A whopping 47% of Americans feel “stuck in the middle” while caring for both their children and aging parents as part of the sandwich generation — and this situation can become a financial burden if not properly planned for. So whether you’re the caregiver or the one being cared for, the best way to navigate this scenario is to understand the challenges and make appropriate adjustments to your financial plan. Find out more on this week’s episode.
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 John Hagensen and ahead on today’s show, living in the sandwich generation, considerations for managing a financial windfall, and how to evaluate your returns. Now, join me as I help you rethink your money.
In 1997, Jeanne Calment of France died at the ripe old age of 122 years, 164 days old. Now, while that’s not typical, obviously it is routine here in 2024 for us to live into our mid-90s and even into triple digits, but this hasn’t always been the case. In the 1800s, average life expectancy was 35 years old. Now, that age was skewed a bit due to the unfortunately high infant mortality rate, but even if you made it to age 10, your life expectancy was around 50 years old. By the mid 1920s, about 100 years ago, average life expectancy had increased to 60 years old, but I’m convinced that the challenges we have around retirement, retirement planning is mostly because it’s a new phenomenon. We haven’t had generation after generation to perfect it, and it’s really just been the last century or so that retirement was even part of our lexicon, this idea of stopping work while we still could be working physically and then hanging out for 10, 20, 30, 40 years as we age.
If we trace the genesis of retirement, look at the early history, in ancient civilizations such as Mesopotamia, Egypt, Rome, there were no formal retirement systems. People basically worked for as long as they physically could, and elder care was often the responsibility of the family or the community. The idea of setting aside funds specifically for retirement did not exist. Now, let’s fast-forward generations and you get to the industrial revolution and that brought about significant changes to work and to society. And with the rise of factories, people began to work in more structured environments for fixed hours. However, retirement as a planned phase of life still wasn’t very common. Many individuals continued working until they were physically unable to do so and then would live with children and be supported by their family members, and that was really kind of the start of what we refer to now as the sandwich generation.
We then had the emergence of social security and expansion of private pensions, the rise of individual retirement savings, and of course, as I mentioned, increased longevity, which us to today, and there is extensive talk about how aging our population is, and I think conventional wisdom is that most people in the US are over the age of 60, but in reality we should rethink that, because there are nearly 90 million people aged 20 to 39 versus only 77 million over the age of 60. So, we’re actually younger than people think, but I want to spend time looking at the sandwich generation, because likely you’re impacted one way or another or will be in the near future, whether you’re the bread in the analogy or you’re the turkey and cheese. The sandwich generation is a term used to describe the demographic group typically in their 30s, 40s, or 50s who find themselves simultaneously caring for aging parents and supporting their own children at the same time.
According to Pew Research, more than half of all Americans in their 40s are sandwiched between an aging parent and their own children. Think about that, more than half. And I’m one of them. I have a parent who unfortunately is now in memory care and I also have a two-year-old, our youngest of seven children who still needs to be put on the toilet for potty training. Members of the sandwich generation often do face unique challenges and pressures as they juggle caregiving duties, financial obligations, and career responsibilities. They might find themselves managing their parents’ healthcare needs, assisting with daily tasks, coordinating appointments, and even providing financial support while at the exact same time they’re raising their own children, they’re covering expenses related to education, extracurricular activities, and other needs. In a policy genius sandwich generation survey, more than 60% of respondents said they are stressed out about how much it costs to take care of at least three generations, their parents, their immediate family, so themselves and their spouse, as well as their children.
So practically speaking, if you are older, 60s, 70s, 80s, and your kids are in this sandwich generation, do your best to not put them in a situation that creates more stress. So, here are some of the things that you can do. Check your insurance. Do you have proper disability if you’re still working? What’s your plan to pay for long-term care? Do you have life insurance if needed, homeowners, auto, umbrella coverage? From an estate planning standpoint, do you have powers of attorney that your kids know about, and is your estate plan in place? Visibility, make sure that your children know about your financial plan, who they should talk to if something happens to you. Don’t be secretive. This is where here at Creative Planning, we create a client binder that stays in your possession. We advise that it’s stored in a fireproof safe in your home.
It has an up-to-date balance sheet, all of your retirement projections, previous tax returns, estate planning documents, and that ensures that if something happens to you, your children aren’t on an Easter egg hunt trying to track down where all of your various accounts are held and where the most important documents are stored. Also, if possible, save enough, this kind of goes without saying, but so that your kids don’t have to use their own money to support you. Also, make sure your estate plan is up-to-date. Do you have financial powers of attorney, medical powers of attorney, your will, possibly a revocable living trust, if that makes sense for you? And more broadly speaking, does your financial plan and your investment accounts and your bank accounts and all of your assets, are they titled and beneficiaries in a way that is consistent with that estate plan?
