154: Ask An Advisor: What You’ve Been Thinking But Haven’t Asked (Ft. Shaun Meloy) Pt. 2

Welcome to The Invested Dads Podcast, simplifying financial topics so that you can take action and make your financial situation better. Helping you to understand the current world of financial planning and investments, here are your hosts, Josh Robb and Austin Wilson.

Austin Wilson:

All right. Hey, hey, hey. Welcome back to The Invested Dads Podcast, the podcast where we take you on a journey to better your financial future. I am Austin Wilson, Research Analyst at Hixon Zuercher Capital Management.

Josh Robb:

And I’m Josh Robb, Director of Wealth Management at Hixon Zuercher Capital Management. So Austin, we are continuing on from the prior episode.

Austin Wilson:

Yes.

Josh Robb:

This is a continuation, something we haven’t done very often.

Austin Wilson:

Absolutely.

Josh Robb:

So first and foremost, if this is their first time listening, go back to the prior one, Part One, and you’ll get caught up to where we’re at now.

Austin Wilson:

Exactly. So today we will be doing Part Two of our episode where we’re having a discussion with Shaun Meloy as our guest. So if you have not listened to Part one, listen to Part One now. But here we go with Part Two.

 

[1:00] – How Financially Literate Are Most Middle-Class Adults?

 Shaun Meloy:

How financially literate do you think that the majority of middle-class adults are in the United States? Like, I have a financial plan for right now and I have one for the future that’s going to allow me to retire and not have to worry about the stresses of finance. That kind of literate, or I know what a 401(k) is, and how it personally affects my ability to retire at a certain point literate?

Austin Wilson:

Yeah. I would say my personal opinion is that most people don’t have that level of knowledge, more than half. But Josh may have some better thoughts on it. He talks to more people than I do.

Josh Robb:

Part of it, I think I can become biased in who I interact with. If someone is seeking out a financial advisor, usually they have some form of literacy that’s driven them to the decision to go look for a financial advisor. My exposure to people that I meet with probably leans me one direction to think, oh look, most people are asking the right questions. But then when I look at stats like this, the other day I was at Findlay High School doing a presentation in a class and I told them the median savings for retirement for people between 32 and 65 is $5,000. If you stop and think about that, that tells me there’s probably a lot of people out there that are not very literate when it comes to finances if the median savings is $5,000 for retirement, that’s not a lot.

Shaun Meloy:

No.

Josh Robb:

And that takes 32 to 65 and then takes the median or the middle, savings rate.

Shaun Meloy:

So, there’s millionaires and a lot of people with zero.

Josh Robb:

Yes. And that’s the issue is, if it’s that low for the middle point, there’s a lot of people down below that. And even at 32-

Shaun Meloy:

Or worse.

Josh Robb:

… are negative and I would say my answer would be there’s a good chunk of people who are so focused on the day to day living that paycheck to paycheck, they don’t even have the luxury of thinking beyond that. And you think, going back to that hierarchy of needs, you’ve seen if you took any kind of psychology classes…

Shaun Meloy:

Mass lobs, hierarchy.

Josh Robb:

You have that bottom thing of just your self-preservation. There’s a similar thing for finances. Until my needs are taken care of, there’s no futuristic thinking that involves… There’s no planning for college, for retirement, for legacy, for anything until that need of food and shelter and all that’s taken care of. There is no literacy that goes beyond that. And I think there’s a lot of people that get stuck in that cycle where they maybe would love to think ahead. They just can’t afford that thinking until they get beyond that cycle. I think that’s the piece.

Shaun Meloy:

So, we’re talking people, I would love to contribute more to my 401(k), but I need to be more cash heavy right now because of this living day to day.

Josh Robb:

Life situations.

Austin Wilson:

Yep. That’s probably a very common thought right now.

Josh Robb:

Yeah, there’s a lot of that. Or there’s even something as simple as, I would even love to save in a savings account, but every time I get my paycheck, all that money is already spoken for. Even down to that basic spot of just every time that comes in, there’s already bills demanding me to use that money. I don’t even have the ability to take any of that away.

