Ep. 258 – Do You Have All Your Eggs In One Basket in Retirement?

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In this Episode of the Secure Your Retirement Podcast, Radon and Murs discuss the meaning of portfolio diversification and why you shouldn’t put all your eggs in one basket. True portfolio diversification means spreading your money across multiple layers of different options.

Listen in to learn about the four major strategies we use to significantly diversify investment portfolios for our clients. You will also learn how we use a diversified fixed annuities portfolio for clients who want to avoid market risk.

In this episode, find out:

• Understand that having multiple financial advisors/custodians doesn’t give you diversification on its own.
• The core strategy – how we invest based on what we think will happen in the market based on the available good data.
• The tactical strategy – how we align investments based on what is working right now.
• Structured notes – bond alternative low-risk investments issued by banks that yield and gain interest.
• The fixed income strategy – actively managed and well diversified traditional bonds.
• How we use a diversified fixed annuities portfolio for clients who want to avoid market risk.

Tweetable Quotes:

• “Simply having three distinct advisors or custodians doesn’t inherently provide diversification.”– Radon Stancil
• “We strongly advocate that there isn’t a single perfect strategy. By integrating various proven strategies, we create a robust approach that will perform effectively in the long run, particularly for individuals nearing or already in retirement.”– Murs Tariq

Resources:

If you are in or nearing retirement and you want to gain clarity on what questions you should be asking, learn what the biggest retirement myths are, and identify what you can do to achieve peace of mind for your retirement, get started today by requesting our complimentary video course, Four Steps to Secure Your Retirement!

To access the course, simply visit POMWealth.net/podcast.

Here’s the full transcript:

