Latest / Money In Motion with Klaas Financial / The Power of Diversification

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The Power of Diversification · Money In Motion with Klaas Financial

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  Speaker 1: their number six oh eight four four two five six
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  Speaker 1: three seven and joining us this week CJ Class along
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  Speaker 1: with Josh Stirling.
• 1:10
  Speaker 2: CJ.
• 1:11
  Speaker 1: How are you doing this morning?
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  Speaker 2: I'm doing great. Sean, how are you?
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  Speaker 1: I'm doing great? Also, great to talk with you, Josh,
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  Speaker 1: welcome back to the program. Good to talk to you
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  Speaker 1: as well.
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  Speaker 3: Good morning, Sean, good to be back.
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  Speaker 1: And we've we've got an exciting conversation ahead with CJ
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  Speaker 1: and Josh. We're gonna be talking about really important topic
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  Speaker 1: which is diversification, and we're going to get into a
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  Speaker 1: lot of the details about and why it's so important
• 1:34
  Speaker 1: to be diversified with CJ and Josh. We'll do that
• 1:37
  Speaker 1: this morning on the program. Don't forget, as mentioned, phone
• 1:39
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• 1:41
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  Speaker 1: three two one thirteen ten. Our cool feature of the
• 1:46
  Speaker 1: program is the Class Quiz Question Week. Your chance to
• 1:49
  Speaker 1: win a fantastic prize this week, no exception, our friends
• 1:52
  Speaker 1: from Class Financial have provided a twenty five dollars gift
• 1:55
  Speaker 1: card to Jersey Mike's for the winner of the class
• 1:57
  Speaker 1: quiz question leak you'll tell it. We'll tell you all
• 1:59
  Speaker 1: the detail else on how you can win a little
• 2:01
  Speaker 1: bit later on in the program. Little tip, doell listen
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  Speaker 1: closely oftentimes bolt the question and answer come up during
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  Speaker 1: the program. And before we start talking diversification, let's actually
• 2:09
  Speaker 1: look back to last week's program CJ and get the
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  Speaker 1: question answer to last week's show.
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  Speaker 2: Yeah, well, thanks everyone for listening to the show on
• 2:17
  Speaker 2: a weekly basis. We hope you enjoy it and certainly
• 2:20
  Speaker 2: that you are learning things along the way. And we
• 2:22
  Speaker 2: do this little fun coloss Quist question of the week,
• 2:25
  Speaker 2: and we did one last week, and congratulations to our
• 2:29
  Speaker 2: winner from last week. It was actually Donna of Madison,
• 2:32
  Speaker 2: and she correctly answered the following true or false question.
• 2:36
  Speaker 2: In twenty twenty five, we will see the highest number
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  Speaker 2: of Americans reaching the traditional retirement age of sixty five.
• 2:44
  Speaker 2: We asked was that true or false? And Donna was
• 2:47
  Speaker 2: correct in saying that is true. In twenty twenty five,
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  Speaker 2: an estimated four point one to four point two million
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  Speaker 2: Americans will be reaching the age of sixty five.
• 2:56
  Speaker 1: Pretty crazy, Wow, that is really cool. And we talked
• 2:59
  Speaker 1: quite a bit in depth. If you missed any part
• 3:00
  Speaker 1: of that program, don't think you can always listen back
• 3:03
  Speaker 1: at Cossfinancial dot Com. That's COSS k l a as
• 3:06
  Speaker 1: Financial dot Com. As mentioned today, we're going to be
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  Speaker 1: talking about a critical topic for every investor in that
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  Speaker 1: of course, is diversification. And if you've been, of course
• 3:15
  Speaker 1: watching the markets this year, you probably heard the news
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  Speaker 1: of some sharp jobs. CJ and Josh, let's kind of
• 3:20
  Speaker 1: get into this. What can you tell us about the
• 3:22
  Speaker 1: recent market noise and how this relates to diversification.
• 3:27
  Speaker 2: Yeah, that's right, Sean. So there's been quite a bit
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  Speaker 2: of a reaction in the markets here recently, well, I
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  Speaker 2: should say just general volatility in the markets. Well, whether
• 3:35
  Speaker 2: it be linked to tariffs or now. I know this
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  Speaker 2: morning we have the tax bill that passed the House
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  Speaker 2: and I think it needs to go into the Senate now.