Shaun Meloy:

It used to be that we went in and manually paid all our bills. We either wrote a check, dropped in an envelope, sent it off, and now you can do it online. Well, then they automated it so you didn’t even have to do it anymore.

Austin Wilson:

You never think about it.

Shaun Meloy:

And I was just thinking how much different my life situation is now than it was when I first got married. And before it was like, oh shoot, we got to make sure that we got enough to pay…

Josh Robb:

So, I had write the check, you got to write it.

Shaun Meloy:

Double check that we’re going to be good.

Josh Robb:

Balance your checkbook.

Shaun Meloy:

No, I never did that.

Josh Robb:

That’s what the ledger’s for.

Austin Wilson:

My mom told me that. I’ve never balanced a checkbook in my life.

Josh Robb:

I thought it was just for writing notes. Yeah.

Shaun Meloy:

Don’t forget…

Austin Wilson:

You check them off. Question, phone numbers.

Shaun Meloy:

But now, all of our bills except for the water bill, because I haven’t figured out how to get that automated. There’s apparently a process.

Josh Robb:

There is. You can do it.

Shaun Meloy:

But it seems like a really cumbersome thing that I just…

Austin Wilson:

Just send them in a voided check and they do it automatically. Come on, Shaun.

Shaun Meloy:

Whatever. Tell me about it later. But I’m thinking now, I’m a middle-class person. I’m not by any stretch wealthy. I mean my wife’s a teacher, I work at a church, but how fortunate or how blessed I am to be able to look at my financial picture and say, hey listen, we’re not saving a ton of money. We are putting some aside. We’ve got retirement accounts and things like that, but I can automate my bills every month and not worry about it. I don’t even see the electrical. I get an email that says, oh hey, thanks for paying us this month.

Austin Wilson:

It’s like a thank you.

Shaun Meloy:

That’s real swell of you, pal. And I’m like, how much was the electric bill? That’s a danger.

Josh Robb:

It is.

Shaun Meloy:

I would think, financially to not look at your electric bill and be like, oh, it was $708 this month.

Austin Wilson:

Who left the lights on?

 

[5:45] – What Exactly is a 401(k)?

Shaun Meloy:

I thought it would be like 150. So, continuing in my line of questions. So playing the, I don’t know anything about finance really, but I’m now in that comfort range where I can start saving. What is my 401(k)? I know that my employers set me up with them. What in the world is that?

Josh Robb:

Yep. Yeah, so a 401(k) and that term just comes from the tax code of where that’s found in the tax code. But a 401(k) is a retirement account that is established by your employer as a plan for all the employees that work there. And there’s criteria, usually you have to be full time, maybe you have to have been there for a year. They have all different rules they could put in there. But the concept being is you can elect to have a portion of your paycheck put into this retirement account for you. And the nice thing for you is when you have that money put in, if you put into the traditional 401(k) structure, it is before taxes.

So, if you have $1,000 coming from your paycheck and you put $100 into that 401(k), when it comes time to pay taxes, the IRS says, oh, you only made $900. Which is a good thing. That $100 you put in; you don’t have to pay tax on it because you don’t have that money physically at this point. So, then it’s what’s called tax deferred. You’re deferring or pushing away taxes until a later time.

Shaun Meloy:

Like when you retire.

Josh Robb:

When you retire and when you pull the money out.

Austin Wilson:

Then it’s like income debt.

Josh Robb:

But that’s the benefit. They want to give an incentive for people to save and say, okay, you can pay tax later. We won’t penalize you or force you to find extra money on cash you actually didn’t receive. So that’s part of why the 401(k) is popular is it allows you to set aside money for the future and defer paying any tax until later on that.

Shaun Meloy:

And because they take that out pre-tax, let’s say your check is $1,000, they take $100 off the top, towards the 401(k), now it’s $900, so that just lessens your tax burden.

Austin Wilson:

It does.

Josh Robb:

Correct. It reduces your tax in that year, which is great –

Shaun Meloy:

– with Uncle Sammy.

