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The Return Illusion · Money In Motion with Klaas Financial

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Speaker 1: Centerfhone lines.
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Speaker 2: They are open to you this morning telephone. I'm gonna
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Speaker 2: get on the air six oh eight three two one
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Speaker 2: thirteen ten. That's six oh eight three two one thirteen ten.
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Speaker 2: Any retirement related and planning related question. I'd love to
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Speaker 2: get you on the air and join us this morning.
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Speaker 2: Again that telephone number, that question do you get answer
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Speaker 2: asked at six oh eight three two one thirteen ten.
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Speaker 2: That's six oh eight three two one thirteen ten. And
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Speaker 2: of course as we talk this morning, Oh, I apologize,
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Speaker 2: Apparently I lost my uh I sent the wrong link
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Speaker 2: to our guys. That costs financial this morning. So we've
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Speaker 2: got Cjcija. I'm just seeing now I thought I said that.
0:39
Speaker 2: I deeply, deeply apologize. No, it is how you doing
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Speaker 2: this morning?
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Speaker 3: I'm doing great? How are you doing?
0:46
Speaker 2: Fantastic? Feeling better about Team USA right now? I know
0:49
Speaker 2: a couple of Oh goodness, you are very hopeful and
0:52
Speaker 2: very enthusiastic. But there were some questions, but uh, gosh,
0:56
Speaker 2: what a what a run it's been so far? Now
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Speaker 2: they who they is a Belgium next?
1:00
Speaker 3: I think on Monday, so yes, I'd have to look
1:03
Speaker 3: at it something like that. But my goodness, yesterday or
1:06
Speaker 3: last night's game was fantastic.
1:07
Speaker 2: They played great and people may wonder and can we
1:10
Speaker 2: talk about something really really quick here?
1:12
Speaker 1: CJ?
1:12
Speaker 2: Why do I ask you about soccer?
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Speaker 3: Yeah? I used to in my It feels like a
1:18
Speaker 3: lifetime ago now, but about twenty years ago I used
1:21
Speaker 3: to play soccer out in Seattle for the Seattle Sounder.
1:23
Speaker 3: So that's that's why I'm so tied to the to
1:25
Speaker 3: the US national team.
1:26
Speaker 2: And you're my go to guy for soccer questions to
1:29
Speaker 2: So great to have you along also joining us this
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Speaker 2: morning from class financial Mister Kyle Kyle, how are you
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Speaker 2: doing this morning?
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Speaker 1: I'm doing great, Sean, how are you?
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Speaker 2: I'm doing absolutely fantastic. Are you also a soccer fan
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Speaker 2: as well?
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Speaker 1: Not nearly as big as CJ is, but you got
1:44
Speaker 1: a root for the USA when they're in it?
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Speaker 2: Absolutely, and we've got you know, We're going to talk
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Speaker 2: this week with Cee Jack Kyle about the return illusion
1:54
Speaker 2: and compounding is an amazing thing. We're to talk about
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Speaker 2: how you can I understand compounding, volatility and all also
2:00
Speaker 2: the math that's behind it that drives those retirement outcomes.
2:03
Speaker 2: We'll get into that with CJ. And Kyle. In just
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Speaker 2: a moment I mentioned the phone number to get on
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Speaker 2: the air. I haven't mentioned yet the website cossfinancial dot com.
2:10
Speaker 2: That's coss k l aas financial dot com. Great way
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Speaker 2: to get to know the team at Costs Financial and
2:15
Speaker 2: also learn a about some of their hobbies as well.
2:18
Speaker 2: At classfinancial dot com. Learn about the separate divisions there.
2:21
Speaker 2: You can listen back to this in previous shows podcast.
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Speaker 2: You can also submit a question to be answered online
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Speaker 2: Financial dot com or phone. Give me call six SO
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Speaker 2: eight four four two five six three seven. No charge
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Speaker 2: for that initial get to know you appoinment at Costs Financial.
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Speaker 2: It will be complementary to you again their number six
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Speaker 2: SO eight four four two five six three seven. I
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Speaker 2: got a great topic as mentioned ahead. Also, another cool
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Speaker 2: thing we do on the show is the coss Quiz
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Speaker 2: Question of the Week your chance to win a fantastic prize.
2:51
Speaker 2: This week, our friends from Class Financial have provided a
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Speaker 2: twenty five dollars gift card to Amazon. I'll tell you
2:55
Speaker 2: a little bit later on in the program how you
2:57
Speaker 2: can win that little tip. Pay close attention the program
3:00
Speaker 2: because oftentimes the question and answer to the Class Quiz
3:03
Speaker 2: question leak comes up during the show, and before we
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Speaker 2: get to this week's topic, let's actually look back at
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Speaker 2: last week's program and get that question and answer there
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Speaker 2: as well.
