Announcer:
It’s time now on KROS for Financial Focus. Brought to you by NelsonCorp Wealth Management. The opinions voiced in this show are for general information only and are not intended to provide specific advice or recommendations for any individual. Any indices mentioned are unmanaged and cannot be invested into directly. Registered representative securities offered through Cambridge Investment Research Incorporated, a broker-dealer, member FINRA/SIPC. Investment advisor representative, Cambridge Investment Research Advisors Incorporated, a registered investment advisor. Cambridge and NelsonCorp Wealth Management are not affiliated. Cambridge does not offer tax advice. Now here’s today’s Financial Focus program.
Nate Kreinbrink:
Good morning, and welcome to this week’s Financial Focus brought to you each and every Wednesday morning right here on KROS. Well, this is Nate, James joining me again this morning. Last show of September. Kind of hard to believe that we are saying that already, then we flip the calendar to October, here coming up tomorrow. But last day of September, actually it’s the second day of Major League Baseball Playoffs. But again, exciting times. We finally have an office rivalry where teams that we all root for are in the playoffs. So hopefully it’s an interesting thing. NL Central, whether it’s Cardinals, Cubs, Reds, even if you’re a Brewers fan, they’re all in the playoffs, would be very interesting [inaudible 00:01:24] Andy, from NelsonCorp Tax Solutions, was talking yesterday. How crazy would it be if all 4 teams from the NL Central won their first round?
James Nelson:
Yeah, that’d be awesome. I’m cheering a lot harder for your Reds instead of that Cardinals, I know that. But yeah, it’s fun. Cubs have their first game tonight and looking forward to it. I mean kind of crazy set up as far as the playoffs go this year, but yeah, that would be pretty cool if all the NL Central teams can make it to the next round, that’d be pretty cool.
Nate Kreinbrink:
It is, hopefully they continue to go good. Short three game series so you never know what’s going to happen. Getting that first game is going to be key. And like you said, the national league teams kickoff today, so it will be an interesting day to see.
James Nelson:
Yep, yep, it’s going to be fun to watch.
Nate Kreinbrink:
Okay, getting into today’s program. I know there’s a lot of topics that James and I have covered the last couple of weeks, whether it’s social security, spousal survivor benefits, tax planning a little bit. We’ve had Andy on a little bit talking about some end of the year tax planning strategies to go into. But we thought we’d go back and just talk kind of current situation, current environment and see where we’re at. And I’m going to start today’s program off by asking one quick little question. And that is, if you have $100,000.
Nate Kreinbrink:
in your account and the markets go down 50% and then go up 50%, where are you currently at? If you’re like most people, when we ask that question, they simply bite, “Well, you’re back to even, you’re down 50, you’re up 50.” And on the surface, that seems to be the right answer. But in actuality, you end up at $75,000 at that point in time. You have $100,000 dollars, markets go down 50%, so your account’s cut in half, so you’re down to $50,000. Now markets go up 50%, now you’re only at $75. And I bring that up because most people, when they think of investing, they think about rate of return and more specifically that rate of return to the upside, that they need to make a certain amount to be able to get to and reach their goals. However, they forget to put any importance on that downside protection and understanding truly what protecting that downside does and how quickly you can get back to even if you limit some of that downside.
Nate Kreinbrink:
And it comes back to really two different styles of investing when it comes to either active versus passive investing. So passive investing is basically you put your money into an account, you allocate it and it basically stays there. So usually in good market you do good, in bad markets you do not do so good. So you’re going to ride that roller coaster, or we call that you buy and hold. You basically put it in, you hold it, you’re going to ride that roller coaster through the ups and downs of the market. Versus active management is when you have a strategy to be able to maneuver out of the way, sometimes you maybe want to get a little bit more aggressive. A lot of times you want to bring that dial, that aggressiveness back, and basically look at protection at during certain times.
Nate Kreinbrink:
And I bring all of this up to basically hit on one term and that’s uncertainty. And I think after the presidential debate last night that we had, that uncertainty that was possibly there leading up to November, I believe, think kind of was cemented that that uncertainty is going to be there for the next couple of months, especially as the closer we get to the election time, which again is no different, it’s just kind of the level of that uncertainty to get there not knowing what’s going to be on the backside.
James Nelson:
Yeah, there’s a ton of uncertainty, and it’s not just the debate last night. I mean, that was unbelievable, to say the least, but it’s the COVID issues continuing to hang around, and probably no end in sight. We talk about this all the time with the vaccine, and I think some people are looking for a silver bullet, and it’s maybe, maybe not right? I mean, this is going to take a long time for people to actually get the vaccine and feel comfortable. So we’re in this changed world probably for a much longer period of time than we’d like.
James Nelson:
The other big thing is just, yeah, the election coming up in November. The uncertainty is probably as high as it’s almost ever been going into an election season and how things could play out. And it just all comes back to what we own. Knowing what you have in your 401k, knowing what you have in your IRAs, just knowing what you own and we find a lot of people don’t. And Nate talked about playing defense. Playing defense is a big deal. A lot of people kind of put the 401k or… And even in our business, Nate, I mean put things on autopilot and don’t do a whole heck of a lot. Well, in times right now that’s probably not the best strategy. When everything’s working and moving in the right direction, not such a big deal, but this is where the active management and the proactive tight planning really comes into play and people need it. They need to know what they own and need to know how that’s going to be affected in a certain amount.