Josh Robb:

Yep. And then along the way too, a lot of companies will offer a match where the company will say, and again this is a incentive or motivation to get you to save, this whole structure is set up this way. So, they’ll say, hey, if you put in 10% or that’s why I was using that example, $100 out of 1,000, but usually it’s something like 4 or 5%. If you put in something of your money, we will also add money into that account from the business side and on top of what we’re paying you, it’s not taken out of. So, if you put $100, and this is just a simple example, they may say we’ll match that $100 as well. And so, then you have $200 saving for only saving 100 of your own money. These 401(k)s are structured in a way to motivate people to save because again, historically we know people do not do a great job of saving unless there’s some sort of incentive to do that.

And so, this 401(k) is designed, most companies, it’s not a requirement, but most will offer a match of some sort, that match is free money. In fact, it gives you a guaranteed return on your investment right away. Because if I put my $100 in in my example, the company matches, I just doubled my money just by participating, it’s not even investing anything like that.

Austin Wilson:

I showed up.

Josh Robb:

I showed up and I did what I needed to do by saving and I’m getting rewarded for that saving. Along your working career if you continue to do that, not only is the money you put in, you can invest and do things with it, but you’re getting additional money added by the employer and that helps enhance your ability to retire and use that money.

Austin Wilson:

And that’s like step one of what Josh and I have pounded the table on for years now on, if you have a full-time job and you are offered a 401(k) with a match, you do what it takes to get that match as step one. That is your retirement savings step one, then you can worry about doing other stuff on top of that or paying additional on top of debt or whatever on top of that. But before you do anything else financially, get your match.

Josh Robb:

Because you do not get that money any other way unless you add to it. Let’s say there’s that $100 as example. So, if they say if you have a $1,000 paycheck, you put $100 in, we’ll also put $100 in your 401(k) and you say, I don’t really want to, they’re not going to give you that $100. It’s just gone.

Austin Wilson:

You’re leaving money on the table.

Josh Robb:

So that’s why we encourage at the very minimum, get that extra money that’s being offered or put on the table.

Austin Wilson:

My dad always told me when I was looking for jobs years ago, he said, if you don’t take advantage of a 401(k)-match program, you’re essentially making whatever the match is, less than your buddy down the street. So, your buddy who you work next to, he’s taking advantage of the program and you’re not, he’s getting that match, so he might be making 5% more than you for doing the same work, and he’s just taking advantage of the program.

 

[10:10] – The Importance of Not Touching Your 401(k) & Developing an Emergency Fund

Shaun Meloy:

But what do you tell somebody though that’s in that situation, but they’ve fallen on some type of financial hardship? I mean it’s expensive to be sick or ill in the United States. What do you tell somebody who’s like, I got to pull my money off the table because I need to be cash heavy right now. How do you compel somebody to say, no?

Josh Robb:

Stay in. Bear the burden.

Austin Wilson:

That’s a balance

Josh Robb:

Yeah, and that’s where we can have that conversation before it happens. That’s where something like an emergency fund would give you that cushion between there and needing to stop your 401(k)s or take money out. And so an emergency fund is just cash on top of what your daily expenses are and our goal is to get somewhere around three to six months. That’s the end result. And the whole reason for that is that’s the average timeframe people need if they see a disruption in their income. Three to six months to go out, find a new job, go through the interviews, start the job and get to the first paycheck. Because when you start day one, they’re not handing you a paycheck because you haven’t done anything for them yet and so that three to six months gives you that cushion to make an adjustment if your income’s disrupted.

But that’s really the key when it comes back to that hierarchy of needs is that 401(k) is great to get that match but if you’re just coming out of that paycheck-to-paycheck stage, even before that 401(k), an emergency fund gives you that peace of mind to say I can part with some of my money in savings because I know I’m able to. I’m living below that need point. And so that’s the first step would be what I would tell someone, is get an emergency fund that gives you the cushion that if there’s a disruption you can cover some of those expenses before you have to go to the 401(k) and stop that or take withdrawals, things like that. You can get to your 401(k). There are hardship withdrawals, things like that. We don’t always encourage it, but you’re right, there’s life situations that, worst case scenario, there are ways around that you can access it.

