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The Word "Safe" Is Doing a Lot of Work in Your Portfolio · TaylorMade Retirement with Taylor Demars, CFP®

• 0:02
  SPEAKER_01: Who doesn't want their money to be safe?
• 0:05
  SPEAKER_01: Yet here's the catch.
• 0:06
  SPEAKER_01: No one defines it the same way.
• 0:08
  SPEAKER_01: So today we're going to break down what safe money might actually mean and whether your version of safe holds up to reality.
• 0:18
  SPEAKER_00: Welcome to Tailor Made Retirement, where we explore what it takes to build a retirement that works for your money and your life.
• 0:25
  SPEAKER_00: With third generation certified financial planner Taylor DeMars.
• 0:41
  SPEAKER_02: Everybody wants it to be that way, or at least a portion of it.
• 0:45
  SPEAKER_02: So we thought it'd be a good idea, Taylor, to just kind of tackle some of the bigger, I guess, comments that people have often when they come in to see financial professionals about, you know, hey, is this safe or am I safe or whatever the case might be?
• 0:57
  SPEAKER_02: And I guess we could just start there if you'd like, my friend.
• 1:00
  SPEAKER_02: When you hear a prospective client come in and say that, what are they referring to?
• 1:05
  SPEAKER_02: Like when they come in and say, we really want a large portion of our you know portfolio to be safe, what are they describing?
• 1:11
  SPEAKER_02: What do you think that they mean?
• 1:13
  SPEAKER_01: Oh man, that's the million, many times the million dollar question, right?
• 1:16
  SPEAKER_01: Trying to decipher that?
• 1:18
  SPEAKER_01: Yeah, because I I I see it take on many different forms when people bring that up.
• 1:22
  SPEAKER_01: And one of the most common is I don't want to see, I don't want to see it go down, right?
• 1:27
  SPEAKER_01: And so they're just pretty vague, but yeah, okay.
• 1:29
  SPEAKER_01: It is vague, but mainly what they're thinking, I think, is protection from stock market volatility, which is fair.
• 1:35
  SPEAKER_01: They may also be saying, I don't want to lose principle, which is another way of saying the same thing, but they may be trying to lean towards something like CDs or or fixed annuities, right?
• 1:44
  SPEAKER_01: They may also be wanting to say, I need to know the money will be there when I need it in a pinch, right?
• 1:50
  SPEAKER_01: Right.
• 1:50
  SPEAKER_01: Which to me is actually a liquidity question, not a stability question.
• 1:54
  SPEAKER_01: Fine.
• 1:55
  SPEAKER_01: They may also be saying, I need something dependable for income, right?
• 1:59
  SPEAKER_01: And that's where they're actually thinking of cash flow rather than just dollars, you know, being able to be able to grab.
• 2:05
  SPEAKER_01: But in the end, I think they're all trying to say, I'm I'm just afraid of running out of money, right?
• 2:10
  SPEAKER_01: Which is a fair question.
• 2:11
  SPEAKER_01: So we we we often try and kind of pose that question back to the client and ask, hey, when you say you want something safe, is what are you trying to be safe from?
• 2:19
  SPEAKER_02: Mm-hmm.
• 2:19
  SPEAKER_02: Yeah, it's a good way of looking at that.
• 2:21
  SPEAKER_02: Now, with that said, and I you kind of alluded to it in there a little bit, but the I guess the flip side of that conversation would be what does it mean to you, right?
• 2:30
  SPEAKER_02: So, what is your own definition of it and and does it differ, you know, from a lot of the things that that people assume when clients come in?
• 2:37
  SPEAKER_02: And do you kind of walk through that uh you know process together and kind of find the meaning of the minds?
• 2:43
  SPEAKER_01: Yeah, it's it's it it's good to align on what the definition is because if we're not doing that, then we're gonna be speaking uh two different languages, literally.
• 2:50
  SPEAKER_01: And so the first thing we need to establish is what safety is to tie to the job that it's supposed to do, right?
• 2:56
  SPEAKER_01: Okay.
• 2:57
  SPEAKER_01: Uh, for example, because money needed next year to fund a home renovation should be treated differently than money needed 15 from years from now to fund whatever might be down the pike at that point, right?
