 31st, 2014 that that dollar would have grown to a $116.59. So that’s a very impressive cumulative return percentage of 11,558%. That’s impressive, isn’t it Clark?

Clark: Mm-hmm, yes.

Roger: And if you missed the 10 best days, that $116 would be reduced to $38.67 for a 3,767% gain. So that’s only about 35%, if you will, of the total gain. So yeah, we would have had a tremendous drop-off in our actual performance. So, that’s the part that Wall Street always tells us about, about why it’s so important to never sell, to never disinvest in the markets. But the part that they generally don’t tell you about is if you had missed the ten worst days in that time frame, just 10 days that your total return instead of a $116.59 would be $365.69. That one dollar would have grown that extensively for 36,468% gain. So missing the worst days has a much bigger impact on your overall returns than missing the best days. In fact, the proof to this is if you missed the 10 best and the 10 worst your performance would still go up. It would go up to a $121 instead of the $116. So, those downside corrections are much more impactful that you avoid losing money. Warren Buffett gets this, he has these two rules of investing. Rule number one, never lose money. Rule number two, never forget rule number one.

So, the other part of that argument is the long-term average rate of return, and you’ll hear this all the time that the market does 10% rate of return on average. Well, I have never seen the market return 10% in real terms over an extended period of time in the recorded history of our stock market. If you go back to 1896 when the Dow Jones Industrial Average was first introduced, it was introduced at a value of 65. Today, we’re just under 25,000, and if you look at what is the rate of return, what number interest rate compounds to get from 65 to that impressive number of just under 25,000, it’s less than 5%, 5% compounded. That’s a real rate of return on the index. Ten percent is an average rate of return. And this is part of the, what I call mathemagic of Wall Street. Easiest explanation, Clark, if you bought a stock for a $100, and a year later it’s $200, what percent rate of return did you get?

Clark: Oh, that’s a double, so whatever that would translate to.

Roger: Hundred percent all right.

Clark: Oh, right. I’m learning here.

Roger: Yeah, a 100% in rate of return. And then, if the following year that $200 stock moves back to a $100, your percentage of loss is what? Fifty percent, right?

Clark: Made no money.

Roger: Okay, so I started at a 100, and 2 years later I’m back at a 100, did I make any money?

Clark: Woah, no, yes…

Roger: You made no money, however, my average rate of return was 25%. That’s how the math works, and it sure is a lot sexier than telling you that the market is compounded according to the Dow Jones Industrial average at a little less than 5%.

Clark: All right. Well, this, kind of, translates I think over to this next point, when you talk about indexing you talk about the index, is that the same thing as indexing that we have on the agenda? Or is that something that’s totally different?

Roger: No, indexing is this trend that’s been going on in the markets really for about the last 20 years. It was a movement, almost a religion, and I always get nervous when investing becomes religion. It started by a fella by the name of John Bogle, who you may or may not have heard of, but he founded Vanguard, which I’m pretty sure you have heard of, right?

Clark: Yes right.

Roger: Okay, Vanguard mutual funds are famous for low fees and indexing. And the trend that Mr. Bogle noticed was that very few actively managed mutual funds beat their indexes over certain periods of time. And while you can see those studies and come to that same conclusion, you have to dig down a little bit deeper because the one thing I know for sure is if everybody’s doing the same thing, it’s not gonna work. And so, when he shared those findings and founded Vanguard, indexing was a very, very small part of how people were investing. Today, index funds make up about a third and a rapidly growing percentage of mutual funds. They have low cost and they seem to be most actively managed funds over time. Remember, time in the market versus timing the market.

But where you run into trouble with that expansive growth in indexing is that think about what the index really represents. If I’m buying an S&P 500 mutual fund, and I send in a $1,000 to Vanguard, say, or Fidelity, or any of them. Most mutual fund families have an index fund, an S&P 500 index fund, in fact. And that manager, I’m not hiring them to think, they have no choice, they have to take my $1,000 and they buy 500 different stocks. They have to buy those stocks, they don’t have a choice. Whether it’s a good day or a bad day to buy them it doesn’t matter, they’re gonna buy them. So what this is inadvertently done is it’s forced otherwise intelligent people to buy things they know they shouldn’t be buying at a time they shouldn’t be buying them. And what that does is it tends to inflate the valuation of the assets that are included in the index.

In fact, there’s a really interesting study that’s been repeated several times over the decades. The S&P 500 is a managed index. About 40 to 70 of the components of the 500 components are dropped out and replaced each and every year. There’s a committee at Standard & Poor’s company that makes those decisions, and the companies that are kicked out of the index after an initial drop because all those managers have to sell that stock at the same time, they tend to perform better in the next several years. And the companies that are added after an initial jump because all these managers have to buy that stock, they tend to underperform their previous performance once they’re included in the index. And it has to do with this phenomenon of just money plowing in and these stocks are being forced upon the managers. They have to buy those shares. So when something becomes overvalued and the market starts to correct, generally speaking, that will accenturate…accentuate, excuse me, the move to the downside. So, if I’m overvalued to the upside, to the downside I’ll probably become undervalued and the momentum creates much larger swings in prices or amplitude. So when we see those kinds of movements, it’s just based on human behavior not the investment valuation itself of the different stocks or components of that index.

Clark: So, when you’re starting to talk here about the mutual funds, and also ETF is on our agenda, so panacea, mutual funds panacea, what is that and how does that, kind of, transition us to that next point of what you’re talking about now?

Roger: Well, surprisingly enough even today after, you know, going through some major market swings in the last 20 years, I still have people who come and tell me, “Well, my money is pretty safe because I’m in mutual funds.” Or “My money is safe because I’ve invested in ETFs.” And I asked them why they think, and they said, “Well, there’s a professional manager and they’re keeping an eye on my investment.” Now, when we look into their mutual funds, a lot of them will be index funds because they’ve gone to Fidelity of Vanguard and they’ve gotten a portfolio built of these things. So as we just discussed there is no real manager that…yes, there’s a manager assigned and their function is to buy and sell based on cash flows, not on evaluating stocks or other assets that are being held in the fund. So you don’t have any professional management, you’re not having a sell discipline.

And then, other funds, if you look at the prospectus, most stock mutual funds say that that fund has to be invested, not should be but has to be invested in stock. Sometimes it says 80% or 90% of the money in the fund actually has to be invested at any given moment. So whether it’s a good time or a bad time, the manager has some constraints, and I understand the reason why if you’re setting up an asset allocation model you want and you pull a stock fund to build out your model, you want to know that it’s in stocks. But a lot of people don’t realize that they have to stay invested even if it’s a bad time. So in 2008 even though things were going down, those managers really were, in many cases, constrained from selling even though they knew…

Clark: They probably should.

Roger: …what they were owning was going to keep losing. They, by law, could not sell because they had to meet their stated criteria of what percentage would be invested. The other part, ETFs, even more than mutual funds, are not all created the same. The rules that govern them…

Clark: What that does stand for again, Roger?

Roger: Exchange-traded funds.

Clark: Got it.

Roger: And the thing that people love about them is that unlike an open-ended mutual fund that, if I call my fund company or my broker and I say, “I want to sell it.” If it’s during market hours, it’s sold at the end of the day. After they value all the shares and give you a per share price, where the ETF is bought and sold all day long, so there’s more liquidity. And that’s the theory behind them is, well, they’re more liquid, so it’s much easier. But what people many times don’t understand is that there’s not a standardization. So you can buy QQQ ETF, which is the Nasdaq 100, one of the more popular ETFs or some iShares or other kinds of ETFs, and there are constructed internal cost structure, what they’re actually investing in and what hedging or other techniques are being used. A really rather complex and very hard to discern, and I’ve yet to meet too many people that have actually read what’s in their ETFs or understand what they’re actually buying and selling.

Fifteen years ago, when they were starting to become popular, I started day trading these little guys to see if some strategies that on the surface seem to make sense for protecting portfolios and things like that. And I was stunned at how these things performed in different market environments. And when I tried to figure out why, especially some of these leveraged ETFs, there are ETFs that go two or three times in index both on the long and the short side, those are really for day traders and not for hedgers. That’s just one example of it not being what it seems.

So, when you buy a mutual fund or an ETF because the managers in an actively-managed stock fund, for example, they’re buying and selling stuff, and I’ve seen stock funds with hundreds and hundreds of stocks in them and that are traded constantly throughout the year with hundreds and hundreds of trades, you don’t know what’s actually in there because they don’t have to tell you, but once a year. There’s a quarterly print of the holdings in a portfolio, but outside of that you’re never going to know everything that’s in that portfolio. And there’s a little phenomenon called window dressing, where certain mutual fund managers will go out and buy whatever’s hip or trendy just so when they print those contents, the inventory of investments, it shows that they had Apple or Facebook or whatever the hot stock was even though they didn’t have it for most of the period. They wanted to show that it’s there to make people happy for the few people that actually look. So, that’s why I tell you that it’s really important to review those positions periodically. And then, of course, managers change. So your mutual fund, you know, the classic example is the Magellan fund. Have you ever heard of that one, Clark?

Clark: I’m not.

Roger: Well, a Magellan, 25 years ago, was the stock fund. It was the poster child for great mutual funds. And there was a fellow by the name of Peter Lynch, who was legendary manager on Wall Street, and when that fund started to get too big, he decided it was time to retire because it was…He made his reputation on small capitalization stocks, and now is a $50 billion fund and you couldn’t buy small capitalization stocks anymore. So they brought in a new manager who actually put half the fund in to treasuries, and made a mistake and it lost a lot of money. And then they fired him and they hired another guy, and he put in his own philosophy for managing Magellan, but a lot of people still think Peter Lynch runs Magellan, or they’ve owned Magellan since Peter Lynch was the manager, and they just don’t understand why it’s not the same, you know, great performance. So, it’s important to check from time to time what’s going with your mutual funds, who’s the manager, and what are they investing in, and how long have they been there, and where were they before they came.

Clark: So, before we start talking next about understanding liquidity, what do you say to the person who…I know you’re saying with mutual funds, with some of these…to someone trusting someone else, they don’t wanna think about it, they just wanna trust the professional. And what you’re revealing is that may not be the best. You need to really look closer to what you’re doing. So, what do you say to the person, “I just don’t wanna think about it. I just wanna give it to someone and trust them.” If I’m hearing you right that sounds like that’s not an acceptable approach.

Roger: Yeah. I think this is great discussion because, yes, that is a conundrum. A lot of people don’t wanna be involved their investments day-to-day or even months to months, and sometimes even years-to-years. So we always, here at Gainer Financial, try to match asset classes based on that type of criteria. It’s one of the reasons we use the thought organizer to, kind of, figure out where people are coming from and how they feel about these different types of investments. We have a very big tool box. There’s a lot of different ways to get from point A to point B depending on how much time you have and what’s going on with the tax codes and as well as markets, but knowing your objectives in yourself and how you feel about things. There’s been plenty of studies done that because of emotions people in general make very poor decision in buying and selling on both mutual funds and stocks.

Morningstar has a rating where they try to show how good a job the management of a mutual fund does of preventing people from counterproductive behavior. Yet, even the professionals are subjected to those kinds of things because a lot of times they have an idea, but they don’t have a discipline. They don’t have the wherewithal to say, “Okay it’s time to sell or okay its time not to sell” based on dispassionate criteria. Face it, nobody likes to lose money and it doesn’t feel good. So when that, sort of, stuff starts to happen, your emotional makeup and your ability to deal with volatility is frankly, it’s critical.

I have a client right now after working with her for years and years and years, there are certain things that she says, “I don’t want any more of those kinds of assets.” even though those are the things that help her sleep better at night. And so we’ve nibbled at a few different kinds of investment strategies. Right now, one of the things we have is so a small portfolio, they see how she’ll do with it, very conservatively-managed stocks. And these are, you know, the big old names and it’s a very focused portfolio that has done extremely well in bad conditions but that doesn’t mean that it won’t have volatility. And she’s contacting our office couple times a week going, “Wait, it went down.” And then wait a day and it goes back up. I mean, you know, we’re about to have a little conversation about whether or not this is something that is appropriate for her because of that anxiety, not because of whether or not the markets are gonna do well or the managers doing what they set out to do. Manager is doing a fantastic job in very difficult market conditions and that’s why we took on this particular manager. But it’s just not right for her and that’s the bottom line.

Clark: It makes sense. It makes sense. And I know you mentioned the thought organizer earlier and that’s something that we try to make sure to mention on each of these conversations because that’s a great next step as you’re thinking about what’s right for you and it guides you through that process. So, to continue on, while we got few minutes left, understanding liquidity and making sure that you don’t run out of money. These next couple might be related. These are the final two, but lead us away.

Roger: Well, liquidity, you know, people come to me all the time to say, “Well, see I don’t wanna tie my money up. I want it to be liquid.” And I understand why people would like to have the ability to cash out everything in a moment’s notice, but if you think about it after what we’ve just discussed about emotional decision making, in a way, a lack of liquidity helps create an investment discipline that’s much more long term. And what’s interesting, the people who understand this are investment bankers and hedge funds. They are not super liquid. They invest in things that aren’t super liquid, and they invest for the long term, and they make tons and tons of money. And it’s that lack of liquidity that actually reduces risk in those asset classes. But today, we’ve seen a tremendous growth in creating liquid vehicles to hold illiquid assets. So, some of those liquid vehicles are ETFs and mutual funds. I’ll give you an example, have you ever heard of what they call high-yield bonds also known as junk bonds?

Clark: It sounds, sort of, familiar.

Roger: Okay. Well, junk bonds created a tremendous upheaval in our economy back in the late ’80s, early ’90s. There was a guy named Michael Milken and they were doing leveraged buyouts and these what we call non-investment grade bond. They were less than credit-worthy borrowers, but the yields were high. They pay at a big interest rate because they were riskier. And we had a whole savings and loan crisis because savings and loans were investing in these things, and the economy had a down turn and it was just a big whole mess.