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Speaker 1: Kyle. Yeah, and thanks again everybody for listening, and congrats
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Speaker 1: again to our winner from last week. So last week's
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Speaker 1: question was pretty straightforward, true or false. If a conflict
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Speaker 1: of interest is disclosed, it has effectively been solved, and
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Speaker 1: that answer is, of course false.
3:27
Speaker 2: And that is and as we talk this morning on
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Speaker 2: that show and of course start our new program as well,
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Speaker 2: you can listen back to that program right at classfinancial
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Speaker 2: dot Com. That's closs k l a as financial dot
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Speaker 2: com so CJ. Here we're talking about investment returns, but
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Speaker 2: not in the same way that folks are maybe used
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Speaker 2: to hearing about them. Instead going to be focusing in
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Speaker 2: on averages or instead of focusing in on those averages
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Speaker 2: or headline numbers, we're actually going to get into the
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Speaker 2: map that kind of powers this and that's behind it
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Speaker 2: returns and how they actually work over time. So let's
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Speaker 2: talk about why this is such an important conversation to ab.
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Speaker 3: Yeah, good point, Sean, So we're we're pretty excited to
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Speaker 3: cover this topic today because it can have a major
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Speaker 3: impact on long term outcomes for investors. I mean, most
4:12
Speaker 3: people hear that markets have historically returned around eight to
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Speaker 3: ten percent, and they assume that their experience will look
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Speaker 3: something like that. But the reality is that returns don't
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Speaker 3: happen in a straight line. They come with ups and downs,
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Speaker 3: and that volatility can change the actual result in very
4:29
Speaker 3: meaningful ways. If you focus only on the average and
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Speaker 3: you ignore how those returns happen, it's very easy to
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Speaker 3: develop expectations that don't match reality. The gap between the
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Speaker 3: expectation and the reality is what we're calling the return
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Speaker 3: illusion in today's show, and I would encourage everybody. Some
4:50
Speaker 3: of you might be going, oh, here we go average
4:52
Speaker 3: market returns. I've heard this show before. I would say,
4:54
Speaker 3: pay attention. We're going to talk about some things that
4:57
Speaker 3: you maybe haven't thought of before as it relates to
5:00
Speaker 3: of those returns, the like return calculations and how they how,
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Speaker 3: how and when you receive the returns relative to generating
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Speaker 3: income and retirement. So just pay attention today. This is
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Speaker 3: an interesting one.
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Speaker 2: Absolutely love it, and Kyle as CJ just explained. You know,
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Speaker 2: when folks think about returns, we tend to focus in
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Speaker 2: on average. What's missing from that picture.
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Speaker 1: Yeah, it's a great question, Sean. And the biggest thing
5:23
Speaker 1: that's missing is how gains and losses actually interact over time. So,
5:26
Speaker 1: you know, CJ and I would love to just give
5:28
Speaker 1: people straight line returns. It's easy for everybody to understand
5:31
Speaker 1: and kind of get your arms around. But an example
5:35
Speaker 1: is that if a portfolio goes up twenty percent in
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Speaker 1: one year and then down twenty percent the next year,
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Speaker 1: your first inclination is that, oh, basically that's a zero
5:44
Speaker 1: percent return, But because of the compounding and the sequence
5:49
Speaker 1: of how those returns happen, the investor actually has a
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Speaker 1: four percent loss over time. So again, it went up
5:56
Speaker 1: from one hundred to one hundred and twenty. But a
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Speaker 1: twenty percent loss on one hundred and twenty is more
6:02
Speaker 1: than a twenty percent gain on one hundred, right, So
6:04
Speaker 1: the difference becomes more important as time goes on, especially
6:08
Speaker 1: as account balances get larger and investors close it on retirement. Again,
6:12
Speaker 1: most people are used to seeing you know that, you know,
6:15
Speaker 1: if it's if you got like a million dollar portfolio,
6:18
Speaker 1: well five percent of that is fifty thousand dollars, which
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Speaker 1: is a big nugget. But then if you've got only
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Speaker 1: one hundred dollars and you've got a five percent return,
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Speaker 1: well that's one hundred and five. So people don't don't
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Speaker 1: pay as much attention to that. It's when those numbers
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Speaker 1: get bigger, even though the percentages are the same, it
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Speaker 1: has a big impact on the total balance.
6:32
Speaker 2: Its great perspective this morning as we talk with Kyle
6:35
Speaker 2: Kite and CJ Closs, they are our retirement planning professionals
6:38
Speaker 2: from Coss Financial. If you've got a retirement related question,
6:42
Speaker 2: we'd love to get you on the air this morning.