And don’t forget to either have documented or directed exactly where your children can find all relevant passwords. It may surprise you how big of an issue that can become because we live in a digital world. Now, if you happen to be in the sandwich generation, you’re like me, here’s what you can be doing proactively. First, encourage your parents on what I just shared. So, help them get these items on track. Refer them to creative planning or a firm like us.
If you don’t feel like maybe their things are as organized, say, “Hey, maybe you should go speak with someone, get your assets and your plan coordinated and in one place, so it’s organized,” and help them get their financial house in order. When it comes to your children, do your best to get your kids self-sufficient and independent as quickly as possible. My wife and I made a commitment that once our kids were adults, and I know this is a personal decision, I’m probably going to offend someone, but we’re like, “You’re not living in our basement for free. Once you’re an adult, we’re going to try to give you as much footing as possible, but you’re going to pay rent and you’re going to be on your own.”
Because once your kids are able to launch and they’re not on your payroll, it obviously gives your financial plan a big lift. Next, balance your budget and your lifestyle while making sure to include your parents’ financial plan in yours as well. This may be a net positive or negative. If you have $1 million net worth, but your parents are worth $10 million and you know that you’re going to inherit half of it along with your other sibling, that should be built into the financial plan. It shouldn’t be that you’re relying entirely on the success of your plan based upon receiving this, but if you also pretend that none of that money exists, it probably wouldn’t lead to you building the most efficient and optimized plan, because you’d want to know how those monies are going to be taxed and in what order you’re likely to receive those, and are any of those coming through gifts while they’re still alive?
Those are really important aspects of your financial plan. Conversely, if you’re in the sandwich generation and your parents have no money and you’re committed to helping them at whatever length it takes, I don’t know if that’s your situation, obviously very personal to your family dynamic, you’d want to factor that into your financial plan, too, because it could impact your retirement.
If you’re married, make this a partnership. So husbands, we’re the number one refuge for our wives to help lighten the load and to reduce their stress, and fortunately the data suggests that we are being a little bit more helpful. Men are now responsible for about 40% of all caregiving, as compared to only a little over 20% just a couple decades. And lastly, show yourself some grace. If you’re in the midst of trying to balance your own life and finances and emotional well-being with your kids and your parents all at the same time, it is a lot. Make sure you have a great support system and from a financial perspective, ensure that you have a detailed financial plan that accounts for all of these variables. If you’re not sure where to turn and you’d like an independent fiduciary just like myself to help you gain visibility on where you stand financially in the midst of spinning countless plates all at the same time, visit creativeplanning.com/radio now to schedule your complimentary visit, or you can text the word PLAN to 1-888-914-PLAN. Why not give your wealth a second look?
Well, I’m often asked, with how I’m invested, how should I be measuring performance? How do I evaluate the success or failure of my investments? And I’ll tell you how not to do it. If you’re in a car driving cross country and your neighbor takes a flight from LA to Boston and they arrive in five hours and then you get there after four days of driving, staying in cheap motels along the way, and you’re annoyed that they got there so much quicker, obviously they did. They flew in an airplane, which by the way was a better transportation option, a lot more efficient, probably even a lot less money after you had to pay for gas than trying to drive. Of course, they got there faster. Well, I often see the same thing when it comes to investment performance. The stock market is up 20%, I’m only up eight.
Yeah, you have 75% in bonds, because you said you hate volatility, you need a lot of withdrawals from the account, and your plan works with very little growth. So yeah, the 25% of your portfolio that’s in stocks, that did make 20%, but the other three quarters only made 4%. And so yeah, your total portfolio is up about 8%, which is what it should be doing. Your brother-in-Law who’s 100% in growth stocks is going to get better performance during bull markets. That’s a given. The plane’s going to get to Boston quicker than you in your Toyota Camry. Yeah, it is.
You measure performance apples to apples. You take your entire US stock allocation and compare it to something like a total US stock market index fund, and this of course is if you’re in active funds trying to evaluate how the performance of your specific investments are doing compared with a benchmark. You can take your entire bond allocation, all your different bond funds and individual bonds, compare them to a total aggregate bond index, do the same with your international stock allocation and compare it to an ex-US index fund that’s so hard for active managers to beat the market.
So, what I would suggest is don’t even play the performance game. Buy low cost ETFs and index funds or direct index your portfolio with individual securities, meaning in all three cases, you’re not trying to pick the right stocks or get in and out of the market or pay someone else to try to do that on your behalf because what will happen is you’ll most likely underperform and then you’ll chase your tail like our little five-month-old puppy does, looking for the best next highest performing investment. So, once you eliminate that burden, which is a big one and a very difficult one to overcome, then your focus can become, “Let’s build a great financial plan that’s specific to my situation and my goals to my time horizons to concerns, taxes, estate planning objectives.” Comprehensively, figure out where you are and where you’re headed. Then, you build the lowest cost investment strategy in the public markets by broadly diversifying in indexes.