And to this day, it’s still an asset class that allows certain great things to happen in our economy, and it’s not gonna go away. Companies borrow money, and if they are less than credit-worthy or they are in higher-risk type of businesses, they gonna pay higher interest and that’s attractive to some borrowers. But unlike government bonds, government bonds trade in Chicago and New York, and in the commodity pits and they’re incredibly liquid. Billions and billions of dollars trade, change hands every single day. In fact, the bond pit in Chicago is it trades more dollar volume than the New York Stock Exchange by a factor of several each day. So it dwarves the stock market in terms of just the dollar volume of what’s exchanged.

So, we can be pretty accurate with our estimate of the value of a treasury bond because there’s so many people buying and selling them every day. That’s what market creates pricing action just by the mere buying and selling. And we also have liquidity because there’s so many market participants. But a corporate bond may only trade few times a year. Some issues certainly not hundreds of thousands of times a day like a treasury might. So you don’t have a lot of liquidity in that market, the demand is spread out, but when you put those assets into mutual fund, an open-ended mutual fund, there’s a rule that says the mutual fund company has to redeem your shares, if you requested during market hours they have to redeem the shares at a value set at the close of the market that day. Well, if something isn’t trading very often, the valuation is based on a guess. It’s an appraisal. It’s not a market-set valuation. So right away, you don’t know for sure if the share price in mutual fund is accurate because the only way to really test that accuracy is to sell the underlying assets, right?

Clark: Right.

Roger: So, when we start to see a crash or a negative price action, however, you want to put it in junk bonds, and I say, “I’m getting nervous.” I call in to the mutual fund company, the Fidelity and I say, “Sell my bond fund.” They have to turn around and sell, but there’s not a lot of buyers, and so they can’t, they get a low bid and that knocks down the share price. And then the next guy who wasn’t going to sell, now he sees the share price dropping and goes, “I’m afraid I’m gonna get stuck here, so I’m gonna sell.” And then there’s more selling and there’s not enough buyers in these illiquid assets. And so now price activity on the downside in particular is going to be accentuated because of that lack of liquidity actually in the asset class, but the fact that the mutual fund company has to raise cash to redeem your shares. So they don’t guarantee your share price, but they do guarantee that they will redeem shares at some price. That’s the risk. So we’re adding risk to an already risky asset class by adding liquidity.

Clark: That makes sense, and now…and it tails back to what you’re saying about people how they make emotional decisions and that that’s definitely not a recipe you want involved with that.

Roger: Well, you know, making emotional decisions, emotions can be stressful sometimes. Think about it. You can create joy, but you can create depression, too, through emotions, or sadness or grief. You know, there’s a wide variety of human emotion. And when we get emotional, you know, judgment gets clouded and so that’s how we make those decisions. So, putting yourself in positions where that’s not likely to happen is really…it’s counterintuitive to everything you’ve, sort of, have been taught over time. But the things that you want to have liquid are care. You want your cash to be liquid and you want to make sure you have cash that’s how you mitigate risk. It’s not by adding liquidity to a high-risk asset class. That will make it even riskier.

I can go through absolutely example after example of illiquid stuff like REITs that are publicly traded. These are real estate investment trusts and again real estate is not super liquid, right, but if we wrap it in something that is super liquid, we’re gonna ratchet up risk because we’re gonna create more volatility in the underlying valuations of those assets. There’s the thing called MLPs that now you’re finding in mutual funds. MLPs are master limited partnerships. They invest to a large extent in oil and gas pipelines and other infrastructure, mostly in the energy business. And these again are not designed to be liquid, but you put a liquid wrap around them and you’re gonna exacerbate. We had a massive correction in these things as a result of that about two years ago, where they dropped dramatically in pricing when we had a little hiccup in the oil market. But it was even more impacted on these liquid investments because the underlying assets weren’t liquid. So you had to find buyers by discounting what you were selling, so you could get cash to cash these folks in. Makes sense?

Clark: Right, it makes sense. And I think you’re also just alluding to this last item making sure you don’t run out of money. You’re talking about having enough cash, making that your liquid asset, but any final thoughts you have to wrap us up as it relates to making sure you don’t run out of money?

Roger: Well, I’m halfway through writing a blog post on this exact topic, so we should have that ready for publication in the next couple of days. So our listeners should keep an ear out and an eye out on their inboxes when we send out our next newsletter, that discussion of not running out of money and why it’s so important. I could just say that that if you want to be happy for the rest of your life in retirement knowing that you’re not going to run out of money is the cornerstone of that happiness. And people who put themselves in a position where they could lose to markets, sickness, other external factors, these people have stress that definitely reduces their enjoyment of the golden years, and after all our motto here is “Retire Happy” and the cornerstone of retiring happy is making sure that your bills are paid even if you live to 110.

Clark: I love it. I think that’s a great way to wrap up today’s conversation. So next step is to go and get the thought organizer.

Roger: Yeah, go to the website. It’s at the bottom, scroll down to the bottom of page one and you can request a download of a copy of the organizer there, and get yourself thinking about these situations, about the risks that you might be subjected to, and how you can make them work for you.

Clark: Good deal. Roger, thank you so much.

Roger: Thank you, Clark. You have a great day.

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.


Roger holds the coveted and well-earned designations of Chartered Financial Consultant (ChFC®) and Retirement Income Certified Professional (RIPC®) from the American College. He is also a licensed insurance agent for life and health insurance, a Certified Paralegal for Estate Planning, and a current board member of SASM.

Podcast: Revisiting Equifax

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.”


Roger holds the coveted and well-earned designations of Chartered Financial Consultant (ChFC®) and Retirement Income Certified Professional (RIPC®) from the American College. He is also a licensed insurance agent for life and health insurance, a Certified Paralegal for Estate Planning, and a current board member of SASM.

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Podcast: Tax Reform & How To Prepare For Uncertainty

The following is the transcript from Episode 14 of Retire Happy with Roger Gainer, a financial and business audio podcast.

Roger: Purpose is understanding your why. Without that purpose, without that point, you can get buffeted back and forth with these different strategies and different challenges.

Clark: You’re listening to “Retire Happy” with Roger Gainer, president of Gainer Financial & Insurance Services, Inc.

Just about anyone you ask about money and retiring has their own opinion. How do you know what tools work and what should you avoid? In this episode, Roger explains how changes to tax policy can result in confusing times for individual financial strategies. He also offers three easy antidotes for this unease: establishing clarity of vision, efficiently pursuing your goals, and maintaining a focus on your plans purpose to ensure you’re making all the right steps. Thanks for joining us. I’m your host Clark Buckner. Let’s jump right in.

Well, Roger, welcome back, as always, really excited to talk with you today. We’ve got a couple topics in line all based around the theme how do you prepare for uncertainty. We’ll get to that in a minute. But first, hey, how are you? How are you doing?

Roger: I’m doing well, doing very, very well. We’re winding down the year and it’s a time to look back and reflect and look forward and plan. And I’d say this year more than most years, given all the stuff that’s going on out there, there are certain universal truths that hopefully we’ll get to cover today in our session. It will help people in any year.

Clark: Right. Well, you’re referring to is…we’re recording this at the end of 2017. However, the things that we are about to talk about, the things that you are about to share your insights on, they’re relevant always. But I’m catching you at a moment right now where not only have we had several interviews now here on the “Retire Happy” podcast, but we have seen a big year, a lot of big changes. There’s at this exact moment, taxes and tax reform, all of that, that’s been a buzzing question I know you have been receiving from your clients. There’s a lot of energy around it. And not to go too far down the rabbit hole, but would you want to maybe just paint a picture of what you’re seeing right now with your clients, what they’re seeing right now? And then we’ll talk about ways to overcome that uncertainty. I know you’ve got a couple of different antidotes, but we’ll get to that in a minute. But first, kind of what is just the state of the land right now? What’s going on?

Roger: Well, if you look back over the last 12 months, it has been quite arriving. I mean, I’m getting calls from people, let’s say, 2017 felt like a decade or certainly several years given how much really has happened. If you look back, we’ve had some political upheaval. Whether it’s good or bad, that depends on how you voted and how you choose to look at stuff. But there’s still been a lot of upheaval, a lot of change in Washington. There’s been a tremendous amount of challenging natural occurrences. We’ve had fires, severe fires here in Northern California. As we speak, there’s horrible fire still burning in Southern California. We’ve had floods and hurricanes in the Gulf area, in Houston, and parts of Texas and Louisiana. There’s been Florida, Porto Rico. There have been challenges in Europe and things in the war. I mean, it’s all over the place.

I know that a lot of clients and even colleagues and folks in the industry, there’s a lot of that deer-in-the-headlights feeling these days. People are almost frozen and unable to make decisions and just stressed out and depressed. And really, there’s so much reason for optimism. So certainly, we wanna get to some of those ways to navigate these challenging waters that many are feeling impacted by.

Clark: All right. The waters of uncertainty, I guess we could call it.

Roger: That’s a good one.

Clark: Right. And there’s always gonna be things, whether it’s a year like we’ve had now, but as we’re thinking about the future, and we don’t know the future, how do you talk to your clients or how do you normally just sit…generally, how do you walk and navigate? I like that word navigate. How do you walk through that with just finding peace because money is already so stressful? Let’s start from the top here of some of these ways to overcome that. How to you even begin to navigate that?

Roger: Well, the first thing I like to try to keep is balance. It’s so easy to spiral into all the bad things that are happening or at least my perceived bad things because remember, very few things are good or bad for everybody. So a lot of it has to do with perspective. And so the first thing to do is to maintain perspective.

I tick down a lot of items on a list that were kind of negative. Well, let’s look at the other side of that, that coin over the last 12 months. Some of those thing, the upheaval, people’s feeling about the election has led to increased participation in government and society by many groups that previously were disenfranchised. I’m one of those people that believes the more people that participate in the process, the better we all are going to be. So instead of disenfranchising folks, we are enfranchising folks. There’s been a complacency that is starting to shake off, and it’s always those kinds of increased participation that creates meaningful change in our history. So that’s very optimistic to me.

We have high employment. We haven’t had as high a level of employment in decades. For the first time in many, many years, there’s as many jobs looking to be filled as there are people looking for work. So, folks are being more selective about the kinds of jobs that they’re taking. To me, that’s a really positive sign.

Clark: Interesting. So, what you’re saying is, when you talk about balance and perspective, what might seem like a really challenging year, based on how you look at it, there are still good things and there are still good ways.

Roger: Yeah, we’ve had a record-breaking stocks this year. We’ve set more new highs than I think in any year in recorded history since we started having recording stock market history in the late 1890s…mid-1890s, excuse me. We’ve got a relatively stable economy. There hasn’t been a lot of ups and downs. We’re seeing pretty steady employment reports, pretty steady inflation reports, pretty steady profit reports. So that stability really is something that we haven’t seen in a long time. It’s been building and going on for a number of years, but this year was the first time, I believe, ever that we had an entire year, now, keeping my fingers across because we’re not at the end of December yet. But if December ends up as a positive month in the stock market, it’ll be the first year ever that we had 12 months where the market went up, no down months at all. That’s incredibly unique in stock market history.

So there is a lot of stuff that has been relatively positive. A lot of folks, in conversations I’ve had with clients, didn’t wanna invest in the stock market, would like to be worried about it. And yet if they took the plunge and did participate, they’d been rewarded here this year relatively handsomely. That’s not to say this will go on forever but that kind of stability does suggest that we still have more upside to go.

Clark: Good. Well, I’ve also heard you say before, as we’re thinking about how you prepare for uncertainty, I’ve heard you say a phrase before that is the antidote to fear is clarity. And I know there’s a lot of different antidotes that you have to finding peace with how you are helping your clients and all that. But the three antidotes I really wanna talk with you about today, I’ve heard you say clarity, efficiency, and purpose. So we can start wherever you want. Maybe we can start with clarity since that’s one of the first antidotes you think about. So what does clarity mean and how does someone activate that to use that to overcome the fears that they have?

Roger: Well, Clark, that’s a big part of our process is to gain that clarity. That’s really the majority of where we start when we engage a new client. There’s a number. I had a lady in here yesterday who’s been a client of mine for just about 10 years. And when she first came to me, she was stressed out, unhappy in her job, uncertain about whether she would have a secure future, really pretty much depressed. It was almost hard to meet with her sometimes. And now she’s traveling the world. She moved into a wonderful retirement community and she folk-dances, and she’s just happy as can be. She goes on folk-dancing trips and she’s made friends in different parts of the world. And it really came from clarifying what was bugging her and what she wanted.

She told me yesterday that she was talking to a friend of hers and she said I saved her life. Now, I think that’s a little bit of hyperbole and a little extreme. I didn’t save her life but what she keeps…she sent me cards and notes over the years and it said that she was able to cut through her stuff. And I believe it was the clarity and creating that vision, that purpose for her.

Based on the calls I’m getting, the emails that are filling up my email box from a variety of resources and what I’m reading both in the newspaper and online, this uncertainty is really freezing people. All these cross currents are coming in and the fear. We’ve got this tax reform and everybody’s worried about how is tax reform going to impact me. And many people are gonna get hurt by this tax reform. It’s more like a tax cut than tax reform because, frankly, it was supposed to simplify things. It’s made it actually much more complicated than it’s ever been.

That’s exactly what happened when Ronald Reagan simplified taxes in 1986. He doubled the size of the tax code. So it didn’t really get reformed, but within that, people are gonna start looking at how does it affect me. And it’s so easy to just focus on the tax element of it. The reality is if you focus too much on that tax element, you may miss opportunities. You may put yourself behind the eight-ball and not make progress towards those objectives.

