Latest / Money In Motion with Klaas Financial / Retirement Focus: Nailing Allocation Strategies
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- Got a telephone lines. They are open to you right now if you've got a question for our retirement planning professionals from Class Financial. The telephone numbers to get on the air and join us six oh eight three two one thirteen ten. That's three two one thirteen ten. Joined this week by CJ. Closs and Josh Sterling. As mentioned, they are retirement planning professionals from Class Financial. You can learn more about Class Financial on their website Coss Financial dot com. That's k l Aasfinancial dot com. Their telephone number six oh eight four four two five six three seven. No charge for that initial get to know you appointment at Loss Financial. It will be complimentary to you again their number six oh eight four four two five six three seven. With on any further ado. CJ. How you doing this morning? I'm doing great. How are you, Sean? I'm doing really good. Great to have you along, Josh, welcome back to the show. Great to talk with you. How's your day so far? Oh, good morning, Sean. The sun shining and is beautiful here Madison. It is a fantastic day. And we've got an important conversation, a great conversation ahead about when it comes to appropriate acid allocations when it comes to your portfolio and kind of putting that together. We're going to get the details from c jag Josh in just a moment. As mentioned, phone lines are open six oh eight three two one thirteen ten. That's three two one thirteen ten. We'll get you on the air. You can learn more about Class Financial their website coss Financial dot com. That's Klaasfinancial dot com and their telephone number six oh eight four four two five six three seven. No charge for that initial get to know you Apployment Tech Loss Financial, It will be complimentary to you. Another really cool thing we do on the show each and every week is the Class Quiz question the week. Your chance to win a fantastic prize this week is no exception. A little bit later on the program, you'll have a chance to win a twenty five dollars gift card to Cabbella's little tip listen closer to the program. Mostly every single week, the answer and question come up during the show. Give yourself a little bit of leg up on the competition. Tell you exactly how you can win that a little bit later on the program before you're rolling on this week's conversation. Let's actually take a look back at last week's show and get the question and answer to thesquiz question of the week. Yeah, well, thanks everyone for listening, and congrats to our winner from last week, which was Lisa Verona. Lisa correctly answered the question which was in the US what percentage of Americans choose cremation over burial in twenty twenty three and it was multiple choice, was it forty percent or sixty percent that choose cremations? And Lisa correctly answered sixty percent. So listen closely this week because typically both the question and answer come up during the show and you could be like Lisa and win a little prize. And if you missed last week's program, it was a very very interesting and very informative conversation about afterlife planning and of course preparing and being of course having things prepared for your family to really reduce the burden. But really interesting show there. You can always listen back to this in previous shows podcast at classfinancial dot com. That's Closs Klaasfinancial dot com their twelphone number six so eight four four two five six three seven. I know a big part of what you guys do is clients with clients is retirement planning is we're kind of working through and helping them find their appropriate acid acid I can speak acid allocation for their portfolios. Is that right, CJ. Save me my friend, that's right. Just make sure you add on the et there. This is not this is asset allocation Sean. Yeah, yes, So we do a big part of what we do is we sit down and help people plan for retirement. So that includes things like life expectancy and estate planning and tax planning and projecting if they've saved enough to live off of. But within all of that there becomes this reality of like, all right, well you're telling me I can retire, but a huge component of my ability to remain retired will be how well I can invest my dollars and manage risk throughout the next twenty thirty forty years of retirement. So this is an important area of consideration for all investors, especially those who are looking at where their positioned today and what might need to change is they approach and enter retirement now. From a simplified view, and acid allocation is the breakdown of your investment strategy. This is typically the amount of money you invest in stocks, bonds, and cash like instruments into which how much you put in each of those categories. There's this kind of phrase in financial services that speaks to this truth of over ninety percent of your return will be determined by your asset allocation, not your security selection. Let me repeat that, typically, over about ninety percent of your return will be determined by your asset allocation, not your security selection. So said another way, your breakout of stocks, bonds and cash will have a huge impact over a long period of time on your expected rates of return. But I am not the expert in this space. That's why we have my colleague Josh Sterling on with us. He is our director of portfolio management here at Class Financial. He leads a team of people who oversees a lot and many hundreds of millions of dollars of assets for our clients and various portfolios and asset allocations. So with that introduction, Josh, can you talk to us about what asset allocation means for investors and what they should expect. Absolutely, and good question, I think to your comments earlier, a lot of people really get stuck up on which stock might be the