Radon Stancil:	Welcome to Secure Your Retirement Podcast. Today we’re going to talk about something that, again, Murs and I hear every now and then when it comes to somebody maybe who’s talking to us, maybe they’re worried about where they are or whatever it might be. But this really kind of comes down to this concept of: Is it a good or bad thing? How do I get diversification and should I have all, I’m going to use the terminology, all my eggs in one basket? And many times when I have this kind of conversation with somebody and I ask them what that means to them is sometimes what they’ll say is, “I want to make sure I have a couple of advisors, maybe three advisors. So all my money is not in one place.” And so where I take the conversation at that point is, “Well then, let’s talk about what diversification is.” And we’ll answer that in a second, but let me just help you to visualize it.
	Let’s pretend that I had three advisors and they are at three different custodians. What that mean is, let’s say I’ve got one at TD… I’m sorry, not TD Ameritrade anymore, that’s gone. Schwab. One at Charles Schwab, one with Fidelity and one at Vanguard. Three different custodians, three different advisors. Does that alone say that I’m diversified? Well, let’s suppose that all three advisors basically believe in a very similar concept, and so a lot of my investments are very similar. Maybe not the exact same tickers, maybe not that, but let’s say that all three advisors are saying right now we should be in large cap growth. Is that diversification? Well, think about it. If I’m in large cap growth across all the locations, no, I’m not diversified. And so being with three different advisors, three different custodians, does not give me diversification by that on its own.
	So now the question is, could I be with one advisor and one custodian and have massive diversification without having a ton of any eggs in any basket? I’ve got them spread out. So I’m going to just turn it over to you, Murs, and let’s talk a little bit. If you could kind of hit on this idea. We just hit I think the main concept there. So could you talk about what… We’ll just use us as an example because we know it, and then we could talk about maybe how some are set up. But if you look at a client today that we would have, how diversified are they and what does it really mean to them as far as risk is concerned?
Murs Tariq:	Yeah, so I think it is good to understand first how most people are going to have their investments allocated, which is under this concept or this idea of asset allocation or the more colloquial term being buy and hold. Buy and hold, ride the waves, over time you’re going to make money. And a lot of advisors work that way as well because they believe in it and it does work. It’s just the question you have to ask yourself is, am I willing to sit through the bad times? Because there’s bad times, right? Think about 2022 here very recently, or 2020 during the pandemic, or go back to 2008, 2001. There’s stress along the way with those types of strategies.
	And so now we believe in that strategy to a degree, asset allocation, but we don’t stop there. So if you’ve ever listened to… We do our podcasts every Monday, but also Radon and I, every Monday we put out a market update as far as what we’re doing within our portfolios in a general type of speak. And so if you ever wanted to get access to that, feel free to reach out to us. We’d be happy to get you on that email list every single Monday so you can get an understanding of how we truly are managing our investments for our clients. But what we talk about there is really four major themes within someone’s portfolio. And a theme could be synonymous to a strategy, four major strategies, four major themes, however you want to look at it. We are diversifying significantly amongst investments as well as different viewpoints on how we should invest.
	So for example, one of our themes, we call it our core strategy. What that theme really is is a bit of a fundamental focus on how do we invest? Fundamentals means let’s go invest based off of what we think is going to happen based off of some good data that’s in front of us. For example, right now and for the last 18 months, the whole world has been talking about a recession and the potential recession. That speak is starting to go away because the economy is so strong. So for example, our core strategy has been a little bit more defensive to prepare for this potential recession. That is fundamentals. You go buy Apple stock because you believe in the company, you believe in their product, you believe in who’s running it, so you go buy Apple stock. You’re forward looking on something.
	So our core strategy is fundamental focused. What do we think is going to happen here in the short to intermediate term in the markets?
Radon Stancil:	And I just want to say on that strategy right now, I believe there’s how many different ETFs there?
Murs Tariq:	There is roughly… It can range between say five to seven.
Radon Stancil:	All right. So you think about in that strategy you say, well, that’s only five, but what is represented in those ETFs? Because an ETF is an exchange traded fund that’s a stock of stocks. There are many times thousands of different stocks that are being represented there. So it is spread massively across the marketplace when it comes to those different individual stocks within that one ETF.
Murs Tariq:	Yes. And so we’ve got plenty of diversification as far as the investment structure and then also now that’s one of our four themes. So we’ve got four strategies running for our portfolio.
	The second theme or the second strategy is now what we call our tactical. Our tactical is not forward looking like our core is, our tactical is saying, hey, what’s working right this moment? If you have to ask yourself, what is everyone talking about these days? It’s AI, it’s technology, it’s large cap companies like your Amazons that are just running away with the stock market. That is what is working right now, and that’s how we’re going to align that portion of the portfolio. That strategy. How that strategy also operates is go back to the question of… Go to 2008 or 2022 and ask the question again, what is working right now? The answer was nothing. The answer was everything was crumbling. And so our tactical strategy, if we answer the question and say nothing is working, we can reduce our equity exposure down to much lower risk assets, sometimes even as far as treasuries, just to get in a place where we’re not going backwards, we’re not really going forwards, but we’re avoiding some risks.