Shaun Meloy:

So even then you’ve been contributing, some type of financial hardship falls on you, that’s the last resort. If I really need, I’ve got something there and I’ll just have to figure out how to build that back up later on.

Josh Robb:

Yeah, there’s hardship withdrawals and with a hardship withdrawal depending on, there’s certain criteria, but you can take that withdrawal, you’ll owe some tax on it because again, you haven’t paid tax on that income yet, but you’ll owe tax, if you’re able to repay it sometimes with hardship withdrawals you can actually put the money back in it. Let’s say, it was a temporary thing, and you were able to get that money back in a certain time period. You could actually put it back in in certain instances.

But yeah, there is access to that money, especially hardship, especially when we’re talking medical, things like that. So it is accessible. We encourage people to think of it as, I can’t touch it just because the habit, because if you know it’s there, you’re more likely to stick your hand in that direction. But if you say 401(k), I’m saving for retirement, it’s not for anything else. And you have that as a mindset outside of those dire emergencies, that needs to be the mindset.

Austin Wilson:

And that kind of builds on the fact that as people move jobs, which is a very common thing, especially in this current environment. When people are moving jobs, moving companies all the time, a lot of people when they leave a job, they will cash out their old 401(k) and then they’ll go on their next job and start contributing to that one. But really the best option is to either put it in a rollover IRA and Josh can explain what that is or roll it right in directly into your new 401(k) plan. That’s usually an option as well. And you never have to pay the tax, the penalty of doing that when you do it that way.

Josh Robb:

You pretty much just keep it in that retirement structure saying, I’m not touching it yet. As long as you’re not touching it yet, there’s no tax on it.

Austin Wilson:

Correct.

Shaun Meloy:

Portable, you move it with you as you go.

Josh Robb:

And so you don’t need to have four 401(k)s and all your old employers, you can bring it with you to your new place. Or if they don’t offer one, you can put it outside of a 401(k) as long as it stays in some sort of structure where it’s designed for retirement and that’s what an IRA is, Individual Retirement Account. So yep, for savings, the 401(k) is probably the most popular and easiest accessible structure for people that are working to start saving.

Austin Wilson:

And a matter of background of how we got to where the 401(k) is so popular because it is, it’s by far the most popular retirement option right now. But when our parents or especially our grandparents were growing up, 401(k)s were very unpopular. In fact, they didn’t come around until the more recent 80s I think or 70s or something like that. But anyway, it was a pension, right? Everyone had a pension, you had a pension, you got guaranteed income for life. It was an annuity essentially at that point, and that’s how people retired. And that’s really the only way they did. But companies were able to say, “Wow, this is really expensive to have a pension plan to fund this forever.” And it ultimately became a very tax incentive savings cost incentive thing for companies to do to put this new structure out there once it was allowed, to be doing 401(k)s.

 

[14:47] – What is a Mutual Fund?

 Shaun Meloy:

What’s a mutual fund?

Josh Robb:

A mutual fund. Good question. Yeah, we did do an episode on mutual funds. Mutual fund, high level is a basket of investments that enables someone to own a bunch of things more efficiently. So mutual fund, there’s another term, an open-end fund. That’s what mutual funds fall into. So they’re synonymous, they’re the same thing, they’re just used two different ways. So for instance, if you said I want to invest in the United States stock market, one of them is the S&P 500, 500 companies, there’s actually 505, but that’s a whole other story. But the S&P 500, there’s 500 US companies that gives you a broad exposure to the economy. And if you invest in S&P 500, you’re pretty good. Now if I were to go out and try to buy every single one of those holdings, all 505 companies, I would need a good amount of money to do that because each stock trades at a different price. I have to buy a little bit of everything.

For a while their Amazon was a couple thousand dollars just for one share. So, if I was trying to own this, I needed a good chunk of money.

Shaun Meloy:

Lots of money.

Josh Robb:

So, this mutual fund is a way of saying, hey, you want to own the US stock market? We’ll actually be owning all these things. But you can buy a share of this mutual fund where mutually all pooling our money together and I’ll own it all and I’ll then disperse the gains and the profit to everybody that owns it with me.