6:43
Speaker 2: I know CJ and Kyle would love to talk with you.
6:45
Speaker 2: I'll get to pick up phone, give a call, We'll
6:47
Speaker 2: get you right on the air. Six soh eight three
6:49
Speaker 2: two one thirteen ten. That's six oh eight three two
6:51
Speaker 2: one thirteen ten. Well, of course, get you that website.
6:55
Speaker 2: That's Cossfinancial dot com. That's cost Klaas Financial dot com.
6:59
Speaker 2: Great website and they're telephone number six oh eight four
7:02
Speaker 2: four two five six three seven. No charge for that
7:04
Speaker 2: initial get to know yourpployment deck Loss Financial. It will
7:07
Speaker 2: be complimentary to you again, they're number six oh eight, four, four, two, five, six, three,
7:11
Speaker 2: seven and CJ. Then how do you when you're working
7:13
Speaker 2: with folks, how do you help them think about this
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Speaker 2: kind of that difference that Kyle laid out in some
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Speaker 2: practical terms.
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Speaker 3: Yeah, So we try to shift the conversation from average
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Speaker 3: return to real return experience. So instead of asking what
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Speaker 3: might the market return, we ask how will you? How
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Speaker 3: will your portfolio behave along the way, and what does
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Speaker 3: that mean for your financial plan? So there's three main
7:38
Speaker 3: concepts that we're going to focus on today that relates
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Speaker 3: to this return illusion we're talking about. So number one
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Speaker 3: is compounding, which Kyle kind of already talked about there.
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Speaker 3: When you take you know, straight line return assumptions like
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Speaker 3: twenty percent up, twenty percent down, that ignores compounding, something
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Speaker 3: that often is referred to as geometric returns. For those
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Speaker 3: of you who are math nerds who are like, wait,
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Speaker 3: you're talking about geometric versus algorithmic returns, that's right. Algorithmic
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Speaker 3: is just numeric over time, but geometric accounts for compounding.
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Speaker 3: The second component is volatility, and the third is the
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Speaker 3: sequence of those returns matters as well. Each of these
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Speaker 3: plays a role in shaping outcomes over time, especially if
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Speaker 3: someone gets closer to or enters into retirement. So listen,
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Speaker 3: we all know there's actually I was gonna call out
8:28
Speaker 3: a professional who doesn't understand geometric and algorithmic, who some
8:31
Speaker 3: of our listeners might know. I'm not going to do that. Instead,
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Speaker 3: I'm just gonna say some people will reference algorithmic or
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Speaker 3: straight line returns saying, well, my gosh, if I can
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Speaker 3: get a ten percent rate of return every single year,
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Speaker 3: then I can draw eight percent of out of my
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Speaker 3: portfolio and retirement and that's just simple math, right, and
8:49
Speaker 3: you get no. Actually, when you play that out in
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Speaker 3: the real world, it doesn't work that way. You could
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Speaker 3: actually quote unquote average return of ten percent a year
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Speaker 3: over a third year retirement, pull out eight percent a
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Speaker 3: year and run out of money. Yes, everybody, listen to
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Speaker 3: what I just SAIDMCO. That is not possible. Well, sure
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Speaker 3: it is, because what if you get a twenty percent
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Speaker 3: decline the first three years and you're pulling out eight
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Speaker 3: percent off or yeah, eight percent off the original balance.
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Speaker 3: It's actually the sequence of those returns matters. So yeah,
9:23
Speaker 3: I know many of your minds are blowing up right now.
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Speaker 3: But we could show this to you and it's actually
9:27
Speaker 3: quite simple when you model it out. But our simple
9:31
Speaker 3: brains like the simple concepts and we latch onto them
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Speaker 3: and then we get in trouble later on in retirement.
9:36
Speaker 2: And we're going to dig into those three main concepts
9:38
Speaker 2: that only sequence of returns, volatility, compounding as well as
9:41
Speaker 2: we talk with CJ and Kyle. Of course, our retirement
9:43
Speaker 2: planning professionals from Class Financial online, Classfinancial dot com. That's
9:47
Speaker 2: Coss klaas Financial dot com. More of money in Motion
9:51
Speaker 2: with Class Financial comes you way next right here at
9:53
Speaker 2: thirteen ten WIBI talking this morning with our retirement planning
9:56
Speaker 2: professionals CJ. Closs and Kyle Kite. They come to us
9:59
Speaker 2: from COSS Financial Online coss Financial dot com. That's Coss
10:03
Speaker 2: k l a a s Financial dot com. Great website
10:07
Speaker 2: and resource. Learn all about COSS Financial. Their telephone number
10:09
Speaker 2: six oh eight four four two five six three seven.