So that clarity again, this is where that comes in. If you are clear at what your purpose is, why am I doing this? Why am I saving money? Why am I investing? What do I want my life to look like? If I’m sitting here three years from today or five years from today, looking back over that period of time, what has to happen to make me feel good about my progress, to make me happy with my progress? When I can answer that question, then I can pick and choose which of these changes serve me, which of these things that I can ignore. And instead of getting buffeted emotionally by everything other article, tweet, news broadcast, and locked up, I have reference point. I have that ability to sort through the clutter, if you will, and really sift out the things that are gonna serve me my purpose. It’ll make you happier once you have that clarity. I guarantee it.

Clark: Right. And it really sounds like, at the end of the day, it’s all about you. You keep talking about that individual focus. That’s what’s coming out to me loud and clear.

Roger: Well, think about it. How can you help others if you can’t help yourself? How can you care for others if you can’t care for yourself? It’s like when you get on the airplane and they tell you, if you’re traveling with young folks, and the oxygen masks come down, cover yours first and then help the people next to you. Okay. You’ve gotta take care of your own because let’s face it, nobody else is out there looking out for you but you.

So when you build your team, when you get your advisers together, when you have tax counsel, or legal counsel and financial counsel, these people, you have to vet them that they understand your vision, that they are part of your team to get you what you want. And nobody can take over that responsibility for you. There’s lots of ways that you can employ and build a team to get you that stuff. But nobody can tell you what’s important to you. You have to come to grips with that yourself and what your values are in those things. And then you’ll have the context to make those good decisions.

Again, I keep referring back to our process, but that’s where the Thought Organizer comes in. And if you’ve listened to previous podcasts, we’ve talked about this tool. It is available on our website, and you can use that tool. It’s the beginning of the process of gaining that clarity.

Clark: When you’re talking about also trying to cut out some of that noise and finding that peace with yourself, kind of finding that confidence within yourself, help yourself first, that, I think, is a good transition to that antidote. You talk about efficiency. I think, it seems like when you’re cutting out the noise, you’re creating efficiency. What does efficiency really mean though, in this context?

Roger: Well, efficiency, in this context, is really how we utilize capital money to deliver our lifestyle, both now and in the future. That’s what the efficiency I’m talking about. I find that most folks are leaking from their financial plan in ways that they don’t know about, unknowingly, and in many instances, unnecessarily.

One example is the way folks arrange their mortgage and financing of a primary residence. I see people utilizing strategies that seem logical. We’ve talked about this in other podcasts, and I’ve written blog posts about it. What seems to be important in a mortgage, do I get the lowest interest rate, is really not what are the actual cost of that mortgages. So we’re not gonna get too deep into that subject here but you can refer back to my blog and look up some of those articles. If we can plug that hole, that takes hundreds of thousands of dollars, in many cases, that we’re leaking out over a lifetime and put them back as an asset. When you do this, you can reduce the amount of risk exposure that you’re experiencing because you need to take on more risk to get a higher rate of return to overcome the inefficiency.

That was quite a mouthful to [crosstalk 00:17:50] completely confusing you, Clark?

Clark: No, that makes sense. So, efficiency, it’s more about eliminating the waste.

Roger: It’s how we use money.

Clark: Trying to plug all the holes.

Roger: Yeah, how we use money ever each and every day, understanding the cost of consumption. It’s not that we’re not gonna buy a car or go out to dinner or go on a vacation or enjoy groceries or buy new clothes. It’s how we finance that. Everything you spend money on is finance. I think maybe that’s that topic we will get to in the 2018, it’s understanding that all spending is finance.

All financial decisions have a financing cost, and so understanding how to deliver those different items that make up your lifestyle at a lower net cost, that’s what we talk about when we’re talking about efficiency, whether it’s reducing taxes, fees, hidden costs. It comes in many shapes and sizes. This is a real big reason to use an advisor is because a good adviser that is truly an advisor, not just an investment manager, is studying taxes, is studying alternative investments, is studying different strategies, is understanding risk management, estate planning, control issues, and all of these things and how to make it all work together. See, it’s that coordination and integration of all your financial decisions that leads to that efficiency.

Clark: I hear you. That makes sense, and that brings us to our third and final antidote, purpose. What is purpose? How does that fit with clarity and efficiency? How does purpose fit into how someone can prepare for the uncertain future?

Roger: Well, purpose is understanding your why. Without that why, then you’re kind of just chasing your tail, if you will. It’s like the guy we sat next to on a flight a number of years ago. I was in the window seat. My wife was in the middle, and this gentleman was in the aisle seat. And she was engaged in a conversation with him. And I was reading something from a conference we were just coming back from. And I wasn’t paying attention to their conversation, but all of a sudden, I hear, “Oh, and my husband is a financial advisor.” And this guy perked up and he wanted to meet me. And he leans across my wife, he looks at me, and he said, “Nice to meet you. I’m looking for an investment that pays 15% with no risk.”

I don’t know if he was testing me or what. The gentleman had started and sold a number of high tech businesses. He was worth quite a great deal of money. And I looked at him and I said, “Well, why do you want an investment that pays 15% with no risk?” And he looked at me and says, “Well, who wouldn’t want that?” I said, “I don’t know, but I wanna know why you want that.” And he couldn’t answer because he didn’t know what his purpose was, what his why. So he was going through the motions.

He was starting businesses. He was making tens, if not hundreds of millions of dollars, and he was still interested in having more, and yet the gentleman was…as I got to talk to him, he wasn’t happy. In fact, he was rather melancholy and lived a very melancholy life. He was kind of a shut-in hermit even though he was a young man, probably in his early 40s. He went to movies. That’s what he did with his life, and he went on his own. That’s what he and my wife were talking about, were movies and books and film. That was it. He didn’t have personal relationships. He didn’t have things that brought him joy. They’re just things he could observe and analyze. That was really instructive to me, money, they always say money can’t buy happiness. And that was just an immediate illustration of that fact.

So, when you get that purpose, why am I doing this? Do I wanna change mankind? Do I wanna improve things? Do I wanna make my family better? Do I wanna discover better health? Whatever it is, that becomes your filter and also becomes your focal point. So if things don’t serve that purpose, that why, then you just disregard them. You discard them. You don’t let them get in your way. That’s really why that becomes an antidote.

When we look forward to 2018, the first quarter is gonna be just filled with articles and commentary about the new Tax Act. This is gonna be the talk of the town. It’s gonna be on everybody’s lips, and you’re gonna start worrying and thinking. And I guarantee that there will be some new planning opportunities available as we dig through this 500-page monstrosity that, by their own admission, they’re not sure, the folks that are voting for it aren’t sure what’s in it. And I saw the head of the House Ways and Means Committee last week said, “We’re gonna have the mother of all Corrections Act,” that was a direct quote of his, to fix this thing next year because there’s all kinds of loopholes and stuff that are riddled throughout this legislation.

So as we in the industry get a chance to look at it, there’s gonna be lots of opportunities for you, but whether those opportunities make sense for your specific situation, without that purpose, without that point, you can get buffeted back and forth with these different strategies and different challenges. So, clarifying that purpose and what are your objectives, that’ll help you sort through all this stuff that’s gonna be coming down. We’re gonna be drinking from a firehose for a little while, with all the changes and information and data that’s gonna be coming out about all of this.

So, that clarity, that purpose is gonna allow you to pick those opportunities that are hidden gems in this legislation. At least I hope there’s hidden gems. There almost always is. There’s been some pretty onerous tax acts since I started my career in the ’80s. And almost every time, there’s something that you go, aha, I had no idea this was in there because most of the time, they don’t know either. That’s the fact.

Clark: Wow. So interesting, yeah.

Roger: When you look forward, and one of the things that…always remember what happened before. That’s the other perspective that will help. Every time we go through low volatility periods, and I talked about how there hasn’t been a market correction this entire year, there hasn’t been a down month at all. We’ve gone nine years without having at least a 10% correction in the markets, which is unprecedented, and it’s like winding a spring. We can ride this thing but, boy, it’s time to be very, very cautious and to make sure that these strategies, the profits that you’ve made over the last couple of years stay in your portfolio.

So I’m not suggesting people sell. I’m not suggesting people get out or ignore the markets. But if you know where you are in your life cycle, if I’m 40 and there’s a correction, let’s think about the last two major corrections. It took five years each time to make up for the lost ground. So if you are within 5 or 10 years of retirement, do you have the time? This is what I mean by clarity. If I don’t have time to recover, it doesn’t matter that I made 10% or 15% or 20% or 5% last year. What matters is that I don’t lose 10% or 30% or 50% sometime in the next two or three years. That’s way more important. It’s math and science. I’d be happy to go through the math with anybody that would like to understand.

And when you have the backdrop of clarity, of purpose, and you’re working efficiently, this frees you up and you’re thinking to make clear decisions about investments, risks, strategies, and those sorts of things. While there are opportunities and reasons for optimism, there’s also a big yellow light flashing, it’s time for caution. It’s time to read between the lines and to know where the exits are. Just like when you get on that airplane, the first thing they tell you is figure out where the closest exit is, in case something goes wrong. So know where your exit is from those financial strategies that might require change or rebalancing.

Clark: Roger, this has been super helpful. I really loved how you started off by talking about balance and then using clarity, efficiency, purpose, and how you navigate those uncertain waters. And I know you just said you’d be happy to talk with someone about the math, science, using your lens and your experiences. So the best way to do that…I know you mentioned it once, but we’re gonna mention it again because it is the first step that someone can take with working with you. That’s the Thought Organizer. So do you have any final things you wanna maybe add about the Thought Organizer and why that’s so important with the process you follow?

Roger: Well, the Thought Organizer, I always wanna remind folks, there are no wrong answers. It only takes about 10 minutes to fill it out and just whatever pops into your mind, you’re filling this out for yourself. You’re not filling it out for me or anybody else. The other thing is if you’re married, you have a spouse or significant other, that is your financial as well as emotional partner, you should both fill one of these out separately.

Clark: And then what?

Roger: Well, the number one reason for people getting divorced is finances, disagreements over money. So you wanna know where your differences are and gain clarity. There’s that word again. So if you and your spouse go to separate corners to each fill it out, then you can compare and see where you guys are on the same page and where you have differences, and then discuss those differences in perspective or feeling, because they’re both valid and they’re all valid. These are just emotions, but you can get on the same page with each other. It will take a lot of the retribution, the anger, the suspicions, the things that happen when you’re not sure where your spouse is coming from in regard to money.

This is the first step in that clarity of purpose and discovering your why is that Thought Organizer. I can’t emphasize enough why it’ll help you if you’ve never done this exercise. And then if you need somebody to help guide the conversation and help you apply that to you individually, anybody that’s listening to this podcast today, if you tell me you listen to the podcast, I’m happy to offer you a free consultation, about 45 minutes, and we can go over things and take that next step in helping you build your own clarity.

Clark: Roger, thank you so much, as always, really enjoyed our time together, and I can’t wait for our next session.

Roger: Well, Clark, I always look forward to this. I wanna wish you and your family just a great holiday season. And there’s so much to look forward to in 2018. Take advantage of it.

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 & 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.


Roger holds the coveted and well-earned designations of Chartered Financial Consultant (ChFC®) and Retirement Income Certified Professional (RIPC®) from the American College. He is also a licensed insurance agent for life and health insurance, a Certified Paralegal for Estate Planning, and a current board member of SASM.

Podcast: Risk

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.


Roger holds the coveted and well-earned designations of Chartered Financial Consultant (ChFC®) and Retirement Income Certified Professional (RIPC®) from the American College. He is also a licensed insurance agent for life and health insurance, a Certified Paralegal for Estate Planning, and a current board member of SASM.

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Podcast: State of the Art Income Planning

The following is the transcript from Episode 13 of Retire Happy with Roger Gainer, a financial and business audio podcast.

Roger: Retirement income planning is really the critical piece of the puzzle to financial security, happiness, and peace of mind in the long run. There’s a lot of ways to approach it, but stumbling into a strategy is not gonna lead to the results you’re looking for.

Clark: You’re listening to “Retire Happy” with Roger Gainer, President of Gainer Financial & Insurance Services Inc. Just about anyone you ask about money and about retiring, they all have their own opinions, they never run out of them. But how do you know what opinions are worth listening to? How do you know what tools actually work? And what should you avoid? But rest assured because, in this episode, Roger is discussing the tools and the strategies he uses when it comes to income planning. But he also shares some of the other common strategies that are out there that are being used right now by advisers today, along with the pros and cons of each of these. Truly helpful as you’re walking on this journey. Thank so much for joining us. I’m your host, Clark Buckner. Let’s jump right in.

Roger, welcome back to another episode of “Retire Happy.” Super excited to be back on the line with you. I always really enjoy these and we’ve got some good things we’re going to cover today. But first, just want to say a quick hello and check in to see how you’re doing?

Roger: Doing great. The sun is shining. We’re just waiting for life.

Clark: The sun is just always shining, right?

Roger: Well, it rained a couple of days ago, but it just is a beautiful day here in downtown San Rafael.

Clark: I love it.

Roger: Everybody seems to be getting ready for the holidays. The trees are in different colors. It’s just a beautiful autumn day and we’re very excited. It’s a great time of the year. You can feel the…

Clark: You can feel.

Roger: …holidays starting to get into full swing and that’s just always a wonderful time of the year as far as I’m concerned.

Clark: Good deal. Well, I am eager to talk about the topic “State-of-the-art Income Planning.” Now we’ll explain what that means. And it’s quite the epic title and it’s a phrase, you kinda spun together, you know, just a few moments ago and I love it. Let’s roll with that. So, we’re going to talk about, I know you’ve just got a new certification from…it’s called RICP from American College. We’ll talk about what in the world that is, why it matters. We’re going to talk about some of the different strategies that advisers are using today when it comes to retirement and to stay out of the weeds. But we’ll still talk about three or four of the main different styles and strategies and then finally, maybe we can get to some of the pros and cons to be looking out for when planning to retire happy. So, let’s just start from the top. So, what is RICP? What’s the certification? Kinda walk me through why you’re really pumped about this.