Austin Wilson:

For a small fee.

Josh Robb:

For a small fee. And so you’re, in a sense, hiring a manager and this mutual fund manager is building this basket of whatever you’re agreeing to because they’ll be very clear what their objectives are. And instead of me going and buying all those, I can buy one mutual fund but have the exposure of those 505 companies.

 

[16:26] – What to Look for in a Mutual Fund

 Shaun Meloy:

So that kind of leads into a follow up I have for that. If I’m looking to get into mutual funds, what am I looking for? It’s not just enough to say, I want a mutual fund.

Josh Robb:

No, it’s not. There’s thousands. Tens of thousands.

Shaun Meloy:

There’s tens of thousands and they all have different focuses. Some of them probably a little bit more risk averse, some of them more, maybe a little bit risky. I want to cash in quick, so where am I looking?

Austin Wilson:

When you’re looking for mutual funds, you need to look at your overall financial plan needs. Obviously, everyone’s in a different situation. Some people have a different risk tolerance based on how long they need to be investing, whether they’re growing their money, maintaining it, withdrawing, it’s all very different for everyone. But you can find mutual funds that invest in stocks. You can find mutual funds that invest in bonds. You can find mutual funds that invest in both. You can find target date mutual funds which, say I want to retire in 2040 and this fund is managed the whole way, so it adjusts what I need to have as I need to have it throughout all the way there. That’s a different topic, but we’re not going to get into details of how that works. But you can buy all these different kinds of mutual funds for different asset classes.

Within those you can buy things like index funds. So, an index fund would be literally a manager is mirroring the index. So, an S&P 500 index fund holds within a very tight tolerance, the same exact weightings and stocks that are in the S&P 500. It’s very cheap because they’re not actively doing anything. They’re just going and buying what the market has, cheap from an expense ratio standpoint. But it gets a great diversification in that way.

You can also look at things like actively managed mutual funds. You can hire managers that have expertise in growth stocks or expertise in energy stocks or value stocks, all these different things. Small caps, international emerging markets. They’re experts in a certain industry or a certain segment of the market and they are picking 20, 30, 50, 100, 200 stocks and weighting them as they see fit. That’s different than the market in an effort to try and beat the market. So that’s what we would call an active manager. Typically, those have a higher expense ratio. They’re more expensive to manage, the management cost, but their goal is to outperform the market over time. You can also do the same thing for bond funds. You can get a bond index fund where you’re essentially buying the bond market, very easy to do. Or you can hire managers or buy funds that have managers that are individually picking bonds and over weighting, under weighting certain areas of the bond market there in order to again achieve their goal, which is usually to beat some sort of index over time.

Josh Robb:

When you’re asking how do I find what I want? First you say, what am I trying to achieve? If your goal is I want to own something that’s investing in the US stock market, that’s your starting point, then your next question is, okay, after I find that grouping of mutual funds, which of those funds has an objective that I understand and agree with? Because they all have different approaches. Some may say we’re only going to choose the top 20. You may say, I’m not sure I’m comfortable with that. And then one may say, we’re going to choose the top 100. Oh, that sounds better. And then one says, we have all 500. You say, well, I don’t know if I want that. You choose what you understand and agree with. And then you look at their expense ratio, which is how much do I pay for this fund to do what it does? Does it make sense? Do I understand how much I’m going to pay them and am I willing to pay that?

And the best way to look at that is how did they do after those expenses? That’s their net result or their net return after expenses. What did they give to the people who owned them? What was their results? And if you look at that and say, okay, that will help me meet my objective. That’s the criteria. And then there’s little nuances, like Austin said, there’s managers. Is this manager new? Has he been around for a while? What’s their track record? Do I think they’ll be able to achieve the things they’ve done in the past going forward? So, once you find those, you can buy the mutual funds.

 

[20:02] – How to Choose a Mutual Fund Manager

 Shaun Meloy:

Now see, with a manager like that, you’re really just going off of their ability to outplay the market.

Austin Wilson:

Yes.