10:13
Speaker 2: Don't forget no charge for the initial gets to know
10:14
Speaker 2: you appointment ch colss Financial. It will be complimentary to
10:17
Speaker 2: you again. The telephone number six O eight four four
10:19
Speaker 2: two five six three seven, don't forget. Also got a
10:22
Speaker 2: chance a little bit later on the program for you
10:24
Speaker 2: to win a twenty five dollars gift card to Starbucks.
10:27
Speaker 2: I misspoke earlier. That's to Starbucks twenty five dollars gift
10:30
Speaker 2: card with class quiz question League. We'll do that coming
10:32
Speaker 2: up in the next segment. Talking this week about the
10:35
Speaker 2: return illusion, understanding compounding, volatility and that math that goes
10:40
Speaker 2: goes on that that drives that retirement income and Kyle
10:45
Speaker 2: talking about this stuff. Let's talk about the first one,
10:49
Speaker 2: which will be volatility. How does that influence someone's financial plan?
10:54
Speaker 1: Yeah, so volatility is really the driver behind why average
10:58
Speaker 1: returns can be misleading. And that example that I used
11:01
Speaker 1: earlier when markets go up twenty percent in one year
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Speaker 1: and then down twenty percent in the following year. During
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Speaker 1: those accumulation years, volatility actually works in your favor because
11:13
Speaker 1: you're regular investing, regularly investing in buying at different price points. Right,
11:17
Speaker 1: So this is think of dollar cost averaging. This is
11:19
Speaker 1: basically what this is. So when you're working and contributing
11:22
Speaker 1: to your four one K, you know, if you get
11:24
Speaker 1: paid every two weeks, you've got money buying it every
11:26
Speaker 1: two weeks. No matter what the market is, whether it's
11:28
Speaker 1: up ten percent or down ten percent. So think back
11:32
Speaker 1: to just March, the market was down, you know, roughly
11:34
Speaker 1: ten percent depending on which index you're looking at. Those
11:37
Speaker 1: shares of funds that you bought back in March are
11:41
Speaker 1: up more than they would have been had you started
11:43
Speaker 1: back in January because you bought from a lower point, right,
11:46
Speaker 1: So again, volatility helps you when you're buying in. But
11:49
Speaker 1: in retirement, this dynamic change is because most people in
11:52
Speaker 1: retirement you're withdrawing money out during a downturn. So this
11:57
Speaker 1: is a way that you're locking and some losses as
12:01
Speaker 1: you're pulling money out because again generally speaking, you're selling
12:03
Speaker 1: shares to create that income and then you're selling at
12:08
Speaker 1: so depressed prices basically, so this reduces the base your
12:12
Speaker 1: portfolio has to recover and grow from going forward. So
12:16
Speaker 1: this is what we call sequence of returns risk, and
12:19
Speaker 1: it's especially prominent in the early years of retirement.
12:22
Speaker 2: And that's a really good setup CJ. As Kyle talks
12:25
Speaker 2: about sequence of returns and that risk there, how does
12:28
Speaker 2: that kind of fit into this overall conversation.
12:32
Speaker 3: Yeah, good question. So sequence of returns risk refers to
12:35
Speaker 3: the order in which returns occur and it becomes especially
12:38
Speaker 3: important once you start taking income. So two investors could
12:43
Speaker 3: experience the same average return over time, but if one
12:46
Speaker 3: has negative returns early in retirement and the other has
12:49
Speaker 3: them later, that outcome can look very different. The investor
12:53
Speaker 3: who experienced negative returns early in retirement will likely have
12:56
Speaker 3: a worse outcome compared to the other investors. So again,
13:00
Speaker 3: this gets back into geometric versus algorithmic returned calculations. What
13:05
Speaker 3: are you referencing? How are you tracking this? And then
13:08
Speaker 3: overlaid with the sequencing of it, so that another way,
13:11
Speaker 3: let me put this in more simple terms. We could
13:14
Speaker 3: look over a hypothetical thirty year retirement of a couple,
13:19
Speaker 3: So retire at sixty five, diet ninety five. We'll just say,
13:22
Speaker 3: and that couple couple A versus couple B could get
13:26
Speaker 3: the identical algorithmic average returns. This is just the average
13:32
Speaker 3: over that timeframe. One runs out of money at eighty five,
13:37
Speaker 3: another ends up with millions. Okay, that is how severe
13:42
Speaker 3: sequencing and understanding geometric returns can be. And you again again,
13:46
Speaker 3: your brain might go, that is not possible. Oh yes