Roger: Okay. Well, sure, Clark. I’m very excited. I did just earn my RICP, well, about six weeks ago. It takes the American College about a month or so to check your background, make sure you finished all the prerequisites, and experience, and work requirements to be conferred the designation. It stands for Retirement Income Certified Professional. And the American College is currently the only place you can get that designation. The American College also conferred my CHFC, my Chartered Financial Consultant. They do CFP, a Certified Financial Planner, CFA, Certified Financial Analyst, MSFS, Master of Science in Financial Services, and a whole bunch of other financially-related degrees and designations. So, they are kinda the state-of-the-art for financial education in this country.

It is a university in Bryn Mawr, Pennsylvania, solely dedicated to that area of education. I decided to get this because it’s what I do. I’ve been helping people plan retirement income and the transition of retirement for really more than 25 years. And for years and years and years, I kind of felt like I was sticking out like a sore thumb because I always explain to clients that we look at accumulation strategies with an eye toward consumption. A quote that used to be on my website was historically attributed to Will Rogers, said, “The most important thing in any investment is the return of my money, not the return on my money.” Now I found out years later after doing some research that he never said that, but it sure sounds good and the…

Clark: That’s probably the case for a lot of people, isn’t it?

Roger: Yes, it is. Yogi Bear gets attributed a lot of things. So, like, “It ain’t over till it’s over.” He never said that.

Clark: Okay.

Roger: But it sounds good and it sounds like him. And Will Rogers certainly was the conscience of America. And I found, over the years, that everybody gets taught and told and explained, how to get money into investments, how do you contribute to your 401k, how do you finance and purchase real estate, how do you build a stock portfolio, invest in a hedge fund or, you know, those kinds of things. But almost never are people explained how to get their money back out and how to live off that money because, after all, if we’re saving for wealth, wealth in and of itself doesn’t do anything. It’s not going to keep you warm at night, it’s not going to fill your stomach, it’s not, like, you’re going to tear up a bunch of greenbacks and, you know, fry them up and eat them for dinner. That’s not what it’s for.

Clark: Okay. Yeah. I like the visual here.

Roger: Okay. So, well, money has to be for a purpose. And for most people, that purpose is not keeping score as much as it is to create security. See, there’s only two ways to live and that is you at work or money at work. The bottom line is to support your lifestyle, is that it requires income. Think about it. You can’t…say you own a house and you own it outright and you want to go down to the Piggly Wiggly or a Safeway and pick up dinner, it’s not like you can knock a couple of bricks off the porch, take it down, and hand it to the cashier and say, “This is $50 worth of my house.” Right? That just doesn’t work. So you need income. And income planning for previous generations was a lot easier, frankly. We had more people covered by pensions, so you didn’t have to really think about that income strain, it just came in, Social Security made up a larger percentage of people’s expenses, and we had higher interest rates.

You know, if we were having this conversation, Clark, back in say…oh, I don’t know…1980 when interest rates, you know, the prime rate was up at 18%, what would we be doing? We’d be out buying CDs, or treasury bonds, and locking in a very high coupon for years and years to come and just live off the interest. It would be a piece of cake, really. Where today, you know, 10-year treasuries are returning 2.3%, 2.4%. That’s not enough to live on for most people. So, this is why we’ve seen this evolution, some would call it de-evolution, of income strategies. It’s something Wall Street has tried to ignore for years and years and years.

I’ve always felt that it was a priority because I could see this day coming 15, 20 years ago where baby boomers would be retiring in droves because we were reaching our mid-60s and 70s. And how would we sell our assets and create income streams? Now, Wall Street kinda paid it lip service for years. And there was a generally accepted strategy where you could have 60% stocks and 40% bonds and draw 4% a year from that portfolio and inflate it by whatever the inflation rate was each year. And you had about a 89% probability, according to financial simulations, of having your money last a lifetime. And as far as Wall Street was concerned, that was good enough. It was based on a research paper done back in the ’80s and they said, “Okay, this is great.”

And why was it great? Because it kept your money invested and by keeping your money invested in a portfolio of stocks and bonds, they continue to earn fees. So, you know, they didn’t want to switch it to an income stream or move into an alternative strategy that didn’t continuously provide those fees. So this strategy was generally accepted. I’ll never forget, I was doing a workshop one day and I was talking about this strategy. And a guy raised his hand and I asked him, “What was your question?” He said, “Why would anybody follow a strategy that had an 89% chance of succeeding? I wouldn’t get on an airplane that had an 89% chance of getting to my destination. I’m sure not going to trust my future to a strategy with those odds.”

I thought that made a lot of sense to me. But now 2008 came along, 2009 and that blew up the 4% rule. Now generally accepted, it’s a 2.8% to 3% rule, which clearly isn’t enough for most people. So we have modifications on that. And we’ll talk about that a little bit later. But I went and got the RICP simply because I wanted to know what the state-of-the-art was, I wanted to see if the strategies that I’ve been pursuing for years were, in fact, valid based on, you know, the academic breakdown and analysis, and if there was any other information out there that could really help me both protect and secure happy retirement for my clients and found that there was a lot of stuff. And also that a lot of what I was doing is now coming into the so-called state-of-the-art.

Clark: Great. I think that’s a really good transition to talk next about what’s happening and the overall retirement business. I know you’ve just got this particular certification, so you’ve been kinda revisiting some of these different strategies and revisiting with just what all is happening right now. So, this next question is, in the context of what’s happening overall in the retirement business, what strategies are different advisers using for income planning? I know you’ve just talked about one a moment ago, but if you wanna…just to keep it high level three to four main ones…what are some of the Styles and then the why behind that? Why would that style be a good choice?

Roger: Okay. Well, first and foremost why, you know, income planning becomes the most important thing at this phase in life? For an entire lifetime, your working life, your bills are paid based on your ability to wake up, head off to work, and earn a paycheck, whether it’s in your own business or working for somebody else. And that’s how you pay your bills and you take, hopefully, a portion of that, you build it into savings and build some wealth and net worth. And people do a pretty decent job of focusing on that job. And the strategies we’re taught are wealth-building strategies, things like dollar cost to averaging and, you know, avoiding losses, diversification, all those wonderful things that you’ve learned about in building wealth. But at this transition in your life, it’s the first time you’re going to do something different, radically different, a 180 degrees different.

You’re going to now stop bringing in a paycheck for your financial security and instead, you’re going to turn to your money at work and you’re going to want a paycheck from the money at work. And so the demand is different. It’s a very awkward transition for many people, that’s why I focus on it. And there’s way more than just money involved in this transition as we’ve talked about before, Clark. But it does in my experience require a different approach and this can be incredibly uncomfortable, not just for clients, but for advisers. People in financial services who’ve done one thing one way because, frankly, their clients weren’t that old. So, they didn’t have to worry about people wanting to take money out. They just were worried about building more wealth and creating those investment strategies and that sort of thing.

I can give you a great example. I have a lady coming in later this afternoon and she’s working with another adviser. She came to me for kinda a second opinion and I went through our process. She’s pretty conservative, she really doesn’t want to experience much in the way of volatility or losses. And she started with these advisers, wealth advisers, investment advisers, about a year…just about a year ago, right at the beginning of 2017. And when she came to me, she’d been working with them about six months. She told me she really liked them. She thought they were quite intelligent. And I said, “Well, you know, you were working at a big corporate job. You were knocking down a nice six-figure income and you’ve just retired. Now, you’re, kinda, doing a little consulting work on the side. Your income has dropped dramatically” And I just said, “What’s the income point?”

And the adviser said, “Well, the portfolio is constructed. It’s spinning off about $45,000 a year.” Her problem was she needs $145,000 a year in income from that portfolio. So, when I sent her with that question, they said, ‘Well, we’re just gonna cash stuff in.” I said, “Well, why don’t you just take the cash that’s being generated when they make a trade or take profits?” And they said, “Oh, that messes up our strategy. So, we’re gonna sell things specifically to give you income each and every month.” And that’s fine except…then I asked her to find out what their tax strategy was? And the adviser came back and said, “That’s not our problem and it’s not our area of concern. Our concern is to make you money and your CPA is gonna take care of the taxes.” Well, I don’t know about you, but if you’re paying out 35% in taxes, that’s a drag on performance any way you look at it.

So anyway, we’ve been going back and forth trying to get an income strategy out of the adviser. And the adviser really works with… It’s become very apparent to me, works with a one or two portfolio strategies and then they just fit everybody into that strategy. So, their answer is, “Well, we’ll just cash it in.” Now they have come back recently with one of the four state-of-the-art options, but when you really analyze that option, it’s going to have a devastating effect on overall performance. So they said, “Well, we’ll just keep four or five years worth of your income sitting in cash or in short-term bonds, which we know are paying very much.” So, if she needs a $140,000 a year and they’re gonna leave that amount of cash five years’ worth, well, that’s, you know, almost 3/4 of a million dollars, five years’ worth of that money.

That’s a little over $700,000. And given the overall size of the portfolio and that much money sitting in non-competitively yielding investments, she’s going to run out of money. You know, as sure as I’m sitting here, I’ve worked through the projections. And she’s going have to never have a correction and earn at least 7% or 8% every year. Now the problem is, in a really great year, that manager only returned 6.5% over the last 12 months. So how in the world are they gonna give you those returns in bad years? In fact, she’s coming in today, we’re gonna have…that’s the discussion. You know, how is this going to be a viable strategy for you going forward?

So, one of the more popular Wall Street strategies is the systematic withdrawal strategy and all that says is you input a percentage withdrawal from your portfolio each and every year. And in years that the portfolio is up more than 10%, you can give yourself a raise and if the portfolio is down more than 10%, you have to take a cut in pay and adjust your lifestyle down. I think the drawbacks of that strategy are pretty obvious.

Clark: Right. Yeah.

Roger: And most of my clients are now looking to tighten their belts during retirement because the market was down. You know, I think that’s kinda goofy. Why should your financial peace of mind and lifestyle be that dependent on an outside index? But it is a valid strategy and mathematically, it makes sense. And what it does, if you’re willing to take that cut in pay, it will extend the life of your portfolio and because down markets aren’t gonna have as much damage by withdrawing money from your portfolio when the market is down the same amount. Does that make sense?

Clark: It is. So that’s systematic withdrawal and basically, it sounds like you’re taking some of the money out of the pile until the pile is gone.

Roger: Essentially that’s it.

Clark: Essentially.

Roger: And you hope that the pile isn’t gone before you are.

Clark: Right. Yeah. That makes… Yeah, that makes it… It’s real life, right?

Roger: Yeah. I have a lot of clients who come to me and they say, “A perfect strategy would be for me to spend my last dollar on my last day.”

Clark: What do you tell them?

Roger: Well, we can do that. Our strategy is that we’ll guarantee that that’s exactly what happens. However, you know, for most people they need that cyanide pill because they don’t know when it happens.

Clark: Oh, no.

Roger: And so when your account is empty, you better have that pill handy…

Clark: Yikes.

Roger: …because that’s your last dollar. So you better have the other side of that equation in place.

Clark: It’s just a lot of uncertainty, yeah. That’s just, like, slim, slim chances.

Roger: A lot of uncertainty, exactly. You know, and that’s one of the hard things is, you know, you don’t wanna leave a whole lot that you could have used or enjoyed more, right? I mean, what’s the point of struggling and scrimping and, you know, not enjoying your life, so you can leave a bunch of money to somebody else? I mean, I know that’s important to a lot of folks and we can build strategies to take care of leaving a legacy to others, whether it’s to charity, family members, dependents, etc. But what I’m really talking about is creating that confidence to enjoy the lifestyle of your choice and not run out of money. And if you’re worried about running out of money, that creates its own stress.

I was at a conference a couple of years back and the speaker was talking about this very thing, he said, “My folks were both school teachers and both retired with pensions. They lived a modest life and they enjoyed the things they enjoyed, but it was just a simple life. And now they’re retired, they have some savings, but they both have pensions.” And his wife’s folks owned a business, were very, very wealthy, lived an extravagant lifestyle. And the gentleman had planned out his life’s retirement based on the numbers. Your life expectancy is gonna live to this many years, and you need this many dollars and this rate of return and, you know, everything will work out fine. He’d set up his spreadsheets and figured out, you know, how much he could spend and he figured he’d be dying around age 80.

The problem was he’s still alive at 87, but he ran out of money at 80 and realized that that was going to happen at about 74. So he spent six years stressed out that he was going to run out of money and then he ran out of money and now they’re miserable. So, they really didn’t get to enjoy much of anything. And the difference is that reliable income stream instead of systematic withdrawal. So, that’s one of the cons of that strategy. Now it does get a little bit better if you add what this other adviser…if you have enough money to add that big element of cash. But for most people, it means having more than a third of your portfolio at a given time in cash and today, most cash strategies aren’t paying very much.

Maybe in a future podcast, I’ll talk about a strategy for cash that is paying more like 4% tax-free in liquid these days, but it’s a pretty obscure strategy and a lot of people just aren’t using it. So, what the bank is paying is less than a 0.5% for the most part.

Clark: I can, of course, understand if some of these other questions… This might need to be a continued conversation because I know over this whole podcast, it is…you know, we have these individual conversations, but it extends to one much larger conversation. But I did want to ask before we start wrapping up today, are there any other strategies you want to talk about, whether it has to do with tax diversification or accumulation?

Roger: Okay.