Josh Robb:

Yeah. It depends on what they’re trying to do. Maybe their expertise is not out beating the market, but they’re trying to limit risk in some way. So maybe they’re always going to underperform the market, but you know on the downside they’re going to actually hold up better. It depends on what your objective is. If you say do I think this manager has the ability to do that? And historically have they been able to achieve it?

Austin Wilson:

And that’s the interesting thing when you’re looking and evaluating managers, which is a lot of what I do when I’m looking at mutual funds, is you look at manager’s performance over trailing periods compared to their benchmark. Easy to find, very easy data to find. However, past performance is no guarantee of future results. So, suppose they managed ’08 and ’09 really, really well. Maybe they went to cash or did something crazy, so they outperformed by 40% or something in ’08, ’09, and they’ve had very middle of the road performances since then. Well, the trailing returns might look fantastic, but you have to understand that they may not be able to do that again. Or in the short term they look great, in the long term they look terrible. There’s been so many different market environments that it really gets very tricky when you’re looking at those things.

I think going in with the expectation that it’s always going to be the same that it was, is an unfair expectation. When I’m looking at managers, I’m looking for consistency. You don’t always have to knock it out of the park every single year. Maybe you’re not being on the top, but I never want you to be on the bottom, just hover in the middle. And if you’re hovering in the middle over time you’re going to outperform and do well.

Shaun Meloy:

So that takes away some of that… Is it reasonable to say, well, in ’08 this guy made all the right moves, but the next time around he might not.

Austin Wilson:

He might not.

Josh Robb:

It may just even be different. For instance, I’ve known a couple funds where in ’08, ’09, their fund was a certain size, and that size gave them flexibility to move around. But because of that popularity, their fund has grown, more people are owning them where they actually couldn’t even make the same moves today that they did back then. So, it’d be unrealistic to think they could actually do the same results because they fundamentally can’t even do that anymore. The things they invested in they can’t do because they’re too big now. So yeah, you’re right. It’s really hard to tell looking backwards what they could do going forward. The bigger thing is what are their objectives? What are they trying to do? Do I think they have the strategy to give them the best chance to accomplish?

Austin Wilson:

Yeah. Do I align with their philosophy? So, you can read about how a mutual fund manager manages money. And if you’re like, wow, that really resonates with me. You’re buying inexpensive companies that are innovating and paying a great growing dividend. Well, I can get behind that. You have low debt or whatever. They look for the same sort of things. That’s kind of their niche. Get on the same page with how they’re managing money. If you get in line with that and it’s going to help you meet your goals, then that’s great.

 

[22:20] – Should I Get Help from a Financial Advisor?

 Shaun Meloy:

Here’s the thing, what if I don’t know any of that stuff? I mean is that something that you would sit down with me, and you’d go, here’s all the factors that we have to figure out what you value here.

Josh Robb:

That’s where an advisor does come in.

Shaun Meloy:

We’ve got a list of stuff that I’m going to pepper you with, and you have to be honest with me about this.

Josh Robb:

And so, for us, we’re a fee-only advising firm. And so, we don’t get a commission or get paid for what we buy or sell. And so, when someone comes to me and says, here’s my objectives, here’s what I’m trying to do. I’m indifferent in what you own. My goal is to help you find the ones that give you that best objective. So, when we sit down and try to figure that out, it’s really what is the best thing to get you there? And same is true if you show up and say, hey, I have this 401(k). And by the way, when we were talking about 401(k)s, usually they just give you a list of things you can invest in. You can’t choose whatever you want. Here’s the 20 different choices you have. And then, as an advisor we would say, okay, these are your choices, which are the best out of that group?

There may be something better out there, but it’s not available so let’s choose what you have. Let’s pick from your list and help build the best portfolio. And so that’s really what an advisor’s job is to say, okay, let’s first figure out your goals and then let’s find the things that give you the best opportunity to reach those goals. And that’s really what I spend my time doing with clients is saying, tell me your dreams, your expectations. If the money wasn’t a factor, what would your life look like? And then let’s find a way to help you get to that point. We always talk about financial freedom as you may still be working, but the financial freedom is you’re making all decisions, not because you need money, but because that’s what drives your purpose and gives you passion. And that’s the goal for everybody to get to that point.

