Index funds continue to dominate and appear to only be strengthening their case, so this week we’re talking indexing — an innovation pioneered by the late, great John Bogle. We also dive into some financial considerations when navigating divorce and one simple task that addresses the $473 billion Americans waste every year.
Episode Notes
Presented by Creative Planning, each week Host and Managing Director John Hagensen cuts through the headlines and loud takes to challenge the advice you may have been given and reaffirm what you know to be true. Plus, don’t miss his weekly interviews with Creative Planning specialists as they cover investing, taxes, estate planning and many other areas that impact your financial life!
John Hagensen: Welcome to the Rethink Your Money Podcast presented by creative planning. I’m your host, John Hagensen, and on this week’s episode, I’ll expose some of the most painfully outdated aspects of personal finance that you’re likely confronted with often. Along those lines, indexing, definitely not outdated, continues to leave active management strategies in the dust. And divorce, not a fun topic, but it impacts half of American marriages. If you are someone you know is looking for guidance, I’ll cover first steps that are needed in my interview with Certified Divorce Financial Analyst, Stephanie Trentham. And finally, this week’s one simple task that addresses the $473 billion We as Americans waste each and every year. Now, join me as I help you rethink your money.
Did you happen to catch the Major League Baseball All-Star game this week? How about that home run derby? That was pretty entertaining. Well, my kids love going to sporting events. And a couple of weeks ago, I took three of them to the Padres game here in San Diego at Petco Park, which is absolutely gorgeous. It’s everything a modern day ballpark should be. There’s even a beach in the outfield that kids can play in the sand. It has a playground. It has grassy knolls inside the stadium where you can see the batter and are technically inside the field, but in a big open area. They incorporated buildings from within downtown, warehouses, condos. The sight lines are amazing. The food is great. The environment is as good as it gets of any major league ballpark I’ve been to. But growing up in Seattle, I watched Griffey and Randy Johnson and a young Alex Rodriguez not from a gorgeous modern day ballpark, but from The Kingdom.
Remember The Kingdom? Let me paint the picture. AstroTurf laid on concrete, concourses that looked like the hallways from The Shining, flickering lights. And the food, let’s just say it wasn’t great. Can you imagine if a major league baseball team were to build a new ballpark today and it looked like The Kingdom? But when it comes to financial advice, a lot of what’s out there should have been imploded in the year 2000 when The Kingdom crumbled in downtown Seattle along the shores of Elliott Bay. Give yourself a mental checklist. As you’re driving around in your car, I know the kids are screaming at you in the back. You’re mowing the lawn. You’re in between appointments. I get it, you have a lot going on, but make a note of these five outdated pieces of financial advice so that you can steer clear of the landmines, and I’ll start with commissions.
A share of mutual funds where you pay a commissionable load to purchase the security, C share mutual funds where you are paying an ongoing, often high fee to own the investment that goes to the broker, permanent life insurance with massive upfront commissions, variable in indexed annuities, huge upfront commissions. If you are being charged to get in or out of an investment, that leads me into number two, that you’re likely working with a broker. Or anytime there are commissions at play, you’ll experience conflicts of interest. High conflicts of interest, in 2024, are outdated. It’s obvious. If you show up at a Ford dealership and say, “What type of truck should I buy?” they’re not suggesting a Tundra. The salesperson isn’t saying, “Go across the street and buy a Silverado.” They’re showing you the F-150. In the financial world, these types of conflicts are everywhere, and the worst part is that most clients don’t understand where they exist.
Many firms have proprietary funds that they don’t name after their company, but they manufacture investment vehicles and they effectively use who you consider to be an advisor as their sales distribution network. Like here are these investments that we make, a bunch of internal fees that no one actually sees unless they know where to look. Hey, advisors, go sell these. Oh, and by the way, you want big bonuses? Sell more of these. You want higher commissions? Sell more of these. You want to go on a fancy vacation? Sell more of these. If it’s not proprietary funds, it’s peddling investments from companies where there are revenue sharing agreements. So you may think, I’m just being told that this is a great investment. And by the way, I don’t know, it might be. It might not be. When a prospective client comes in from certain companies, I don’t even need to look at their statement.
I already know everything they own. Why? Because I know how those brokers are compensated. I know the revenue sharing agreements because I know where to look from those firms. One of the most concealed wolf in sheep’s clothing is the insurance agent, who when asked if they are a fiduciary, they say absolutely, because their firm is a registered investment advisory firm, and therefore they are legally required to operate as an investment advisor. However, the standards are different when selling insurance products as an insurance agent. There are differences in suitability, and just as I mentioned previously on commissions, a giant spread on what one insurance company or product will pay in a commission versus another. These agents are making insurance commissions that are separate from their fiduciary financial advisor business. If a firm manages a couple hundred million dollars and they have a staff of 40 people, you know they’re making revenue somewhere other than as a fiduciary, somewhere other than financial advice, these huge conflicts of interest are outdated.