Clark: Anything else, in the last couple of minutes, you want to talk about of the strategy type and kinda what that could be a tool for someone?

Roger: All right. Well, I do want to talk about tax diversification. But let’s kinda just check off some of the other major strategies. One is called the flooring strategy. And I kinda referenced it, why it was easier in previous generations because they had pensions. So, flooring strategy says we set up guaranteed income streams that will cover all of your main bills. So, it makes sure you have a roof over your head, you know, transportation at your access, and food in the fridge. And it’s so all of your basic necessities are taken care of with highly reliable income streams, be it Social Security, pensions, or other alternative income streams that you cannot outlive. That’s what we’re talking about. Sometimes annuities are used in that, sometimes long-term bonds, real estate…it can be a substitute, but it’s not as secure as these other ones because obviously if a tenant stops paying, you lose your income.

So there’s a little element of uncertainty when we use real estate that we try to lay in some protections to make sure that if we’re going to depend on that real estate income for this purpose, that it’s highly reliable and very, very conservative. So, that’s the flooring approach. Another approach is called the bucket approach. And we have a bucket of money for what we’re going to be spending here in the next two or three years. And so the strategy that I talked about earlier is a modified bucket approach. They didn’t really have the other buckets designated. So then we have an intermediate bucket, if you will, that will pay our expenses in 5 to 10 years so we can earn a little higher interest rate. And then the third bucket is your rest of the life money and we can invest that a little bit more aggressively and harvest gains when they’re available to add to the second bucket for that intermediate-term boost if you will.

And then we’re harvesting off the intermediate term and putting it into the near-term bucket. So, a little more effort to track that, but still very, very workable and reduces the fear of market corrections and volatility in that main strategy. Now you did mention tax diversification and I’d like to just touch on that because it’s really been in the news a lot lately. We have the House of Representatives recently passed a plan. And it looks like next week after Thanksgiving, the Senate is going to be voting on their “plan for tax reform,” is what they’re calling it. And it changes quite a number of tax features. And for most people, over the next 10 years, as written, what’s been released, will actually increase your taxes. You’ll get a small drop in taxes in the next couple of years and then a fairly significant increase in taxes 6, 7, 8, 9, 10 years out for most middle-income and low-income Americans.

That’s just the way it’s been written and I don’t want to get into the weeds on that in this format. But the point is that Congress will never stop messing with taxes. So, if all of your money is sitting in a 401k right now and you’re looking at them increasing ordinary income taxes, see it doesn’t matter how good my strategy was. If I could earn an extra 2% or 3% over my lifetime, they can wipe that out by increasing taxes by a few percentage points. And all that hard work just gets wiped out with the stroke of a pen. So, that’s why one of the things we really focused on is trying to get clients to diversify under the tax code. Wealthy people understand this because they don’t earn income, they just have stuff that earns them income. And so when they change the tax law, they just shuffle the stuff around to a more tax advantageous posture.

And it’s possible for middle-income people to do the same, you just have to think about it in advance. There’s lots of different tools out there. There’s Roth IRAs, you know, when we can get tax-free income, there’s individual stocks and real estate, where we can do capital-gain-type taxation. So, this is the kinda stuff I’m talking about, not just being in that ordinary income, which is how your 401ks, IRAs, TSAs, Social Security, all that stuff, pensions, is taxed as ordinary income. So, you don’t want to be too vulnerable and just be in that one part of the tax code because then you’re really at the mercy of Congress.

Clark: Now how in the world do you keep track of all that, everything that’s happening with Congress, with the Senate?

Roger: I read a lot.

Clark: Well, I think it’s a good point because I think for some people who are trying to do all this alone, you need to have someone who’s living and breathing in in this whole world because everybody has an opinion about what you should be doing, but you’ve got to be… I’m sure. I mean…

Roger: It should be an informed opinion based on research. And today there’s so much “information.” It’s not all valuable information and there’s a lot of misinformation, the so-called fake news that’s out there. So, we have a process to parse through some of this stuff and look for confirmation from different perspectives and other resources. But, yeah. It can be daunting, but that’s what we expect from our professionals. If somebody hires me, I’m pretty sure they want me to be up on the state-of-the-art and understand how changes in tax codes is going to affect them personally, how changes in the investment climate or investment products is going to affect them personally. You know, when…I had a hip replacement last year and I certainly wasn’t going to do it to myself. So, I did a bunch of research, but I sure counted on…

Mostly I researched the doctor to make sure that they were up on the state-of-the-art and knew all that stuff. I found a great doctor, and we had a great outcome, and I’m just dancing these days. So any professional really needs to stay up on the state-of-the-art in their profession. The world’s a lot more complicated these days than it was 50, 60, 100 years ago.

Clark: Right. Well, for someone who is at that beginning stage, who’s trying to think through all their different options and starting to just try to get just a start with organizing their own thoughts on where all this stuff is, I’ve got to mention the thought organizer. And I always love to do this because this is always such a great spot to not just leave someone hanging, but actually give them, the listener, an actual opportunity to use a free tool that you offer that helps them navigate just the beginning waters for all of this. So, do you want to, kinda, provide some additional insight into what the thought organizer is and why it’s so important?

Roger: Well, sure and thank you. The thought organizer is really a first step on clarifying you’re thinking about what you want from your life, both intellectually, emotionally, socially as well as financially. That’s really what it’s designed to do, is to get you thinking and creating the contexts of, “What the heck am I doing all this for?” Until you know why you’re doing it, you know, understand your why, you’ll never ever be happy with what you’re doing. And as long as you can maintain context, it’s much easier to create that satisfaction and to frankly select strategies that fit. You know, we were chatting before we started today and I was talking about, you know, how good you feel when you’re buying new clothes and they fit properly, and you look in the mirror, and you look good, you feel good, and you’re just ready for anything.

You know, if they’re two sizes too small or too big, you’re thinking more about how uncomfortable you are then just what’s going on around you and enjoying being. Well, it’s pretty much the same thing with some of the strategies I’ve just mentioned. Those are basically, you know, fashions, different ways of approaching the same problem. So, when you use the thought organizer, and you’ve created your context, and you understand what things make you uncomfortable and what things you’re comfortable with and where you like to see your life in 5, 10, 15, 20 years, you start selecting those income strategies that fit, that are comfortable for you, that will lead to that peace of that mind, which is so critical in achieving happiness in your life.

And I know you’ve got a few years to go, Clark, before you’re really coming down that homestretch to retirement, but the sooner you start thinking about those kinds of issues, the easier it is, the more you are in sync, so that when you get here…you know, when I sit down with somebody who has never thought about these things and they’re in their mid-to-late 60s, it’s a lot more traumatic, it’s a lot more difficult, and there’s a lot fewer options available. So, yeah, the sooner you start on figuring this stuff out, the better and easier it’s going to be.

Clark: Thanks, Roger, as always, for sharing your experiences and talking about some of your different stories that really kinda help make all of this so much more real and understandable. I really appreciate it and I’m looking forward to talking with you again soon.

Roger: All right. I do too. Have a great holiday. Everybody, just enjoy your end of the year, all the goodies that come with it.

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 #0754849, is licensed to sell insurance and annuity products in California, Illinois, Arizona, Pennsylvania, and New York. Roger L. Gainer is an investment adviser representative providing advisory services through HFIS Inc., a registered investment adviser. Gainer Financial & 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.”


Roger holds the coveted and well-earned designations of Chartered Financial Consultant (ChFC®) and Retirement Income Certified Professional (RIPC®) from the American College. He is also a licensed insurance agent for life and health insurance, a Certified Paralegal for Estate Planning, and a current board member of SASM.

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Podcast: Learn More About a Fiduciary Rule & Robo-Advisors

The following is the transcript from Episode 12 of Retire Happy with Roger Gainer, a financial and business audio podcast.

Roger: A lot of people are just plain intimidated and overwhelmed by this decision making process and understanding what they’re investing in. So this is my great concern is cutting off a large chunk of our population from really the financial education and support that they need to be successful.

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. In today’s episode we’re going to learn more about a fiduciary rule, recently put in place by the Federal Department of Labor and how it’s gonna affect the advisors and clients when it goes into full effect at the beginning of 2018.

Along the way, we’ll also dive into the world of Robo-advisors. What that means? We’ll get to that. And how conflicts of interest can play an unexpected part in the world of finances. For more content like this, be sure to visit gainerfinancial.com. Enjoy the show.

Roger, welcome back. I’m so excited to talk with you today about an interesting topic. I’ll kind of tee it up in just a moment. But first, how are you doing?

Roger: Oh, things are great, you know. Summer seems to have exploded on the scene and it’s just a great time of the year. A lot is going on and we had a great client appreciation event last week. People had a great time and it’s just our way of saying thank you. And it just kinda opens up the summer season where it’s just non-stop. Good things going on.

Clark: Well, speaking of summer, you went on vacation recently, right?

Roger: Well, actually we went to a dear friend’s, kind of our godson informally, his graduation from University of Colorado in Boulder. So that was great. It was a great weekend. I hadn’t been back to Boulder for many, many years. My wife had never been there and…it’s just a great little town.

Clark: Wow, I love that. Well, good. I’m glad that we’re back together and I’ve got a topic in mind that would love to have your clarity on. So recently in the years, and there’s a lot going on in the news these days, but recently in the years there’s a new set of rules of the fiduciary standards.

Roger: You mean the Department of Labor rules that went into effect last week?

Clark: Right. So there’s like a new standard for advisors. There’s a lot of different opinions and perspectives on it. So with these standards…you know, what are they? What challenges does it create for both advisors like you and customers who are looking to plan for retirement? People who are trying to navigate, can seem very daunting and very overwhelming.

Roger: Well, you know, like any major shift in policy regulation, really in any endeavor, it takes a while to figure out exactly how it’s going to affect everybody. You know, when we had the healthcare overhaul a few years back, we didn’t know what that was going to do to premiums exactly and now we know. We’re a few years down the road. I kinda call that the law of unintended consequences.

But with this rule, we’ve changed the nature and the format for providing advice to folks about their retirement accounts. So this is a Department of Labor Fiduciary Rule. And it went into effect last Monday except it didn’t fully go into effect last Monday because they’re still taking a commentary, the Department of Labor. They’re still writing out some of these regulations and fleshing them out. And the full rule won’t be implemented and in place until January of next year. So we have some early parts. There’s some new disclosures that we have to offer. But I think maybe it will help people to understand what is different. What does it mean to be a fiduciary?

Fiduciary, the short version is I have to put my clients’ interests before mine. And I know a lot of people thought, “Well, wasn’t that the way that it was always supposed to be?” I voluntarily became a Fiduciary about 10, 11 years ago. I gave up my registered rep broker’s license, and I’m a fee-based financial planner now. And up until last week, about 15% of the industry operated voluntarily under the standard by becoming a registered investment advisor or affiliating with a registered investment advisor as an investment advisory representative, which is what I am.

So what that means is simply we sign an agreement with folks and I can do comprehensive financial planning for people looking at taxes and estate planning, risk management to, yes, investments and other business agreements, etc.
This is a more specific rule because it just regulates how advisors have to act in relation to helping people with retirement accounts. So what are those? IRA’s pretax contributions, deferred compensation plans that are ERISA plans, not deferred compensation that isn’t 401k’s, money purchase plans, SPEs, SIMPLE plans, and the like. So anytime you have money in a retirement account and you sit down with an advisor to discuss what’s in the account, this fiduciary rule is what’s in charge and dictates the engagement.

Clark: Okay. So when we zoom out a little bit and we kind of create this two different buckets with challenges that advisers have and then the challenges people looking for retirement help, people looking for assistance. What would be like maybe just two or three bullet points? We had a bullet way down like just top of mindset of what those are.

Roger: Okay. Well, for investors, one of the big concerns if you’re a middle income or lower income investor, in other words, you’re starting out, you’re just trying to put some money away, send it forward, build some capital, the liability is gonna be so high. It’s gonna be very difficult to find advice from anybody, anybody to discuss how do I get money out of here? What’s the best strategy? What kind of investments are appropriate for me?

In fact, many brokerage firms have already eliminated advice on IRAs and the like. They’ve jettisoned that business altogether because the liability is potentially very, very great. Again, the vagueness of the standards that have not been written yet have caused many people to give pause. It’s considered that Robo-advisors…and I don’t know if you know what that is, but there’s…

Clark: Yeah, how do you define a Robo-advisor?

Roger: Well, Robo-advisors are investment platforms that are run by computers. So you essentially go to a website, you register, you answer series of questions about mostly risk, and they make investment recommendations in portfolios that are managed by computer algorithms. So they really are Robo-advisors. There’s not a human interaction in that decision making process.

These forks are likely to flourish actually under this model, whether that is good or bad, only time will tell. This is a relatively new phenomenon. Robo-advisors have only been around for three, four, to five years. And we’re still working out some of the kinks and seeing how that works out for the investing public. I think there’s some potential there, certainly.

But otherwise, you’re gonna be on your own, you know, going to places like Fidelity or Vanguard making these decisions on your own, or paying somebody like me. And that’s where it really is gonna break down for that new investor or somebody that doesn’t necessarily have hundreds of thousands or millions of dollars in one of these accounts. They’re gonna have to pay me by the hour, and that’s gonna keep a lot of people away from working with somebody like me and getting advice.

So they’re kind of gonna be running around in the dark. And from talking with thousands of people over my career, a lot of people are just plain intimidated and overwhelmed by this decision making process and understanding what they’re investing in. So this is my great concern is cutting off a large chunk of our population from really the financial education and support that they need to be successful.

Clark: In previous podcasts, we’ve talked about how important it is to remove emotion, right? Remove emotion from making decisions. And I’m assuming about Robo-advisor, I mean, there’s obviously no emotion there, so that’s probably a good thing. But I’m curious, so, well, what do you think are some of the potential challenges based on the people you’ve talked over your entire career, or you just mentioned thousands of people, what do you think would be a downfall, even though they don’t have emotion and that’s a good thing, what do you think is a bad thing with that style or that tool of the Robo-advisor?

