Just like you probably have a set of commandments, principles, or values that you live by, there’s also a set of rules that you should follow closely when it comes to your finances. Let’s discuss the four financial commandments that you should keep in mind when you go about planning and investing for your retirement.
John Stillman: Welcome once again to Wright Money Tips with Isaac Wright, president of Financial Dynamics and Associates. He's a chartered financial consultant and the author of Navigate Your Way To a Secure Retirement. What's up, man? How you doing?
Isaac Wright: John, good, man. Just making headway through 2019, like no big deal.
John: Have you ever seen the old Mel Brooks movie History of the World, Part I?
Isaac: Wow, look at you going back into the vault.
John: I don't know why they call it History of the World, Part I, because there was no Part II.
Isaac: Yeah, I was going to say, I don't think there was a follow-up to that.
John: But that's the brilliance of Mel Brooks.
Isaac: Dude, what year was that, man?
John: This would've been late '70s, early '80s, in that realm. But one of the most memorable times in the movie, to me, was this moment.
John: Hear me. Oh, hear me. All pay heed. The Lord, the Lord Jehovah has given unto you these 15, 10, 10 commandments for all to obey.
John: If you can't see it, if you've never seen it before, you can appreciate the visual.
Isaac: Oh my lord, man.
John: He comes out with three tablets, and each of them has five commandments on it. He come out with three tablets. "I give you these 15," he drops one, it shatters, "These 10 commandments." Brilliant stuff.
Isaac: I would imagine most of our listeners have seen this movie or just know Mel Brooks in general for being an absolute whiz when it comes to comedy.
John: Yup. With that context, Isaac, we're going to discuss the financial commandments today.
John: I'm going to give you these commandments that should be written on stone tablets in your retirement plan, if you will. You can explain why they're important. Let's start with thou shalt not compare your investments to the stock market without the proper context. What do we mean by that?
Isaac: Yeah, John. I think when we sit here and we're talking about commandments, obviously tongue in cheek here, but I think more importantly is these are things that I think in a centerpiece of anybody's financial or investment plan, you have to keep these things front and center. When you're looking at your investments, and sometimes, as we all know, we compare things socially to others, and now in today's world we compare things to what somebody says on social media. The main thing is this is, that you have to put your own "context" to your own personal plan. If you are invested conservatively, then you shouldn't, for example, get upset if the market has had a great run and maybe you have been in the, say, rear view mirror, but maybe you're not making as much money as you otherwise thought. Well, maybe it's because of how you have invested your money. I think that's a trade-off of having a lower risk portfolio. Same situation though, obviously if you're overly aggressive with your investments.
Isaac: The reality here is this. I think we are in a world of self-gratification, immediate results. We're expecting our portfolio to do great at all times and obviously cut off or maybe take away all the downside in certain circumstances because, in my opinion, people are not putting their investments in the proper context and not maybe working with somebody that is overseeing a financial plan, or just maybe recommending an investment only. You don't have somebody to keep you accountable to, in my opinion, what would be very important is how is this set up for the success of my future needs when it comes to income and so forth.
John: You want to be sure that you're looking at those investments in the right context, very important. How about commandment number two, Isaac? Thou shalt not give up before giving your strategy enough time to play out. I'm sure you've seen people guilty of breaking this one.
Isaac: Well, this is almost probably somewhat tied into commandment number one is, again, living in a world of instant gratification. I think people today, because you can turn on the television, watch anything that you can have on your cell phone that can instigate and irritate the feelings that we have sometimes when the market has taken a big hit, or again, maybe have taken a big jump, and maybe not showing the fact that you have made as much as you think you should have. But you have to make a plan where your strategy is defined. It's defining a strategy also based upon a length of time. Your plan is much less likely to work if you're not defining a timeframe on the accountability of what you've put together.
Isaac: Really today, if I can just go into a whole different direction just for a second here, John, if you think about your life in general, how on earth in today's world can you really hold yourself accountable to anything if you're not giving yourself some time? For example, if you are wanting to lose 10 pounds, if you are wanting to do anything, you're going to have to create a schedule and stay true to that schedule. No different when it comes to your finances and your investments. Sometimes even though I've done this for 20 years, I think a lot of times people just can't sometimes stay true to that. It's a good advisor's job to make that conversation, that accountability happen. These are, yes, I would almost call them commandments because you have to be able to provide that time for your own mental health, I would call it, to see things through.
John: Commandment number three is thou shalt not chase big returns too late in life.