best solution for me. And that's not necessarily the place that we start out with our clients. So we like to boil it down into something really, really simple. So we'll start off on that simple perspective here. And so it could be difficult to predict how stocks and bonds might work in the future, but we can look to the past for a little bit of guidance to kind of help us out on picking that appropriate asset allocation. So at that basic standpoint, stocks historically have outpaced bond returns when you look at long periods of time, although having a higher return doesn't come for free. Stocks tend to move around more significantly compared to bonds, especially in rough times. It's critical to be able to stomach the turbulence of the market if you have a significant mountain Stocks. Bonds, however, on the other hand, tend to be more stable. It can be seen as a safer haven during turbulent stock markets. Bonds, in their most simplistic form are simply promises to pay back what was borrowed. There are many types of bonds, like corporate bonds, home loans, and the US government treasuries. These tend to have stability of principle. While you earn coupon payments along the way. Bonds traditionally earn a lower return because of this than the stock market, but they may be wanted by those who don't want to weather the storm of the stock market. Really good perspective this morning talking with Josh Stirling and CJ. Loss. They are our retirement planet professionals from Claus Financial to website class financial dot com that's k Laats Financial dot com and their telephone number six oh eight four four two five six three seven. Don't forget no charge for the initial get to know your appointment ach Loss Financial. It will be complementary to you again their telephone number six oh eight four four two five six three seven. Okay, since we're discussing kind of the differences between stocks and bonds, how do you use these investments when building out then appropriate portfolio? CJ. In portfolios, we will split the proceeds and put some in stocks and some in bonds, depending upon somebody's risk tolerance. This creates diversification by using different investment types. The intention here is that when one zigs, the other z eggs, and it can help smooth out the overall investment process. Now, as I say this, Again, this is very high level, very simplified. The reality is Josh and I will sit around quite often and talk about not all bonds are created equal. Credit quality matters, terms matter, duration matters, interest rate, volatility matters. There's actually a lot that goes into every single one of these broad asset allocations that we're talking about. But at a high level, just understanding that bonds are really designed to reduce volatility and provide a consistency of coupon payment, which often can support a retiree's income streams. So you know, full disclosure. In my own portfolio, by the way, I am forty years old. If anybody's wondering in my own portfolio, I have very little to no bonds. And so you might say, wait, wait, wait, I thought you just said that you put stocks and bonds in every portfolio. No, we put stocks and bonds in the appropriate allocation based upon somebody's time frame and risk tolerance and utilization of the money. But in my case, I have many years to retirement, Lord willing, and that just means that I want the power of what stocks can do over long arcs of time. Now, with that little kind of personal aside out of the way. In my experience as an advisor, as someone is preparing to invY, picking the right acid allocation can be important but a tough step. Josh, what are some of the ways that they should that people should look to build their acid allocation, especially as they head into retirement. Well to your point, picking the right allocation can be really challenging, but we should look at it as one of the most important steps to investing, and it's important to be in the right mindset when making this choice. Being short, not to gloss over certain considerations. I like to compare this experience to simply buying a home. When we shop for a home, the first consideration typically isn't we're going to go to see a movie next week, let's buy a home near there. You typically ask yourself a few more critical questions, something like how long do we plan on living here, do we have grandkids or family nearby? Or how many rooms should we have Now. Luckily, picking out an appropriate acid allocation isn't nearly as time consuming or difficult. For most The reason for investing is centered around helping to achieve our long term goals. Too often, it can be easy to let temporary market turbulence either stop us from investing altogether or drive the decision of what asset allocation might be best. A lot of times you'll have market turbulence really discourage people from taking the risk that might be more appropriate aligned with what their goals might be. So because of this, it really is better to consider factors that are within your control, not necessarily what the market's doing right now, and let those factors that you can control align better with your long term goals and investing, just like you would when buying a home. You talk about kind of the Josh and we talk about things like your individual factors, and of course this is very personal stuff. We're actually going to learn about each individual's very unique on this. We're talking about some of the typical questions that are asked for I'm an investor to find out asset allocations for their investments. We're going to do that in just a moment. In the meantime, you haven't been to the website yet, head on over to class financial dot com. That's Coss k l a A S financial dot com. Great website. You can learn more about the team at Coss Financial, get to know c jame Leah Josh is up there as well, and of course you can learn more about the separate divisions at Coss Financial how