You don’t need to be exposed to them any longer. You don’t need to accept them as the status quo. There are plenty of great alternatives out there. Our next outdated aspect of financial advice is a recommendation of active management. I’m going to speak more of indexing here in a moment, but the evidence is overwhelming and consistent that even professional money managers as a group have a very difficult time outperforming a simple index strategy within their asset class. Number four, working with a non-credentialed advisor. If it’s finance, you’re looking for a certified financial planner. If it’s investing a chartered financial analyst. Legal work, an attorney, and tax planning, a CPA. If you needed open heart surgery, you’d want to make sure you were going to a cardiologist who went to medical school. You should expect the same out of someone handling your life savings. Yet there are plenty of advisors who are well-spoken, trustworthy. They connect well, they host a great Christmas party for their clients, but sadly, they have nothing more than a simple state licensing test from a qualification standpoint.
So to recap, commissions are outdated. Dealing with major inherent conflicts of interest, that’s outdated. Active management is outdated. Working with advisors who are not credentialed is outdated. And finally, isolating investment planning without the consideration of taxes, your estate plan. If you’re a business owner, your business strategies, that is also outdated. If 25 years ago, you were able to find an independent credentialed fiduciary that was utilizing low-cost index funds, that was very tough in and of itself. But even if you did, good luck having that person actually be within a team of CPAs and attorneys. That was virtually unheard of. But now in 2024, today, you can find that. When is the last time that your financial advisor reviewed your tax return?
When’s the last time your CPA and your financial advisor met to discuss your situation? And I’m not talking about from a filing perspective, from a tax preparation perspective. That is totally different than tax planning, which is strategically looking into the future about what can be done today to potentially limit your tax liability down the road. Shifting the conversation toward the topic of investing, in the first half of 2024, the S&P 500 rose by 14.5% with 4.4% attributed to Nvidia alone. Excluding the major tech giants like Microsoft, Nvidia, Google, Amazon, and Meta, the index increased by 5.7%, which the performance isn’t bad, still puts it on track, if you annualized it, for an 11% gain, which is pretty close to historical norms. However, 14.5 of the entire index, nearly four and a half percent of that one stock, nearly 10% of the growth in the first half attributed to five tech stocks.
It underscores the consequence of not being invested in top performing stocks. That is inarguable. You have to own the best performers, or your returns get clobbered Some take that information and attempt to pick stocks to not include any of the other bad ones, but just own the big dogs. But these people are genuinely delusional. If this is you, I know it sounds harsh, why would you think that you could do something that even professionals managing billions of dollars have no statistical evidence of being able to pull off? Beating the market is exceedingly challenging. You might be able to pick a few of the right things here and there, but try doing it for 50 years and never have a big miss. It’s interesting that the case for indexing is only getting stronger. When I think about indexing, I can’t help but reference the late great John Bogle, commonly known as Jack, founder of the Vanguard Group, the pioneer of index investing.
If you’re not familiar with Bogle, he revolutionized the mutual fund world by creating an index fund. It’s commonplace today, but at the time, it was crazy to buy mutual funds that simply tracked a broader market. All the competition was saying, wait, why would you include the losers? Research managers, find the one with the best track record of recent performance, and let them buy and sell stocks throughout the year because you’ll probably achieve great performance. Bogle’s philosophy flew in the face of that conventional wisdom. In 1976, he introduced the Vanguard 500 fund, which tracked the S&P 500, and he marketed it to retail investors. He only raised $11 million in its first underwriting. As of November 27th, 2023, the Vanguard 500 Index Fund had nearly 850 billion. During the tech crash of 2001, Bogle answered a few questions at the National Press Club. He talked about buying everything and holding forever. Have a listen.
Interviewer: Last month on Lewis Rukeyser. You summed up your investment philosophy as buy everything and hold it forever. Do you still subscribe to that in light of what the market has been doing, or would you unload some things now?
John Bogle: No, my theory is not subject to the ups and downs, the peregrines, the unpredictable peregrinations of the stock market. It’s painful to do, but I think the idea of owning the stock market is the best approach to equity investing. And perhaps I didn’t make that thoroughly clear there. I have never felt that equity should be the only portion of an investor’s long-term program. I myself am about 50% stocks, 50% bonds, for example. I was brought up, when I came into this business in 1951, with the Wellington Fund, which was and is, and I hope always will be a conservative balanced fund. But I think the idea of buying and holding forever and not trying to make adjustments requires that you’ve gotten it in the first place, that you can only hold tight if you’ve bought right, if you will.