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  Speaker 2: But this a lot of this just causes uncertainty and volatility,
• 3:47
  Speaker 2: and sometimes that uncertainty is good. We come to find
• 3:50
  Speaker 2: out that whether it be a tax bill or something
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  Speaker 2: like that increases the expectation of corporate profits and other cases,
• 3:57
  Speaker 2: like in the case of tariffs, it was bad and
• 3:59
  Speaker 2: in the market dropped right away but we're going to
• 4:02
  Speaker 2: be talking today about when when we run into situations
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  Speaker 2: like this and when we feel the market's trading, we
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  Speaker 2: can often feel powerless, and it can make people feel
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  Speaker 2: almost like investing is gambling. And that's dangerous because as
• 4:16
  Speaker 2: soon as you get in your brain the idea that
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  Speaker 2: investing in the markets is like gambling at a casino,
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  Speaker 2: you can quickly convince yourself that it's a bad idea, right,
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  Speaker 2: because for those who don't know, gambling a lot is
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  Speaker 2: a bad idea. And so we're really here to talk
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  Speaker 2: about no, no, no, no, you aren't powerless against this. And
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  Speaker 2: so there's a concept of personal risk tolerance. There's a
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  Speaker 2: concept of financial capabilities and risk tolerance. And then what
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  Speaker 2: Josh is really here to talk today to us today
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  Speaker 2: about is one of the greatest ways to mitigate that
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  Speaker 2: risk of uncertainty and the volatility in the markets is
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  Speaker 2: through diversification. So for those who don't know, I mean
• 4:52
  Speaker 2: on the show Malia Quavis and I did this show
• 4:54
  Speaker 2: for the better part of a decade. Malia has kind
• 4:57
  Speaker 2: of slowly shifted out, and now Eric Schwartz, the one
• 5:00
  Speaker 2: who is kind of doing it with me on a
• 5:03
  Speaker 2: weekly basis for the most part, but every once in
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  Speaker 2: a while we love digging into the well of the experience,
• 5:09
  Speaker 2: knowledge and talent of our team, and that is why
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  Speaker 2: Josh is on today. Josh is a chartered financial analyst.
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  Speaker 2: He is also our chief investment officer here at Class Financial.
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  Speaker 2: He and his team oversee about seven hundred million dollars
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  Speaker 2: of client assets and portfolio management, security selection, rebalancing, all
• 5:25
  Speaker 2: of that. So he is a wealth of knowledge and information.
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  Speaker 2: But Josh, would you just kind of help us understand
• 5:33
  Speaker 2: what's going on here with the markets recently and what
• 5:35
  Speaker 2: insights do you have?
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  Speaker 3: Yeah, thanks, c Jay and I agree. At the start
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  Speaker 3: of the year, we saw a bit of turbulence as
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  Speaker 3: the US stock markets went through kind of a volatile
• 5:46
  Speaker 3: time period, and we've been discussing this with clients. We
• 5:50
  Speaker 3: frequently remind them that their portfolios are not just invested
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  Speaker 3: in the S and P five hundred, but are instead
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  Speaker 3: fully diversified. And I mean at the beginning of the year,
• 5:59
  Speaker 3: you'd see all these headlin come out about the different
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  Speaker 3: news pieces that CJ was talking about, and then those
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  Speaker 3: would be followed by, oh, the Nasdaq is down a
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  Speaker 3: three percent today, four percent today five percent, and we
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  Speaker 3: had some of the most biggest drops in the market
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  Speaker 3: in a one day time period, and then the very
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  Speaker 3: next day you'd see it shoot right back up. And
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  Speaker 3: this volatility just creates uncertainty not only for the markets,
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  Speaker 3: but for individuals who are investing their money for their retirements.
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  Speaker 3: I mean, you look into your four o one K
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  Speaker 3: and you're worried that it's going to drop because the
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  Speaker 3: news is telling you that it's going to be down.
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  Speaker 3: But something really interesting happened this year, and it's really
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  Speaker 3: about the power of diversification. These headlines are talking about
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  Speaker 3: how down everything's going to be, but then you actually
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  Speaker 3: you go look at your four oh one K, or
• 6:48
  Speaker 3: you call class financial, you take a look at what
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  Speaker 3: your portfolio has been doing here to day, you might
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  Speaker 3: be a little surprised. So, for example, during the first
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  Speaker 3: four month period start to twenty twenty five, while the
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  Speaker 3: SMP five hundred was down five percent, one of our
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  Speaker 3: most popular portfolios that we have, which holds sixty percent
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  Speaker 3: globally diversified equities and then forty percent fixed income, that
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  Speaker 3: was actually up about one percent. And when we're talking
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  Speaker 3: to individuals, they're shocked by that news because that's not
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  Speaker 3: what they've been told, and it's really really helpful to
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  Speaker 3: kind of have that power of diversification there. I mean,
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  Speaker 3: even looking back during the worst time period that we
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  Speaker 3: could pick out out of that four month time period
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  Speaker 3: to start the year, the diversified portfolio at its worst
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  Speaker 3: was only down five percent. We compare that to the
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  Speaker 3: S and P five hundred, it was down nearly fifteen percent.
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  Speaker 3: So we're going to dig into why this works, why
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  Speaker 3: we believe in the power of diversification, as we kind
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  Speaker 3: of dig in here exactly.
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  Speaker 2: Yeah, and as Josh is saying, diversification is one of
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  Speaker 2: the most powerful tools in investing. As a matter of fact,
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  Speaker 2: some people in finance say it's the only free lunch
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  Speaker 2: in investing. But I will just warn you for as
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  Speaker 2: much as that is a hard truth, a hard fact,
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  Speaker 2: it is just one of the most powerful tools in investing.