That strategy historically will beat 85% of expensive active managers who are trying to outperform and trying to overcome their fee hurdle. This also is really nice for your peace of mind and your sanity, because it won’t require you to constantly monitor 20 different money managers to see who’s performing and who’s not, and which fund should I get rid of and which one should I add, which again, is not predictive historically of future return. So you jump out of one, you get into another, because it’s done better the last three years without any statistical probability that it will continue to overperform the next three, five, or 10 years. The one exception to this principle is regarding private investments where manager selection actually is really important, but I’m talking about publicly traded investments. Now, once you do these things, here is how I suggest you measure success. Is your plan on track to reach your goals? Period.
You’re not a pension fund manager who’s going to be fired if you don’t perform. You’re not competing against your neighbor like Jordan Spieth and Scottie Scheffler at the Masters where how someone else does impacts your success. Play your own game with your own goals and invest in a way that provides the highest probability of success with the lowest costs. Ultimately, are your investments producing the returns that bring you peace of mind and financial flexibility? If they do, then your performance is good. It’s good for your life. It’s enough, which means you can feel contentment, which is ultimately why you saved and sacrificed in the first place.
My special guest today is a friend and colleague Dr. Dan Pallesen. He’s a doctor of psychology, a certified financial planner, and Dan’s hosting a webinar on financial windfalls Tuesday, April 23rd. And if you’d like to register, visit creativeplanning.com/radio. Dr. Dan Pallesen, thank you for joining me on Rethink Your Money.
Dr. Dan Pallesen: Thanks for having me back, John, always a pleasure.
John: I remember as a 21-year-old on a fantasy football trip in Las Vegas with my friends, doing a 14-team college football parlay with a $10 bet, and it came down to the final game. I had hit the first 13, and of course, as why parlays are so difficult, the final game was like a 45-point spread that one team needed to win, and I picked the favorite, and they were up about 42 midway through the third quarter and then basically just took out every starter and effectively took a knee the rest of the game to ensure that they didn’t run up the score.
And you know what, Dan? That would’ve changed my life. I don’t even think I’d be talking to you right now because I’d just be like laying on a beach somewhere with my $1,000 winnings or whatever it would’ve been, but in all seriousness, for some people it happens. Maybe it’s the lottery, maybe it’s selling a company, maybe it’s inheriting money, which is a very common one where all of a sudden you go from making what you’re making and you go, “Wow, my net worth just jumped a bunch.” We’ve all heard the horror stories of the Mega Millions winners that are in a van down by the river not that long afterward. Why is it not all roses, Dan?
Dan: First of all, I’m with you, dream, it’s so fun. You hit that big bet, the parlay, you win the lottery, you get drafted in the upcoming NFL draft.
John: That’s what I’m going to do.
Dan: Even though we’re in our 40s.
John: My 40 time is not great, but I think my broad jump is pretty good, my three cone.
Dan: That’s right, I always tune in. I always make sure my phone is clear and has good service in case Belichick is going to give me a call, but it’s fun to dream, it’s fun to fantasize, but in all reality, you’re right, it’s not all roses. And a big part of that is just how we’re wired as a human being. We’re really good at adapting and habituating to what’s going on around us. So, a peak experience like you’re getting a sudden windfall is awesome, it’s incredible, in that moment, it feels great, but what happens over time is every other experience is now compared to that peak, and the contrast between life’s simple pleasures that we enjoyed previously are now compared against the backdrop of that big win.
We all dream of winning the lottery, but there’s study after study after study that shows that big winners certainly doesn’t elevate your happiness, and if anything, it actually can increase the stress in your life, because you think about it, you now have new complexity with your finances, you have new complexity with your relationships. Suddenly, your family members might be asking you for money and they never did that before, and you feel obligated to help those around you. And so, it adds some of these layers of complexity and stress that we don’t really think about when we’re dreaming about winning it big.
John: So, what’s the first thing you should do if you are in a situation, you hit it big, you see this wire hit your account, what’s the first step they should take?
Dan: So, back to this idea of it’s fun, it’s fun to envision winning it big, hitting it big, selling the business, whatever it may be, and we dream about what upgrades are we going to get in our life or how are we going to feel in that moment, but actually the first thing you should do is nothing, and don’t jump into actions, especially that can be irreversible. I’m thinking, John, we have a client that we work with here that sold a business. They spent their entire adult lives pouring into this business. They sell the business, it’s bringing them into this retirement phase. They’re so excited. They’re going to experience a lot of financial freedom because of it, and they want to celebrate. And so, they celebrate by inviting kids, grandkids on a big trip.
What happens though is as they’re leaving for the trip, some of the numbers at the 11th hour fall through, some of the accounting and valuations are being questioned and second guessed, and this couple spent their entire vacation with their kids and grandkids on the phones with attorneys and-
John: Stressed out.
Dan: … CPAs and stressed out, and had they just allowed a little bit of time for the dust to settle, I think it would’ve been such a better experience for them.