And that is to say, have an asset allocation that has something to do with how many years you have to accumulate money, how much resources you have at stake, how much income you need, and how much courage you have to ride out the peregrinations of the market. So you’ve got to take all that into account from that simple statement.
John Hagensen: That was John Bogle, and here is Creative Planning president, Peter Mallouk, speaking on a once radical approach that is now commonplace.
Peter Mallouk: Yeah, he’s an incredible person. I think I’ve read every book he’s ever done. He was so far ahead of his time. When common sense of mutual funds came out, there were no ETFs, there was no tax. All this stuff that’s commonplace today, no one had heard of any of it. And what he was saying was really, really radical, and a lot of people in the ministry really didn’t like him because of it. And throwing his cantankerous personality, he was kind of known for rubbing people the wrong way. He was quite the figure.
John: And I’ll put a bow on this idea with a great quote from Bogle himself. He said, “The idea that a bell rings to signal when investors should get into or out of the market is simply not credible. After nearly 50 years in this business, I do not know of anybody who has done it successfully and consistently. I don’t even know anybody who knows anybody who has done it successfully and consistently.” John Bogle, you are a legend.
I’m joined today by a special guest. Stephanie Trentham is a certified financial planner, a certified financial divorce analyst, a fellow partner and wealth manager here at Creative Planning. Stephanie, thank you for joining me on Rethink Your Money.
Stephanie Trentham: Thanks so much for having me. It’s good to see you, John.
John: There are nearly 1 million divorces annually in America, so this is a topic that affects unfortunately many families. Especially when you compound that annual figure over decades, we’re talking tens of millions of people. Where should someone begin when they see their marriage headed toward divorce?
Stephanie: I find that a lot of people are talking about or thinking about this a long time before the divorce. They’re talking with friends, or even they’re reaching out to me just because I know them from the gym or I know them forever, and they’re starting to already think about what this is going to look like because most people understand that it’s a really large undertaking financially, of course, but also emotionally, and people are splitting up families sometimes and things like that.
John: Sure.
Stephanie: But they’re already starting to think about it ahead of time. I would be thinking about the money in terms of, what are the income and expenses, and what are assets and liabilities? And how do I get my arms around it? So typically in the households, I find that there’s a division of labor that happens. Maybe the husband takes the garbage out and the wife makes the sandwiches. And I know that’s super traditional, but just as an example.
John: Right.
Stephanie: And so oftentimes what I find is that the husbands are doing the, they’re doing the IRAs and the retirement planning, and the stocks and the bonds, and maybe the wives are doing the checkbooks or something like that. And I say husbands and wives, but I just mean to say that typically, that’s going to split. But the idea is if you are not running one of those things, the checkbook being the income and expenses, the cash flow or the investments, and you’re running one or the other, it’s really helpful to get your arms around what is your partner doing that you’re not necessarily as privy to. And maybe that means asking questions. Maybe it means, hey, show me how it works. Maybe it means creating a log in and understanding what you’ve got.
John: You mentioned the two different scenarios. I meet with plenty of clients, and I’m sure you do as well, where one of the two spouses isn’t doing either of those things. They really don’t have any idea where anything is located. And for many people, even once they decide, I think that we’re headed toward a divorce, they’re totally overwhelmed as a result of that, Stephanie. So where should they start? They don’t know what’s where and they don’t know what the next step should be. Is it talking to an attorney? Is that the first call they should make even before they’re certain that they’re going to in fact be going through a divorce?
Stephanie: An attorney is going to be able to guide you through that process of finding out what is there. So I have worked with clients that really don’t know. They don’t know what’s in the checking account. There’s a process that the attorneys go through to get those documents. They’re going to request them, and the attorneys are going to do that work for you. And I think what you just described in terms of that kind of client, that kind of person is really going to be the driving force between what kind of divorce you’re actually going to get. So if you don’t have your arms around what the financial situation looks like or don’t have maybe the capacity today to do that, then you want to have an advocate that would be an attorney.
John: Well, absolutely. People think divorces are divorces and they’re one size fits all and they’re the same in every scenario, but there are a lot of different ways that you can actually get divorced, as weird as that sounds. What are those, Stephanie?
Stephanie: Differences are going to be determined in the client’s financial acumen and being able to split the assets. So if you have two people who are both CPAs or both financial advisors, they can sit down at the kitchen table and negotiate their way through splitting the assets. They agree to it, and then they basically have an attorney draw that agreement up, and then they sign it. After that, you could have two people that are pretty good with money, but they want to make sure that they have maybe somebody an intermediary between them and they can go straight to mediation. Again, you would have attorneys as support basically. Then you can go to what’s called a collaborative divorce. This is gaining a lot of popularity. It’s definitely the more expensive way to go, but you get a lot more support. So you’re seeing more high net worth individuals do this where each person has an attorney. They also have a financial advisor and a therapist, which really can go a long way, as a side note, just bringing a therapist in.