 

[24:12] – What Does “Financial Freedom” Really Mean?

 Shaun Meloy:

Yeah, because I feel like a lot of people when they hear that phrase financial freedom, they think, well, I’m going to have my summer home, my regular home, and I’m going to have a boat, and we’re just going to be able to just live real, real nice. But I think for other people, the idea of financial freedom is I just want to be able to pay my bills and have a little bit left over at the end of the month.

Josh Robb:

And I think there’s more like that.

Shaun Meloy:

I don’t want to have the stress about expenses that are coming in because I know that I can cover it and I can still put a little away, or I can go and take a vacation when that vacation time comes up. I can go somewhere; I can get out of Findlay.

Josh Robb:

Or it’s a career change. It’s I’m at a spot financially where I’m comfortable that I can make a career decision that’s less based on what I’m going to get paid and more on what really motivates me to get up in the morning. We’ve seen people make a transition in their career just being able to say, “Hey, this is really what I’m passionate about. Let me find a way to do that and make that adjustment.” And so, you need to be comfortable with your finances in order to sometimes make that step in the next phase.

Austin Wilson:

A lot of what I find it to be is realistic expectations. So maybe your expectation is to have seven vacation homes, a yacht and drive a Ferrari.

Shaun Meloy:

That seems like a lot of nos.

Austin Wilson:

That is for some people. And then you’re going to quickly find out what it actually takes to get there because we’ll give you the numbers. I can tell you how much money you need to have that lifestyle and you’re not going to be able to do it most of the time. You’re like, that’s how it works. So having realistic expectations to be at a point where your content with where you live or you’re content with your lifestyle or you know what that looks like for you realistically going forward I think is key. And a lot of that goes throughout your working life, you just haven’t had this lifestyle creep to get to where you have unrealistic expectations when you’re looking at sustaining that spend forever.

Shaun Meloy:

Yeah. So, you not only are you managing portfolios, you also are managing expectations.

Austin Wilson:

Yeah.

Josh Robb:

Yes.

Shaun Meloy:

You are not going to get to that level of living in the hills and driving and exotic sports car.

Josh Robb:

It’s taking, what are your goals, and then can you get there? And if the answer is no, then we need to have a honest conversation about either adjusting those goals or adjusting what you’re doing to get there. And sometimes it’s unrealistic goals. Sometimes it’s an unrealistic timeline. Maybe they can get there, they just need more time. Or sometimes it’s unrealistic in they think they can do more with the money they actually have. And so, it is adjusting that. Sometimes it’s just a conversation of saying, “Hey, all right, let’s say you want to be retired and having a second home and all that stuff, and you also want to do that by 40. I don’t think it’s going to get there. If you’re willing to work till 60, we may be able to achieve most of those goals.” So, it’s not even that the goals are out of line, it’s just the time’s off. And so, it’s really taking all those aspects and saying, okay, let’s see what highest probability is for you and build a plan to give you the highest chance of succeeding.

And then being willing to make adjustments along the way. Because there may be somebody, like I’ve worked with people who, early on when they’re young, they’ll say, here’s what I want to do, blah, blah, blah. All right. And we set up a goal to get there. And then maybe five years in they start having kids and then their goals start to change, because now you know what? I think we would be happier doing this. All right, well, let’s reevaluate and make those adjustments.

There’s nothing wrong with changing those goals because the whole point of the goals is that’s where you want to end up and if your life changes that way, let’s make those adjustments. But if you just continue on and don’t adjust what you’re doing to get there, if you change the goal, you also have to reevaluate am I doing everything I need to? If college shows up in the picture, college isn’t cheap. And so, everything was working towards saving for one goal and then you add this new goal in front of it, we may need to make those adjustments. But you’re right, it’s hitting those goals. But being realistic about it, being honest.

Austin Wilson:

Yeah, sometimes I feel like a lot of the stories you tell me is sometimes a client comes to you with a conversation, you’re like, I just had to reel them in a little bit. That was a little unrealistic. Let’s just bring it in just a little bit. We don’t need to let out the line, right now.