	So our tactical can be pedaled to the metal if everything’s looking good, but it can also be our breaks if things are starting to deteriorate in our market. So we’ve got core and tactical. That’s two strategies.
	Now, our third is very unique and very popular, quite honestly with our clients is structured notes. These are issued by banks and we’re getting very nice rates of return on them. They yield is the term, but you’re getting interest on them in all essence, kind of like you would with a CD. They are low risk, they’re not no risk, but the rates that we’re getting, because we add that layer of risk, it’s somewhere in the realm of it can be anywhere. Don’t quote us on this, but somewhere in the realm of say eight to 10, we’ve seen them up as high as 13%. As interest rates come down, just like with your savings and your CDs, these are going to come down, but they’ve still been very strong. And so we start to put this in a category of, in a way of a bond alternative. We’re getting products from banks that are providing us yield and interest. And so that is strategy number three.
	By the way, on structured notes, you can’t go buy them yourself. It’s very difficult to buy them yourself. You would have to be considered ultra-high net worth. So what we’re able to do with that strategy, because we have buying power with our firm, we’re able to talk to those banks.
	The fourth now strategy is our fixed income. Just think about traditional bonds. We’re buying bond ETFs. So again, very well diversified there, and this is actively managed. So the theme there today is where the money is, which is in the short term side of the bond curve. Interest rates are good. As they start to fall, that actively managed bond portfolio is going to start to shift towards intermediate and longer term bonds. So what I’m getting at here is you’ve heard a lot, and that’s all going on within one person’s portfolio. You’ve got core, tactical, structured notes, and then we’ve got bond portfolio as well. And that is how we manage inside of the stock market.
	And then we have a whole other element that we talk about that is outside of the stock market. So when we talk about diversification and we talk about different types of strategies, the way we’ve built it, because we truly do believe that there is no one perfect strategy. Our core is going to outperform tactical one year over another year, tactical is going to outperform the other year. Structured notes are going to outperform bonds, may even outperform if the market’s crumbling. So what we believe is that if we can put a bunch of different really tried and true strategies together, we’ve got something that’s going to work well over time, and especially for someone that’s close to retirement or already retired, but that’s the market money. Ray, do you want to touch on even how we diversify even more outside of the market?
Radon Stancil:	Yeah. So many times we’ll have clients who are wanting to offset risk. They’re wanting to say, “Okay, well, I want to have some money that’s going to grow at a better rate.” In order to do that, you kind of have to introduce risk in order to do that. But then sometimes people say, “Well, I want a section of my money to not have risk associated with it, at least downside risk or market risk.” And so we will use a diversified portfolio of fixed annuities. And so now if you think about it, all the diversification that Murs just described, and now you have a section of money that’s diversified amongst multiple insurance companies, I have got my money spread throughout a universe of options.
	I mean, I’ll just use Warren Buffett. Warren Buffett, he talks about all these different things. One of the best things that he says he invest in are insurance companies. Why? Because they have good rates of return. They’re stable, they’re highly regulated. So that is a good place to have some money. We don’t want to have all of the money there. Obviously, we want to make sure it’s diversified and that it’s safe, but now I’ve got not all my eggs in one basket. I have my money spread across a multiple layers of different options so that I’ve got true diversification. And quite honestly, when you do that and you’re working with a group like ours or somebody else’s… I’m trying to make this a sales pitch about Peace of Mind Wealth Management. A group where they’re helping you do that, it makes your life a lot easier because they’re organizing it and putting it all together. You’re able to see all of those assets on one report. You’re able to see how they all feed together. Nothing is overlapping. Everything is working in a diversified picture.
Murs Tariq:	Let me speak to that real quick. I had a meeting just the other day with someone that’s not working with us yet. They’re very excited to come on board with us and we’re going through their financial plan, and there is money spread out in all different types of locations. Now, I don’t think they particularly did this for diversification as far as I need to have some money at all the different custodians in case the threat of one custodian going under, maybe something like that. It wasn’t that. It was he worked at one place, had a 401(k) there, worked at another place, 401(k) at a different custodian. And you go down the years and if you’re job hop in a little bit, you end up having six 401(k)s and a bunch of different investment accounts spread out all over.
	What I’m getting at here is you could tell the frustration that they were dealing with just trying to figure out what their values were because they had to go log into every single little different place, track everything down. And part of our process as a fiduciary, we kind of have to understand where everything is before we can make recommendations. So if you’re in 20 different places, it makes that a little bit harder. If you’re in one or two, it’s much simpler on your side as well as our ability to take care of the account. So just want to bring up that real life experience.
Radon Stancil:	Excellent. Well, if you’ve heard this and you’re thinking, “Well, I thought I was diversified, but I may not be.” Or, “I really feel good now because I think I really am diversified.” Either one of those is really good. But if you ever had any questions for Murs or myself, feel free to go to our website, top right-hand corner, click on schedule call, and we would love to be able to hop on a quick phone call with you, answer any questions you have, and if we need to schedule something longer, we can do that. We hope this has been helpful. Again, we enjoy being able to explain these things because these are things we run into every single week almost with different individuals. So have a good week. We will talk to you again next Monday.