An Acceptable Level Of Risk And Reward

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Share it. But most of all, thank you for listening and for choosing the Truth Podcast Network. Welcome to Finishing Well with certified financial planner, Hans Scheil.

And I'm so excited about today's program. How about this one for a topic? How about an acceptable level of risk and reward? And so, you know, we're talking, Hans and I, that, you know, so many people going into 2022 had no idea how much their investments were under risk. But, you know, Jesus, a lot of people are familiar with this passage, but I wonder if you think about the context of it, because Jesus said when it came to this idea, he said, which of you intending to build a tower sitteth not down first and count the cost, whether you're as sufficient to finish it. But the context of that was, and whoever does not bear his cross and come after me cannot be my disciple.

And so, you know, the thought that comes to mind is literally you may have to get down on the cross and literally, you know, as he told Peter, you know, to dress you up and take you somewhere you don't want to go. So, you know, unfortunately, the reality that we live in sometimes we really aren't counting the cost, nor are we understanding how much faith it requires in order to live the Christian life. But Hans 2022 was a wake up call for a lot of folks on the amount of risks they were taken. A lot of money under management.

I have a lot of folks who have trusted me to be the overseer of their money. And they've, you know, 2022 was not pretty, even though we've set things on a conservative, for most people, a conservative and a moderate, conservative and moderate level of risk. It was hard for the investor and hard for the advisor. And then the real question is, is what do we do now? What, what, where, where are we going? What, what, how do we want to be invested now?

And we have a process actually that we use to objectively go through that and try to try to help people try to help you help our clients get into the right place for them. Let's put it that way with the risk and reward thing. Yeah. Cause a lot of folks, you know, had no idea that, wow, that the market could drop off and that, which I thought was substantial was not so substantial.

Well, and people know that, but they have to live it and they have to live it with some real money to be reminded of it, I guess is the way. And, you know, I had, cause normally we're just talking about risk. So acceptable level of risk. That's what we're doing as advisors. We're trying to find, you know, risk tolerance.

And I don't particularly like that word. It's like, it's like how much risk can you tolerate? And we go through a risk tolerance questionnaire and it may well say that on my form. So I titled this show the acceptable level of risk and reward, meaning the whole reason for taking risk is to get the reward. I mean, if you, if you didn't get, have the reward out there, then why take the risk?

I mean, it just, just in and of itself, unless you're a adrenaline addict or something. So what people don't think about is risk and loss. I mean, the, and the real risk is more about the loss than it is the reward and the level of risk that you take in your whole portfolio. I mean, most people where we're advising them and we're working with them, we're going to have them spread out amongst a bunch of asset classes and a bunch of, uh, stocks, bonds, ETFs, things that are at all levels of risk and all levels of diversification so that they don't, they don't have volatility like a yo-yo. And, but before we start investing their money, we need to have a plan. And part of that plan is what is their acceptable level of risk? How much risk do they want to take?

How much risk do you want to take? And what I wanted to do today was just talk again about the process that we put our clients through. And if you come to me for financial planning, this is a process that Tom and I are going to put you through, um, with your money and with yourself and with your spouse and just try to get you in the right place.

Yeah. Tom explained in the video that you guys did at Cardinal advisors. They're on YouTube, which again, I'll be at Cardinal guya.com on their page that a lot of folks behavior doesn't seem to match up with what they told you their risk tolerance was right. That if you just ask that question, people go in, but it it's, it's better to dig a little bit because you just think you may know the answer to that right off the top of your head. But that's the nice thing about the analysis is you get down to what really, you know, what your heart says, not necessarily what your head says. Well, there's a difference between our clients that we have in our group of clients that have been with us for a while and the incoming people, which we're very thankful for.

And so we spent a lot of our time with the incoming people and that are seeking our help to have a smooth and happy and peaceful retirement. And they, but yet they need to take some risks to get some income and some growth and, uh, create an income that for the rest of their life. So, um, when we get the folks that are just coming in the door, many of them have an outlook on risk is that they just didn't view their whole portfolio that was mostly invested in stocks as that risky.

Okay. They just thought it's, you know, you buy stocks and you keep buying them and you keep buying them. And then they just go up and then they go up and they go up and then maybe they're going to go down. And if they go down, they go down and then they go back up and they, they just didn't see it as really that risky until 2022 came along and kaboom and, and people. So we have people coming in the door that are laying this down and they're just opening up with what should I do now?

And I say, well, I'm going to tell you a little later, I can need to get to know you first. Right. Right.

And so that's the beauty of what we're getting a chance to look at today. Right. Is what goes into those actually assessing a plan, not just, you know, coming off the top of your head.

Well, yeah. So, so we're going to start with a set of questions and objective process. So we're going to go through and many of you have probably seen these before when you've invested some money somewhere, you were asked these questions and we have a whole series of questions that we're going to ask you and I've got them summarized on the YouTube board.