Roger: Well, one of the things I worry about and there’s been a lot of studies that show that people who work with advisors tend to not be as emotional in making financial decisions. And so if I’m working with a Robo-advisor and we start to see a crash like 2008, you know, is somebody gonna jump out and never get back in? Are they gonna say, “Oh, I can’t put money towards my retirement. I’m just gonna lose it anyways”? I’ve heard a lot of that in the early 2000s and again in ’08, ’09. “What the heck? I don’t wanna save it and then just lose it in the market. I might as well just have a good time now and worry about it later.” So I think there could be a reduction in participation in savings programs. That’s probably my single biggest concern.

Now one thing I’ve learned about people is people don’t like to be wrong. Even though being wrong gets you to the best right answer eventually and the most successful people got no or failed more often than others, people just don’t like to be wrong. I’ve had people come in here that were referred to me six or seven years before they actually showed up, because they were embarrassed about what they were doing. They didn’t think they were doing as well as they should be, or they didn’t think that they were in the right investments. And they didn’t want somebody to tell them they were wrong.

So they just didn’t come and seek advice just because of the ego, even though they felt a little bit overwhelmed or a lot overwhelmed in a couple of cases that come to mind, and they knew they weren’t on sustainable courses. They were just afraid to find out what they were doing wrong. And I’m just afraid that we get another downtown because you know they’re coming. It’s like buses, they just come periodically. Okay?

So you have to expect that they’re coming, but the question becomes, “When and how do I deal with it?” So if I have a bad experience with one and I say, “Gee, I’m never going through that again,” then, you know, you could end up frozen and not saving anything at all and find out you’re getting into your 60s and 70s and I can’t work anymore and I don’t have any money, and suddenly the social safety net is expanded dramatically. And that’s a potential unintended consequence. I don’t know that’s for sure that’s gonna happen, but that’s probably the single biggest worry that I have is folks that are doing it on their own.

You know, Suze Orman has always said, “You can do it on your own. You don’t need any help.” And I talked to a lot of those people and they either put their money in stuff and close their eyes and cross their fingers and hope it goes up and find out years later it didn’t, or they just don’t do anything. They’re frozen like a dear in the headlights.

Clark: Right. So they don’t have like an empathetic insight maybe or they don’t have like the human to human insight that you can’t replicate. Because you can meet someone where they’re at. Maybe they have been embarrassed, maybe they’ve felt the what if’s too long, and they’ve just been frozen in their tracks. It takes another human to reach out and say, “Hey, we can do this, or let’s take a look at things.” That seems to be much more empathetic than just, I don’t know, an algorithm.

Roger: There’s a big difference between money helping you sleep better at night or keeping you up and awake. And if you’re not confident in what you’re doing with it, it’s gonna keep you awake. It’s gonna become a source of stress instead of a source of comfort. And really a Robo-advisor can’t talk you through those things. Then it gets back to that, “I’m doing what somebody told me I should be doing instead of what’s comfortable to me.” There’s a lot of approaches. There’s a lot of different ways to get from point A to point B. To get from I’m working to I’m happily retired. And figuring out the correct approach for you, your psychology, your lifestyle.

You know, I had a couple in here yesterday. I hadn’t see them since November because they’re just that busy. And so we did a little bit of work for them in November. We did some investing because that’s what they asked for, but they know they want and need comprehensive financial planning. They’re paying too much in taxes. Their risk management is all out of whack. And they’re just super, super busy. But they were stressed out when they came to me that they weren’t gonna be able to retire.

Now we have a path and they’re so busy that we’ve selected tools that they can just look at once or twice a year that don’t need constant monitoring and attention, or even semi-constant monitoring and attention, because, frankly, they’re just too busy. They don’t have the time. So Robo-advisors will advise you within the parameters of their programming. But they can’t make those adjustments based on those kinds of psychological inputs. I can’t imagine some way, I suppose maybe eventually, artificial intelligence can be adapted, but we’re probably quite a ways from being that adaptive to figuring out that stuff.

Clark: All right. Definitely.

Roger: And so these folks, you know, we went over again what we did back in December and they said, “Well, what other alternatives?” We went over a few of those. And they said, “No, that’s just gonna take too much of our time.” So we’re really happy with this approach. It’s not an approach that would have ever, ever come up with the Robo-advisor. I can guarantee that.

Clark: Right. Well, I think that’s a great way to use a topic to kind of talk about how there have been changes and Robo-advisors being some thing that, you said, just a couple of years and still gonna take very long time for it to be really be at all comparable. But for where things are right now, probably there’s a little bit of a connection to the recent news that we’ve been talking about with the fiduciary standards changing or potentially changing and what that means for advisors and investors. So right now, I know you said this earlier, but I’m just trying to really wrap my head around it. So it’s moving away from the opportunity for it to be fee-based.

Roger: No, no.

Clark: Right?

Roger: No.

Clark: Oh, it’s only going that… Can you clear that up for me a little bit?

Roger: Yes, sure. It’s gonna be where it’s all fee-based. A lot of financial products historically have been commission-based and…

Clark: Maybe that’s what I was thinking of.

Roger: So, you know, you buy a mutual fund and the advisor earns a commission. You buy an annuity, the advisor earns a commission. You trade a stock. There’s a trading fee. Sometimes, you know, there’s a flat fee based on the percentage of the assets under management. AUM is what it’s referred to in the industry. And that’s become more and more, the more common model, but there are still products that advisors earn commissions on.

And so under this new standard, there’s going to be more disclosure about commissions, costs, fees, etc., which is I have no issue with that. You know, I’ve been lobbying to restructure commissions in certain lines of financial products for many, many years, but laughed down at a lot of conferences. And I’m hoping that we see some restructuring. I think it will be good for the client ultimately if we see some restructuring there.

But initially, it’s gonna change the focus from the customer to the advisor I think. It’s certainly gonna slow down processes because there’s gonna be extra layers of paperwork. There’s already a lot of paperwork compared to what is was 20 or 30 years ago, and now there’s gonna be even more paperwork that has to be done. Some transactions will take a little longer.

That’s not a huge consequence.

What I worry about is the vagueness of the implementation of this rule and I’m gonna be very hesitant to work with just anybody on their retirement and considering our entire practice is based on helping people successfully make that transition to retirement. It’s gonna be an interesting next few months, maybe even the next couple of years while this all sort itself out.

As one of my mentors said a couple of weeks back, “If you’re already doing things the right way and documenting everything and operating as a fiduciary and getting to know your client and all of those goods things, you shouldn’t have a problem.” So I’m not too worried in that way, but a big chunk of this rule was written by the plaintiff’s bar in such a way that I think it opens advisors up to tremendous amount of future potential liability. And I think there will be some frivolous lawsuits hiding behind this rule. And that’s the other big worry because that will add a ton of cost and make certain products frankly unattainable for the investing public.

Clark: I know we’ve also talked about, in the past, there’s no single product that is the match for everyone. That’s all about options to sort of navigate all that to find the best option on your path to retirement. But when you kind of boil all this down in all of this change and some of the worry that it creates with the vagueness and kind of the uncertainty, what do you think it’s safe to be optimistic about right now?

Maybe this is to the people that you’re advising, your clients or maybe this is to people who are kind of on that fence right now, maybe it’s the person you said earlier. Maybe they’re kind of like coming out of something or maybe they’re just kind of afraid. It is such intimidating stuff and it can feel very exclusionary and just flat-out intimidating. But what would you say is something that we can look forward to despite there being some changes in how that looks like it’s all going fee-based versus the commission-based?

Roger: Well, first, I think it’s an encouraging direction in terms of consumers. I will encourage all listeners to monitor how this evolves and keep in communication with your elected representatives to make sure that as the rules are fleshed out and the guidelines are published, that we keep it consumer friendly as opposed to attorney friendly. I think it’s gonna take a lot of vigilance on the part of the investing public to make sure that their needs and their interests are being kept in line. It’s not just the brokerage firms and the legal establishment enjoying the benefits of this. It’s really supposed to be for the consumer. And I’m afraid right now it’s not as consumer friendly as it certainly could be.

But coming out of it, if we stay and keep an eye on the right outcome, removing some of the conflicts of interest, and I wanna comment on conflicts of interest in just a moment, but, you know, I’m optimistic that ultimately, we can get this thing right. I think a fiduciary standard is a good thing. I just think it needs to be clarified, distilled in a little simpler in wording, complexity tends to lead to lawsuits. And, you know, I want people to get good solid advice that is tailored to their specific situation. So, on the other side of that, what’s an optimistic thing? I think there’ll be more fee-based advisors to choose from ultimately. Although we’ve already seen a significant exodus from the industry.

I was reading this morning that there are 22% fewer independent broker dealers than they were three years ago. And, you know, anytime we see consolidation to the bigger and bigger companies, usually it means that there’ll be fewer choices in the future and cost will increase because of a lack of competition. So because the cost of compliance is high, there might be fewer choices, but the optimism is that it comes from the ability of the rules as they’re being written to make it better for the consumer. I can only hope.

Clark: Right. Well, you said conflict of interest. You wanna touch on that before we…

Roger: Yeah. Thank you for that, Clark. I don’t think there is a profession on the planet that is not loaded with conflicts of interest. I think the medical profession is rife with conflicts of interest. The banking industry rife with conflicts of interest.

Certainly our elected officials, Congress, State Assembly, local governments, they’re just full of conflicts of interest. And even school teachers and contractors are loaded with conflicts of interest. And we can delve into that topic in the future. But anytime you earn money, you know, like [inaudible 00:26:15] said, “You have to take care of yourself first.” So whether it’s enlighten self-interest or whatever, you know, the best teachers still have to retain their jobs to be great teachers.

So we have tenure. Is tenure in the best interest of students? I just don’t know. Should doctors be able to own laboratories and then order lab tests that they’re gonna make money on? You know, hard to say if there’s excess stuff going on. Realtors when they sell a property, they wanna get that property sold. Is there a conflict of interest between them getting the property sold and paid or between getting top dollar for their client, and how do you know? You know, you could over negotiate and lose the deal.

So this focus on the conflicts of interest, you know, it’s not the only profession that has them and even this is not gonna make them go away. Another article that I read through some commentary on the Department of Labor, said that in fact some bad apples may be able to get away with even worse and more egregious violations because now the paperwork is gonna be even more complex and it’s easy to hide stuff in there.

You know, if you bought a house anytime in the last 15 years, you sat down and looked at the stack of papers and disclosures. And I understand why they’re all there and they meant well, but I can tell you when we closed on our house the title company representative was really upset that I wanted to read every single page of the stuff that they wanted us to sign. I’m signing it, I’m gonna be bound by it, I better know what’s going on and ask questions.

I’m afraid that there’s gonna be some abuses that will be slid into the paperwork and people can get away with it just by saying, “Sign here.” In fact, I have a situation with a client right now under the suitability standard. Their mom and dad were told to just sign here and now they’re in a really rough situation that we’re trying to get these folks out of. So that is something definitely to keep an eye on.

But, you know, I choose to be optimistic. That’s always my choice, if I can find a place to be optimistic. I would suggest to listeners that you might wanna sit down with a fee-based financial planner because at least my clients’ experience, they make money on investing in the advice that I give. In other words, I consider it my responsibility to find money or improve performance or reduce taxes in a manner that exceeds what you pay me. And if you can go in and look at that as an investment that you’re going to get a return on, maybe it will be a little easier for you to retain a fee-based financial planner to help you structure things in a way that works for you. So that would be advice I will give to our listeners.

Clark: That’s good. Well, earlier on, we were talking a little bit how it all can feel overwhelming. It’s easy to feel embarrassed or feel like you’re doing the wrong thing before you go and talk to someone.

So in all of that uncertainty, there is something, I know we wanna make sure we mention this on every episode, it is the thought organizer and the thought organizer is one of the tools out of the box…easy to access that you offer, and the thought organizer is an option for someone to fill out to sort of think about where are they right now? And take an honest inventory of what their goals are and then that’s just the first step to working with someone like you. So do you want to add anything about a thought organizer and why you built it the way you did?

Roger: Well, we built it the way we did to help people literary organize their thoughts. You know, there’s a lot of should versus a lot of want. “I should be investing in this type of a fund or in this type of an asset.” I’m gonna sit down this afternoon with a woman who filled out, the thought organizer said she is currently unwilling to accept downside risk on more than 10% of her portfolio. But she’s full of small cap emerging market funds, junk bond funds.

She’s got just a boatload of money invested in this high risk asset groups. And so my conversation is, she retained me as a second opinion. She’s paying an advisory fee for her assets under management. And I’m very curious to see what they suggested her suitability and risk tolerance were when they sat down with her originally because we have our folks fill that out without me or anybody else being around. We want to have it already filled and brought in.

So comparing that with what she’s actually doing, the thing she’s currently doing are not consistent with her comfort zone and with her objectives. So if you have an advisor, if you have investments somewhere, you can use that thought organizer to help you get a solid feel for how you feel about risk, what keeps you up at night, what are your priorities. And having that context the next time you go in and sit down and review that portfolio with folks at that the brokerage firm or Schwab or your advisor, the bank, or whomever you’re working with.

This gives you that context so that you can speak confidently about yourself instead of having them tell you what you should be doing or how you should be feeling. So that’s how I would be recommending people to use that thought organizer right out today.

Clark: That’s great. So all that is available at gainerfinancial.com. This is usually, when we start to wrap things up, I’ve always enjoyed our conversation and I know this is a lot of stuff and I know we could really keep talking and keeping the conversation going because this stuff is pretty complicated. But I really appreciate how you were able to break it down for me, someone like me to understand. So I’ve enjoyed it. Do you have any final things in your heart before we wrap up?