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  Speaker 2: Is this idea of diversification. The number of articles that
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  Speaker 2: I read that try to convince investors that that is
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  Speaker 2: not true is mind boggling. You'll hear articles like the
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  Speaker 2: death of the sixty forty, why the sixty forty doesn't
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  Speaker 2: work anymore, and why bonds are a terrible investment and listen,
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  Speaker 2: if you're deep into the academic side of this business,
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  Speaker 2: like Josh and I are, you can understand the subtleties
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  Speaker 2: of what people are getting at here. Right. If you're
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  Speaker 2: a long term investor, stocks are going to win the
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  Speaker 2: day over almost any ten year rolling time frame period.
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  Speaker 2: End of story. But listen, most people aren't just long
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  Speaker 2: term investors. They need some short term money. And then
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  Speaker 2: other people can't tolerate the risk of the markets, and
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  Speaker 2: so it is just so critical for you to work
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  Speaker 2: with somebody or your to become educated on why diversification matters. So, Josh,
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  Speaker 2: why don't we start with some definitions. What exactly is diversification?
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  Speaker 3: Yeah, well, great question, Ceejay. Diversification is about spreading your
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  Speaker 3: investments across different asset types to reduce risk. The securities
• 9:20
  Speaker 3: in exchange commission are known as the SEC defines it
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  Speaker 3: as the practice of spreading money among different investments to
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  Speaker 3: produce risk. It's like that old saying, don't put all
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  Speaker 3: your eggs in one basket. The benefit of diversification is
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  Speaker 3: the possibility of more predictable outcomes with less variation over time.
• 9:43
  Speaker 1: Talking this Morning with CJ. Closs and Josh Sterling. They
• 9:45
  Speaker 1: are our retirement planning professionals from Class Financially. I want
• 9:48
  Speaker 1: to ask you a little bit about more about that
• 9:50
  Speaker 1: in just a moment. But in the meantime, you having
• 9:51
  Speaker 1: a chance, check out the website classfinancial dot com. That's
• 9:55
  Speaker 1: coss Klaasfinancial dot com. Telephone number for Class Financial their
• 10:00
  Speaker 1: office right here in Madison, sixtoh eight four four to
• 10:02
  Speaker 1: two five six three seven. Don't forget no charge for
• 10:05
  Speaker 1: that initial gets to know your appointment dech loss Financial.
• 10:07
  Speaker 1: It will be complimentary to you again their number six
• 10:10
  Speaker 1: oh eight four four two five six three seven. So, Josh,
• 10:13
  Speaker 1: as you mentioned, you talk about diversification and how it
• 10:16
  Speaker 1: helps reduced risk, but let's talk about what exactly is
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  Speaker 1: risk in the context of investing.
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  Speaker 3: Yep, that's an excellent point, Sean, thank you. We should
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  Speaker 3: define the other part of diversification, so risk in investing.
• 10:31
  Speaker 3: It's another really important concept. The Financial Industry Regulatory Authority
• 10:37
  Speaker 3: also known as FINRA defines risk as any uncertainty with
• 10:41
  Speaker 3: respect to your investments that has the potential to negatively
• 10:45
  Speaker 3: impact your financial welfare and in investing. Really, what that's
• 10:50
  Speaker 3: talking about is to invest in stocks or bonds, and
• 10:53
  Speaker 3: risk is the chance that that value goes down, or
• 10:57
  Speaker 3: they don't pay a dividend, or they don't pay you
• 10:59
  Speaker 3: back your interest payments, or your principle things like that.
• 11:03
  Speaker 3: And while risk within the context of investing can get
• 11:07
  Speaker 3: a little complex, we can all at least assess and
• 11:10
  Speaker 3: accept various risks in our everyday lives to kind of
• 11:14
  Speaker 3: provide a little correlation there. So, like the risk of
• 11:18
  Speaker 3: driving a car or even just simply walking across a
• 11:21
  Speaker 3: busy street, we accept that risk in our lives every
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  Speaker 3: single day. But thankfully in investing we do have the
• 11:28
  Speaker 3: power to choose how much risk we want to take on,
• 11:32
  Speaker 3: and diversification is a critical part in managing that risk.
• 11:38
  Speaker 2: Yeah. No, And to Josh's point, you know, you think
• 11:40
  Speaker 2: about risk of driving a car and then you weigh
• 11:43
  Speaker 2: it against the benefits of getting to places faster, right,
• 11:47
  Speaker 2: And don't mishear me, Not everybody assesses this risk the
• 11:50
  Speaker 2: same way, but most human beings, at least when you
• 11:54
  Speaker 2: go out on the belt line, you would assume it's
• 11:55
  Speaker 2: most human beings who can drive choose to drive, even
• 11:58
  Speaker 2: though they know it is probablyrobably one of the most
• 12:00
  Speaker 2: risky things they do. Every single week. Let me repeat that,
• 12:03
  Speaker 2: probably one of the most risky things that adults do
• 12:07
  Speaker 2: every single week is get into their car and go
• 12:09
  Speaker 2: drive on the belt line. And it's dangerous. I mean, listen,
• 12:12
  Speaker 2: I don't know about you, but when I drive down
• 12:14
  Speaker 2: the belt line there's people sometimes going one hundred miles
• 12:16
  Speaker 2: an hour, you know, buy me on the left. I go, WHOA,
• 12:18
  Speaker 2: what is happening? So very risky, but I choose to
• 12:22
  Speaker 2: accept that risk because of the potential benefits. Listen, Investing
• 12:26
  Speaker 2: is no different. When you invest, it is not a guarantee.