Just very simple. We're going to want to know your net worth. How much money do you have? We're going to want to know your liquid net worth, because if we don't want to tie up all of your money in such a way that if you had to go get some real quickly and use it for something.

So liquid net worth is the amount of cash and things you can turn into cash, your income by the year, the tax bracket that you fall into, your age, whether you're married or not, of this money that you're preparing to invest. When do you expect to withdraw it? You know, is that two years? Is that 10 years?

Is that six years or some of it? What is your investment experience? So, and this one's a little tricky because, you know, when did you buy your first stock?

Well, 30 years ago. Okay. Now what is your investment experience? I mean, it's just, it's so it's a little bit, we really want to get a sense subjectively as well is how comfortable are you buying and selling securities and moving money in and out of the market, going through periods like we did last year and sticking with your original plan or are you somebody that's going to immediately want to bail out, perhaps at a time when stocks are depressed. So we want to get a sense of your overall experience and your investor behavior. And then we're going to calculate a score based upon a list of a series of questions. And we're going to come up with an appropriate place or an acceptable level of risk to put you. Now that doesn't mean that's how we're going to invest your money.

That's where we're going to start. One of the other questions that you mentioned that the video, which to me is like a number one, maybe before you even go to all the other questions is what's the money for? Well, yeah, I always, just when I get people talking about it a lot and I'm getting them to understand how they're using it, how they got it, what they foresee using it for. And a lot of times these are the people that are not planning to take anything out of their IRA until minimum distributions, but then they want me to explain minimum distributions to them. And so I get a sense with a lot of people that that's their savings, man. That's their do not touch money. And they don't really have a plan for when they really are going to touch it. So that's a question that's more of a subjective question that I mix into what's it for.

And then a lot of people have a hard time with that because they got everything they want and they've got their income coming in and they've just got this big hunk of money and they'll come up with an easy answer. Well, in case I get sick. Okay.

Well, let's talk through that a little bit. You got Medicare. Yeah. And you got the supplemental insurance. Okay.

And then do you have long-term care? Well, and if that is no, well then that's a worthy thing. You got this hunk of money.

It's sitting there. You're going to use it for long-term care if you need it. Okay. Now we might show you some better ways to do that, but that's at least a good answer. Some people say it's for my kids or it's just me for later.

I mean, they're going to be vague. And I like to get an idea if you've got what is called extra money, which is what savings is. What I want to do in the process of financial planning is you get to decide what you're going to do with this. We got, you know, with retirement money and IRA money, we've got QCDs. So you can, you can, past age 70 and a half, you can give it to the Lord to the tune of a hundred grand a year.

That's the maximum in any one year. But even if you're in your sixties now, we can plan to give away a certain amount once you qualify for those. So I really would like to allocate really every penny of a fund. And it's important to know this is to the risk we're going to take, because I find with a lot of these people, when they have trouble answering these questions about their nest egg and what it's for, they're the same people that want to take a bunch of risk on it, or they want a big return when they don't even know how they're going to spend the nest egg as of itself. But I'll tell you one thing they all have in common. I don't want to lose any of it, which is the idea of risk to begin with.

Right. Well, as always, we want to remind you that this show is brought to you by cardinal guide.com. And again, this is all found on their website, cardinal guide.com, the seven worries tabs that days would obviously be, you know, the idea of investing.

And there's a video on this subject at cardinal advisors on YouTube, as well as Hans's book, the complete cardinal guide to planning for and living in retirement. And so those are always resources that Hans wants you to be aware of, as this is a, again, people are looking for a cookie cutter answer or something that you can get in three seconds, but the situation is really your situation is worth taking a look at uniquely. And that's why we want to send you to cardinal guide.com to get up with Hans or Tom and have them sit down and really look at your situation.

Find out where you want to go. We're going to be right back with a whole lot more on, again, acceptable levels of risk and reward. Hans and I would love to take our show on the road to your church, Sunday school, Christian, or civic room. Here's a chance for you to advance the kingdom through financial resources by leveraging Hans's expertise in qualified charitable contributions, veterans, and attendance, IRAs, social security, Medicare, and long-term care. Just go to cardinal guide.com and contact Tom to schedule a live recording of finishing well at your church, Sunday school, Christian, or civic group contact Hans at cardinal guide.com.

That's cardinal guide.com. Welcome back to finishing well with certified financial planner, Hans Shile and today's show acceptable levels of risk and reward. And, uh, Hans, there's a lot, there's a whole mouthful right there, right?