John: It’s really good advice. So, often it’s difficult to do nothing. And do you think that people are highly emotional during that phase, and so they’re unable to make wise decisions, because it’s such an emotional event, and/or maybe a combination of the fact that their situation has so abruptly changed that they haven’t had time to recalibrate even specific financial strategies maybe related to their new situation, because it’s changed so rapidly? Which of those do you think it is or maybe a combination of both?
Dan: Yeah, I think it’s a combination of both. I think we have our long-term goals and short-term goals that we just carry naturally, and when a big windfall comes in, it can disrupt that, because we’re so excited and we lose sight of our long-term goals, who we are, what we value. And so, when we make big purchase decisions or big debt payoff decisions or just big spending decisions right in the moment, it might not be in alignment with our long-term goals. So, time is our friend in some of these windfall situations.
John: Well, I like how you said that, because also your situation has changed so dramatically that maybe some of your objectives are now a little bit different. Maybe practically it was, “I’m going to retire at 65,” you have this windfall at 50, maybe you want to make some adjustments to your plan, because you’re going to retire immediately or retire at 55 or downshift how often you’re working. A lot of the actual aspects of your life that would dictate changes for your financial plan may actually be occurring due to that windfall. You haven’t really let the dust settle, to your point, long enough to really evaluate that. I’m speaking with Creative Planning wealth manager, certified financial planner, and doctor of psychology Dan Pallesen. Let’s transition over to fully enjoying the blessing of this windfall, because obviously the goal here is I have this amazing huge amount of money that hit. How do you make sure you’re protected so that you can enjoy it? Who do you need to engage when you experience a financial windfall? What are some of the first steps after they’ve paused? What do they do next?
Dan: All right, John, go with me on this. I know you are one to appreciate a good sports analogy.
John: I love it.
Dan: But I want you to think like an NBA general manager when you have a big windfall. You need to bring together a big three. There’s been some epic big threes in the NBA, Jordan, Pippen, Rodman. John, you’re a Seattle guy, so I’m thinking Gary Payton, Shawn Kemp, Detlef Schrempf. That might not have been a top big three, but it was a big three.
John: In my world, that was a big three.
Dan: That’s right. LeBron, Chris Bosh, Dwyane Wade. These are some epic big threes that have been out there, and so for us-
John: Draymond’s going to go on his podcast. He’s not happy that Steph, Klay, and him were not included in that.
Dan: Hey, that’s another good one. I’m thinking of all the dynasties and all the championship wins, so Steph, Klay, and Draymond, you’re absolutely right, so these big three. So, here’s the big three that we want to establish when we’ve experienced a windfall or when we’re thinking that we’re preparing to receive something like this. Number one is a wealth manager and a fiduciary wealth manager, so not a broker, not a financial advisor that’s looking to sell you something, but a certified financial planner, wealth manager who’s working in your best interest, so that would be number one.
Number two is a CPA, because there’s a lot of tax implications of receiving a big windfall than what you decide to do with the money that you receive, and then John, finally, the third one is an estate attorney that knows the ins and outs of your wishes, your desires. John, I’m thinking most people like to give assets to kids and they don’t think much of it, but if you have such a windfall that now you can bless generations below your children, there’s some things you might want to do through gifting with an estate attorney to save taxes, to make sure assets go to that generation, your grandchildren, or even beyond, and so a good estate attorney that’s working with your CPA, with your wealth manager, so that’s the big three, the team that you want in place.
John: Fantastic advice. It’s uncharted waters after having a financial windfall, and so making sure that you have the right experts around you, the right specialists that hopefully are collaborating with one another, because you hit on it, the tax planning and estate planning, I think a lot of times people think of the investments or the actual dollars and cents themselves, how am I going to get them growing? How should I allocate them? But especially early on, sometimes the tax and estate planning aspects can move the needle the most in terms of saving money and making sure things are organized. So, those are great tips. I hope more than one person listening can relate to this because they’ve had a huge financial windfall. I’m going to go scratch off my scratch tickets now. Dan, I got to get rolling, so thanks for joining me here on Rethink Your Money.
Dan: Thanks, John.
John: Prior to becoming a financial advisor, I was a commercial airline pilot and prior to that I was a flight instructor. Much of my time as an instructor was spent training private pilots. I did some student pilot training as well, helping them get their private license, but mostly it was private pilots trying to obtain their instrument rating. Now, the instrument rating is incredibly important, especially for safety because it allows pilots to fly in what is referred to as the soup. Without it, you’re required to only fly on clear days where visual conditions are present. And when a pilot, even an experienced private pilot finds themselves in clouds, it’s exceptionally dangerous, because of a phenomenon known as spatial disorientation. Essentially, your mind plays tricks on you, so while you think your wings are straight, you may be descending at a rapid pace or have your nose pointed straight up in the air with a dangerously slow airspeed about to stall the plane and you don’t even realize it.