13:49
Speaker 3: it is. Let's weave actually walk people through this all
13:52
Speaker 3: the time. Now what can often come as a result
13:55
Speaker 3: of this as people say, well, okay, all the more
13:58
Speaker 3: reason why shouldn't own stocks and retirement, and we would
14:01
Speaker 3: say I wish that were true. I really do, because
14:04
Speaker 3: I would love to just put you in money markets
14:06
Speaker 3: or bonds and just kind of clip your interest over time,
14:09
Speaker 3: get straight line returns and ignore volatility because you know,
14:12
Speaker 3: people say, I am hearing you I have Volatility is
14:14
Speaker 3: my friend when I'm working, but it's my enemy when
14:16
Speaker 3: I retire. That's true. The issue becomes that you can't
14:20
Speaker 3: just dump everything into a cash account or a bond
14:23
Speaker 3: account most of the time and combat inflation number one
14:28
Speaker 3: and number two not run out of money doing it
14:30
Speaker 3: that way. It depends how much money you have, but
14:32
Speaker 3: you get the idea. So it's more just simply about saying, hey,
14:37
Speaker 3: I am going to have a diversified, diversified portfolio, some
14:41
Speaker 3: of which will be bonds in cash that will support
14:44
Speaker 3: my income needs when the markets get volatile while allowing
14:48
Speaker 3: the equities to do their long term heavy lifting. If
14:52
Speaker 3: you leave equities, and by the way, when I say equities,
14:55
Speaker 3: I'm using the term equities and stocks synonymously. When you
14:59
Speaker 3: leave equities, stocks alone, over long hours of time, they
15:01
Speaker 3: do their work, they get their returns, and you don't
15:03
Speaker 3: have to worry about the sequencing because you're not touching them.
15:06
Speaker 3: It's when you only have those stocks and that's the
15:09
Speaker 3: only thing that you're drawing off of that's where that
15:12
Speaker 3: sequencing can become a big deal because to Kyle's earlier point,
15:16
Speaker 3: you're drawing money out of those stocks when they are down,
15:19
Speaker 3: and therefore you are locking in losses, which that sequence
15:23
Speaker 3: of returns compounds against you then. So so one way
15:28
Speaker 3: we manage this risk with clients is by setting aside
15:30
Speaker 3: that reserve fund that I was talking about, so that
15:32
Speaker 3: could be reserved, or maybe it's even a portion of
15:35
Speaker 3: their portfolio that's in bonds and cash, and that way, again,
15:38
Speaker 3: if the market experience is a downturn, we can lean
15:40
Speaker 3: on the reserve to avoid selling those stocks when they're devalued.
15:44
Speaker 2: Really interesting stuff this week as we talk with CJ.
15:46
Speaker 2: Closs and Kyle Kite, our retirement planning professionals from Coss
15:49
Speaker 2: Financial the website Coss financial dot com. That's Coss Klaas
15:54
Speaker 2: Financial dot com. They're telp forh number six So eight
15:56
Speaker 2: four four two five six three seven, no charge for
15:59
Speaker 2: the initial gets no appointment dech loss financial it will
16:01
Speaker 2: be complimentary to you. Again, they're number six oh eight
16:05
Speaker 2: four four two five, six three seven. So we've touched
16:07
Speaker 2: on we've talked about volatility, and we've talked about sequence
16:11
Speaker 2: of returns. Kyle, what about compounding compounding We offer here
16:16
Speaker 2: about the power of compounding as a positive force. Is
16:19
Speaker 2: there another side to that?
16:21
Speaker 3: Yeah?
16:21
Speaker 1: Absolutely, Sean, definitely. So compounding is very, very powerful and
16:26
Speaker 1: actually well with it being fourth of July, I think
16:27
Speaker 1: it was Ben Franklin it said it's the eighth wonder
16:29
Speaker 1: of the world. Right, people have heard that that statement before,
16:32
Speaker 1: So it's it's powerful, but it's also neutral. It simply
16:36
Speaker 1: amplifies whatever is happening inside the portfolio. So when returns
16:40
Speaker 1: are steady and positive, compounding can be one of the
16:43
Speaker 1: greatest forces working in your favor because gains, you know,
16:47
Speaker 1: begin to generate additional gains. So again, when you start
16:50
Speaker 1: looking at these over long arcs of time, it's it's
16:53
Speaker 1: a no brainer that you know, compounding interest is phenomenal,
16:56
Speaker 1: but the opposite can also be true. So when if
16:59
Speaker 1: account goes down to twenty percent, it does not need
17:01
Speaker 1: a twenty percent gain to recover, it needs a higher
17:05
Speaker 1: return because it's growing from a smaller base. Right, So
17:09
Speaker 1: a super easy way to think about this is if
17:10
Speaker 1: you start with one hundred dollars and we'll just amplify it.