• 3:08
  SPEAKER_01: And and being safe from market losses is just one dimension of this whole question, because it something that is safe in one area can actually be a lot more unsafe when we think about the risks of inflation, taxes, liquidity, longevity.
• 3:21
  SPEAKER_01: And speaking of liquidity specifically, one many times people flee to something that feels safe, such as uh CDs, right?
• 3:28
  SPEAKER_01: Certificates, certificates of deposit, because all the big banks and credit unions like to talk about the the interest rate and you know it's FDIC insured, right?
• 3:35
  SPEAKER_01: Which I don't contest, but if the money is really there to be safe, it doesn't matter if your house is on fire if you can't pull out the pin on a fire extinguisher, right?
• 3:44
  SPEAKER_01: So you got to be able to have that money from a CD and a pinch, and many times that uh that doesn't line up so well.
• 3:50
  SPEAKER_01: So that's the our definition of safe money in the end of the day, I would say, is is not just about protecting the number on a statement, it's about protecting what the money is supposed to do.
• 3:59
  SPEAKER_02: Okay.
• 4:00
  SPEAKER_02: All right, fair enough.
• 4:01
  SPEAKER_02: All right, so again, talking about this topic, do most people have an accurate read on what they have at risk and what they don't, right?
• 4:12
  SPEAKER_02: When in their own portfolio?
• 4:13
  SPEAKER_02: So they come in, they're again they're wanting the the consultation, they're wanting the review, you're doing the forensic analysis, and you're maybe talking, and they're like, Yes, we're very conservative, we're we we have a lot, we want a lot safe and we have it safe.
• 4:25
  SPEAKER_02: And you gotta go through and you go to the analysis, and you're like, yeah, no, you don't.
• 4:29
  SPEAKER_02: So is there a lot of that?
• 4:30
  SPEAKER_02: Is there do we have an accurate read oftentimes as the end user as the potential client uh where we stand?
• 4:36
  SPEAKER_01: I'd say sometimes.
• 4:38
  SPEAKER_01: I'd say sometimes.
• 4:39
  SPEAKER_01: Okay.
• 4:39
  SPEAKER_01: Yeah, I I think the the financial services industry, my own industry, which you know I feel like I could throw under the bus if we will, it is very good at at being subjective, right?
• 4:49
  SPEAKER_01: And I'll give an example, which is some of the most quote unquote safe uh things out there are those that are considered guaranteed, right?
• 4:56
  SPEAKER_01: We just talked about one of them, which is uh uh a CD.
• 4:59
  SPEAKER_01: Uh some of the common culprits lie in annuities, right?
• 5:02
  SPEAKER_01: And and yes, while an annuity is technically not even an investment, it's an insurance product, right?
• 5:07
  SPEAKER_01: It comes with a catch.
• 5:08
  SPEAKER_01: I mean, everything has a catch to some degree.
• 5:09
  SPEAKER_01: So you just got to be aware of it and be okay with it, which in an annuities case is often less liquidity, but also greater fees, right?
• 5:17
  SPEAKER_01: So are you truly safe for market volatility?
• 5:19
  SPEAKER_01: Maybe.
• 5:20
  SPEAKER_01: Are you safe from your money, you know, actually being able to not lose to inflation?
• 5:24
  SPEAKER_01: Maybe not, right?
• 5:25
  SPEAKER_01: Because if it's not able to grow as much and it's being taxed and it's being, you know, getting haircuts by way of expenses, you may not be actually getting your money in as safe a place as you thought, right?
• 5:37
  SPEAKER_01: Um, and I I would say the opposite can happen too, where sometimes people can have something that that does feel safe.
• 5:44
  SPEAKER_01: Maybe they have some money in bonds that might decline temporarily, right?
• 5:48
  SPEAKER_01: But in much lower proportion to something such as the stock market.
• 5:51
  SPEAKER_01: And someone may jump to the conclusion that their bonds are unsafe, but the bonds may actually be serving their intended function according to however they're built in the plan, right?
• 6:01
  SPEAKER_01: Which is specific to each person's situation.