It’s hard to explain, but if you were in the cockpit, you’d go, “Whoa, this is crazy how disoriented I am.” And there are many parallels to flight planning and financial planning. In fact, about five years ago, I wrote an entire book on the topic that I titled The Retirement Flight Plan. I want to read you an excerpt from the preface and when done, I’ll circle back to what you can take away from this story. “On July 21st and 22nd 1999, most of Manhattan’s Upper East Side was shut down. Officials closed 88th through 91st streets to traffic, along with three blocks spanning Lexington Avenue to Fifth Avenue. On July 23rd mourners, donned in black, faces covered flocked to the area, convening at the 126-year-old Church of St. Thomas More. Only 350 people were invited to attend the service, but around the country, a collective tear was shed that day.
“The memorial service followed a five-day Coast Guard search and rescue mission off the coast of Martha’s Vineyard in Massachusetts. The Coast Guard does not usually conduct such long search efforts. Search procedure stipulates the mission to assist when there’s no chance of a missing person’s survival. That length of time varies. It depends mostly on the ocean’s temperature, and in the 52 degree New England Atlantic, a missing person would succumb within a few hours. A five-day search was unprecedented. It was criticized by some as an excessive effort, especially for three private citizens. President Bill Clinton made the executive decision to prolong the recovery mission, however. In the face of scrutiny, he said, ‘If anyone believes that my decision was wrong, the Coast Guard is not at fault, I am.’ He couldn’t allow the search to end before accomplishing its mission. It was the right thing to do.
“After all, you can’t give up when the primary target of your search is America’s favorite son, John F. Kennedy Jr. July 16th had been a dreary Friday along the New England coast. The Kennedy family hoped the weather would improve before Cousin Rory’s wedding on Saturday. John Jr. had a regular day. He met with the editors for his magazine, George. He worked out at his local gym and then set about packing for the weekend’s festivities. At some point, John called another pilot, Kyle Bailey, and asked him to prepare Kennedy’s plane for the evening’s flight. Traffic was heavy in the city, so John-John was late arriving at Essex County Airport in Caldwell, New Jersey. His passengers, wife Carolyn Kennedy and sister-in-law, Lauren Bessette arrived separately and also late. Most of the maintenance workers at the airport had already gone home. Kennedy was surprised to find Kyle Bailey still at the airport though. Earlier, Bailey had told John of his own plans to fly to Martha’s Vineyard that evening.
Although Bailey was a more experienced pilot, he explained that he’d adjusted his plans in the face of the storm that loomed over the New England coast. Little did the Kennedy family realize how fatal that interchange would prove. It was 8:39 PM when JFK Jr. and his family took off in his Piper PA-32 Saratoga. The weather was nasty and worsening, conditions over Martha’s Vineyard were reported as hazy with only six miles of visibility. Kennedy did not hold a full pilot’s license. Instead, he had an intermediary certificate. It permitted him to only fly when visibility was better than five miles. Kyle Bailey watched the small single-engine plane take off. That evening, he told his family, “I can’t believe he’s going up in this weather.” About an hour into the flight, Martha’s Vineyard should have been within sight. Instead, there was a haze of nothingness. Humidity rising from the sea left a thick fog-like wall in the warm summer sky.
“JFK Jr. was staring at a sheet of darkness, no horizon, no lights, no orientation whatsoever. Soon, emotion got the better of him. His mind started playing tricks. He lost his bearings and lost control of the aircraft, just a few miles short of their destination, and the Kennedys crashed into the frigid sea at 5,000 feet per minute, about 57 miles per hour. They descended in what pilots call a graveyard spiral, corkscrewing uncontrollably.” That again was an excerpt from the preface of my second book, The Retirement Flight Plan, and the reason I share that with you today is because today’s retirement conditions, much like the conditions of that fateful night for JFK Jr. can be unpredictable, but there are practical steps that you can take to safeguard your retirement success and make it safely to your landing, and I have three practical takeaways for you to apply.
The first should be an encouragement to you, because while none of us can control the weather, it’s far less important than the pilot. Conditions were not good at all, but if Sully were flying the plane, chances are they’d still be alive. He had thousands of hours of experience flying through the soup. Remember, you’re going to hit bad weather when it comes to the economy, when it comes to the markets, when it comes to your health, and all sorts of other variables that we could list, we’re talking about 70, 80, 90, 100 years of life. Crazy stuff happens. You’re going to take off and all of a sudden go, “Wow, I can’t see the horizon.” And when that occurs, you want someone piloting the plane who’s been there before, who’s seen everything, and who is incredibly well-trained. So number one, the weather is far less important than the pilot.