17:13
Speaker 1: Let's say you lose fifty dollars, right, it drops fifty percent,
17:16
Speaker 1: goes down to fifty dollars. Well, now fifty percent return
17:20
Speaker 1: on fifty dollars is only twenty five. It gets you
17:22
Speaker 1: up to seventy five.
17:23
Speaker 3: Right.
17:23
Speaker 1: If you get that fifty percent loss, you actually need
17:26
Speaker 1: one hundred percent gain to get back up to where
17:29
Speaker 1: you start it. So again, it can work in your favor,
17:31
Speaker 1: but if it's if it's negative, it definitely is a
17:34
Speaker 1: headwind as well. And so this is where the math
17:36
Speaker 1: can surprise people. So again, as CJ was saying, a
17:39
Speaker 1: portfolio can have an average return that sounds reasonable on paper,
17:42
Speaker 1: but if that path includes sharp declines at the wrong time,
17:45
Speaker 1: the actual dollar outcome can be very, very different. So
17:50
Speaker 1: again it's going to help you build wealth, but it
17:52
Speaker 1: also reminds you why managing downside risk matters, right, So
17:55
Speaker 1: the path of returns may matters just as much as
17:58
Speaker 1: the average itself, particularly as we get close to retirement
18:03
Speaker 1: or once you start taking income off of that portfolio.
18:06
Speaker 2: Great information this morning. So we've talked about the three
18:10
Speaker 2: three things, one of the three concepts this week, we're
18:12
Speaker 2: going to put those all together in just a moment.
18:14
Speaker 2: In the meantime init of the website. Head on Overcloss
18:16
Speaker 2: Financial dot com. That's Coss k l Aasfinancial dot com.
18:20
Speaker 2: It's schedule complimentary conversation right from the website or call
18:22
Speaker 2: the office six so eight four four two five six
18:25
Speaker 2: three seven More of Money in Motion with Coss Financial
18:28
Speaker 2: next year on thirteen ten, WIBA week about understanding compounding
18:32
Speaker 2: volatility and the math that drives retirement incomes and cej
18:36
Speaker 2: As we've kind of laid out some of these these
18:38
Speaker 2: powerful concepts, let's kind of put this in action and
18:42
Speaker 2: talk about how you help clients manage all of these
18:45
Speaker 2: moving parts within a plan.
18:47
Speaker 3: Yeah, so we're not trying to eliminate volatility, because that's
18:51
Speaker 3: not that's just not realistic. Instead, we focus on managing
18:54
Speaker 3: its impacts. So frequent listeners of Money in Motion have
18:58
Speaker 3: heard us talk a lot about this before, So managing
19:01
Speaker 3: the impact of volatility can look like some of the
19:03
Speaker 3: following It can look like building a diversified portfolio the
19:06
Speaker 3: balance's growth and stability, which we talked about before. It
19:10
Speaker 3: can look like structuring income withdrawals in a thoughtful way.
19:13
Speaker 3: It can look like maintaining appropriate reserves. When we say reserves,
19:17
Speaker 3: by the way, I think of this as like checking
19:18
Speaker 3: savings money markets CDs, high yield accounts that have FDIC
19:22
Speaker 3: insurance that are not taking on market risk. So it
19:25
Speaker 3: can look like maintaining appropriate reserves to avoid selling investments
19:29
Speaker 3: during downturns. Or it could look like aligning the investment
19:32
Speaker 3: strategy with the client's time horizon and the goals. So
19:35
Speaker 3: the goal is not just to achieve returns, but to
19:37
Speaker 3: create a more consistent and reliable outcome over time. So listen,
19:43
Speaker 3: everybody's heard us talk about this. But when we think
19:46
Speaker 3: of building a portfolio, we think in terms of multiple factors.
19:51
Speaker 3: It's what is your time horizon, what is your what
19:55
Speaker 3: is your kit personal capacity for? And then finally, what
20:01
Speaker 3: is your personal risk tolerance? So capacity for risk would
20:05
Speaker 3: be like how large is your portfolio and if it
20:07
Speaker 3: goes down can you sustain this? Right? But personal risk
20:10
Speaker 3: tolerance that's really subtle. What do you mean personal risk tolerance,
20:15
Speaker 3: and it's like, well, what would you do if tomorrow
20:18
Speaker 3: you woke up and you were down twenty percent? And
20:20
Speaker 3: people go, oh, I think I could handle that. Let
20:23
Speaker 3: me ask that in a different way. What would you
20:24
Speaker 3: do if tomorrow you woke up and you lost two
20:27
Speaker 3: hundred thousand dollars? Somebody, Well, that's a different question, right.