Nate Kreinbrink:
Right, and I think like you said, the allocations are key. And it’s very common for us to sit down with individuals that may be 10 years, 15 years, even longer, out from retirement, and they give us that argument back is that, “Well, I’ve got 10, 15 years yet. I can take on a little bit more risk. I have time to make it back.” And you kind of look at them and does it ever really feel good to see your account balance down 30, 35% or 56, 57%? Like it was in ’08, ’09? Is there ever really a time that that feels good, even if you have time to make it back? So again, it’s understanding that yes, you may have some time, but there’re still some things that you can do to put it in place. So again, if you limit that downside, you are going to be back to making money on a much quicker scale. And to me, that would feel good. And I don’t care if you’re next month away from retiring or you’ve got 30 years away from retiring, let’s limit that downside and then let’s get back to making money.
Nate Kreinbrink:
And we had a client in their… Or I did the other day, as far as being less than a year away from retiring. And you talk about those timeframes with individuals and how critical it is for them to, again, have these things in place. Their account balance is probably towards the biggest that it’s been, just because they’ve been putting into it for the longest.
Nate Kreinbrink:
So again, it’s so important for them to take those steps, to protect that asset that they have, if it’s a 401k or whatever it is that they’re putting in, because otherwise they’re going to get to that date that they have circled on the calendar that they had wanted to retire and either one of two things are going to happen at that point in time, either one, they’re going to have to work longer because they’re going to have to make it up or two, they’re going to enter into retirement with a lot less in assets than they thought they were going to. Either one of them is not very desirable when you have this date circled on the calendar, thinking that this is the day you’re going to retire, all of a sudden it gets here and then you have to make that tough decision between one of those two. Let’s put the things in place now.
James Nelson:
Yeah, absolutely. And why dig yourself out of a hole if you don’t need detail to?
Nate Kreinbrink:
Exactly.
James Nelson:
Right? I mean, yeah, “I can ride it out. I can take on more risks.” Well, that’s fine. But why go down 30% and then have to make 30% just to get back to where you are? If you can cut off those losses on the downside, it increases upside returns dramatically because you’re not having to dig yourself out of such a deep hole. Not to say that you can’t go down, but you’re not going to be down what the market’s down, assuming the allocation is proper. So, yeah.
James Nelson:
And then it all comes back to our planning process, doesn’t it? I mean, knowing where our assets are at, how they’re allocated, when they’re going to be needed, and how each of those pieces fit into the overall plan is just crucial. And again, we say it all the time, but people don’t know what they don’t know. I mean, once we go through the planning process, I think it really makes a lot of sense to people. And, yeah, “Hey, I should’ve done this a long time ago.” But just getting somebody to that point and walking them through those steps really helps and brings a lot of clarity to going into the retirement.
Nate Kreinbrink:
Right, and I think it’s funny too, a lot of times, when people hear us talk this way as far as markets and uncertainty and downside protection and so on, and so on, they hear your dad talk on a show or a thing, they’re usually their response is, “Well then should I go bury it in the backyard? What should I do?”
James Nelson:
We don’t want to.
Nate Kreinbrink:
And again, and we don’t want to keep talking negative and doom and gloom and all that all the time, but it’s reality. And I think a lot of times people have this pie in the sky thing as far as investing, that I just put it in there and it’s going to go up. It’s going to go up. It’s going to go up. Well, it’s going to go down. It’s not an if, it is going to go down at some point. It’s just to what extent is it going to go down?
Nate Kreinbrink:
And again, you have to be invested in the market at points to be able to make return. When you look at inflation, you look at taxes, you look at all these other things that you have to get a certain rate of return on your money to make this thing last. It’s just how smartly are you going about that? We talk risk reward, and that is key. What risk are you taking? And what reward is coming along with that? Are you taking risks that you’re not really going to get anything back? And I think a lot of times when we see people’s allocations, the answer to that is yes.
James Nelson:
Yeah, yeah, absolutely. And the risk reward dynamic is there, doesn’t mean somebody needs to be aggressively invested or very conservatively invested. That’s the idea with the tactical money management moving from one direction to the other, depending on the market conditions at a given point.
Nate Kreinbrink:
So again, you got questions, give us a call. James, we’re out of time again here. Did want to mention though real quick that every Friday NelsonCorp Wealth Management is wearing jeans for charity. Money raised in the month of September will be donated to the Harvest Hoorah event on October 17th at the First United Methodist Church in Clinton. James, appreciate you joining me again today.
James Nelson:
Absolutely.
Nate Kreinbrink:
Again, this is Nate and James with NelsonCorp Wealth Management bringing you this week’s Financial Focus. Thanks again for tuning in and have a great rest of your week.
Announcer:
Financial Focus is a production of NelsonCorp Wealth Management in Clinton and Davenport. The opinions voiced in this show are for general information only and are not intended to provide specific advice or recommendations for any individual. Any indices mentioned are unmanaged and cannot be invested into directly. Registered representative securities offered through Cambridge Investment Research Incorporated, a broker-dealer, member FINRA/SIPC. Investment advisor representative, Cambridge Investment Research Advisors Incorporated, a registered investment advisor. Cambridge and NelsonCorp Wealth Management are not affiliated. Cambridge does not offer tax advice. For more information, visit our website at www.nelsoncorp.com.