• 12:29
  Speaker 2: Just like when I get in my car. It is
• 12:30
  Speaker 2: not a guarantee that I will show up at work safely.
• 12:33
  Speaker 2: It's a high probability, but it's not a guarantee. That
• 12:37
  Speaker 2: is the risk. So Josh, this kind of sets the
• 12:39
  Speaker 2: stage nicely. So diversification is essentially a way to help
• 12:43
  Speaker 2: reduce the sharpest edges of market volatility. But it's not
• 12:47
  Speaker 2: just about owning a mix of stocks and bonds. There's
• 12:49
  Speaker 2: diversification within each of those categories of stocks and bonds
• 12:53
  Speaker 2: as well. So starting with diversification in stocks, how does
• 12:57
  Speaker 2: that work within the stock market?
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  Speaker 3: Yeah, absolutely so. I think it's really important to just
• 13:03
  Speaker 3: break down what a stock is because I think sometimes
• 13:06
  Speaker 3: to your comment earlier, a lot of people look at
• 13:09
  Speaker 3: the stock market and think, oh, it's just gambling, that's
• 13:12
  Speaker 3: all it is. It's just a gamble. But that's not
• 13:15
  Speaker 3: really what it is. Owning a stock is as simple
• 13:19
  Speaker 3: as owning a small piece of a larger company. You
• 13:23
  Speaker 3: essentially then get the right to own dividends in the
• 13:27
  Speaker 3: future from that company, or if the company grows, you
• 13:31
  Speaker 3: get to have a part of that growth in the company,
• 13:35
  Speaker 3: and there is no obligation to pay you dividends or
• 13:39
  Speaker 3: return the money you invested. That's the risk of owning
• 13:41
  Speaker 3: a stock. But that reason again for investing, is the
• 13:47
  Speaker 3: trust in the company that that company is going to grow,
• 13:50
  Speaker 3: they're going to create profits, and they're going to grow
• 13:53
  Speaker 3: your value in ownership. And while we like to see
• 13:56
  Speaker 3: that individual stock level, we see that happening in the
• 14:00
  Speaker 3: overall stock market over the long run of time, over
• 14:04
  Speaker 3: and over and over again. Now, owning a single stock
• 14:09
  Speaker 3: is quite risky because you're essentially putting all your faith
• 14:12
  Speaker 3: into the success of just one company. But when you
• 14:16
  Speaker 3: then go and you own a diversified mix of these
• 14:19
  Speaker 3: companies ten one hundred or even thousands of stocks. You're
• 14:24
  Speaker 3: helping to spread out that risk significantly, that just one
• 14:27
  Speaker 3: company isn't going to completely derail your investing rationale and
• 14:33
  Speaker 3: all your planning. So globally, there are about fifty eight
• 14:37
  Speaker 3: thousand publicly traded companies. Over the long run, the global
• 14:42
  Speaker 3: stock market generally trends positively, but individual companies can absolutely
• 14:47
  Speaker 3: face setbacks or even fail, and diversification helps protect against
• 14:52
  Speaker 3: those outlayers. It's also important to consider the different types
• 14:57
  Speaker 3: of companies that you own. Some companies focus on reinvesting
• 15:00
  Speaker 3: their profits to drive long term growth. Think about technology
• 15:04
  Speaker 3: companies like Facebook or Meta. You've got Netflix, but others
• 15:11
  Speaker 3: might pay dividends. Those are going to offer a more
• 15:14
  Speaker 3: immediate but traditionally stable return. Think of it kind of
• 15:18
  Speaker 3: like an interest payment that comes out to you on
• 15:20
  Speaker 3: a quarterly basis. These different approaches help adds diversification directly
• 15:26
  Speaker 3: into your portfolio by having different types of companies in there.
• 15:32
  Speaker 1: Talking this morning with CJ. Closs and Josh Stirling, our
• 15:34
  Speaker 1: retirement planning professionals from Class Financial. You can learn more
• 15:37
  Speaker 1: online Class financial dot com. That's coss k l a
• 15:40
  Speaker 1: A S Financial dot com. They're teleph number six O
• 15:42
  Speaker 1: eight four four two five six three seven. No charge
• 15:45
  Speaker 1: for that initial get to know you appointment Tech Loss Financial.
• 15:47
  Speaker 1: It will be complimentary to you again that number six
• 15:50
  Speaker 1: oh eight four four two five six three seven. And CG.
• 15:53
  Speaker 1: I know, CJ. I know you want to You want
• 15:55
  Speaker 1: to get in on this as well, don't you.
• 15:57
  Speaker 2: Yeah, yeah, no, obviously I love this topic. For those
• 15:59
  Speaker 2: who have listened for a while, we've we ever once
• 16:02
  Speaker 2: want to get to talk about investing and kind of
• 16:03
  Speaker 2: the importance of staying the course and so very passionate
• 16:06
  Speaker 2: about this. But Josh, you're just kind of talking about,
• 16:09
  Speaker 2: you know, value of diversification within different companies, so basically
• 16:13
  Speaker 2: increasing the number of stocks that I own inside of
• 16:16
  Speaker 2: my portfolio. But you know, correct me if I'm wrong.