20:31
Speaker 3: So that personal risk tolerance component of the three that
20:35
Speaker 3: I just mentioned their time horizon, you know, capacity for risk,
20:38
Speaker 3: and personal risk tolerance. Personal risk tolerance overwhelms all the
20:43
Speaker 3: other ones because if you get it wrong, it blows
20:46
Speaker 3: up the whole thing. And therefore, our job We've did
20:51
Speaker 3: an entire show on this is as much art as
20:54
Speaker 3: it is science. We have to understand the science of
20:57
Speaker 3: financial planning aka the math of but then we have
21:01
Speaker 3: to artistically apply it to people who don't really know
21:04
Speaker 3: their personal risk tolerance, or they may not know how
21:06
Speaker 3: they're going to react when things go up or down.
21:08
Speaker 3: And so part of our job is to dig deep
21:11
Speaker 3: in over time. And it's part of the reason why
21:13
Speaker 3: we have long term relationships with clients, by the way,
21:16
Speaker 3: is because ten years, fifteen years after working with somebody,
21:20
Speaker 3: I know their personal risk tolerance as it relates to
21:23
Speaker 3: investing better than they do. I mean seriously, and you
21:26
Speaker 3: make how is that possible, CJ? Because they might know
21:29
Speaker 3: how they feel, but I know how they'll react, right,
21:33
Speaker 3: And so anyways, it's just really important to understand that
21:36
Speaker 3: that time horizon and personal risk tolerance.
21:38
Speaker 2: And speaking of those previous shows, you can always listen
21:40
Speaker 2: back to this in previous programs right at Cossfinancial dot Com.
21:43
Speaker 2: That's Coss Klaas Financial dot Com. So Kyle is CJ
21:47
Speaker 2: kind of highlighted there. It's not about chasing higher returns.
21:50
Speaker 2: It's more about building a plan that folks can can
21:53
Speaker 2: really stick with in different different environments.
21:55
Speaker 1: Yeah, that's one hundred percent and true, Sean, And that's honestly,
21:58
Speaker 1: you know CJ and I joke. That's what we do
21:59
Speaker 1: more and yes, we got to know those science and
22:01
Speaker 1: as CJ said, there's art to it too, but a
22:03
Speaker 1: lot of it's psychology, right, we have to understand, you know,
22:06
Speaker 1: how people are going to react when they go through
22:08
Speaker 1: some of these things. But at the end of the day,
22:10
Speaker 1: a well designed plan is going to take into account
22:13
Speaker 1: how those markets move. And we know as of the
22:16
Speaker 1: show that they don't move in a straight line. But
22:19
Speaker 1: when you understand how compounding, volatility and these sequence of
22:22
Speaker 1: return risks interact, you can make more informed decisions and
22:26
Speaker 1: avoid some of the commons pitfalls that we see investors
22:29
Speaker 1: run into. So this is also going to give you
22:31
Speaker 1: more flexibility because you have a clear idea of where
22:34
Speaker 1: the income will come from and how much risk the
22:37
Speaker 1: portfolio can reasonably take. And then if we need to
22:40
Speaker 1: make adjustments along the way. You know, so many people
22:42
Speaker 1: we talk about what draw percentages and how much can
22:44
Speaker 1: we take out and that kind of stuff, And obviously
22:47
Speaker 1: we've gone through this a lot on the show too.
22:49
Speaker 1: But at the end of the day, it's just are
22:51
Speaker 1: you willing to make adjustments? Right if we start at
22:53
Speaker 1: one point that may be a little too high for
22:56
Speaker 1: the long term portfolio, are you willing to make some
22:58
Speaker 1: adjustments because we go through some extra volatility or the
23:01
Speaker 1: sequence of return risk isn't in your favor, those types
23:04
Speaker 1: of things.
23:04
Speaker 2: A lot of great information in this week's program, A
23:06
Speaker 2: lot of great information. Listen back to the podcast Colossfinancial
23:10
Speaker 2: dot Com. Maybe you're going to be doing some traveling
23:12
Speaker 2: over this holiday weekend, great opportunity subscribe listen back right
23:15
Speaker 2: at colassfinancial dot com. You can hear the podcast there
23:18
Speaker 2: also while you're there and get to know the team
23:19
Speaker 2: at COSS Financial. You can also schedule a complimentary chat
23:23
Speaker 2: right from the website cossfinancial dot com or give m
23:25
Speaker 2: call six soh eight four four two five six three seven,
23:28
Speaker 2: No charge for that initial get to know your appointment
23:30
Speaker 2: at Colss Financial. It will be complementary to you again
23:32
Speaker 2: their number six oh eight four four two five six
23:35
Speaker 2: three seven. Before we do the class quiz question the week, CJ,
23:38
Speaker 2: it's got to wrap this up this week as we
23:40
Speaker 2: get towards the end of the program. What's kind of
23:42
Speaker 2: that big takeaway? If there's one thing you really want
23:44
Speaker 2: to stick with folks, what would that be this week?