You’re making huge financial decisions at what is arguably one of the more difficult times of your life emotionally. And then you have actual litigation, which is where you each have an attorney and you go back and forth. Now, not all of those litigated divorce cases actually go to court, but you do have an attorney that is advocating on your behalf.
John: Well, anytime we’re making financial decisions in the midst of high emotions, we’re vulnerable. Stephanie, as far as documents are concerned, what do you think are the most important ones for someone to have?
Stephanie: Here’s the document piece, and I also want to touch on the emotional piece that you mentioned because I really liked it. I think the emotional element is really important, and there’s a couple ways that I see this actually play out with clients. Oftentimes they have something that they may feel really emotionally attached to. So sometimes I see people who have earned a pension, and they feel like, hey, I worked for fill in the blank, the fire department, the military, and I have this pension, and I earned that pension.
John: Right.
Stephanie: So they feel very emotionally attached to that, or maybe an inheritance where my dad gave me this, so they have an emotional attachment to an asset. But when I see assets actually being divided up and people digging their heels in, typically it’s about a specific asset that they have an emotional attachment to. Sometimes you get them and they’re about the divorce itself and they’re just emotional about the whole thing, but oftentimes it’s the asset itself.
John: Right. Yep, that makes sense.
Stephanie: Yeah. And then I would also say I hear people say things like, “Well, they’ve been funneling money elsewhere. I don’t really know how much, and I want to make sure it’s all there.” I think it’s really important to remember that when this thing plays out with attorneys, that’s what they do. It is very difficult to “hide money” because everything is in the documents, transitioning to what documents. It’s all in statements and you can trace it. And sometimes you do have to hire somebody like a certified divorce financial analyst. A CDFA works with attorneys and they trace money. It’s all there in the documents. And if you have an idea of what it looks like, then that obviously gives them a head start, but I’ve not seen a whole lot of cases where you can really do that.
John: Right.
Stephanie: I wouldn’t worry about it as much as I think people feel like they should be.
John: So would you say cashflow, monthly lifestyle, and then having an accurate balance sheet, really knowing the assets and liabilities are two of the more important documents to have?
Stephanie: I think it’s the most important thing. When you file for divorce, the first documents that they’re going to tell you that you need, that you have to actually submit to the court, and they have their own template, each county has their own template, is the net worth statement. So it is absolutely the most important piece. So you don’t want to get to the point where you’re filing for divorce, and then the court asks you for a net worth statement, because they will. And you’re trying to put it together. So in thinking about, what do I want to start thinking about, that first document, that net worth statement. What are the assets? What are the liabilities? In whose name are they? When was the asset purchased or acquired? And when was the debt acquired? Meaning pre-marriage, post-marriage, that can make a difference as well. So any pertinent information about each asset and liability, but you definitely want, and you’re going to need… You can’t get divorced without it. You have have the assets, liabilities.
If you can’t figure out how to put it together, meaning you don’t have access to the statements or you’re unsure if they’re full and complete, again, a CDFA will be really helpful. The other piece is the income and expenses. It’s the same form. They’re going to ask. When you file for divorce, they want the net worth statement, like you said, personal balance sheet, and also the income and expenses. And you said the keyword, and that is lifestyle. So the lifestyle is a keyword in divorce cases, especially when you talk about spousal support, aka alimony. That’s going to be driven by the income and expenses. And then how do we maintain that lifestyle moving forward if we’re talking about a spousal support case? So the income and expenses and then the asset liabilities, that’s what it all boils down to.
John: If I could summarize, Stephanie, what I’m hearing you say is that it’s vital that you’re proactive. Rather than holding onto the back of the airplane reacting, you need to be on top of things.
Stephanie: Yeah. And I would also add that once you have it, now you actually want to start working it, meaning each one of those assets and liabilities are going to have specifics around them that are going to be important potentially to your case, which is, how much money of this is retirement money? How much of it is in the house? What are the different interest rates associated with the different debts? Getting something together that’s full and complete is the first step. So proactive is really important because it then becomes the springboard for the entire negotiation process. That’s what we’re working off of.
John: Yeah. Well, you bring up a really good point because a million dollar IRA that’s never been taxed is different than a million dollar brokerage account where 500 grand of its unrealized gains versus a million dollar Roth account. Those have completely different after-tax values. And so even though on paper, on your net worth statement, it says a million, a million, a million in these three different accounts, they don’t have the same values.
Stephanie: John, yes.