• 16:18
  Speaker 2: But it's not just about the number of companies that
• 16:20
  Speaker 2: I own, but also about their size and the industries
• 16:24
  Speaker 2: that they represent. So like I don't want to be
• 16:26
  Speaker 2: all in banking or just all in technology, so I
• 16:29
  Speaker 2: would assume that diversification is about size and industry and
• 16:33
  Speaker 2: other things besides just the number.
• 16:34
  Speaker 3: Is that right, Yeah, that's that's right, That's exactly it.
• 16:39
  Speaker 3: There are so many different elements that come into diversification
• 16:43
  Speaker 3: within just the realm of stocks, and one of the
• 16:46
  Speaker 3: really important things that I think a lot of people
• 16:49
  Speaker 3: forget about is geographic diversification. The US is an incredible
• 16:54
  Speaker 3: force in the stock market, but there are international stocks,
• 16:58
  Speaker 3: both with developed countries like over Europe or developing countries
• 17:02
  Speaker 3: or emerging markets as well, and the US and international
• 17:07
  Speaker 3: stock markets often perform differently based on their economic and
• 17:12
  Speaker 3: political landscapes. For instance, the last twenty years have seen
• 17:16
  Speaker 3: this incredible US outperformance, but there absolutely have been periods
• 17:21
  Speaker 3: of time where international stocks have led the way multi years.
• 17:26
  Speaker 3: So looking at the S and P five hundred for
• 17:28
  Speaker 3: the US and then also looking at the MSCIEF Index
• 17:33
  Speaker 3: for the international stocks, both have had their own bouts
• 17:36
  Speaker 3: of strong returns and volatility, but at different times. When
• 17:41
  Speaker 3: we combine these different stocks, they can be a buoy
• 17:45
  Speaker 3: to the portfolio, as one may be more positive when
• 17:48
  Speaker 3: the others down, or vice versa. Looking at a simple example,
• 17:53
  Speaker 3: this is not the way that we would allocate our portfolios,
• 17:57
  Speaker 3: but just as a brief example, here the first ten
• 18:00
  Speaker 3: year annualized return since nineteen seventy for the S and
• 18:04
  Speaker 3: P five hundred alone was down about three percent, whereas
• 18:09
  Speaker 3: if we took a portfolio that's made up of fifty
• 18:11
  Speaker 3: percent SMP five hundred fifty percent that international market, well,
• 18:16
  Speaker 3: that would have only been down about one point seven percent.
• 18:20
  Speaker 3: That's almost a fifty percent reduction in poor performance during
• 18:24
  Speaker 3: a turbulent stock market. And when somebody is being invested
• 18:28
  Speaker 3: in these markets for a long, long period of time,
• 18:31
  Speaker 3: typically ten years or longer, the power of being able
• 18:34
  Speaker 3: to minimize the down markets, the pain that you might
• 18:37
  Speaker 3: experience being invested in the market is a big deal.
• 18:42
  Speaker 3: Combining these different markets really can help smooth out the
• 18:45
  Speaker 3: returns over a long period of time.
• 18:47
  Speaker 1: Great insight talking this morning with Josh Stirling and CJ. Closs.
• 18:50
  Speaker 1: They are our retirement binding professionals from Class Financial talking
• 18:54
  Speaker 1: this week about diversification. Talked about stocks will get into bonds.
• 18:57
  Speaker 1: I know there's a couple of people go on saying,
• 18:59
  Speaker 1: what about Well, we'll get into that in just a moment.
• 19:01
  Speaker 1: In the meantime, you've bent over to the website Class
• 19:03
  Speaker 1: Financial dot com. Head on over there now, or when
• 19:06
  Speaker 1: you get into the office that website COLSS financial dot
• 19:08
  Speaker 1: com that's k l aa S Financial dot com. They're
• 19:12
  Speaker 1: TELPHO number six o eight four four two five six
• 19:14
  Speaker 1: three seven. No charge for the initial gets to know
• 19:16
  Speaker 1: you appoinment tech COSS Financial. It will be complementary to
• 19:19
  Speaker 1: you again their number six oh eight four four two
• 19:21
  Speaker 1: five six three seven. We'll continto our conversation with CJ
• 19:24
  Speaker 1: and Josh and take your call next as Money in
• 19:26
  Speaker 1: Motion with COSS Financial continues right here on thirteen ten.
• 19:30
  Speaker 1: Wib I join this morning by CJ. Closs and Josh Stirling.
• 19:34
  Speaker 1: They are our retirement planning professionals from Class Financial. You
• 19:37
  Speaker 1: can learn more online the website class financial dot com.
• 19:40
  Speaker 1: That's COSS k l a A S Financial dot com.
• 19:43
  Speaker 1: TELPHO number six oh eight four four two five six
• 19:46
  Speaker 1: three seven. Don't forget no charge for that initial gets
• 19:48
  Speaker 1: to know you appointment tech Loss Financial. It will be
• 19:50
  Speaker 1: complementary to you again their number six oh eight four
• 19:53
  Speaker 1: four two five six three seven. Talking this week about diversification,
• 19:57
  Speaker 1: talking to those that first segment about stocks and let's
• 20:01
  Speaker 1: let's move over then to bonds. What do we need
• 20:03
  Speaker 1: to know their CJ.