• 6:03
  SPEAKER_02: Okay.
• 6:04
  SPEAKER_01: I would say that the biggest hurdle or misconception I see people have when it comes to what is or is actually not safe is cash, right?
• 6:12
  SPEAKER_01: And it's not just, oh, if cash loses to inflation, it's the opportunity cost.
• 6:16
  SPEAKER_01: I've had several times where clients over the past year or two have come to me with hundreds and hundreds of thousands, sometimes million plus dollars in cash, right?
• 6:26
  SPEAKER_01: And they're a little sheepish about it because I have to ask them, hey, what's the cash for?
• 6:29
  SPEAKER_01: What's the goal?
• 6:30
  SPEAKER_01: And they the honest answer is they don't have an intention behind it.
• 6:34
  SPEAKER_01: And the reason many times that they have so much cash is because they they they're they're they're realizing they're getting close to retirement, they're not sure what to do with it.
• 6:42
  SPEAKER_01: Maybe they saw what happened in in you know in great downturns in the past, right?
• 6:46
  SPEAKER_01: Like 2000, 2008, but also 2022 was one of the more recent downturns.
• 6:50
  SPEAKER_01: The market was down for 18% over the year.
• 6:53
  SPEAKER_01: That was about four years ago as of this recording.
• 6:55
  SPEAKER_01: And so people think of that and say, well, uh I if the market's too high, they they they think the market's too high, so they gotta take some chips off the table, but they nor I know when the market is gonna actually go down.
• 7:08
  SPEAKER_01: And so they're seeing themselves sitting with a pile of cash that's not just losing to inflation, but is losing six figures more that it could have gone up, right?
• 7:16
  SPEAKER_01: That it's been sitting in cash.
• 7:18
  SPEAKER_01: So that's uh I think another area that people overlook as is a big risk to what maybe feels safe is they're sitting on the sidelines with cash and they don't have a methodology or a way in their plan to know when to get back in, which is why they're coming to us, right?
• 7:30
  SPEAKER_01: To be able to know how can they be responsible about putting that money to work.
• 7:33
  SPEAKER_01: Does that make sense?
• 7:34
  SPEAKER_02: Yeah, definitely.
• 7:35
  SPEAKER_02: And I think well, let me let me kind of back that up just a step.
• 7:39
  SPEAKER_02: Why do you think so many of us end up so misinformed about you know what we have at risk and what we have safe?
• 7:47
  SPEAKER_02: How do we get so askewed to begin with?
• 7:50
  SPEAKER_02: Yeah, I think the industry, I mean, I we I know we do a poor job as in society of of teaching financial health, basically.
• 8:00
  SPEAKER_02: Right.
• 8:01
  SPEAKER_02: That's one piece.
• 8:02
  SPEAKER_01: I think I I think it kind of I don't know if this gets more philosophical, but I think us as humans is is that modern money tools are a very recent evolutionary thing, right?
• 8:14
  SPEAKER_01: The stock market, savings accounts, you know, having actual wealth on a on a on on numbers on a piece of paper versus something that we can look at inside of our you know actual home or or property, right?
• 8:25
  SPEAKER_01: So we're we're kind of geared.
• 8:26
  SPEAKER_01: The the closest thing that we can feel whether is safe or not is is whether a number is going up or down on a on a statement, right?
• 8:33
  SPEAKER_01: And I think that the financial services industry, you know, caters to that.
• 8:37
  SPEAKER_01: Not that it's a charity by any means, but it will find ways to help clients feel that their money is safe on on paper where it may not be safe from these other threats that we're talking about, you know, fees, expenses, taxes, inflation, liquidity, etc.
• 8:50
  SPEAKER_01: Does that make sense?
• 8:51
  SPEAKER_02: Yeah, yeah.
• 8:52
  SPEAKER_02: Yeah, and because I think we're s we just do such a weird job of things sometimes, and then so many people are confused.
• 8:59
  SPEAKER_02: So I guess to kind of close this out a little bit, maybe walk us through a hypothetical or something like that where you know somebody's come in for the evaluation, they clearly do need, you know, more uh protection, if you will, if that's a better word, or whatever term you want to use than they are when they first walk in, like their allocation.