John: You made a lot of great points today. I appreciate you enlightening us on divorce situations. Thank you, Stephanie, for joining me on Rethink Your Money.
Stephanie: Thank you.
John: Just the tip of the iceberg, it’s a common saying. And when it comes to your fees and expenses, your total costs for your investments, many are hidden out of plain sight and below the surface. Let me explain. I had a prospective client who had their money in a robo advisor platform, automated from one of the big providers. They wanted a second opinion. They came in. And one of their big hang ups on potentially hiring an advisor was that they weren’t paying anything currently, according to them. You’re going to have to be a lot better, because right now it’s free, and with you guys, I’d have to pay something. Now, to their credit, the ETFs that they were invested in had zero expense ratio, no internal costs. There was no advisor or platform fee, no custodial fees, so it made perfect sense that they believed they were legitimately paying nothing.
Now, intuitively, you and I should be thinking to ourselves, wait a second though. No one in the financial services industry are doing it just because they enjoy it for charity pro bono. So right there, we should pause for a moment and say, let’s rethink this. Someone’s making money. How are they making money? And I explained it to this prospective client. This robo portfolio had over 15%, even in a growth portfolio, in cash. Oh, so they were charging nothing, except for that there was a massive cash drag on money that wasn’t invested. And why would the custodian, why would this robo advisor want to do this? Because they’re arbitraging the cash that they’re paying the account holder basically nothing on, and they’re out earning money on the difference. That’s a perfect example of where not even a hidden fee, like no fee, but a misdirection is having a much bigger impact than paying a small fee and not having 15% of your money uninvested. Most of what you’re paying is unseen.
The reality is the biggest fees and expenses aren’t even available to quantify, like making a bad move during COVID and moving to cash when the markets dropped 30%, or going all in late on stay at home stocks like Zoom and Peloton, and then watching them drop 90%, or paying high taxes due to a lack of proper asset location, or not harvesting losses effectively in down years. Presidents don’t get credit for the war they stopped before it ever took place due to good foreign policy decisions two years earlier because we can’t quantify it. We can’t measure it. It never happened. The same is true with a good certified financial planner. They’ll see around corners proactively and hold your feet to the fire to the things that you say are important and that you want accomplish. They make sure it happens. You see, worthwhile advice means gaining a perspective that you wouldn’t otherwise have, and that’s not quantified by a number.
So understanding your measurable documented fees and expenses is fantastic. You should know that. But at the same time, don’t forget about all the other costs that in many cases are even more important. Our next piece of common wisdom is that your social security benefits will keep up with inflation. This is one of those pieces of conventional wisdom that is mostly right, but not entirely, and that’s why it’s worth rethinking together. So let’s begin with the fact that social security benefits do increase with inflation, which is incredibly important because historically, every 20 to 25 years your income needs to double just to keep pace with inflation. When Social Security was enacted back in the 30s, average life expectancy was around 62 and the benefits began at 65, so inflation wasn’t a large consideration. When the first Social security check was issued in 1940, the payments were fixed, meaning the amount of your benefit didn’t change from year to year unless Congress authorized a raise.
But if you remember the 70s, we started seeing inflation. Specifically in 1973, OPEC declared an oil embargo on the US and some other nations, which sent gas prices through the roof and touched off a spike in inflation. In 1974, that was over 11%. As a result, the first automatic COLA, you’ll see in all caps, cost of living adjustment, was in 1975, and that was an 8% increase. There are a lot of factors why the solvency of Social Security is being threatened, why benefits if nothing changes would need to be reduced and about 10 years, this is one of the big culprits. It’s a lot more expensive when you’re increasing the benefit on an annual basis and in some cases by a lot. So while it’s incredibly valuable that the benefit is no longer fixed and hasn’t been for 50 years. It’s important for you to recognize that as a retiree, the adjustments likely won’t fully keep pace with your actual cost of living increases.
Until recently, inflation had been tame from 2001 to 2021, cost of living adjustments on Social security averaged 2.1%. Well, you all know what happened in the spring of 2021 on the heels of COVID. Inflation took off. Well, the cost of living adjustment was just under 6%, while CPI topped 8% in each of the first nine months of 2022, making that benefit boost which was nice look underwhelming compared to actual inflation. But it gets a bit worse because some categories that are important to older adults, those are the ones that rose the most. Gas food prices, healthcare. They jumped far more than the average. So over time, social security has kept up with inflation quite well, but the coal increases work on a lag and don’t fully weight the most important categories for retirees, many of which, especially healthcare, has been increasing much more rapidly than overall inflation. So while cost of living adjustments may not entirely make you whole, they represent one of the most valuable benefits to retirees across this nation.
