E.A.S.E. into Retirement Podcast

with Tom Mosley.  
The Importance of RISK in your retirement portfolio!

Click on the video to watch the podcast. Full transcript is included below.

Speaker 1:

The impact of risk on your retirement portfolio or funds, that’s what we’re going to talk about today.

Thanks for tuning in to this video. Hey, the key point is there is risk associated with all investments. Now, there’s one writer, if I called her name, she’s known as a financial expert even though she’s not licensed, but she said, “If anybody ever offers you this product, you know they’re out for their own benefit, so get up and leave.”

I’m going to tell you something else that’s like that. If anybody ever tells you it’s 100% good on a product and there’s nothing at all wrong or that could go wrong or is negative about a product, they’re not telling you the truth. There are products that are good for people and not good for people, good for other people and not good for people. So, you got to understand that work with somebody who’s going to give you a fair valuation and ask this question, okay, you’ve told me the good side of this investment, what about the negative potential of this investment? All investments have a risk.

Now, my dad was famous for saying to me, “Son, I’ve got my money in $100 bills in a safety deposit box in the bank in a brown paper bag.” Sure enough, he died with $92,000 in $100 bills in a brown paper sack in the Bank of America in Haltom City, Texas on Rufe Snow Drive. I mean, he was great, because he didn’t want any risk.

So, what if you had $92,000 sitting in the bank this year and just a checking account that paid you nothing? Or like my dad, you had it in a safety deposit box, $92,000, no risk at all. What about inflation risk? Because the purchasing power of that $92,000 over the past year has gone down 8%, 9% overall. And we’re going through another year of inflation, so it’s going down even further. So, one thing you need to get out of your system is the idea that you can invest in anything that has no risk whatsoever.

Now, I will say this, the only thing I ever invested in that has absolutely no risk was my dad, because I knew if we made money, he would give it to me. And I knew that if we lost our money, he would not make me pay him for it. Because your parents and most of your parents are already gone is what I’m saying, and that was only until I was about 10 or 12 years old. So, you got to understand that there is risk with everything.

So, let’s talk just a little bit about, how do you mitigate risk? Well, first of all, you need to diversify. You’ve heard the saying before, having all your eggs in one basket is not a good thing. And I’m talking here specifically, and I’m not talking about all diversification right now, but you don’t need to be… I like large cap. What that means is big companies. Or I like mid-cap, okay, that means middle companies. Or I like small cap, that means little companies. Or you may like baseball caps, okay? But whatever you like and you think that I really like that one and I only want to be in that one. No, you need a portfolio in the market, invested in the market that is diversified among many things.

You probably need a little bit of international in there. You probably need a little bit of, it’s hard to say, bonds, okay, because they perform so poorly. But with interest rates going higher, some people are making pretty good money in bonds in certain ways right now. It’s not as bad as it was a year or two years ago. So, that’s kind of diversification within a stock market portfolio.

Now, there’s another diversification and that is sector diversification. You probably need some money in the stock market. I’m almost sure everybody does. You probably need some money that you’re putting for your financial concerns into insurance. You say, what do you mean by that? Well, you pay money for insurance on your house. You might need, if you’ve got a lot of equity in your house, don’t let this slip up on you, you might need earthquake insurance.

You say, what do you mean? Well, if you’ve got $700,000 worth of money that’s yours, equity within a house. You say, well, I can’t afford that $1,200 a month in earthquake insurance. Well, can you afford not to? Because if we have a horrific earthquake and it destroys your house or causes your house to be uninhabitable, you’ve lost your house, you’ve lost $700,000 of equity. So you probably can’t afford to do without insurance in that way.

Health insurance, oh yeah, I know that one, Tom. Life insurance, some of you are out there and you might be watching this podcast and you might have just tabbed it and you’re 38 years old and you’ve got three kids at home and they’re all in single digits, maybe five, seven, and nine. And you’ve got a mortgage of a half million dollars and you’ve got a student loan you’re still paying for, and those five, seven and nine year old children are going to have student loans along the way.

If something happens and you’re taken out of this world, your family’s going to miss you, not just emotionally and in the relationship of a mom or a dad, but your family’s going to miss your financial ability to earn an income. So you might need life insurance, probably the most expensive, the most inexpensive, rather the term life insurance that’s available. But just to cover your family in case the unthinkable happens.

So you don’t need to just have all of your money going for financial concerns just into the stock market. You may need it to be going in some areas into an insurance area to cover you against risk. And that’s what we’re talking about. The risk that you’re running into. And you may be retired and you may have a mortgage. And you may have still a student loan, that parent plus loan, when you couldn’t say no to your kid when they wanted to go back at 38 years of age and get their third master’s degree and you already owed 135,000 on a parent plus loan and you took out another one. You might be in that situation. I don’t give any illustrations that I haven’t had people tell me that’s sitting in our conference room. Then you need some insurance to cover that in case something were to happen to you.