• 20:05
  Speaker 2: Yeah, so, you know a lot of times people say,
• 20:08
  Speaker 2: how do you guys talk about investments when you can't
• 20:12
  Speaker 2: guarantee a return and truth be told. I mean, you
• 20:15
  Speaker 2: could buy a CD A certificate or deposit at a
• 20:17
  Speaker 2: bank and it's FDIC insured and you could know what
• 20:20
  Speaker 2: your return is going to be with a pretty high
• 20:22
  Speaker 2: degree of certainty. But I'll just be frank with you,
• 20:24
  Speaker 2: even nothing in life is guaranteed. Even even in like
• 20:28
  Speaker 2: CFP textbooks and different things that we study, they'll say, well,
• 20:31
  Speaker 2: there is this concept of the risk free rate, which
• 20:34
  Speaker 2: is often just linked to you know, like government treasuries
• 20:37
  Speaker 2: of the United States. But even then you go, but
• 20:39
  Speaker 2: what of the United States, like got wiped off the
• 20:41
  Speaker 2: face of the earth, is that then guaranteed? Listen, everybody,
• 20:45
  Speaker 2: if you don't know that, there's no guarantees. You know
• 20:49
  Speaker 2: in the world. You can get as close as you
• 20:52
  Speaker 2: possibly can through insurance companies or government products, but there
• 20:56
  Speaker 2: are no guarantees. So ultimately you have to think about
• 21:00
  Speaker 2: investing through the concept of expected returns. What is my
• 21:04
  Speaker 2: expectation of both risk aka volatility and return over long
• 21:09
  Speaker 2: periods of time. So the reason I bring this up
• 21:11
  Speaker 2: is because when you think of investing through expected returns,
• 21:14
  Speaker 2: the expected return of a globally diversified equity stock portfolio
• 21:20
  Speaker 2: is significantly greater than the expected return of any diversified
• 21:25
  Speaker 2: bond portfolio. I don't care what bonds you own. So
• 21:28
  Speaker 2: often people will say why would you ever invest in bonds?
• 21:32
  Speaker 2: That just seems silly, and to be quite frank, the
• 21:36
  Speaker 2: answer is because the variance of outcome year to year
• 21:39
  Speaker 2: in a bond is much tighter on average than the
• 21:43
  Speaker 2: variance in outcome of a stock. So said another way,
• 21:46
  Speaker 2: I may expect a nine percent return of stocks over
• 21:49
  Speaker 2: a ten year timeframe, but I could be up or
• 21:52
  Speaker 2: down thirty percent in any given year on that number,
• 21:55
  Speaker 2: Whereas I may only expect a return of five percent
• 21:58
  Speaker 2: on bonds, but my variance of outcome in any given
• 22:01
  Speaker 2: year might be more like, you know, eight to ten percent.
• 22:04
  Speaker 2: So you see the idea bonds provide more consistency, and
• 22:07
  Speaker 2: of course, given that we're a retirement planning firm, bonds
• 22:10
  Speaker 2: also offer consistent income because it's kind of like a CD.
• 22:14
  Speaker 2: You buy it over a period of time, and then
• 22:16
  Speaker 2: they make interest payments to you while you own that bond. Okay,
• 22:19
  Speaker 2: there's just kind of like a quick and dirty But
• 22:22
  Speaker 2: bonds are essentially loans that you, the investor, make to
• 22:26
  Speaker 2: companies or governments in exchange for regular interest payments and
• 22:30
  Speaker 2: the return of your principle. They come in many forms.
• 22:32
  Speaker 2: So there's US treasuries I mentioned before, there's corporate bonds,
• 22:35
  Speaker 2: there's mortgage backed securities. There's even things called high yield
• 22:39
  Speaker 2: or junk bonds, which are just lower rated bonds. They
• 22:41
  Speaker 2: also have different maturities kind of like a CD that
• 22:44
  Speaker 2: range from thirty days to thirty years. Yes I did
• 22:48
  Speaker 2: say thirty years. And these bonds certainly have their own
• 22:51
  Speaker 2: set of risks, like there's interest rate risk, there's reinvestment
• 22:54
  Speaker 2: rate risks, there's credit risks, but they generally provide more stable,
• 22:58
  Speaker 2: predictable returns and side which is why we often see
• 23:02
  Speaker 2: them inside of older clients' portfolios or retirees portfolios, or
• 23:06
  Speaker 2: more specifically portfolios that need to provide a payment in
• 23:11
  Speaker 2: the future, so whether it be income or like a
• 23:13
  Speaker 2: down payment on a home. And the stability from these
• 23:16
  Speaker 2: bonds really come from the obligation from the borrower. So
• 23:22
  Speaker 2: whether it be a company or government it they have
• 23:25
  Speaker 2: to make payments to you as somebody who supplied them
• 23:28
  Speaker 2: with the money. As a matter of fact, think of
• 23:29
  Speaker 2: it this way. Everybody a bond is much like a
• 23:32
  Speaker 2: company going to a bank and asking for money to
• 23:35
  Speaker 2: build a building, and the bank says, no, we'll give
• 23:38
  Speaker 2: you half the money, but we don't want to give
• 23:40
  Speaker 2: you the rest. And they go, okay, I'll just go
• 23:42
  Speaker 2: to the public and I'll issue them one hundred thousand
• 23:45
  Speaker 2: dollars pieces of paper. They give me one hundred grand,
• 23:47
  Speaker 2: I give them a piece of paper that says in
• 23:49
  Speaker 2: ten years, I'll give them back one hundred grand, and
• 23:51
  Speaker 2: I will give them interest payments. So when you are
• 23:54
  Speaker 2: purchasing bonds, you are purchasing the debt of either a
• 23:58
  Speaker 2: corporation or of a government entity or a municipality. So anyways,
• 24:04
  Speaker 2: the next time that the borrower tries to raise funds
• 24:07
  Speaker 2: for new projects or something like that, you can understand
• 24:09
  Speaker 2: it is often the bond that you are purchasing when
• 24:13
  Speaker 2: they're trying to raise funds from a borrower. So anyways,
• 24:16
  Speaker 2: there's a little bit of a primer on what are bonds,
• 24:19
  Speaker 2: But I know, Josh, you have more to say on
• 24:20
  Speaker 2: this topic.