My last piece of common wisdom was made famous by the Oracle of Omaha, Warren Buffett himself, which is to invest only in what you know. Now, when Buffett proclaimed this mantra, it was 30 years ago from an individual stock picker who was making large bets on single stocks. So yeah, that’s logical, to know those companies well to comb through their financials before you put a big slice of the pie into one company. Here’s the wild thing about stock picking in general, before we rethink the idea that you need to know things well to invest in them. If Warren Buffett knocked on your door 20 years ago and offered to personally manage all of your money, you would’ve thought you hit the lottery, obviously, and you would’ve failed to outperform the S&P 500. Isn’t enough for all of us to understand that the random advisor in Fayetteville or Manchester or Sioux Falls doesn’t actually know which stocks are going to go up and down consistently, doesn’t know which direction the market is going to move.
But let’s suppose you don’t understand tech. I certainly don’t. I’m not a tech genius. I don’t understand all the ins and outs of AI, but if because of that I said, I’m not going to invest in tech. But I like Diet Coke, so I’ll invest in Coke. And I wear Nikes and was born in Portland over by Beaverton where their headquarters are, so I’ll buy those stocks. Obviously my performance would’ve been atrocious relative to a more tech heavy, growth oriented portfolio. And this is another case for broad diversification. It helps us eliminate our biases like investing only in things that we know because the path that often leads to is Americans putting almost all of their money in US stocks.
It directs others toward 60% of their life savings in one stock because that’s the company they worked for, and they know it really well. Do you think that one company is going to likely outperform the broad markets? Maybe. Who knows? But it’s a lot of extra risk. Creative Planning president, Peter Mallouk, wrote in his most recent book, Money Simplified, about how this home team bias extends even beyond us or foreign or a company that you worked for, but also to geographic regions. Portfolios from those who live in the west are more tech heavy. In the Northeast, there are more financials. In the Midwest, industrials. In the South, energy, not surprising. I’ll never forget an Australian client who had lived over there for 30 plus years moved back to the States, wanted a retirement plan. This was several years ago. And when I did the evaluation, I couldn’t believe the vast majority of his $2 million plus portfolio was in Australian stocks.
But it shouldn’t have surprised me because I know human behavior, and this is consistent with what the data tells us. Would an American have 80% of their portfolio in Euro stocks? Of course not. But if you live across the pond, it’s very typical. Here is the approach that I suggest. And by the way, this is good news because it doesn’t require you to ever need to find the right stocks or the next hot sector. The only reason you’re investing in the first place is for some future purpose. Once you know what that is and when it’s likely to occur, synthesize your portfolio in as low cost and broadly diversified manner as possible to give you what is believed to be the highest probability of success. There are all sorts of unknowns. There is no perfect strategy. There is no way of knowing in advance which things will perform best. So you make no big bets in any one’s spot, hoping that that will help alleviate any massive blowup over a lifetime of investing.
You then rebalance that portfolio and make strategic tax trades along the way, and you repeat that for the rest of your life. The idea that you should only invest in exactly what you know, that’s outdated financial advice.
It’s time for this week’s one simple task where I’m committed to helping you incrementally improve one week at a time. Are you feeling the heat of your weekly grocery bill? Many Americans are with the spike in food prices as a result of inflation. Here’s my tip to begin to fix that. Start meal planning. I know you’re thinking. Wait, John, this is a personal finance show. You’re right. It’s not all about health, although meal planning will likely trim down your waistline a bit as well. But from a financial perspective, it’s critical. In the United States, we waste 92 billion pounds, with a B, billion pounds of food annually, which is equal to about 145 billion meals, which is really sad when you think about that in the context of the hunger crisis and starvation and malnourishment of so many places around the world. All of our parents at one point, when we refused to eat our green beans, said, “Some child elsewhere would be really thankful for having that food.”
And then, of course, we’d roll our eyes because we’re kids, but it is true. In fact, we throw away $473 billion worth of food each year. And I can certainly relate to this with summer break and my kids being around all day every day. Kids love to snack. They love to open a drink, take one sip, leave it in the sun, let it get warm. And then by the end of the day, you’re dumping out the entire sparkling water. Luna, my two-year-old, gets up from a meal. I’m often wondering, is there a hidden camera? Am I being punk’d? Within 60 seconds, she tugs on my pant leg and says, “I’m hungry.” And I’m like, “Wait, did I mishear? You we’re still doing dishes from dinner. You just ate, and then told us you were full and pushed your plate across the table with three quarters of the food still on it. And now you’re hungry? Oh, oh, I get it. You want an applesauce or a yogurt, or one of the other four things that you try to live your entire life on.