they can help you or if you're an employer. Also a great opportunity to sign up for the weekly Market Pulse newsletter that available to you at Cossfinancial dot com. That's k l a a s Financial dot com. They're telephone number six O eight four four two five six three seven. No charge for that initial get to know your appointment at Coss Financial. It will be complimentary to you again their number six oh eight four four two five six three seven. More of money in Motion with Coss Financial comes your way next here on thirteen ten wiv A talking this morning with our retirement planning professionals from Class Financial. The website Coss Financial dot com. That's Coss k l a a s Financial dot com. Great website, great resource. That's where you'll know that you can call Josh Stirling the baker. If you've got on over to class financial dot com. You can get to know the team at Class Financially. You can also of course learn more about them and subscribe to the web their weekly Market Pul's newsletter and the podcast at clausfinancial dot com. Telp number six, so eight four four, two, five, six three seven no charge for the initial gets to know you appoyment at Claus Financial. It will be complementary to you talking this week about portfolios, building that portfolio, that right balance. And we left off talking about how this very individual and Josh, as we're talking this morning, what are some of the typical questions that you ask an investor to kind of help them decide what that appropriate asset allocation for their investments might be. Yeah, thank you, Sean. And I can tell you've been to our website. I've got a fun little photo on there, little cheesy spicy buns that I like to make at home. Nice. But yeah, let's talk about some of the big questions that should be answered before you make the decision on how you're going to be investing. So first I like to approach it with the first question, what is the money going to be used for? That's going to help you determine the purpose of investing, whether it's retirement, vacations or schooling. It'll help you consider if you're going to be looking to pass on your wealth to family charities or if you want to spend it down to zero at the end of your life. Secondarily, how long until you're going to need to use the money. That's going to help you determine how long you have to invest. When identifying your timeframe, it's just as important to consider beyond the event. For example, let's say you're going to retire in five years, so you will need to start using the money in five years, but people don't spend every single penny at that five year mark. On average, investors and retirees are going to be using that money for more than twenty years once they hit that retirement date, so you have a long timeframe to still invest in. It's why we tell all of our clients that we work with plan for life after retirements and how you're going to use the money, and don't step off the gas with stocks. Make sure that you have some level of risks still in your investments. The final big question that we ask is around the risk that you're simply willing to take. If somebody's more conservative and really doesn't like to see the volatility in their portfolios, it's okay to step a little bit away from stocks, but it does need to work in tandem with your long term goals, and so when you're thinking about risks. You want to consider times like the Great Recession or COVID and think about how comfortable you are experiencing the full swings of the markets during those times. If seeing your portfolio drop I a significant amount, think maybe twenty or thirty percent. If that worries you, it might be best to focus a little bit more on conservative allocations. As Josh is talking through this, we often well, and I'm just thinking of my own experience and when I got into the industry. Risk just kind of is this word that we, obviously in most circumstances try to avoid. And so we say, hey, you should keep some risk in your portfolio, and people go, no, no, no, no, I don't want risk in my portfolio. But truth be told, this concept of risk applies to your everyday life. When you decide to jump into your car to drive to work, you're taking on risk. When you decide to work for one employer over another, you're taking on risk. When you decide to put money under your mattress instead of the stock market, you're taking on a unique risk known as purchasing power risk. Just the simplistic view of risk that you need to understand is that you are taking on risk every single day in life and with your money. The question is what risk can you tolerate and what risk will help you accomplish your goals. So don't when you hear risk, don't have that kind of adverse reaction where you go, I can't tolerate any of that. No, no, no, no, no, You're you're gonna be taking it on. The questions are what can you tolerate and what helps you meet to your meet your goals. But that being said, after answering those kind of questions that Josh lined out there and considering your own risk tolerance, this should help to narrow the focus on how much you should invest in stocks, bonds, and cash. To be clear, I would offer this basic guidance, the longer you have to invest and the more comfortable you can be with dips in the market, the more you should put into stocks. Stocks are what have the potential to beat inflation over time. Some people people may even have most of their portfolios and stocks just like I mentioned where almost all of mine is in their forties maybe or thirties, forties, maybe even fifties, as they still have enough time to retire. Now let's actually go a step beyond that, Sometimes people go, Okay, I get it. You know, CJ's forty years old, he's young. You know, he's comfortable with the stock market. It has most of his money in stocks. That's fine. But what I'm hearing you say, CJ, is that when I get to sixty five or seventy, I should have like little to