23:48
Speaker 3: Yeah, I think the the key takeaway from today's show
23:50
Speaker 3: is that average returns don't tell the full story. What
23:54
Speaker 3: really matters is how those returns are experienced over time,
23:57
Speaker 3: especially when when you begin taking income out of your
24:00
Speaker 3: portfolio in retirement. So when you understand that, you shift
24:04
Speaker 3: from simply hoping for strong returns to building a strategy
24:08
Speaker 3: that is designed to navigate both the ups and the
24:11
Speaker 3: downs more effectively. And as we've talked about many times
24:14
Speaker 3: before on this show. Removing complexity can go a long
24:18
Speaker 3: way in reducing your stress and retirement, which ultimately allows
24:22
Speaker 3: you to focus more on enjoying your retirement years. So
24:25
Speaker 3: I hope this was a slightly different spin on kind
24:28
Speaker 3: of returns and market volatility that's helpful for those approaching
24:33
Speaker 3: or in retirement.
24:34
Speaker 2: A lot of great great information, great conversation, great perspective,
24:37
Speaker 2: unique perspectives as well. That's great stuff about this program,
24:40
Speaker 2: great data. Listen back if you missed any part of
24:42
Speaker 2: the show. As I mentioned, also if you're going to
24:44
Speaker 2: be road tripping, it's a nice companion for you as
24:47
Speaker 2: you're traveling around. Just head on over to Classfinancial dot com.
24:50
Speaker 2: That's coss klaas Financial dot com. You can subscribe and
24:53
Speaker 2: listen back to this in previous shows podcasts, tell phoneber
24:56
Speaker 2: for Class Financial office right here in Madison six so
24:58
Speaker 2: eight four four two five I have six three seven.
25:01
Speaker 2: Don't forget no charge for the financial gets to know
25:03
Speaker 2: you appointment tech Loss Financial. It will be complementary to
25:05
Speaker 2: you again their number six oh eight four four two
25:08
Speaker 2: five six three seven. You're going to hold on to
25:10
Speaker 2: that telephil number as well because it's time now for
25:12
Speaker 2: the COSS Quiz Question the Week. It works like this.
25:15
Speaker 2: In just a moment, I'll ask you the class quiz
25:17
Speaker 2: question Leak. You will then have thirty minutes from the
25:19
Speaker 2: end of today's program to call the Class Financial office
25:21
Speaker 2: right here in Madison at six oh eight four four
25:24
Speaker 2: two five, six three seven. If you are the first
25:27
Speaker 2: call with correct answer, you win this week's prize, which
25:29
Speaker 2: is a twenty five dollars gift card two Starbucks. This
25:32
Speaker 2: week's Closs Quiz Question the Week? Is this true or false?
25:37
Speaker 2: Compounding is a natural phenomenon that can help impact your portfolio,
25:42
Speaker 2: both positively and negatively. Is that true or is that false?
25:47
Speaker 2: Compounding is a natural phenomenon that can impact your portfolio,
25:51
Speaker 2: both positively and negatively. Telephon number six oh eight four
25:55
Speaker 2: four two five, six three seven. First cort correct answer
25:57
Speaker 2: when that twenty five dollars gift card to Starbucks don't
25:59
Speaker 2: forge as well. That's COSS Financial's office number right here
26:02
Speaker 2: in Madison.
26:03
Speaker 1: CJ.
26:04
Speaker 2: Kyle, it's great chatting with both of you. You guys,
26:06
Speaker 2: have a safe and happy Independence Day and we'll talk
26:09
Speaker 2: in a week.
26:10
Speaker 3: Thanks as Schon.
26:11
Speaker 2: Take care, guys. News comes your way now here on
26:13
Speaker 2: thirteen ten WIVA This is Money in Motion with Coss
26:17
Speaker 2: Financial Asset Advisors LLC, a registered investment advisor registered with
26:22
Speaker 2: the SEC. The contents of this show are for informational
26:25
Speaker 2: purposes only and should not be considered individual investment advice.
26:29
Speaker 2: Class Financial does not offer tax or legal advice. Any
26:32
Speaker 2: opinion offered during the course of this show is the
26:35
Speaker 2: opinion of that particular investment advisor representative, and not necessarily
26:40
Speaker 2: the opinion of Cost Financial