Investments Should Be Boring | Series 1.6

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Welcome to the Enjoy More 30s: Family Finance

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podcast, the only podcast dedicated to making life more

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enjoyable for young families by hitting on the financial topics

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that tend to weigh on us, stress us out and distract our focus

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from simply enjoying life.

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Hello, and welcome to the Enjoy More 30s: Family

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Finance podcast. This is episode number six in the initial

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series, "Your Money Mindset", and it's titled "Investments

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Should Be Boring". So we're going to cover what you need to

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know about why your investment approach should be boring, and

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what you can do to make sure that it stays that way. Now,

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when I was a kid, like many boys, I wanted a really cool

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fast car. I'd watch movies with these fast cars and all sorts of

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things, and I obviously wanted to do that too. I probably

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watched "Gone in 60 Seconds" a million times and said you know,

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"I want one of these old fast cars that I could do tricks in

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and, you know, be generally very unsafe in." I kept the Motor

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Trend magazine's, I looked at all the new models and

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everything else. And then you fast forward to me today, and

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well, I drive a Subaru. It's not particularly fast. I bought it

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because it's known for being safe, and it has a good

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reputation for being reliable. And essentially, I feel like I

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can put my family into the car, and we can go to, you know,

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wherever we're wanting to go to safely. And that's what turned

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out to be the most important to me when it comes to my car for

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where I am today.

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So what you need to know is people can kind of be the same

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with investments. We watch movies of people trying to time

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the stock market and hit it big- and we may think of the stock

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market then as a fancy shiny car. And because everybody kind

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of has investments, it can sometimes make it feel not quite

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so reckless to take this approach. We're just kind of

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emulating what we may see on TV with buy low, and sell high and,

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you know, all this kind of stuff. And it's, in my opinion,

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a reckless approach to be taking when it's the most important

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tool you probably have when you're trying to determine what

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your future is going to turn into.

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So when you hear me say boring, 'what does that mean exactly?'

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is probably the question that you're asking. So I'll first

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start off by saying what it doesn't mean. It does not mean

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leaving all your money in the bank, with no real upward

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potential long term. If you leave all your money and save in

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the bank, you're probably not going to reach the goals that

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you're setting out for yourself. If you do, it's certainly going

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to take you much, much longer than it necessarily has to by

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trying to do it that way. What it really comes down to is two

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main points. The first is staying diversified, and two is

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not touching it.

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staying diversified. My industry likes

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using a lot of jargon terms that confuse people, but diversified

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is really just a fancy way of saying 'don't have all your eggs

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in one basket'. If you think about your 401(k) statement,

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that's probably the easiest place to relate to, and you look

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at all the investment options- what you probably see are 20 to

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30 different individual options. In those titles, you'll see

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words such as large cap growth this, or small cap value that,

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or foreign this, or emerging markets that. These are all

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different areas of the market, the global market. And some of

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these are stock funds, where you're buying equity or

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ownership in companies. Others can be bond funds, and that

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would be kind of like if you- the easiest way, again, is whe

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you received government sav ngs bonds from the U.S. gov

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rnment when your gra dparents probably gave those to

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ou. That's basically the gov rnment having money loaned to

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hem, you're loaning them you money, and they're paying you

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an interest rate off of tha . That's how a CD works. Tha

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's how any bond debt kind of ins rument works. Corporations lik

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Apple, Coca Cola, etc. they do hat too to raise money for th

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mselves.

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So there's all these different areas that you can invest in.

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The thing about it is despite what you may see on TV or what

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anybody proclaims, nobody has a crystal ball to know which areas

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are going to do really, really well in any one year, and a

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crystal ball to know which areas are going to do really, really

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poorly in any one year. And so we don't want to really be

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trying to time, or guess, what areas are really fantastic and

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are really going to do well, and what areas aren't. Because

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that's when people tend to get into trouble. If you think about

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all these finance experts, or self proclaimed experts out

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there, if any of them was really able to do that, everybody's

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money would probably be with them by now, right? If they

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could consistently say which area is always going to do the

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best, they probably would draw a lot of attention. They certainly

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would be drawing attention from people in the industry like me.

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When we're staying diversified, that means that we're keeping

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pieces in all of these different areas. We're kind of, you know,

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we're acknowledging the fact that we don't know which area is

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going to do really well, or really poorly in any one year,

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but long term, all of these different areas should go up in

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value. Long term, if we have a little bit in different pieces,

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it should take us in the correct upward direction- again, long

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term. Any one year things can go down, they can go up. But long

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term, if we spread out everything all the time, we're

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giving ourselves a much better chance of going in the right

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upward direction as time goes on.

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For number two, not touching it, this is much more

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straightforward. Unfortunately, 2020 is probably a really good

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example. If you're watching the news, or maybe even watching

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your accounts, in March or so most things went down 20-30%.

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And then they proceeded to rebound in the next few months,

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and we ended 2020 with most categories, or most areas of the

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market that we just kind of touched on briefly, positive.