no money in stocks. And this is what Joshua was just saying earlier. Well, no, because when you get to retirement that you're not dying. You are living through retirement, hopefully twenty thirty forty years of retirement. So you still need something inside of there that has the potential to beat inflation, which is typically stocks. Not to mention, we work with a lot of people who have been blessed in their lives to have what we call liquidity events and businesses, or did better with a small business than they realized, or worked for the state and ended up having a pension in Social Security that was larger than they anticipated, and so their portfolios are even though they were maybe sixty five or seventy, those portfolios are not invested for them. The portfolios are actually invested for their children and grandchildren. Let that sink in so just because you get to your sixties or seventies doesn't mean that by definition you should have less in stock. Actually, what should drive your asset allocation is your risk tolerance, so your personal experience with that risk. And secondarily, a term we use is called your utilization of the dollars or your need to use the dollars to generate income. If you have a high need for income off those assets or off those accounts, you probably need to reduce the risk, or I should even say reduce risk. You should probably have more in safe assets like bonds and cash to generate cash flow. But if you have no need for income off your portfolio as you enter retirement, there's a real world in which you keep a good portion of that in stock to invest it for the benefit of children and grandchildren. So, as you can see, acid allocation simple in concept, a little bit more complex and application as that is for sure, and we're going to talk about speaking of a complexity things like drift. What is drift? We'll find out the details on that. Will also do class quiz question a week. We'll do that next. As Money and Motion continues, don't forget about the website for COSS Financial it is Coss Financial dot Com. That's Coss k l a as Financial dot Com and their telephone number six O eight four four two five six three seven. More of money in Motion with Coss Financial comes your way next to year on thirteen ten WUIV eight. Just moments away from the Class Quiz question of the week your chance to win a twenty five dollars gift card two Kabel's. We'll get to that in just a moment. Talking this morning with Josh Stirling and CJ Closs, our retirement planning professionals from Class Financial, the website Coss Financial dot com. That's k l a as Financial dot Com and their telephone number six O eight four four two five six three seven. So kind of left off that last segment talking about all of the different thing different factors kind of weighing in and there's way more than than than we could cover on the program. Kind of that way into the decision making when it comes to putting together that portfolio. What about having a partner, And it's got be a great thing to have a partner kind of work through some of the decision making process. But then once once an investor is clear on the right asset, allocations for themselves. What should they do then to maintain it over time. That's a great question, and it can be a little complicated, it can be a little confusing, but an investor should review kind of their current life circumstances along with their retirement plans on a regular basis, whether that's semiannual, annual. At the very least, it's important to check in and ensure that your long term goals haven't changed. I mean, if you've suddenly retire decided to retire five years earlier, it sounds like a pretty big life change, and you might need to adjust your allocation to reflect that change. In addition, over long periods of time, it's natural that your portfolio may drift because stocks could have higher returns than bonds and typically do, and you may need to determine that you need to rebalance your account back to target, whether you trigger that on an annual basis or hey, if it goes up this amount, we'll bring that back. That's something that we do here professionally on our money management team and something that we monitor on a constant basis for our clients. But sometimes people ask how often they should check on their investments, and you should always have access and at least some oversight with your investments at all times. However, it's also important not to over manage your investments by trading on them constantly, letting little things or news headlines control the way that you're addressing your portfolio. It's really critical to stick with your goals and avoid tweaking, even when markets might not be in your favor and it sounds like there's a lot of risk out there. Talking this morning with Josh Stirling and CJ. Closs are retirement planning professionals from Class Financialists. We stare at screens all day at very important to stay focused to understand what the goal is and not not monitor every little my new detail. That's for sure, we're going to learn more about Class Financial. Oh, they've got a great website. It is class financial dot com. That's k l a as Financial dot com and they're telephone number six So eight four four two five six three seven CG. I know that there's a there's a ton of stuff to cover. As as mentioned earlier, I think a lot of these shows. We could probably do a week's worth of programs specifically on one one small little area of it. And I know, there's a lot more when it comes to allocation. What are some of the things that we should be thinking about and know about when it comes to allocation as we head towards retirement. Yeah, so this is this is where it gets tricky. Joshus mentioned, you know, life changes, and so you know, it's kind of like when my wife and I decided to drive or it was really yeah, from from Colorado. Well, let me take a step back. We used to live in Seattle, went