• 24:22
  Speaker 3: Yeah. So the bonds, of course provide that more predictable income,
• 24:26
  Speaker 3: don't have the same types of risks as stocks. So
• 24:30
  Speaker 3: the reason why we engage these in the overall portfolio
• 24:33
  Speaker 3: is that power of diversification. Typically you'll hear about this
• 24:38
  Speaker 3: quite a bit that when stock markets are down, when
• 24:40
  Speaker 3: there's fear in the market, people will push money to
• 24:43
  Speaker 3: safer assets things like cash or bonds or US government treasuries.
• 24:48
  Speaker 3: Of course, so those typically will be a good booy
• 24:52
  Speaker 3: during down markets, and we find this when we're working
• 24:55
  Speaker 3: with clients. We always encourage individuals to work with us
• 24:59
  Speaker 3: over a law period of time in investing. And when
• 25:03
  Speaker 3: you have that long period of time in investing, that's
• 25:05
  Speaker 3: when you get the power diversification. When you're putting it
• 25:09
  Speaker 3: all together, so you can get the power of that
• 25:12
  Speaker 3: global stock market, that engine to the entire investment experience.
• 25:17
  Speaker 3: That's going to drive a ton of growth in your portfolio.
• 25:21
  Speaker 3: I mean, since nineteen thirty seven, in a sixty forty portfolio,
• 25:27
  Speaker 3: your equity part of it drives about eleven percent of
• 25:31
  Speaker 3: that return in your portfolio. And that's a powerful, powerful thing.
• 25:36
  Speaker 3: But not all of it is going to be inside
• 25:39
  Speaker 3: the stock market, because of course there's volatility there, and
• 25:42
  Speaker 3: so those bonds are there to help stabilize during those
• 25:45
  Speaker 3: down markets. And it's really powerful because your investment team
• 25:49
  Speaker 3: like COSS Financial, we come in and we help manage
• 25:53
  Speaker 3: that risk over time. When the stock markets down we
• 25:56
  Speaker 3: see an opportunity for rebalancing, we come in we provide
• 25:59
  Speaker 3: that assist since we help rebalance and make sure that
• 26:02
  Speaker 3: individuals have their right risk profile so that they have
• 26:06
  Speaker 3: the correct expected to return over time. And it's just
• 26:10
  Speaker 3: a really powerful thing when everything can come together to
• 26:13
  Speaker 3: work well give a more predictable and smooth experience for
• 26:18
  Speaker 3: our clients and retirees.
• 26:19
  Speaker 1: Well put in talking this morning with Josh Stirling and CJ. Closs.
• 26:22
  Speaker 1: They are our retirement planning professionals from Class Financial. The
• 26:25
  Speaker 1: website class financi dot com. That's Class klaas financial dot com.
• 26:31
  Speaker 1: Great website to learn more about Colss Financial. And I'll
• 26:33
  Speaker 1: sign up for the weekly market Pul's newsletter right online.
• 26:35
  Speaker 1: They're telphone number six oh eight four four two five
• 26:38
  Speaker 1: six three seven. No charge for that initial get to
• 26:40
  Speaker 1: know your appointment at Loss Financial. It will be complementary
• 26:43
  Speaker 1: to you again. They're number six oh eight four four
• 26:46
  Speaker 1: two five six three seven. We'll take it down the
• 26:48
  Speaker 1: home stretch and do the Class quiz question the week
• 26:50
  Speaker 1: next as money in Motion, we have Class Financial continues
• 26:53
  Speaker 1: right here on thirteen ten Do Wuiba talking about diversification
• 26:57
  Speaker 1: this week with CJ. Closs and Josh Sterling. Of course
• 26:59
  Speaker 1: they our retirement playing professionals from Class Financial website Class
• 27:03
  Speaker 1: financial dot com. That's coss k l as Financial dot com. So, Josh,
• 27:08
  Speaker 1: it sounds like kind of the diversification isn't just a
• 27:11
  Speaker 1: single strategy, but really a combination of strategies, whether it's
• 27:16
  Speaker 1: within stocks, bonds, other asset classes. Am I right, is
• 27:19
  Speaker 1: kind of really about managing risk while still participating in
• 27:23
  Speaker 1: kind of the overall market.