Number two, see the full picture. The first thing a private pilot learns when training to be instrument rated is that they have to scan their six-pack. The six-pack are a cluster of important instruments that when the information is aggregated, tell you most of the important information you need to know about what’s happening with the airplane, but it’s very common for a less experienced pilot to fixate on one gauge. They’re just looking at one instrument at a time. Oh, I need to level my wings. Oh, what’s going on with your airspeed? Oh, I wasn’t looking at that. And the same is true when it comes to your money. People will fixate on one investment or one aspect of their retirement planning, yet not see the impact that has on their taxes, their estate plan, their income strategies, their family members, whatever it might be.
You have to see the full picture, and number three, trust your gauges, not your gut. It’s actually the name of one of my chapters in the book. The instincts that serve you well in most aspects of life can lead you wildly astray when it comes to your money. Have a plan, have a rules-based approach, and leave nothing to your emotions in the moment. Trust the instruments, rely on your instruments or in this case with your finances, a predetermined investment strategy for how you’re going to navigate bad weather, so that when you get caught in the soup, you’re not hoping that you can figure it out in the midst of heightened emotion, but rather rely on your gauges, rely on that financial plan that you put in place long before you were emotional, long before you were anxious, long before the storm came. It’s important that you rethink this idea that your instincts are good, because when it comes to your money, they’re often highly unreliable.
If you’re wondering, do I have the right pilot in command? Are they independent? Are they credentialed? Do they act as fiduciaries? Are they experienced? If you’re not sure and you’d like to see what else is out there, a second opinion on your entire life savings, we’ve provided that for thousands of families across the country. Visit creativeplanning.com/radio now to meet with one of our nearly 500 certified financial planners, or you can text the word PLAN to 1-888-914-PLAN. Again, that’s 1-888-914-7526. Well, this past weekend was Master’s weekend at Augusta. It is a tradition unlike any other. I just finished a biography on Tiger Woods by Jeff Benedict and there were a lot of aspects that jumped out to me while reading the book, but the one that really stood out to me is just how thin the margin is if you want to be the best at something. If you want to be a pretty good teacher or a pretty good accountant or engineer, you have to work pretty hard.
If you want to be in the top quintile, you have to work dramatically harder, and if you want to be, in Tiger’s case, the number one golfer in the world, every single detail related to coaching, practice, body, psychology has to be perfect. Tiger was looking for even the absolute tiniest, incremental marginal improvements, because that could be the difference of winning a major by a stroke or losing by a stroke. Where this applies to your finances relates to this common wisdom that, “I’m smart and I’m successful, so I don’t need help. I don’t need an advisor. I can do this on my own,” and that’s a premise to rethink. Tiger wouldn’t have ever thought about not having trainers and massage therapists and caddies and swing coaches, even though he was naturally the most gifted golfer ever. He was the most dominant golfer for a 10-year stretch by far in history.
Think about it from this perspective, I would guess that I know 99% more about financial planning than just the typical person. That’s not to say that arrogantly, it’s just to say that I’ve studied and have degrees and credentials and have practically helped thousands of people navigate their retirement. Yet despite that, I have hired and pay one of my colleagues here at Creative Planning to oversee my wife’s and my financial plan. The reason I do that isn’t because I don’t know how to manage wealth or because I don’t know proper investment diversification or estate planning or tax strategies, it’s that he’s not me. I want every perspective and advantage possible, and I firmly believe that the fee that I pay is an investment that will return dividends in the long run by having guidance outside of just myself. It also creates great continuity and open conversations and dialogue for my wife, because we have a third party that’s neutral guiding us with our financial planning.
And so while you may say, “Well, John, you’re biased on saying that somebody should have a financial advisor, because you are a financial advisor.” Well, I pay a financial advisor and I’m a financial advisor, so I’m putting my money where my mouth is. No peak athlete would go without a coach, because the stakes are far too high and the stakes are far too high with everything you’ve worked a lifetime to save as well. Can you imagine me walking into an OR in scrubs, assuming that since I’m very knowledgeable on finances and I’ve watched a couple YouTube videos on heart surgery, I’m ready to do open heart surgery on someone. Well, of course, that’s ridiculous. You certainly wouldn’t want to be the patient in that scenario, but it’s similar to a doctor saying, “Well, I’m smart and I went through medical school, so why wouldn’t I manage my own finances?”
I don’t know, because you’re not licensed or credentialed or have studied it or have any formal experience. Or can you imagine me walking into a courtroom with my opening statement prepared, because I used to watch Matlock with my great-grandmother when I was a kid? No, I’m not a lawyer. You certainly don’t want me defending you if you’re in some sort of trouble. Well, I really know retirement income strategies well. Cool, John, thanks. That doesn’t help me. Can I get an actual defense attorney here? And here’s the key, a good advisor should offset their fees with the value that they bring, meaning it should not be a net negative. Everything else is equal, but I just have to pay this fee for them to do it for me. If that’s the case, I guess if you’re adamant about delegating, you could but just fire them in that case if it’s purely a drag on your portfolio, but it should be a net positive.