to school in Seattle, Washington at University of Washington, and then we are driving across the country and then so doing of course, we took out a map and the map kind of gave us a sense because yes, this was back in the day when they were a paper maps people. And you know it's like, well, I think, based on speed and gas and stops and all that, I think we'll get back to the Midwest, you know about this time. But along the way there were there was a storm. There was actually we had to go over a mountain pass and so that slowed us down quite a bit. One of us got a little bit sick, and so that slowed us down a little bit. And so we know this in life don't we Right, When you take out a map and you're going to drive across the country, you just know this. You go, yeah, well, we think will show up on Wednesday, but it might be Thursday. Right. Well, retirement planning is no different. You're building a plan for the unknown future that in and of itself we should laugh at a little bit. Right. It's kind of like what you're saying that you're going to predict the future. No no, no, no no. But like somebody driving across the country, you would never drive across the country not knowing which way is north, south, east or west. You need a map. In a similar way, retirement planning is not predicting the future. It is rather building a reasonable map of what may occur and what you need to do to make your goals become a potential reality. But along the way you must pause, you must look at what's happened, and you must make adjustments accordingly. So some factors you might want to consider when it comes to acid allocation as you're approaching retirement would be would be things like the presence of other what we call non portfolio income sources above and beyond what your portfolio would supply. So this would be things like social security, pensions, a spouse is working income or farming income, fixed annuities, single premium, immediate annuities, so on and so forth. Because look, you if you say, are a state employee and you work there for thirty forty years for the state of Wisconsin in some capacity, or you're a firefighter who has a pension, your pensions and so security can be in many circumstances enough for you to live very comfortably without needing any of your investments. So in those circumstances, your asset allocation could be very much impacted by that reality. But conversely, if you are a hard working self employed individual who maybe ran a great business, but you didn't earn enough to set upside a bunch into a retirement account, so when you retire, it's basically just social Security and the small amount you have in retirement accounts and maybe equity in your home, well, listen, your asset allocation is going to look very different than the state workers. So there's something you should consider. Now. If those stable income sources will supply most of your income needed, then as I said, you could have a higher capacity for risk or maybe even investing the money for your children or grandchildren. And again, we really don't like these, these what we'll call big picture guide. So some people will say, well, take one hundred minus your age, and that'll tell you how much you should have in stocks, and we go, gosh, that may be true on average, but goodness gracious, that could completely mislead you. So I just want to be clear. There are good what we call rules of thumb that can point to you in the right direction, but I will warn you a rule of thumb is not meant to be acted on. It's meant to give you a sense of the size of the pool that you are swimming in and maybe the direction you should swim. It is not meant to be acted on. So that's actually kind of a good thing to leave off on here. Our goal in doing the show is to educate you as listeners on all the things that impact that could impact your ability to retire, and to guide you towards hopefully a successful retirement. However, you are on the air with thousands of other people listening at once, and therefore this is not personal finance planning guidance, And so you know, hear what we're saying, learn from what we're saying up up your IQ on what you need to be aware of. But at the end of the day this should either drive you towards learning more yourself or towards a financial advisor or an accountant who can help you execute on your retirement plan well stated as always CJ. Closs and of course Josh Stirling. This week our retirement planning professionals from Class Financial Today's Today, I got to just pick up phone, give a call six soh eight four four to two five, six three seven. Don't forget no charge for that initial get to know you appointment at Class Financial. It will be compliment to reach you again their numbers six oh eight four four two five six three seven. Want hold on to that telephone number because it's time now for the class quiz question the week. It works like this, In just a moment, I'll ask you the class quiz question a week. You will then have thirty minutes from the Today's program to call the Class Financial office right here in Madison at six oh eight four four two five six three seven. If you are the first cost correct answer when this week's prize, which is a twenty five dollars gift card to Cabela's. This week's Coloss Quiz Question the week is this. It's a fill in the blank. Acid Allocation in your portfolio is typically comprised of stocks, bonds, and blank. Telephone number six O eight four four two five six three seven first cost correct answer win that twenty five dollars gift card to Cabela's. Don't forget as well. That's Class Financials office here in Madison. Telephone number six oh eight four four two five six three seven, and the website COSS financial dot com. That's COSS k l a A S Financial dot com. C J Josh. It's always great chatting with both of you, guys. Enjoy this beautiful day. Thanks Thanks. Sean News is next here at thirteen ten wu ib A