Josh Robb:

Let’s tighten it up a little bit.

Austin Wilson:

Yeah, this isn’t the time to let out the line. You’re not running on excess. We’re in a bear market or whatever.

Josh Robb:

We encourage people to dream and hit those expectations. But then there’s also reality check too of, okay, here’s what it will take to get there. Are you willing to make those sacrifices? And then you’re finding that compromise between. Because there’s no guarantee for that future. And so, there is a balance between enjoying and doing things now versus saving everything for the future and helping them find that happiness between those two.

 

[28:45] – The Reality of Enjoying Now Vs. Saving for the Future

 Shaun Meloy:

Yeah, and I’m glad you mentioned that because I have friends that live in Europe, some of them live in Britain, I have family in Germany and whatnot. And just looking at the different way that they balance life, versus it seems like here in the States it’s like, well, you work and work and work and work and save and save and save. So that way when you turn 65 then you can go have fun. And for me, I’m kind of like, I’m 40, I know how I feel in the morning. I’m not sure I’m going to want to go have fun when I’m 45.

But looking at the way that my family overseas and my friends overseas, they seem to have almost a better balance. They’re enjoying life now while also having some way of saving for the future. And it’s almost like their life never is just sailing and then it ratchets up at the end. It’s almost like they just operate at a median level, and it never changes, even in retirement. It’s like, “Oh no, I’ve got more time to garden now, and I can go take a couple weeks of holiday,” and that kind of thing.

Josh Robb:

It is, and that is the goal that I like to see people get to, is hitting some of those things that they want to do along the way, not just pushing it all towards that retirement window, because it isn’t a guarantee. And you’re right, there are places I think that do it really well. The other side though is there’s a lot of, they still do a lot when it comes to pension and guaranteed retirement. It’s a different structure.

Austin Wilson:

12 weeks paid vacation.

Josh Robb:

But in general, you’re right in that…

Shaun Meloy:

It’s pretty sick.

Josh Robb:

It is. But the other side to here is there’s a lot more onus on the person. But if you do it right, you could then far exceed what they’re getting because there’s just a set guarantee on what they’re going to get. You can’t go beyond that. You can’t work super hard and get extra in your investments.

Shaun Meloy:

You’re going to work super hard and get the same amount that you were before.

Josh Robb:

Yep. There’s a give and take for all that. But the key that they are figuring out though is enjoying some of that along the way. And I think a lot could be said here about doing some of that, is hitting some of those bucket goals throughout your working life, not just saying all these things will be done when I’m 65 and who knows if I’ll actually be able to hike a mountain at 65 when I should have done that in my 40s.

Shaun Meloy:

I’d really like to see Rome, but I’m like, and when I’m 65-70 years old, I don’t want to get on a plane, fly for eight-nine hours to get there. I don’t want to walk around. And I certainly don’t want to be the stereotypical American who’s on one of their little scooters trolling around the cobblestone of Rome. That’s just not going to be a good look and I don’t think I’m going to enjoy it.

Josh Robb:

Tune in next Thursday as we continue our conversation with Sean.

Thank you for listening to The Invested Dads Podcast. This episode has ended, but your journey towards a better financial future doesn’t have to. Head over to the investeddads.com to access all the links and resources mentioned in today’s show. If you enjoyed this episode and we had a positive impact on your life, leave us a review, click subscribe and don’t miss the next episode.

Josh Robb and Austin Wilson work for Hixon Zuercher Capital Management. All opinions expressed by Josh, Austin or any podcast guest are solely their own opinions and do not reflect the opinions of Hixon Zuercher Capital Management. This podcast is for informational purposes only and should not be relied upon for investment decisions. Clients of Hixon Zuercher Capital Management may maintain positions in the securities discussed in this podcast. There is no guarantee that the statements, opinions, or forecasts provided herein will prove to be correct. Past performance may not be indicative of future results. Indices are not available for direct investment. Any investor who attempts to mimic the performance of an index would incur fees and expenses which would reduce returns. Securities investing involves risk, including the potential for loss of principle. There is no assurance that any investment plan or strategy will be successful.