• 9:17
  SPEAKER_02: Like, how do you walk through explaining that and kind of setting them up uh to understand the changes that they may want to consider making that you guys have recommended?
• 9:26
  SPEAKER_01: Yeah.
• 9:27
  SPEAKER_01: Yeah, good question.
• 9:28
  SPEAKER_01: There's there's so many different scenarios that come in my head.
• 9:30
  SPEAKER_01: I'm trying to Oh, I'm sure there could be a million.
• 9:32
  SPEAKER_02: Just kind of pick one, yeah, that kind of works for you.
• 9:35
  SPEAKER_01: I I would say because of our planning philosophy, we we we kind of funnel our all of our client situations to the same spending methodology, which if if they've been listening for our past episodes or on my YouTube video, they've probably heard it before, but it's our version of a bucket's income methodology, right?
• 9:50
  SPEAKER_01: And and and the reason for that is we're trying to, when we're talking about safe here, right?
• 9:54
  SPEAKER_01: Safe is subjective, right?
• 9:56
  SPEAKER_01: Nothing is is a hundred percent safe in this world, in my opinion.
• 9:59
  SPEAKER_01: But if we were to say we're trying to prevent against the number one risk that clients have in retirement, which is I don't want to go broke before I croak.
• 10:06
  SPEAKER_01: There are the two threats of that, which is inflation eating away at my our our money, as well as stock market volatility and a and a crash, you know, evaporating our money.
• 10:15
  SPEAKER_01: And so what we have to do is, like we mentioned before, trying to segment our dollars for different purposes and different timelines.
• 10:22
  SPEAKER_01: So the three bucket income approach we have as the first layer is we call it our pantry because we want money on the tip of our clients' fingers and it's it's it's it's often thought of as an emergency fund.
• 10:32
  SPEAKER_02: All right, I like that.
• 10:32
  SPEAKER_01: Yeah, that number is different for different, you know, households and sizes, but generally between six to twelve months worth of spending, we've got it, we've got there in the pantry, right?
• 10:41
  SPEAKER_01: And the goal for that is not to be sexy, right?
• 10:44
  SPEAKER_01: It's to have often in a high-yield savings account where it's you know earning a little bit of interest, uh, better than a traditional savings account, and but it's available in a pinch, right?
• 10:53
  SPEAKER_01: Right.
• 10:53
  SPEAKER_01: That's the sleep well at night.
• 10:54
  SPEAKER_01: You don't want to have bare cupboards.
• 10:56
  SPEAKER_01: No, no, sir.
• 10:57
  SPEAKER_01: With the pantry, okay.
• 10:58
  SPEAKER_01: Not especially with the midnight munchies.
• 10:59
  SPEAKER_02: That's right.
• 11:00
  SPEAKER_01: So the next layer is are the next two layers, I should say, are within a client's investment portfolio.
• 11:05
  SPEAKER_01: And the first layer within that, the second bucket, is the bond we call it the bond bucket, right?
• 11:10
  SPEAKER_01: Because when the inevitable market volatility and the stock and the stock market storms come about, we want to have a safe haven for bonds.
• 11:19
  SPEAKER_01: And our definition of that is to have up to five years worth of income needs, of withdrawal needs inside of this bond bunker.
• 11:26
  SPEAKER_01: So if heaven forbid we start the next 2008 tomorrow, right, we would like to be able to think that we can weather that storm because 2008 took five years from the top to the bottom to the top, to be able to live off of these funds to still live our ideal lifestyle, right?
• 11:41
  SPEAKER_01: And there we're also not trying to get sexy, but we're trying to find our definition of stable assets that are going to be, well, first of all, we want something that's stable.
• 11:50
  SPEAKER_01: Second, that's reliable, meaning liquid when we need to take it out.
• 11:54
  SPEAKER_01: Third, something that's low cost, and fourth, something that is paying some decent yield.
• 11:59
  SPEAKER_01: And in that particular order is how we set up a methodology for our clients in their bond bunker.
• 12:04
  SPEAKER_01: Okay.
• 12:04
  SPEAKER_01: And then the third layer of all this is the growth bucket, which is there to combat the concern about long about inflation over the long term.