• 27:25
  Speaker 3: Absolutely, there's a lot of parts, a lot of pieces
• 27:28
  Speaker 3: to this, but just as we discussed earlier, kind of
• 27:33
  Speaker 3: the takeaway from this entire conversation, a well diversified portfolio
• 27:38
  Speaker 3: can lead to a smoother investment experience overall, and that
• 27:43
  Speaker 3: can help you stay the course even when we have
• 27:45
  Speaker 3: down or challenging markets.
• 27:49
  Speaker 2: Yeah, well, thanks, Josh, I appreciate you jumping on and
• 27:52
  Speaker 2: talking to talking to our listeners kind of about diversification.
• 27:56
  Speaker 2: And one final point I'll mention as it relates to
• 27:59
  Speaker 2: investing that we didn't have time to talk about today
• 28:01
  Speaker 2: is your time. Your time in the market really does matter,
• 28:06
  Speaker 2: So a lot of people get drawn to the markets
• 28:08
  Speaker 2: because they hear that something's going way up and it
• 28:10
  Speaker 2: sounds exciting and they want to get in on the deal.
• 28:14
  Speaker 2: But you really need to understand what certain money is
• 28:17
  Speaker 2: for and what your timeline is. Obviously, if you're young
• 28:21
  Speaker 2: and you have a retirement account or for one g
• 28:23
  Speaker 2: at work, you probably have a long time to invest.
• 28:26
  Speaker 2: But if you're just taking money that's in a checking
• 28:28
  Speaker 2: or savings account and dumping it in one stock and
• 28:31
  Speaker 2: you expect to have that money available for a down
• 28:33
  Speaker 2: payment on your first home you're going to buy in
• 28:35
  Speaker 2: two years, probably not a great idea. So that's where
• 28:39
  Speaker 2: we come in. This is where Josh and the investment
• 28:42
  Speaker 2: team comes in to really help us assess how much
• 28:44
  Speaker 2: risk can this person tolerate, both both quantitatively, so that's
• 28:49
  Speaker 2: the idea of like the stability of their finances and
• 28:52
  Speaker 2: then qualitatively in terms of their personal risk tolerance. So
• 28:56
  Speaker 2: thanks Josh for jumping on with us talking about risk
• 28:58
  Speaker 2: tolerance and kind of time horizons and everything, and thank
• 29:01
  Speaker 2: you everybody for listening.
• 29:02
  Speaker 1: That really good stuff and great to have both CJ
• 29:05
  Speaker 1: and Josh along this week. Good news, great news for
• 29:08
  Speaker 1: you if you've got questions. Class Financial makes it really
• 29:11
  Speaker 1: easy to start that conversation. Of course, you can learn
• 29:13
  Speaker 1: more online the website class financial dot com. That's closs
• 29:17
  Speaker 1: k l aas financial dot com. Even better, great day
• 29:20
  Speaker 1: to give them call a Class Financial telephone number six
• 29:22
  Speaker 1: oh eight four four two five, six three seven. No
• 29:26
  Speaker 1: charge for that initial get to know your appointment Tech
• 29:27
  Speaker 1: Loss Financial. It will be complimentary to you again their
• 29:30
  Speaker 1: number six oh eight four four two five six three seven.
• 29:33
  Speaker 1: You want to hold on to that telephone number now
• 29:34
  Speaker 1: because it's time for the class quiz question the week
• 29:37
  Speaker 1: works like this, just a moment to ask you the
• 29:38
  Speaker 1: class quiz question the week. You'll then have thirty minutes
• 29:41
  Speaker 1: from in today's program to call the Class Financial office
• 29:43
  Speaker 1: right here in Madison at six oh eight four four
• 29:45
  Speaker 1: two five, six three seven. If you are the first
• 29:48
  Speaker 1: call with correct answer to when, this week's prize which
• 29:50
  Speaker 1: is a twenty five dollars gift card to Jersey Mikes.
• 29:53
  Speaker 1: This week's class quiz question the week is this true
• 29:56
  Speaker 1: or false? Diversification is about spreading your investment across different
• 30:01
  Speaker 1: asset types to reduce risk. Is that true or is
• 30:05
  Speaker 1: that false? Telephone number six oh eight four four two five,
• 30:08
  Speaker 1: six three seven First call with correct Hanson win this
• 30:10
  Speaker 1: week's prize. Don't forget as well. That's class Financial office
• 30:13
  Speaker 1: right here in Madison again that number six oh eight
• 30:16
  Speaker 1: four four two five six three seven CJ Josh. Great
• 30:19
  Speaker 1: chatting with both of you, guys. Have a great day,
• 30:22
  Speaker 1: thanks Sean, Thank you Sean. Take care guys. Doctor Marty
• 30:25
  Speaker 1: Greer joins us next here on thirteen ten. Wuib I