Roger: Well, I hope I didn’t serve to add to the confusion out there. This is one of those kind of topics where you can really find yourself in the weeds. But, you know, keep your chin up out there and if you have questions, feel free to give us a call, 415-331-9030. Happy to answer any questions about how this affects you or stuff you don’t understand. You know, we really want to see the level of discourse and decision making increased for everybody.

Clark: Excellent. Roger, thank you so much. I am looking forward to our next Retire Happy podcast.

Roger: Beautiful. Thank so much, Clark. Talk you soon.

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 & 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.


Roger holds the coveted and well-earned designations of Chartered Financial Consultant (ChFC®) and Retirement Income Certified Professional (RIPC®) from the American College. He is also a licensed insurance agent for life and health insurance, a Certified Paralegal for Estate Planning, and a current board member of SASM.

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Podcast: Client Spotlight: Meet Andy

The following is the transcript from Episode 11 of Retire Happy with Roger Gainer, a financial and business audio podcast.

Andy: Well, I’m sitting out on the sun porch with my feet up on the coffee table.

Clark: You’re retired happy. That’s what it is.

Andy: Yeah.

Clark: I love it.

You are listening to Retire Happy with Roger Gainer, president of Gainer Financial and Insurance Services Inc. In this episode, Roger interviews a client who shares his story of retiring happy. Andy’s a retired high school teacher who worked with Roger to create a spinning plan that enabled him to live the life he and his wife always wanted. Now they enjoy the relief they gained from knowing where their income is coming from. Roger also talks us through how to apply this same approach, even during troubled economic times and how visualizing your financial plan can help you stay on track. For more content like this visit gainerfinancial.com. Thanks for joining us. I’m your host, Clark Buckner. Let’s jump in. So, Roger, you and Andy, you both met back in 2006 at a workshop. And just to keep it really high level, just to paint a picture of where things were, can you tell me really quick, Roger, where was the economy from your perspective, from a financial advisor’s perspective? And then let’s talk about where Andy was and what you did in order for Andy to in a really unique time be able to retire happy.

Roger: Well, yeah. It’s one of the things that most impresses me about our work together is, you know, when we met in 2006 everything was going gangbusters. The price of residential properties was jumping in leaps and bounds especially around here. So their house was going up in value 15%, 20% a year and stock markets were doing great. And when that’s all happening, you get kinda, you know, comfortable if you will kinda like today. And then 2007 hit and, you know, that was the year that they had always targeted, Andy and Christine, had always targeted for retirement. And when 2007 began, we really started to see a major shift early in that year. Real estate markets cooled off dramatically. In many parts of the country, we started seeing prices drop dramatically.

In the middle…towards the end of the year, we started seeing the stock market jump in and accelerate losses. And I know a lot of folks that targeted 2007 or 2008 for retirement just plain didn’t because their investments dropped in value and they just didn’t feel financially secure. But Andy and Christine marshaled on with that background and made what I think are great decisions, and that’s why I look forward to talking to Andy all the time. Every time he picks up the phone, he’s just the happiest guy I know. And that’s why they’ve been an inspiration and helped me with the type of planning I do with clients. They’ve really helped refine that. So Andy, if you can, go back to that time and when we first started working together in the spring of 2006 and kinda tell me what was going through your mind at that point about retirement.

Andy: Yeah. Both of us were doing pretty well in our schools.

Clark: When you say schools…so you both were teachers?

Andy: We were both teachers. I was teaching in one school in the northwest corner of San Francisco and Christine was teaching in another school in the northeast corner of San Francisco. We both felt pretty good about the jobs we were doing and we had been planning about looking forward to retirement and so on. We both…one of the big dangers in leaving a job is holding onto it for too long. You want to retire when most people seem to think you’re doing a good job. You don’t wanna wait for another year or two before they say, “Good God. We’ve gotta get that idiot out of here.”

Roger: It’s kinda like retiring on top.

Andy: Yeah. Fair enough. So we both left feeling good about the work we had done and we had bought a piece of land up here at a ridiculously low price. So we had a general idea of what we wanted to do and some sense of what it was gonna cost us to get this thing done. One of the steps Roger was talking about a few minutes ago was he advised and we finally agreed that we would take all the equity we could get out of the house we had in San Rafael. And that in fact left us having to pay back to the bank when we sold the house a fairly small amount of money. But in the meantime, we had lumps of cash that we could use for other things. We knew that our short-term 10-year income was going to be safe. We knew what it was and that it would…that would dry out to the end of 2017. We knew about Social Security, what part that would play in all of this stuff. And so we had remaining things that we wanted to…other forms of money that we wanted to start using beginning in the year 2018. So that was the 10-year process if you will between retiring and going on to some of the other policies that we’re not…we haven’t used yet but we will be using in the coming year.

Roger: So what you’re saying, Andy, is we put different buckets together for…to create the reliable income stream at the beginning of retirement and then we timed in additional income streams that would kick in. The next one kicks in in 2018 to match your spending requirements.

Andy: And in fact, I think there was great virtue in being able to do all this at the time that the economy was going down the tubes. Historically in the United States…I taught history for 40 years and historically there…yes, there had been all sorts of crashes here and there and everywhere but they don’t last forever. So if you start out at a low point, then you’re actually in a pretty good position historically, probably to come out pretty well down the road. And we do have a 10-year span. The road is coming around the corner this coming January. That makes a big difference. Even if our investments don’t grow at all from where they were last spring, we can plan ahead, we can live on the money we will be getting starting in 2018 and plan ahead accordingly. Yes, I’d like to have more. Why not?

Roger: Well, Andy, when we first started putting a spending plan together for you, an income plan, you and Christine sat down and really filled in the colors in the outline of your…what you wanted your retirement life to look like as far as dining out and activities and travel and all these other things. So we were able to put a spending plan together for both of you and I think…do you feel that that’s added to your happiness in retirement or peace of mind? Or what is the result of having that spending plan and knowing where your income is coming from? How does that influence you daily?

Andy: So the concept is we don’t worry about where our next meal is coming from. We do things that we want to do. We do things that we love and have loved all of our lives. For example, this is small but it’s important to us, we first met together in a summer school. We were doing somewhat different things back and forth and we got to know one another a little bit but we wound up becoming very close friends and we got married. And we do a lot of musical things together. I’m a…I play piano and organ. Christine is a choral conductor. So we’ve got a little program that doesn’t…going up here in a little church that doesn’t pay us a plugged nickel but that’s all right. We do it for fun.

Clark: And you tour too, don’t you, Andy?

Andy: Yeah. We’re going to be going to a festival over in Reno early next month that we’re a part of. That sort of thing. So the ideal, I think, the ideal plan for retirement is to do what you love. And we’re in a position of not having to worry all the time. And that’s a huge relief.

Roger: So Andy, one of the things that you talked about was how much you enjoy, you and Christine enjoy traveling. And you guys have been to some pretty interesting places since you retired. Name your two favorite trips that you guys have taken since retirement.

Andy: Oh. Only two? I’ll give you three. How’s that?

Roger: Okay. Three is great.

Andy: One was the Galapagos Islands and actually several other things that went along the same trip. Then there was a month in Britain where I was doing a lot of family history research. Third one was we went to Central and Eastern Europe where Christine’s father came from and met long lost cousins and spent some time there. Now I’m up to a fourth one. We went to New Zealand for, last February, for most of the month and had a wonderful time. And we’re going to Scotland to the Highlands and Islands next June basically for the month.

Roger: Well, that’s fantastic.

Andy: And these are all things that…neither of us particularly likes being part of big travel things. So we’ve never been on a great big ship and never will be on a great big ship. So Christine likes to plan out all of the…stay in this B&B, go to this site, blah, blah, blah, blah. And we…she’s been working on the Scottish trip since we got back from New Zealand.

Clark: Andy, I love the visual. I can see in my mind how both you and your wife, you’re traveling around the world. You have a great life at home, you’ve got beautiful scenery, you’re enjoying it, you’re retiring happy. So as we’re wrapping up here, Roger, if you could just bring it home. Take us back…snapshot of how it started in 2006, what you had to work with. Two private high school teachers, two teachers, what you could see with the timing and how you were both able to work together to create clarity with a thought organizer. Roger, bring us home on how it all fits together.

Andy: I’m going to take the liberty of starting to bring you home which is that Roger turns out to be a good listener.

Roger: Well, thank you, Andy.

Clark: Why is that a big deal for you?

Roger: Well, listening is a critical skill because when I work with a client, it isn’t about me. It’s all about the client. So it isn’t about trying to fit everybody into the same solution and I have to get to know a client. And we spent quite a while getting to know each other, didn’t we, Andy?

Andy: Yes, we did.

Roger: Okay. And really painting your picture is what I call it, you guys came with that outline of a vision. We wanna live up in the mountains. We have this piece of land and we’ve done some research and we kinda have a target date and, you know, and I’ve got some ideas that I want our house to look like. So here I’m working. I’m meeting some private school teachers who…if you know anything about the industry of teaching, they’re not the highest paid people in the education community. And they’ve done a nice job of saving on a regular basis but by no means did they come in with a huge seven figure portfolio. They were not worth millions of dollars. But they brought another thing that I thought was really impressive to me was a great attitude and an open mind. Now, Christine’s wasn’t quite as open as Andy’s to begin with, but as we got to know each other and we got to understand where they were coming from and where they wanted to get to, it was easier and easier for Christine to make decisions.

We started to execute a plan towards the end of 2006 and into 2007. We implemented a variety of strategies over the next couple of years, actually. But what was so impressive, to me, was that even though there were some bumps in the road, the market had slowed dramatically for selling their house when they did put it up on the market, and maybe we got a little bit less than we were hoping for but because we knew where they were going that was not a deterrent. It didn’t slow anything down. And your ability to retire on time and on your terms really very impressive. And I just wanna say Andy, I look forward to speaking to you guys every chance I get when we do phone reviews. And you guys came down here a couple of months ago which was great. I haven’t seen you in a year or so face-to-face. But it just…it’s like the ray of sunshine. You don’t answer the phone and, “Yes. Hello.” You’re always high. So Andy, if you could give any piece of advice to our listeners, whether they’re 25 like Clark or they’re just coming into the home stretch of retirement or they just went into retirement, what would it be? What would you say your secret to being so darn happy is?

Andy: You and your spouse need to have as clear a plan as you can about what you wanna do. Or even you could have a clear plan about what you don’t wanna do. You want to shape your own future. And increasingly, as you do that, you get a picture of what you’re going to need to make it happen and where you have to go to make it happen. Do all of this together. I think it’s far better to have somebody to argue with, to talk with for years as a way of coming up with a retirement plan. And don’t wait till the last minute to hope that somehow the light will come out of the clouds and tell you, “Do this.” No. Doing something takes a lot of work and a lot of thinking.

Roger: I think that’s great advice, Andy.

Clark: Excellent. Andy, thank you so much for being our guest today on the Retire Happy Podcast. Roger, always a pleasure. So final call to action. We always like to wrap up things with inviting the listener to fill out that thought organizer. So real quick. How can someone access that? What does it mean? And how does that get them connected to you?

Roger: Well, I think Andy summed it up perfectly, why you use a tool like the thought organizer. Because it…he and Christine were able to get on the same page, were really able to work towards a clear vision. And the thought organizer is a tool that’s designed to do just that, to help you begin that journey to clarifying your thinking and to getting on the same page with everybody that’s involved in the decision-making. So if you go to our website at www.gainerfinancial.com, scroll down to the bottom of the page and there’s a button that allows you to download the thought organizer. There’s no cost. And if you are single and doing it, that’s great. If you are married and doing it, make two copies and complete that in a room separate from your spouse and then compare your answers. If you do download the thought organizer and you would like to come and see if I can help you clarify your thinking, contact us through the contact us section of our website and I would be happy to extend a free consultation to see if I can help you achieve a happy retirement.

Andy: And when you’ve done all that then…when you’ve done that stuff, you begin to see the money as a tool, not as a big goal. It’s a tool to get you to the goal.

Roger: I think that’s the perfect sentiment to end on, Andy. That’s great.

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.


Roger holds the coveted and well-earned designations of Chartered Financial Consultant (ChFC®) and Retirement Income Certified Professional (RIPC®) from the American College. He is also a licensed insurance agent for life and health insurance, a Certified Paralegal for Estate Planning, and a current board member of SASM.

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Podcast: It Can’t Happen to Me

The following is the transcript from Episode 10 of Retire Happy with Roger Gainer, a financial and business audio podcast.

Roger: Anytime we see a major disaster or something that catches the news, inevitably, the crooks follow in the wake and try to snag people who are naturally nervous.

Clark: You’re listening to Retire Happy with Roger Gainer, president of Gainer Financial and Insurance Services, Inc. It seems that every single time we turn on the TV, there’s news of yet another security breach and millions of Americans’ personal and identifiable information is at risk. Sadly, Equifax is just one more example added to the books of a worldwide impact from hackers throughout that try to take our information.

So on today’s episode, we’re taking a closer look at how you can protect yourself with these easy-to-follow steps, including how to not fall in the trap of common scams like phishing emails. Thanks for joining us. I’m your host, Clark Buckner. Let’s jump right in.

All right, Roger. Welcome back. I am really looking forward to talking with you today. There’s some really important things every episode we talk about here on Retire Happy. But right now, we’re about to talk about some of the recent data breaches, and not just specifically what is happening with some of these big security vulnerabilities that are impacting millions of people. We’re gonna be talking about some actionable tips that anyone can implement. And that’s kind of the main objective for today. So how does that sound to you? How are you doing?