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Some were very positive, double digit positive. Now the people

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that panicked, and moved their money out when it was low, were

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the ones that completely now lost their ability to recover-

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that recovery already happened. So they can invest now, but

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they're investing after everything has already gone up.

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And that's the thing that most people run into, and it's not

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something that I can blame them for at all. Emotionally, when

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you see those numbers decreasing, it fills you with

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fear, it fills you with anxiety- that's perfectly natural, you're

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watching something go down. However, if you're reacting on

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those emotions, that's where you can get yourself in some

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trouble. When they do studies on how much value an advisor

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actually adds for the people that they work with, the biggest

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contributing factor to that, oftentimes, is helping people

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with the behavioral element. Avoiding rash, emotional

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decisions when it comes to investments is generally a sound

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approach to be taken.

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So what can you do? The first is to kind of treat your

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investments more like a Subaru. We're trying to use them to get

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your family to its destination- that's our mindset. We're not

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trying to jump in a sports car and get them to their goals, you

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know, potentially at 200 miles per hour, but also with a very

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high likelihood of crashing. We're trying to go in the right

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direction and get there safely. If you're a do-it-yourselfer, we

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never recommend creating your own allocations. So for your

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401(k), again, if you look, "oh, they have all these different

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funds, I could pick some of this, I can pick some of that."

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If you're not a professional that's trained and can do this

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on a regular basis and has knowledge and experience, then

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we do not at all recommend doing that. Most 401(k) plans offer

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you what they call target date funds. So if you're looking at

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your list of investment options, you may see a phone that says

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the Retired 2045 Fund or the Retired 2050 Fund. What these

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funds are, are an easy way to get broader diversification, a

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broader spreading your money out, all in one fund. So what

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the fund does, is it says 'this person says they're going to

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retire in 2045'. That means I can be more aggressive today,

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because we're still 20 plus years away, and when we get

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closer to 2045, we're going to make it naturally more

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conservative because they're getting closer to the

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retirement. So this is a very basic way to get a larger level

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of diversification without having to make those decisions

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on your own, when if this is not your profession, you're probably

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not qualified to be doing that. Outside of a 401(k), they have

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something called allocation funds. So it may be the Vanguard

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Moderate Growth Allocation Fund, or the Franklin Templeton

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Conservative Allocation Fund, or whatever it might be. And you

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can match the level of risk that you're wanting to take, or

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that's appropriate to be taking, for each of your individual

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accounts. If you are using an advisor, they, in my opinion,

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should be giving you very similar advice to this. While

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they may have an expertise in designing their own allocations,

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in my opinion, it should be very much an invested everywhere all

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the time kind of a mindset. If your advisor speaks about

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tactical, or moving to cash, or forward looking projections, or

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anything like that, that's generally code for trying to

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guess what's going to do well, which I definitely am not a

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proponent of.

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In closing let's take a quick look at some of these main

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points that we covered today. The first is take a step back

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and look at how your mindset currently is when it comes to

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dealing with your investments. Are you looking at them as a

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tool? Are you looking at them as kind of the Subaru- I want this

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tool to be able to take me and my family to reach my goals. Or

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are you looking at it as more of a Hollywood fast car, and maybe

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that's not the approach that you really want to be taking. The

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second point is being diversified is a way to spread

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your money out everywhere all the time, because we aren't ever

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sure which area is going to do really well or really poorly,

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but long term, they should be taking us in the right, general

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upward direction. The last is when it comes to the emotional

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part of it and not touching it. 2020 may seem unique, 2008

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seemed unique. There is going to almost certainly be multiple

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more stressful situations, emotional situations where

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you're going to see your account go down in value. Lastly,

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remember there are tools such as target date funds, and

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allocation funds, that can help if you're not using an advisor

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who can assist with these allocations, that can give you a

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level of diversification that most likely is better than you

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trying to do something like this on your own.

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As always, thanks for tuning in. If you enjoyed this episode,

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please make sure to review us on Apple podcast or wherever you

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listen. There are literally millions of young American

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families out there that I'm trying to reach and help just

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like you. The final episode in this initial series is going to

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be coming up shortly, and its title is "Aren't Advisors for

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Old People?" So there are some things that we may be taught

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subconsciously through what we see on TV, and what we think of

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when it comes to an advisor, that may not necessarily be

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true. It's been great talking with you today and I look

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forward to connecting with you again soon.

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The conversations on this show are

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Joe's opinions and provided for general information purposes

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only. They do not constitute accounting, legal tax or other

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professional advice for your specific situation. You should

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always seek appropriate advice from a financial advisor,

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accountant, lawyer or other professional before acting upon

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any content or information found here first. Joe is affiliated

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with New Horizons Wealth Management LLC, a branch office

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of TFS securities Inc and TFS advisory services an SEC

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registered investment advisor member FINRA/SIPC.