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How to Actually Balance Risk and Protection in Retirement · How to Retire on Time

• 0:00
  Mike: Hey, thanks for joining. Here's a question I was recently asked on my show, How to Retire On Time. Take a look.
• 0:11
  David: Yeah. Here's another question that we'll tackle here. How do you balance taking risk and protecting your money? So an extension of what we've kind of been talking about here.
• 0:25
  Mike: Taking risk and what was the other part?
• 0:28
  David: And protecting your money. So is that even possible? Can you take risk and protect your money?
• 0:32
  Mike: So the middle ground of the index accounts. That's where you have upside potential. It's not a guarantee. No downside risk. Okay.
• 0:43
  That's where it could be. But I go back to plan first, strategy second, portfolio third, because... And I've noticed this. Someone says, look, this is actually... I had this a couple of times, even this year.
• 0:58
  They have several million dollars in their IRAs and Roths. They put it all to cash because they're just waiting for the next market to crash. Mhmm. And then they'll invest. That's just the singular isolated all in and one thing strategy.
• 1:12
  It doesn't make sense. Like, divide and conquer. Have your short term hedge. Know that in ten years, you're probably gonna be just fine with market growth, and that you can afford the ups and downs along the way. And it helps just don't look at it for every day.
• 1:29
  Yeah. You wanna look at it. You wanna know what's going on, but Right. Maybe not every day. Yeah.
• 1:35
  Yeah. Yeah. Don't read the news cycle that scares you from your political persuasion, thinking that whatever president's in power is gonna destroy it. That's not a criticism to Trump because many many people on the right thought Obama was gonna destroy democracy. Yeah.
• 1:50
  And people say, oh, that's not true. Look, I see the news stories. Yeah. It doesn't matter what... Like, everyone hates the other side of the aisle right now.
• 1:58
  Yeah. It's sad, but it influences people's investment decisions. I can assure you, both sides of the aisle want to grow the economy. They want to look good.
• 2:11
  David: Yeah. They want to get that vote.
• 2:13
  Mike: And regardless of the political position, every business wants to grow. That's the inherent nature of the business. So regardless of whatever politicians in power, they're gonna try and grow.
• 2:24
  David: Yes. I had an economics class down the road and our and our professor beat into our heads. Businesses are profit maximizers. That's what they are. That's what they'll always be.
• 2:36
  Mike: Yep. That's their purpose in existence.
• 2:40
  David: Right.
• 2:40
  Mike: So I... Yeah. How do you how do you balance protection and money? Because the more market risk you take, the less inflation risk you take. The more inflation risk you have, the less market risk you take.
• 2:51
  Mhmm. It's a it's a seesaw. Mhmm. So instead of trying to find the right balance of all of your assets, take one portfolio and make mini portfolios with their assigned missions.
• 3:02
  David: So so each mini portfolio then would have... Could could either be... Have more risk or less risk. Right? So so maybe things...
• 3:10
  If if there's money and I think of... Maybe I'm just saying things I've heard you say before, but if there's money that you don't need for a long time, that that can withstand some more risk.
• 3:20
  Mike: Yeah. Well, let me... I'll I'll give you a food example because I like food.
• 3:23
  David: Okay. Like a lot. Sounds good right now too. Yeah.
• 3:27
  Mike: Yeah. So every year I buy a cow. Oh. It's butchered and we have several freezer chests. Uh-huh.
• 3:36
  Okay. Do I need to eat all of the meat this week? I don't. Oh. But I could take a steak out, defrost it, and enjoy it.
• 3:44
  Notice the irony there. I defrost to eat within three days. You sell a stock, it settles within, you know, two or three days. Yeah. But but I could also have the meat pile go for, you know, another year.
• 3:54
  I'd slowly enjoy it over the long term period of time. Yeah. Whereas my vegetables, they don't freeze well. I mean, guess like peas and carrots might, but still it's fresh is better in my So the vegetables that we get, their intention is to get eaten within that week. So thank you Whole Foods and Sprouts and Natural Grocers and the places that we try to buy.
• 4:17
  Ice organic food or produce. Yeah. Okay. And then you've got the other middle category, like you buy pasta, that can last a while. Yeah.
• 4:28
  Right? So you've got different expiration dates in different parts. So the pantry has some stuff that can be in there for a couple of months, but we wanna we wanna eat it within a month or two. We've got the stuff we need to eat within a week, and we got the stuff that we could let sit in the freezer for a while. That's your portfolio.
• 4:44
  You've got the stuff you plan to to enjoy sooner than later because inflation is going to erode kinda like food, but not decompresses, decomposes.
• 4:56
  David: Yeah. It just... It loses its freshness, whatever. It it can go bad. Spoil.
• 5:00
  Mike: It spoils. Yeah. So you you wanna get through that stuff sooner. That that just... That's how you think about a portfolio.
• 5:06
  Mhmm. When are you going to need the money and how do you get Mhmm.
• 5:09
  David: So near term, near term, my near term income needs in this analogy, I can afford to have something that has a smaller yield.
• 5:18
  Mike: You wanna know how much my cow costs? I don't know. Like, if you do the equivalent, and this is why like long term investing, you need to put it in the market so it has the most growth for inflation purposes. How expensive is beef right now?
• 5:28
  David: Oh, yeah.
• 5:29
  Mike: It's insanely expensive. Mhmm. I pay per pound. I think it was like $4 per pound for high quality beef. Yeah.
• 5:38
  That means my rib eyes were $4 a pound, not whatever the... And you can look up whatever the price is. I don't know. Is it $12.15? I I don't even know what the price of beef is anymore because it's so outrageous.
• 5:48
  My brisket, $4 a pound. My filet bignon, my tri tip, all of it, $4 a pound. My ground beef, $4 a pound. It might even be $3.5 a pound, something like that. It's just that's that's the idea.
• 6:04
  Alright. Long term investment time horizon. Like, you have to be willing to understand these concepts to have good deals. When you buy in the market, you're buying the market for a good deal, and the deal is they expect it to last long enough when you need it. That's all the time we've got for today's show.
• 6:20
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