Roger: Oh, I’m doing great. It’s a scary situation. And we’ve always talked to clients for years and years and years about protecting your identity, protecting your credit. I’ve known people who’ve had their identity stolen and it’s a nightmare. It becomes a full-time job trying to get your identity back. And so protecting it in the first place, it might make a couple of things a little more inconvenient in life, but it’s nothing compared to the inconvenience of trying to get your financial life back if somebody has hijacked your identity.

Clark: Out of curiosity, I don’t know anyone personally who this has happened to but are there just one or two general examples? I mean, of course, like, don’t have to mention any names of people, but just what that looks like zoomed in on an individual person’s life. What happens if their identity is stolen and they find out someone has been doing something that they, of course, didn’t authorize?

Roger: Well, there’s two main kinds of identity theft here. One is having your tax refund stolen which is happening more and more. I work with a lot of tax preparers and every year, there’s more stories. And last year, there’s quite a few more stories about people filing their taxes and applying for refund and getting a letter from the IRS that says, “You’ve already gotten your refund and there’ll be no refund for you.” And we’re auditing your tax return because somebody took their tax ID number and filed a false tax return, claimed a significant refund. And now that they’re…after the refund’s gone out, now they’re talking about audits and different things. Plus, the people who should be using that tax ID number are unable to file for their refund. They are gonna get fined for not filing a proper return and all those other issues. It’s really…it’s frightening.

And the other side is when your credit is stolen, if you get…somebody can open credit cards and lines of credit in your name, run up huge bills, and then not pay them which, you know, will drop your credit scores dramatically. So the next time you want to buy a car or refinance your house, you know, to even just apply for credit card, you’re gonna get turned down or charged a much, much higher rate. And usually, that’s how you find out that somebody’s stolen your credit history, hijacked it, is you’re applying for credit because you’re sitting in a car dealer, ready to buy a car and they come back and say, “Your credit score’s, you know, 500.” And you go, “What? Wait a minute, I’ve got great credit. And last time I checked it, it was 800. What happened?” “Well, you have all these delinquent bills.” And so it starts. And that’s when the nightmare happens, you have to contact creditors and the credit bureaus and the police. And it just…you have to come up with proof. The burden is on you to prove that you were hacked, not on the bank to prove that you were not.

Clark: Right, right. So what kinds of information generally is required for that to happen? And I think then that might be a good transition to talk about the most recent hack, the Equifax hack. I mean, there’s a lot of things like Equifax unfortunately, but that’s just the most recent one.

Roger: Yeah. The three big agencies for credit monitoring are Equifax, TransUnion, and Experian. So only Equifax was hacked, but they took 143 to 149…I’ve seen the estimates that high…million identities and they got the stuff you need to open an account, they got Social Security numbers, your address, your date of birth and where you were born. And so that’s usually the things that are needed to open a credit account. There are other people who were in dispute over their credit reports. Another 209,000 people whose entire credit report were taken, and then another 182,000 folks who were in the process of having their credit check whose entire credit reports were taken. Now those folks, they’re probably gonna have problems sooner than the others because their credit numbers, their credit card numbers and account numbers were stolen. And usually, thieves will wanna run those up really fast before somebody can shut those accounts off. But for most people, just about everybody that has a credit report, their base identity information was taken.

Clark: It’s really sad. It really is disappointing.

Roger: Well, you know, it is disappointing. The internet was never designed to be secure when it was first created, and this is one of the…why it’s so vulnerable. And, you know, this isn’t the first major data hack. The Social Security Administration was hacked not that long ago. This is why there’s such a movement to get rid of Social Security numbers as an identification. They were not intended to be identification numbers and as a result, the system just isn’t that secure when it comes to these things. I would expect something to come along in the next few years, but right now, we’ve gotta deal with the system that’s in place and that includes protecting your Social Security number.

Clark: So let’s talk about a couple ways to protect that, not just the Social Security number, but other essential things. Like, what…would you do both in response to a big outbreak like this and what should you be doing on an ongoing basis? Kind of two questions here.

Roger: Well, sure. Based on the outbreak, the only way to protect yourself, and unfortunately, it’s gonna be for years to come because 143,000,000 records. You may not get hacked for years, you know. Thieves go to what’s called, “the dark web” and they buy this information. I read recently that the kind of information that was stolen from Equifax fetches between $5 and $10 on “the dark web” so people go buy thousand of these things and, you know, just start opening accounts in those records’ names. To get through 143,000,000, it’s gonna take quite a while. So the first thing to do is to freeze your account, you know. This is, unfortunately, gonna be what we’re all going to be dealing with, like I said, going forward to protect your identity. So putting a security freeze on your account and you’d need to do this at all three credit bureaus.

This is gonna be a little bit annoying and kind of cumbersome and it actually costs money to do based on the state you’re in. It will be either $5 or $10. Here in California, it costs $10 per reporting agencies. So 30 bucks to freeze your credit accounts. Even here in California, the State of California Department of Justice Attorney General has put up a special bulletin on how to freeze your credit files and included there are links to Experian, Equifax, and TransUnion. So you can go directly. And I don’t recommend calling these folks, people are getting disconnected, they’re sitting on hold for a long time, there are just a huge volume of people trying to make…

Clark: There’s millions of people, right?

Roger: Millions of people are trying to freeze and they’re all trying to freeze right now. So be patient when you hit their websites, they’re, you know, not designed to handle the influx of people that they’re experiencing now. They’re doing things to improve the volume that their websites can handle but sometimes it’s been glitchy. Sometimes, the websites are crashing and you just have to come back and it’s just the way it is. So…but be patient and do it. I’m a little nervous myself because when you do put a freeze and if you’re applying for credit, say, for a car or in my case we’re trying to get an equity line, I can’t put the freeze on right now because the underwriters have to have access to my account and it takes a few days to freeze and unfreeze. So I have to leave this off until we get a decision. I don’t know when they’re gonna, you know, look at my credit reports. So we’re ready to go but we have to finish the underwriting process and then we can put a freeze on.

So the other thing you can do, which we have done…it doesn’t prevent people from opening accounts in your name…but you can put an alert and this notifies you after an account has been accessed. So, somebody makes an inquiry to check your credit, solicit you for credit. If somebody tries to access an account without my express permission, they’ll give me a holler. Like I said, it’s an after-the-fact kind of thing so that…it’s better than nothing, but it’s not as good as freezing your account. Now, the other thing is because of the alerts and the fact that freezing your account only will protect you against new…somebody taking out new credit in your name, you have to start paying attention to your credit card bills. So when those statements come in, scan them just to see that the things that are being charged are things that you actually spent money on. I know a lot of folks, they’re busy, the bills come in, they sit down to pay the bills or they do it online and they just click “pay.” So they’re not really looking at the detail on their credit cards, they’re just looking at, “How much do I owe this month?” And…

Clark: Right, or an “auto.” Sometimes it’s an “auto” thing too, right?

Roger: Right. A lot of times we set up auto pay on these credit cards just because we don’t have time, we can’t be bothered. But if somebody’s putting charges on your accounts, the sooner you come up with that information and tell the bank and freeze your account, the less liability you’re going to have, which brings me to encouraging folks not to use their debit cards. One of the protections, when you buy stuff with a credit card goes away if you use a debit card, and that is there’s a $50 maximum liability as long as you report to the credit card companies. So in theory, the bank works the same way with your ATM card. But think about this, if you charge something or you swipe your ATM card and that identity is frozen, and somebody takes thousands of dollars out of your checking account, it’s your money that’s missing while the bank does their investigation before they determine whether you get your money back.

Clark: Gotcha. I hear you.

Roger: It’s your money. When you use a credit card, it’s their money. Okay.

Clark: Right. Well, that also plays in the…a kind of larger theme of what you talk about too with, you know, using someone else’s money, using the bank’s money with growing your assets and all that. I think it’s just like, a very…like a micro example of that in a different context, but…

Roger: Well, it’s just another layer of protection because you’re using…the bank’s money is what’s being risked to those thieves who are stealing identities from credit terminals, at stores, and gas stations, etc. So…yeah. I’m one of those guys when I go into the gas station where they don’t…my gas station doesn’t take my credit card, it only takes the ATM card or cash. I feel all around the ATM scanner to see if they’ve put a separate device in there if it’s been altered in any way to grab the information off of my debit card, and then they’ll put a little pinhole camera. So usually today, there’s a little guard covering the keypad so your hand slides up underneath that, but sometimes some people put actually a little camera in there so that they can match the keystrokes with the magnetic information they’ve stolen by putting a “skimmer,” is what they’re called.

And to all feel around underneath there or, you know, get a little closer to keypad to make sure somebody isn’t looking over my shoulder, at the numbers that I’m punching in. So it’s just a…you know, again, people call me paranoid, but this is how your identities are getting stolen, this is how people are losing money in their bank accounts. People are watching them at the ATM, people are watching them at the gas station. And, you know, putting that in…those little gizmos that are credit card readers and leaving them on for a little while and then pulling them off before anybody that owns the gas station really notices. And they’ve collected, you know, information on dozens of credit cards or debit cards. And if they can combine that with the pin, it’s not real hard to go to an ATM and start draining your accounts.

Clark: Wow. How about we shift over to some of the other scams that are happening because this is just general advice, I know that you talk about but phishing scams, do you wanna go there next?

Roger: Yeah, and that’s a really good point. Anytime we see a major disaster or something that catches the news, inevitably, the crooks follow in the wake and try to snag people who are naturally nervous. So I’ve seen a couple of emails pretending to be Equifax, click on this link because your account’s been compromised, you know, or we’re the IRS and you’re in trouble, your account’s been compromised. Click here to get more information or specifics or I’m getting these phone calls at home now left on my answering machine, you know. This is the IRS and you will be prosecuted. You’ve committed some heinous violation and you better call right now.

So these are going up more and more and then, unfortunately, with all the natural disasters, here poor Puerto Rico today, with the hurricane and in all the Caribbean Islands, with the last few hurricanes in Florida and Houston area, and down in Texas in the Gulf. There’s tons of scams that come out of those too, from charities offering relief to contractors, and attorneys, and insurance adjusters, all kinds of service providers, you know. And they’re just reaching out and give me a small deposit or respond to this, register for your FEMA money, and then it takes $100 to register. All kinds of things like that come out of these types of big events that most people know about. And, you know, that group worry. And that’s what they’re playing on.

So be very, very careful. If you get an email that looks like it’s coming from one of these types of organizations, pick up the phone and give them a call because you’ll find that it’s rare that those kinds of communications come from the IRS or Social Security or your bank. They’re usually trying to reach you in a different way. So if you initiate the call, you look up the number. Don’t call the number that they left on your answering machine because obviously, that’s their number and they’ll answer it and pretend to be the bank.

Clark: That’s helpful to go through those. I know it’s no fun to talk about it, but it’s a real thing and it can keep people from their goals to retire happy and to live the life that they’re trying to live. So I think that those are some really practical tips that you’ve shared today. Do you have anything else on your mind about this?

Roger: Well, yeah. There’s a couple three things. We’ve given away security pens for, God, five or six years now.

Clark: And you’re talking about…this is a written pen, this is an actual…

Roger: This is…yeah. This is a Uni-ball, has a patented type of ink that actually soaks into the paper. So when you sign a check, thieves can’t do the acid-wash trick to change the payee and how much money the check’s been written for. It’s pretty common. People steal your bills from the outbound mailbox. That’s why never mail money…

Clark: Cash or check.

Roger: …or important communication by sticking it in your mailbox and putting that flag up. You know, where we live, they’re not dropping the mail through the slot and we can leave mail for the mailman by putting the flag up on our mailbox. Don’t do that with anything that’s important that’s outbound. Another thing…

Clark: That’s a pretty neat swag item, it’s not one of those cheapo pens. You’re giving away some pretty nice stuff.

Roger: Well, it’s a…you know, I have clients who come in just to get a new pen. They like the way they write and they like the security that when they sign something, they know it’s really signed. Another thing I would encourage our listeners to invest in is an outstanding paper shredder. And what’s important is it’s not a strip shredder, and it’s not a crosscut shredder. Those can be reconstructed. In fact, the identity protection workshop that I went to where I learned about these pens, the guy who put on the workshop showed us how fast he can recreate a document that went through a strip shredder or even a crosscut shredder. It doesn’t take very long if you got some talent. And, you know, that’s why a lot of people do dumpster-diving…criminals…and to gather information like that. We here at Gainer Financial, we use a…it’s called a “confetti shredder” and it turns paper into dust.

Clark: All right.

Roger: There is no way that any of our client’s information or our personal information is getting recreated into a document. Invest in a good shredder. You won’t be sorry.

Clark: And a not cheapo pen.

Roger: Yeah.

Clark: Come talk to you to get the pen.

Roger: Yeah. Hey, when you come in for a consultation, we’ll be happy to give you a pen. They come in both blue and black.

Clark: Well, I think that’s probably a good place to start wrapping up. And for someone who is wanting to come and meet with you and learn more about you, there is a first step they can take. You wanna talk a little about the idea?

Roger: The Thought Organizer?

Clark: Thought Organizer.

Roger: Yes, the Thought Organizer. Well, I find the single biggest step to gaining control over your financial life and peace of mind is to organize your thoughts about why are you even saving money, what’s it for, what do you want your life to look like. Once you create that context, decision-making becomes so much easier. Use the Thought Organizer.

Clark: Roger, thank you so much. It’s been another great conversation with you. I always look forward to these. And I am excited about when we can get together again soon.

Roger: All right, Clark. Always a pleasure. 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. 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.


Roger holds the coveted and well-earned designations of Chartered Financial Consultant (ChFC®) and Retirement Income Certified Professional (RIPC®) from the American College. He is also a licensed insurance agent for life and health insurance, a Certified Paralegal for Estate Planning, and a current board member of SASM.