So diversification not just in the market but also in the different sectors. You probably need money in the bank. You need money in the insurance field and money in the stock market as well. Now, a third thing, you need to know what your portfolio risk is, and that means the things that you’re invested in. The investments, the stock, the mutual funds, the exchange traded fund, you need to know what they’re invested in. And a lot of people that are investment advisors even, “Well, you’re in the moderate.” Well, what does that mean? What kind of score do you have? Because from zero to 100 you should have a score as to how risky your portfolio is and the things that you’re invested in. We’ve had people in their seventies come in and they’ve told us, “I told my broker to put me in something that’s very, very, very conservative.”

And she said, well, the lady I’m thinking about said this three times in the interview that we had with her, “Very, very, very conservative.” We did a portfolio analysis through a neutral company, Morningstar, that does reports on things like that. And they came back and they said, “This lady is 79% as risky as the market.” So can’t just, I’m moderate, I’m balanced. What does that mean? That you can walk down the hallway without hitting one wall or the other? No, you need to know what your portfolio risk score is. And the other score you need is just as important. You have a personal risk score. And there are evaluations for that, where you take a personal examination analysis and through a process of questions, it comes up with a score for you. Okay? And that is your personal tolerance. When we helped this lady who had a 79 risk portfolio, her risk tolerance was at 27.

So she was three times as risky in the money that she had invested than she really should have been invested for her to have contentment or to be able to sleep well at night and be a member of what we call the SWAN Club, S-W-A-N, Sleep Well At Night. So here’s what you need to do. You need to have a risk analysis to find out what your risk tolerance is. That’s something that you take, you answer a few questions and it comes up with your score. And then the other thing you need to do is you need to have a portfolio stress test where we find out what’s your current investments, what their risk level is, and they have a score as well.

And I’m going to show you how hard this is. Then you take your risk score and you build a portfolio to live with that equals your risk score. This is not rocket science, okay? You just build a portfolio to your risk level and that gives you the contentment to be able to say, “I might not be making as much as the stock market when the stock market’s going crazy in a positive way and I’m not going to be losing as much likely when the stock market goes down in a negative way.” That’s the reason to have less risk and to take less risk. Or more importantly, to take the risk that you need to take.

Now this week, in the week I’m making this video, I’ve had people come back with a 17 risk score and I had a couple came back with an 87 risk score. And both of those are right because both of those agreed that that’s the risk level they want to be at. So when it comes to the importance of risk on your retirement portfolios, you need to know and you need to match up with who you are.

I used to coach football for a long time, I love it. And when it first came out, this saying, I never did a quite understand it and I was just like, “What a crazy saying.” But they came out and they said, “Play within yourself. Don’t try to do more than who you really are.” And then I began to realize what that meant is, there may be some people that can take great risks and be able to sleep at night and not really for that to bother them, but that might not be you. And then there’s some people that they couldn’t think of being conservative. And so playing within yourself when it comes to the risk in your portfolio means if you’re aggressive inside, be aggressive on the outside. If you’re conservative on the inside, be conservative on the outside with your portfolio.

You say, “I don’t know. How do I match this up because the person I’m working with just talks about moderate or balanced or growth?” You need some numbers to it so you can know for sure that you’re talking about the same thing. Okay, so how do you do that? You want to match those scores. How do you match them? Give us an email. Info@mosleywealthmanagement M-O-S-L-E-Y, wealthmanagement.com, or you can call us (714) 421-4288 and we’ll start you on the process. This is how we build a retirement blueprint for people by making sure that they match up in their investments. One of the foundational things that we do for them. So call us. We can help you. But if you don’t want to call us, call somebody and get some help to make sure you’re not taking more risk than internally you really need to take. Hey, we’ve been talking about the importance of risk on retirement funds. Make sure you know what risk you’re taking right now.

Speaker 3:

Investment advisory services offered by dually registered individuals through Mosley Wealth Management Inc. MWI Mosley Insurance and Financial Services are affiliated companies by common ownership. License number 0K76766. Investing involves risk, including the potential loss of principle. Any references to protection, safety, or lifetime income generally refer to fixed insurance products, never securities for investments. Insurance guarantees are backed by the financial strength claims paying abilities of the issuing carrier. This content is intended for informational and educational purposes only. It is not intended to be used as the sole basis for financial decisions, nor should it be construed as advice designed to meet the particular needs of the individual situation. All hypothetical examples are provided for illustrated purposes only. They do not represent real life scenarios.

Mosley Insurance and Financial Services nor it’s agents or representative may not give tax or legal advice. Individuals should consult with a qualified professional for guidance before making any investment decisions. Our firm is not affiliated with or endorsed by the US government or any governmental agency. Some of the information provided may be from one or more third parties, which we believe to be reliable sources. But accuracy and completeness cannot be guaranteed by Mosley Insurance and Financial Services.


Back To Blog Page