This is why restaurants fail so often, food waste, not understanding how much of certain items to order, and then having to throw a lot of it out that doesn’t get purchased. We do the same thing as individuals. So I encourage you to get more focus on what you’ll eat throughout the week, and then order food accordingly because it could save you a ton of money on one of the largest budget items after your housing. And speaking of the challenges so many have with having adequate nutrition and food, there’s an organization called Feeding America. It’s actually where here at Creative Planning, we made our largest grant last year of $10 million to helping alleviate this. And if you’re looking for a charitable organization, maybe looking for a donation to a good cause, I encourage you to check out Feeding America.
They build food pantries in communities that are underserved. They provide food for students that rely on the public school system for meals. They provide 25 million meals to those in need just in Kansas City, which is where our headquarters at Creative Planning are located, and provide more than 35 million meals to those in underserved cities throughout America. Well, we’ve made it to one of my favorite parts of the show where I answer your questions. And one of my producers, Britt is here to help me out. It looks like we have a nice lineup today, Britt. Let’s start with Ryan in Delaware.
Britt: We do have a nice lineup today, John. And as a reminder for those listening today, if you have questions you’d like John to answer, you can always email those to [email protected]. Ryan is up first from Delaware and he recently heard that Saudi Arabia is going to stop selling oil in U.S dollars, and that they’re ending any Petrodollar Pact. He’s wondering today, John, if this is true.
John: This is a complete fake news alert. Saudi Arabia is not going to stop selling oil in US dollars. In fact, there is no Petrodollar Pact, secret or otherwise, so there’s nothing to actually renew or not renew, nor is there some paradigm shift in global finance. If you look back at the history, back in the 1970s, when the Arab oil embargo occurred and inflation spiked, the US wanted to foster closer ties with the Saudis to avert another crisis. The Carson Group had a great article on this. The best way to accomplish that was to get the Saudis to invest the proceeds from their oil sales in the U.S by buying U.S assets. And this was already happening with the Saudis starting to invest a lot of their wealth in the US, but the goal was to continue to enhance that trend. There are three reasons why the dollar will likely to remain dominant.
The first is that global trade is dominated by the US, China, and the EU, but it’s massively skewed, with the US importing much more than it exports. China’s the dominant exporter, but even Europe exports more than it imports. Practically, what does that mean? The rest of the world is swimming in US Dollars, which they receive in exchange for supplying Americans with goods. We are their best customer. Secondly, although we have problems, the world has confidence in the US, and therefore the dollar. And the third is that the United States dollar is dominant in trade invoicing and international finance. Outside of Europe, more than 70% of exports are invoiced in United States dollars. That’s unlikely to change anytime soon. Thank you for that question, Ryan, but this is a non-story. Let’s go to Philip’s question, Britt, asking me about basically, who am I going to vote for? No, not really. He’s not going to bait me into that, but I know he had a question on presidential candidates.
Britt: Yes, he did, John. And actually, he leads his question with whether or not you’ll be able to answer this, but he wants to ask it anyways. His question today is, which presidential candidate is better when it comes to his financial future?
John: Well, Philip who wins the presidency will certainly have an impact on our country, on foreign policy, on things like COVID policy, and other laws, Supreme Court justices. It’s important, certainly, who wins, and I think you should take your voting very seriously. But in terms of stock market performance or your financial future, as you put it, the answer is historically, it has had no statistical relevance. The market is up about 70% of all calendar years. It’s up about 90% over five year periods. It’s up over 95% of the time over 10 year periods. And who’s in the Oval office has very little impact because the stock market doesn’t see red or blue, it sees green. Do not mix your politics and your portfolio. Build your investment strategy in light of your long-term objectives and tune out the noise, especially the political noise. All right, Britt, who’s next?
Britt: Up next is Caroline from Iowa shares that she is 70 years old, living well on 30,000 a year in social security, but that she’ll have to take IRA distribution soon. She also is considering living abroad and is wondering if Creative Planning has any expertise that could help her.
John: Well, the short answer, Caroline, is yes, we absolutely do. In fact, we have an entire team who only helps those living abroad. I interviewed David Kinsey, the leader of that international team a while back here on Rethink Your Money and discussed some of these topics. Have a listen.
David Kinsey: Creative planning has over 25 wealth managers and financial planners who are dedicated to working with our international clients.
John: Wow.
David Kinsey: So we have been doing this for a long time. We’re very committed to it. We have thousands of clients residing outside the United States. Most other independent wealth managers in the United States do not have any expertise in international. There’s only a handful that do. So that’s one side of the equation. The other side of the equation is dealing with the financial institutions, what we might call the custodians or the brokers where you’re actually going to have your money in custody, which typically for our clients will be Charles Schwab or Fidelity, but people have them at other firms, such as JP Morgan, or Morgan Stanley, or Merrill Lynch. And what you’ll find is large US financial institutions, especially in recent years, heavily restricted if not eliminated services for Americans abroad. So we talk to people all the time who come to us having thrown up their hands saying, “Every time I call my bank or I call my broker, they tell me if I move abroad, they’re not going to be able to work with me.”