Well, there is. And so, because the people that we work with, which are mostly in their sixties, some still in their fifties, some come to us for the first time, whether in their seventies or they're in their seventies, but they came to us in their sixties. And then we have lots of clients up in their eighties and nineties, but the people we're really doing the most work with are typically in their sixties or maybe early seventies, one of them. And so they're going to lean more toward the conservative, the moderate conservative, and the moderate levels of risk, because for a number of reasons, one is that they, um, are retired or retireeing and they, they don't feel like they can afford to take some big hits both financially. And then emotionally, it's very troubling to lose a bunch of money in your retirement, even if it's extra money, it's just so, so people in our market, in our area of specialization of retirement planning will tend to be more on the conservative, moderate, conservative, and moderate.

That doesn't say that we've got a few in the aggressive and moderately aggressive. And so I'm going to read to you what I summarized on the board of what a conservative asset allocation is. Okay. And it just, I've got a couple of bullet points. Number one, it says, preserve principle. These are people that don't want to lose any money. They don't want their principle to go down. And the next thing it says is lower returns. They're willing to accept smaller returns if they know their principle is intact and it's safe.

Now, let me go to the other end of the spectrum and read to you what I have under aggressive. So this is a person that checked all the boxes and they've got plenty of money. They've got accessible liquid net worth.

They've got all this. So we're not going to put anybody here that doesn't check all the boxes for this, but let me just read it to you. It says, number one, it says, accept substantial risk. Well, that's kind of like restating the title, but it just means that we got to put that thing at the first thing is you've got high on the risk of you're going to get a high reward or you're going to get a high loss.

And you're accepting of that. And it says maximizing long-term return. So it's really, these are long-term people. They're understanding that years like we had last year in 2022 are going to happen and periods like that, maybe not the whole year. And these are people that aren't going to sell all their investments if there's a downturn, because many times the smart money is not dumping stocks when they've gone backwards. They're actually buying and they're going in and they call it buying the dips. These are the people in the aggressive category. And they're saying, I'm looking at this over the long term.

I'm looking at 2032 and maybe I'll be deceased by then. And this will be my grandchildren in their estate, but I'm willing to invest aggressively because I'm looking long-term. And then that is more important, the long-term and the high side growth than the principal protection.

They can deal with the volatility and looking at their statements, looking in the computer and the amount of money they have is going up and down. So I've shown you both extremes. Now let's go back to the moderate conservative. So we're just got a little more, we're not the conservative, but we're pretty close. And what this says is a small degree of risk and volatility. That means your values and your principal are going to go up and down, but it's going to be within a context of pretty small.

Context of pretty small. And then you're going to accept a lower return because you've gone into this small degree of risk and volatility, and we're going to have minimal loss potential in this. And then when I look under moderate, moderate are the people right in the middle. And a lot of people, by the way, when they fill this thing out, when they are investors, they end up right here. And it says moderate risk seeking higher returns.

So they're just that. They're going to accept some risk and they know they need to do that to get higher returns. They can take some short-term losses and they're seeking long-term appreciation. They're just saying this thing, I don't need this money for several years or this part of the hunk of money.

I don't need for several years. So I'm going to take some risks, but not too much. So then there's a category in between here and aggressive.

I'm not going to go over, because these are just different degrees of places. And the computer will actually stick in one of these boxes just by you answering the questions. So we don't do that to customers. I mean, we just show them, this is what the computer objectively tells us.

This is where you need to be. Now, we're going to sit down with you and just listen to you and ask you how you feel about that. Do you feel like what I just read to you accurately describes you?

What do you think about this report? Do you think you ought to be more conservative? Do you think you ought to be more aggressive?

What do you want to be? And a lot of people just turn to me and say, what do you think? Well, then I'm going to tell them what I think. I'm going to say, well, you know, I've been listening to you throughout the conversation. And sure, you answered the questions this way.

But I get a sense that it's just going to kill you if you lose any of your principle. And am I correct in that? So we're going to have a go back and forth. And I want to make sure you completely understand what you're getting into after the computer puts you in a certain place. And we're going to spend some time on this. We're going to have you understanding it. And now we're going to go back to the financial plan. And we're going to see what kind of return that we need to get over the long haul. And then we're going to invest your money for you. Right.

And the neat thing is that there are wonderful instruments to create all the above, right? I mean, sure that that annuities, for example, for that ultra conservative person that doesn't want to lose any principle, you know, and all the way up to, you know, aggressive things that, you know, over the years have paid off well for you. Well, yeah. And so most people have some of their money in safe stuff and safer stuff and conservative stuff, which in the past has been bonds. It still is bonds. I mean, that's, you know, an asset allocation. They're considered, you know, less risky than stocks. And we've started to use annuities many times as a substitute for the bond allocation or for the fixed income allocation. And annuities now have gotten up over 5% where you're just buying a simple annuity for five years or three years or seven years or they've got some very good returns and you've got total protection of principle. And then there's other types of annuities that will create an income.