And if you’re working with a registered investment advisor that’s fee-based, and not charging commissions or any upfront or backend costs, what’s great is you’re able to decide along the way if you don’t think that you’re achieving the desired value relative to what you’re paying, because it’s just a pay as long as you go and your advisor in that scenario makes good money if you’re a client for a long time and your accounts do well, which is what you want, too. When you’re in the driver’s seat, all the while to determine whether the relationship is working for you, rather than needing to front a lot of money in upfront costs and commissions and planning fees as it’s been done for decades unfortunately here in America. If you are a do-it-yourselfer or your spouse is a do-it-yourselfer on your behalf, ask yourself this question, it’s not rhetorical. I really want you thinking this through, because the stakes are high for yourself, for your family.
Would anyone else pay you a fee to manage their life savings? Again, would anyone else hire you to manage their money, to provide their financial planning? And if the answer is probably not or no, you may want to rethink this strategy of hiring yourself to manage your life savings. If you’d like to take the first step in evaluating what you may be missing, receive that second opinion, visit creativeplanning.com/radio now or text the word PLAN to 1-888-914-PLAN. Make sure your pilot in command is someone you trust, regardless of what storms may be on the horizon.
It’s time for this week’s one simple task where I help you make progress one bite-sized improvement at a time. Today’s is to create an essentials only budget. This means if an emergency situation arises, you’re already prepared. So, I want you to go through the last few months worth of bank accounts or credit card statements, and the nice thing now is if you’d like to leverage technology, there are many that can sort and categorize your expenses automatically. Maybe you’re a spreadsheet person, look at those, categorize them and break them into four categories, fixed, lifestyle, discretionary, and savings.
Your fixed expenses are bills that you can’t negotiate for the time being, like your rent or your mortgage payments. Next, those lifestyle expenses are things you need to buy, but you have control over the cost, maybe like groceries. Discretionary expenses are extras that you could cut out completely if you had to in the event of an emergency, and then savings, obviously you’d shut that down in the event that you lost your job, for example. If you’d like to review this task, as well as all previous weeks from 2024, they’re available at creativeplanning.com/radio. Well, it’s time for listener questions, and as always, Lauren, one of my producers, is here to read those. Hey, Lauren, who do we have up first?
Lauren Newman: Hi, John. So, our first question comes from CT in Florida. He says, “Hey, John, huge fan of your show, and a fellow number 12, go Hawks. Checking from Florida. I started my own web design business in 2017, and after listening to a recent Rethink Your Money episode, it got me thinking there are so many similarities in playing the long game, whether we’re talking entrepreneurship, solopreneurship, or managing a retirement portfolio. Can you speak to a few thoughts you have around this? I would love to hear your perspective. Thanks.
John: Oh, I love it. Go Hawks. I agree with you though, playing the long game in life and business, especially when it comes to managing investments and planning for retirement, think of it like planting a tree. You don’t chop it down every few years to see if it’s growing. Similarly, you don’t consistently tinker with your investments or panic every time the market sneezes. It’s about patience, consistency, and having faith in the process, which is true for an entrepreneur as well. It’s definitely a tortoise and the hare scenario for sure. A few of the principles I want to highlight, early on in business and with your money, you have to work really hard, whether it’s to save a little money or pay off debt and get your head above water, or maybe it’s getting your first client or making your business profitable, yet the positive rewards for how hard you’re working aren’t really correlated.
So patience, despite not being supplied with any of the benefits, takes a lot of persistence. I think another principle is that you have to do the right thing even when it’s hard in both business and with your money. This might mean you’re relenting to a customer who you think is wrong and is upset about something that you disagree with, but you know what? You look at the long time horizon of your business and you realize that losing the battle to keep a client happy is going to benefit you in the long run. Other times, doing the right thing means the customer is right and you messed up and it’s going to cost you a ton of money, but you need to make it right, and the same is true with your money. The right thing to do might be letting the vendor know they forgot to charge you for something that you received.
And by the way, never, ever order water, take the water cup, and then go get soda out of the fountain. That is one of the lamest things… I’m not talking to you, CT, I’m talking to all listeners here, and as my friend and colleague who you heard earlier on the show often says, Dr. Dan Pallesen, how you do anything is how you do everything. Lastly, focus on others and you’ll have success. Give generously and build a business that’s focused on creating as much value as possible for your customer, for your clients. The money and success will take care of itself if that’s the focus. Thanks for the shout-out, CT. I appreciate the question. If you have a question just as CT did, you can email me at radio@creativeplanning.com to hear my answer. All right, Lauren, I think we have one from here in Arizona. Let’s go to that one next.
Lauren: Janine in Anthem, Arizona writes, “I hear you talk about diversification a lot, but how do I really know I’m diversified? What are the areas I should be invested in?”