So this is a huge problem, but there are solutions. We have arrangements with the custodians that we work with Schwab and Fidelity and some others so that we can continue to work with our clients, maintain their accounts at these institutions. But it is a very big problem.
John: Again, that was certified financial planner, David Kinsey, head of Creative Planning’s international team. Now, I remember learning a lot during that interview because of the many complexities and nuances of living abroad. I highly encourage you Caroline speak with a firm, whether it’s us or someone like us who have specialists working each and every day in that world. All right, Britt, I think we have time for one more.
Britt: Yep, we do, John. So our last question will go to Ryan in Virginia. Ryan shared that his wife is a stay at home mom and that they recently discussed a spousal IRA. He’s wondering if there’s anything they should do before making the decision to move forward.
John: Well, you’re ahead of the game because a lot of people don’t know of a spousal IRA. They think if my wife or my husband doesn’t work, they can’t contribute to a retirement plan. And that’s not the case. If one spouse has eligible compensation, that spouse can fund an IRA for the non-employed spouse and their own IRA. Remember growing up and you’d have a snow day? In Seattle, these were the best days ever because they happened infrequently. And oftentimes the snow wouldn’t even stick because it would be too warm. But when we had snow, even a few inches, it was a snow day. Too many hills, no one knew how to drive in the snow, and school would be canceled. It was amazing. I see this snow day concept play out in the arc of financial plans as well. For so many, the primary financial goal in their plan is retirement.
However, and this may come as a surprise, a lot of people don’t love retirement as much as they think they will. Now, this is not a depressing topic for you to think yourself. Oh no, I don’t have anything to look forward to. No, retirement will be what you make it, and you may be someone who really enjoys it. I’m not saying it’ll be terrible. It just might not fully stack up to your lofty expectations. Having your snow day all day long each week, each month, each year for decades, golfing six days per week, that loses its luster for most after a while. Sleeping in until 8:30 and having coffee until noon in your bathrobe is fun for a week or two. By year three, most are looking for more purpose. And seeing this play out firsthand in thousands of real lives, I have a few takeaways for you, whether you’re 20 or 60. Remember that life is what’s happening while you are busy making plans.
So be responsible. Certainly save enough money to be independent financially if life throws you a curveball. You may not be able to or want to work forever, and that optionality is nice. Something like a disability or a death could unexpectedly occur, and having strategies in place that protect against that is obviously prudent. But balance that with spending some money now, enjoying your wealth today, not irresponsibly, but too many people wait on the trip to Europe or attending the Masters until retirement, until a later date, or not turning down a job that requires you to travel a lot because you’ll earn more money or it’s a good career move. Money is fleeting. And when you’re in retirement, you’ll spend a lot of time reflecting on the good old days, like when your kids were in the house and it was complete mayhem and your schedule was crazy. You’ll miss it.
So if you’re in retirement already, you know what I’m talking about. If you’re not there yet, keep this perspective and balance of spending today, along with saving for the future, in mind. What have you been thinking of doing maybe with someone important in your life, a spouse, a friend, a co-worker, a child, a grandchild, but it costs money, maybe even a lot of money? I am encouraging you, define your snow day now, and make it happen now, because after all, there is no certainty when the next one will come along. And remember, we are the wealthiest society in the history of planet Earth. Let’s make our money matter.
Announcer: Thank you for listening to Rethink Your Money, presented by Creative Planning. To hear past episodes or learn more about the topics and articles discussed on the show, go to creativeplanning.com/radio. And to make sure you never miss an episode, you can subscribe to Rethink Your Money wherever you get your podcasts.
Disclaimer: The preceding program is furnished by Creative Planning, an SEC registered Investment advisory firm Creative Planning, along with its affiliate, United Capital Financial Advisors, currently manages or advises on a combined $300 billion in assets as of December 31st, 2023. John Hagensen works for Creative Planning, and all opinions expressed by John or his guests are solely their own and do not necessarily represent the opinion of Creative Planning. This show is designed to be informational in nature and does not constitute investment, tax, or legal advice. Different types of investments involve varying degrees of risk, and there can be no assurance that the future performance of any specific investment or investment strategy, including those discussed on this show, will be profitable or equal any historical performance levels. The information contained herein has been obtained from sources deemed reliable, but is not guaranteed. If you would like our help, request to speak to an advisor by going to creativeplanning.com. Creative Planning Tax and Legal are separate entities that must be engaged independently.
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