Isaac: Well, listen, if you're in your 50s or your 60s, it's probably not wise under most circumstances to, let's say, try to achieve the same investment returns that maybe you could've enjoyed in your 30s and 40s. You just don't have a long enough timeline under a lot of circumstances to where you may wind up needing this money for lifestyle income, or needing it for your overall lifestyle for discretionary and/or maybe fixed or needed expenses. It doesn't mean that you can't chase returns with a smaller percentage of your portfolio. I'm a lot more open to that in most circumstances. If you're a very high net worth individual, and we serve those, you're just at a point where if really lifestyle money is no concern, then sure, maybe you can chase big returns with a larger percentage of your money. But I will still find people that even though they're in a place where they never have to worry about their money when it comes to outliving it, somehow, some way 9 out of 10 I would say that we talk with still want to have some level of accountability to the downside risk that they're taking with their money.
Isaac: The larger amount of money that you have later in life too, it can amplify obviously from a dollar perspective. If you're down 10% on $10,000, being down a grand, it may not be a big deal. If you're down 10% on a million dollar portfolio and you're down 100 grand, that sounds a little different, doesn't it? That's what I'm trying to tell you here is that chasing returns and I think creating a plan that gives you a good estimate of range of reality of returns is very legitimate. But again, if you're trying to speculate, be careful how much of your portfolio you move towards that goal.
John: Then how about this very important commandments, Isaac? Thou shalt not ignore costs and fees. I think a lot of people assume that they're on top of their costs and fees, although some people are just head in the sand, ignoring them altogether. Some people think they're on top of it, and they actually aren't.
Isaac: Well, I think we can wrap up on this today. I know there were 10 commandments, but we're going to cover four financial commandments today. I think this could be the most important one is investing is never free. I think anybody that's pitching a opportunity to work with them and saying that there's no fee, I think you have to be careful because there's always ways that there are expenses or being able to cover the cost of how many people that you have associated with managing your portfolio or investments, yada yada. Investing is never free, okay? You may pay, and you may have a various amount that you pay depending on one place to the next, but many investors, quite honestly, overlook the cost and really just focus on returns.
Isaac: What I'm trying to follow here for many people today, and I always tell people this going forward, is that if you get, let's say, a financial rate of return of 8.5% and you're paying a 1% fee, or you're getting a return of 10% while paying a 3% fee, it's an easy decision to make when you have all of the information in front of you, but most people just aren't paying enough attention to the fees. I think more importantly is the net result of those fees.
Isaac: So, two things here. I think I want to wrap up on this. Two things that you need to pay attention to. Number one is, what is the net of how much you have made after fees? Then the fees that you are paying, what is the value proposition? You know that you're going to have some level of fees no matter what you do when it comes to investing, whether you use an advisor, whether you do it yourself, whether you're in a scenario, let's a combination of both. What is the value proposition of how the fees are laid out? Is it all about benchmarking performance? Is it about financial planning to maybe incorporate cashflow analysis, expenses, Social Security planning? Medicare planning, estate planning, tax planning? I know it's a lot of planning, but to be frank with you, that's what we do here at our firm.
Isaac: I think most people understand that, hey, listen, man, you're giving us a lot more value for roughly the fees, if not maybe even sometimes in a lot of cases less than what we were paying at our other firms. I think those things, John, bottom line is they're commandments that really can allow you to keep more of your hard earned money.
John: If you want some help making sure that you're toeing the line, that you're keeping the law as it relates to your retirement planning, reach out to Isaac and the team at Financial Dynamics and Associates. The phone number could not possibly be easier. 804-777-9999 is that number, 804-777-9999. No cost or obligation if you'd like to come sit down with Isaac and the team. Isaac, always a pleasure. Thou shalt not miss any future episodes of Wright Money Tips. We'll leave you with that commandment.
Isaac: I think that was the commandment that could've broken in the intro part of our show today actually.
Isaac: We would appreciate people to continue to stay tuned. Hopefully we're bringing some good quality content, some good things to think about. John, always appreciate the time, man.
John: We'll talk to you again soon right here on Wright Money Tips.
Announcer: Information is for illustrative purposes only and does not constitute tax, investment, or legal advice. Always consult with a qualified investment, legal, or tax professional before taking any action.
Announcer: Advisory services offered through JW Cole Advisors, Inc., JWCA. Financial Dynamics and Associates, Inc. and JWCA are unaffiliated entities.