And then that's guaranteed. So annuities are very strong in the conservative area for an investor that has put themselves in the conservative area where they just don't want to lose any money. And then they're also good for the more aggressive investor that still wants part of their portfolio conservative. Well, then we go ahead and put some of their money in annuities just to have some balancing so it doesn't have complete volatility. And would life insurance also fit under that not going to lose any principle? There are life insurance policies that would be a good investment like that? Well, so we want to be careful talking about investing in life insurance because it technically is not an investment. It is a life insurance policy that's going to pay off a large sum at your death. And then it has a cash value.

But now I'm going to answer your question. It certainly ends up in a lot of our financial plans that it makes sense for people to put a portion of their money into life insurance for a whole multitude of reasons. And once it's put there, it's very safe like annuities.

Yeah, I just guarantee a prince, my very poor investing life prior to knowing you hunt. The one thing I did that was that really, I am so grateful. Somebody, you know, got me a universal life insurance policy for Tammy. And, you know, we paid on that thing for a while. And it is that has been just every time I look at that policy, I go, man, I mean, not only did that thing just grow and grow, but it is, you know, her life has been protected.

And I was like, you know, a lot of people thought I was nuts when I took it out. But I, you know, that for me, and I know, from some people's standpoint, that it's not considered investing, but I know for, for my own personal financial situation, I was on the best moves I ever made. Yeah. So my answer is yes.

I'm just qualifying it that when we're talking to the public here, we're, we're not to construe a life insurance premium as an investment. I get it. Yeah. Okay. Yeah. All right. Yeah. And so, you know, the, the, the whole thing about bringing up risk is just to talk about it.

And we're talking about it on the downside of a really bad year. So a little bit of this is pouring salt in the wounds of some people, but people always get to the point that come in to see me, like, what should I do? What would you recommend that I do? And I, you know, yeah, that's going to be qualified. I got to really put my, now I'm going to take some risk here. And, you know, if you've been in the thing for a long time, and it met your financial plan, you know, in other words, you've had an IRA or a 401k, and the money's been invested, it's been at risk, it's gone down considerably, then I'm just going to ask you, do you, is it still meeting your financial plan? I mean, is this, you know, it's obviously gone down, but you invested, it went up the years before that. So in the whole scheme of things is what you have right now, is that meeting your long term goals? And if that is yes, then I'd leave it right where it is, or maybe make some adjustments.

If the answer to that is no, then we better start thinking about reallocating some of that money and getting it to where it is invested in accordance with your financial plan. As you can see, there's a whole lot of information. Again, they would love to help, you know, put a plan together that's custom made for you, which you can go to cardinalguide.com, that's cardinalguide.com.

And there you can see how to get up with Hans and Tom. Of course, you can look at the seven worries tab and find out more about this very subject, right? And the whole video that's just been done, it's going to be there under the investment tab at the seven worries and as well as Hans' book, The Complete Cardinal Guide to Planning for and Living in Retirement. And so no end of resources, you know, that are available from my standpoint, if it's something that you really want to be a good steward of, I'm sure God, through prayer, is going to provide you with ideas on how to risk effectively. But again, I wouldn't be remiss if I didn't mention that ultimately, you know, there's one risk that that the Lord would love to take.

And as a matter of fact, he took the biggest risk possible because he did get on that cross for you. So great show, Hans. Thank you so much.

Thank you. The opinions expressed by Hans Schile and guests on this show are their own and do not reflect the opinions of this radio station. All statements and opinions expressed are based upon information considered reliable, although it should not be relied upon as such.

Any statements or opinions are subject to change without notice. Investments involve risk and unless otherwise stated or not guaranteed. Past performance cannot be used as an indicator to determine future results. Any strategies mentioned may not be suitable for everyone. Information expressed does not take into account your specific situation or objectives and is not intended as recommendations appropriate for you. Before acting on any information mentioned, please consult with a qualified tax or investment advisor to determine if it's suitable for your specific situation.

Finishing Whale is designed to provide accurate and authoritative information with regard to the subject covered. Investment Advisory Services offered through Brookstone Capital Management, LLC, abbreviated BCM, a registered investment advisor. BCM and Cardinal Advisors are independent of each other.

Insurance products and services are not offered through BCM but are offered and sold through individually licensed and appointed agents. Cardinal Advisors is not affiliated with or endorsed by the Social Security Administration or any other government agency. We hope you enjoyed Finishing Whale brought to you by cardinalguide.com. Visit cardinalguide.com for free downloads of this show or previous shows on topics such as Social Security, Medicare, IRAs, long-term care, life insurance, investments, and taxes, as well as Hans' best-selling book, The Complete Cardinal Guide to Planning for and Living in Retirement, and The Workbook. Once again, for dozens of free resources, past shows, or to get Hans' book, go to cardinalguide.com. If you have a question, comment, or suggestion for future shows, click on the Finishing Whale radio show on the website and send us a word. Once again, that's cardinalguide.com. Cardinalguide.com. This is the Truth Network.