• 12:12
  SPEAKER_01: So we can be able to sleep well at night knowing even if the market does have a really bad year, we've got five years worth of time to be able to let that ride itself out and not only recoup, but regain its past its losses without us having to pull out money from it.
• 12:26
  SPEAKER_01: Does that make sense?
• 12:27
  SPEAKER_02: Yep.
• 12:27
  SPEAKER_02: Yep.
• 12:28
  SPEAKER_02: Gotcha.
• 12:29
  SPEAKER_02: Okay.
• 12:29
  SPEAKER_02: Well, you know, at the end of the day, Taylor, right?
• 12:31
  SPEAKER_02: Safe feels like a simple it is a simple word, right?
• 12:34
  SPEAKER_02: But it certainly means something different to everybody.
• 12:37
  SPEAKER_02: So the only way to really know where you stand, how you feel about it, is it is are you in the correct allocations, all those pieces that go into it, is to truly get an analysis and a and a you know a strategy for your situation.
• 12:49
  SPEAKER_02: Because to your point a minute ago, what you feel is safe is different than what I feel is safe, and so on and so forth.
• 12:55
  SPEAKER_02: Or whatever the case might be, right?
• 12:57
  SPEAKER_02: You you have to get it broken down in black and white and get a strategy to understand where you're at, and so that you also can feel good about whatever it is that you you know got going on.
• 13:05
  SPEAKER_02: And that I think that's the the big takeaway when you use these kind of overly generic terms, especially in this type of industry.
• 13:12
  SPEAKER_01: It's true.
• 13:12
  SPEAKER_01: I think at the end of the day, when people are trying to think of safe money, it's because that's they're they're trying to find their backup option.
• 13:18
  SPEAKER_01: They're trying to find their their escape plan, right?
• 13:22
  SPEAKER_02: And I think it's usually worry that drives it, certainly, certainly, yeah.
• 13:25
  SPEAKER_01: It's true.
• 13:26
  SPEAKER_01: It's true.
• 13:26
  SPEAKER_01: And and I think that's just a smaller symptom of the bigger problem, which is they don't have a plan in general.
• 13:31
  SPEAKER_01: And I'm obviously biased because I am a planner, but I find overwhelmingly that when people see like the buckets in methodology applied to their situation and a comprehensive plan for their situation, they they start to feel that sense of confidence and clarity that dispels the micromanaging of, oh, is this dollar safe?
• 13:48
  SPEAKER_01: Is this account safe?
• 13:49
  SPEAKER_01: Right.
• 13:50
  SPEAKER_01: Because they they know that not if but when there's an emergency or a downturn, right?
• 13:54
  SPEAKER_01: They know what the backup plans are.
• 13:56
  SPEAKER_01: Does that make sense?
• 13:57
  SPEAKER_02: Absolutely.
• 13:57
  SPEAKER_02: And that's why it's important to get a roadmap for your unique situation, and the team can help with the retirement readiness roadmap.
• 14:04
  SPEAKER_02: Click on the Could We Be a Fit button at the website to get started today, Demarsfinancial.com.
• 14:09
  SPEAKER_02: We'll have links in the show descriptions.
• 14:11
  SPEAKER_02: Demarsfinancial.com, again, is where you can find them.
• 14:14
  SPEAKER_02: And don't forget to check out Taylor's YouTube channel and all the other tools and resources there that they have for you at demarsfinancial.com.
• 14:22
  SPEAKER_02: And subscribe to the audio podcast on Apple or Spotify.
• 14:25
  SPEAKER_02: And with that, we will see you next time, Taylor.
• 14:27
  SPEAKER_02: If uh if there's not anything else I didn't cover, I think we're good.
• 14:30
  SPEAKER_01: Think we're spot on.
• 14:31
  SPEAKER_01: Thank you, sir.
• 14:32
  SPEAKER_02: All right, my friend.
• 14:33
  SPEAKER_02: Well, you have a great week.
• 14:34
  SPEAKER_02: We will see you next time here on the podcast.
• 14:36
  SPEAKER_02: This is Taylor made retirement with Taylor Demars.