John: I think I’ll start by explaining what diversification is not. It’s not just owning a bunch of random things, like this hodgepodge, smorgasbord of investments, and you say, “Well, not all my eggs are in one basket. Look at all of these different investments that I have.” Not to get too nerdy, but there is an actual mathematical scientific way to measure the correlation between different investments, like historically, how closely they move in tandem with one another or they diverge from one another. In fact, Harry Markowitz won the Nobel Prize for this very research. I’ll break down the principles of diversification. The first is asset allocation. This is where you’re looking at your investments across stocks, bonds, real estate, cash, and ideally your portfolio should have a mix of these assets to spread risk effectively based upon your risk tolerance, but more importantly, your objectives and when those are going to occur.
The sooner you need distributions from your portfolio, the more you want to moderate volatility, so that you’re not needing to sell things when investments are down in value. Whereby contrast, the longer your time horizon, the less volatility has an impact on your overall success and you’re really just shooting for long-term growth. If you go the next layer deeper, you start looking at the industry and the sector. Tech isn’t going to respond the same as industrials. Next, look at geography. An example might be that you have five rental properties, and so you think to yourself, “Well, I’m diversified. I have five different properties with five different individual renters,” but if they’re all in the same town in Kentucky when a massive tornado comes through. It doesn’t help that you had five individual houses all in the eye of the storm. Diversifying across different countries and regions can help reduce exposure to individual specific risks.
You also want to diversify across company size and type, small cap, mid cap, large cap, growth value. These varying styles perform differently under various market conditions, so diversifying across these dimensions can help balance your risk exposure. You also want to look at investment vehicles, individual stocks, mutual funds, exchange traded funds, private investments can enhance diversification. Part of the diversification equation is also rebalancing regularly to maintain the diversified portfolio that you’ve put in place, because market fluctuations and changes in asset values will cause your percentages to drift.
As a bonus, it’s not really related to your question, but don’t forget about tax diversification. I’m not talking about your investments anymore, but you don’t want everything deferred in retirement accounts and now you are exposed to potentially increasing tax rates, because all of your assets will be taxed once you’re in retirement. Ideally, you have some tax-exempt accounts, Roths, HSAs, you have some taxable investments where you only have to pay tax on the capital gains or if you pass away, there’s a step-up in basis for your beneficiaries, as well as some tax deferred monies traditionally in 401(k)s or individual retirement agreements.
Janine, thank you for that question. Diversification is one of the most important principles to ensuring that you never have the big miss within your financial plan. If you have a question that rather than submitting via email, you’d like to sit down and have answered by one of my colleagues here at Creative Planning, request to speak with a local advisor at creativeplanning.com/radio or text the word PLAN to 1-888-914-PLAN, that’s 1-888-914-7526, and you will receive a message reply with a calendar link to schedule an introductory call. Why not give your wealth a second look?
One of the attributes that my wife Brittany possesses that I love and appreciate about her, and she’s always had this, it’s just part of who she is, is her follow through. A lot of people talk about a lot of things, but then the action isn’t really there. I think back to our first adoption, we were newly married, we were talking about growing our family. We had spoken about adoption even during our dating years. It was something we both felt led to grow our family through adoption and very passionate about, but I suggested biological kids first and then we’d adopt down the road. I’m not sure why, but that was just in my head how I had envisioned the timeline of growing our family. And my wife said, “Well, we’ve talked about adoption. We know that this is something that we want to be a part of our family. Why are we waiting? Why wouldn’t we just adopt first?”
And I remember thinking to myself, “Well, yeah, I guess that’s a good point. We have talked about this. Let’s start growing our family through adoption,” and so we adopted our first four children and then we had three biological kids to finish it off. And of course, now that our family is constructed the way it is, I can’t imagine it looking any different, such a blessing. But you know what else is a blessing? Having a partner who’s not a talker, but who is a doer. I want to improve in this area personally, and she holds me accountable. When one of the kids says, “Hey, dad, you said we were going to do this,” and they’re right. I did say that we would do that at some point during the weekend and now it’s Sunday evening at 5:30 and we haven’t done so, it’s time to do it.
Be someone who follows through and does what you say, and I contend that one of the best ways you can separate from other people, whether it be those that you’re competing against in business, it’s simply doing the things that you said you were going to do, and five reasons to do what you say, number one, for your personal integrity, for trust and reliability of those who you care about and who care about you, it earns respect, it cultivates self-worth, and it’s very empowering to know that you’re someone who can get the job done. So, do what you say you’re going to do and try to do a little better even than you said you would, because ultimately you are what you do, not what you say you will do. 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 affiliates, currently manages or advises on a combined %300 billion in assets as of December 31st, 2023. United Capital Financial Advisors is an affiliate of Creative Planning. John Hagensen works for creative planning and all opinions expressed by John or his guests are solely their own and do not represent the opinion of Creative Planning or this station. This commentary is provided for general information purposes only and should not be construed as investment, tax, or legal advice, and does not constitute an attorney-client relationship. Past performance of any market results is no assurance of future performance. 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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