Navigating Retirement Planning: Why Your Retirement Portfolio Needs Stocks

Navigating Retirement Planning: Why Your Retirement Portfolio Needs Stocks – Welcome to the Webinar (0:00)

Alek Johnson: Welcome, everyone. We’re just going to give it a minute here for everyone to get filed in. We had quite a few participants sign up, so we’re just going to give it a minute or two while everyone files in.

Daniel, while we’re waiting, do you have any good Easter plans coming up?

Daniel Ruske: Oh, we do. My wife’s cousins from Canada are coming down for Easter. They have the spring break off, so we’ll be showing them around Utah. We might go down to Manti and check out that open house. We might—my in-laws are heating up the pool, so at least we’ll get in the hot tub. Depending on the weather, we might get in the pool as well. What are you doing?

Alek Johnson: Oh, I’m just—we’re just pretty much hanging out at home. Easter egg hunt, all the good stuff. So nothing too crazy, but great.

Daniel Ruske: You wanna get this started a minute after maybe?

Alek Johnson: Yeah, I think we’re kind of slowing down on people flowing in, so I’m gonna go ahead and share my screen, and I think we will go ahead and get started here. Alrighty. Perfect. Well, good afternoon and welcome, everyone. I hope you’re gearing up for a fun Easter and enjoying the day so far.

My name is Alek Johnson. I am a Certified Financial Planner™ and one of the lead advisors here at Peterson Wealth Advisors. I’m excited to be here with you today to essentially make the case on why your retirement portfolio needs to have stocks. This is one of the presentations I’ve actually wanted to do for quite a while now, as it’s one of those topics that seems to always be on the mind of our current clients, those prospective clients looking to work with us. So anyway, I’m excited to go through it with you.

My goal today is to keep this presentation around 40 to 45 minutes long. It’s definitely a little bit longer presentation than I usually like giving, but there’s just a lot of great content to cover. Before we dive into things, as always, just a couple of housekeeping items.

First and foremost, if you do have any questions during the presentation, feel free to use the Q&A feature located at the bottom of the Zoom to ask any questions. As you saw my colleague Daniel, who’s also a Certified Financial Planner™ and one of the leads here at Peterson, he will be answering those questions as you go. And then at the end, I’ll take probably around four or five minutes or so and answer some general questions that come through that Daniel doesn’t have time to get to or that he thinks would be really good to address in front of everyone.

Also, at the end of the webinar, there will be a survey sent out to give me some feedback on how the presentation went, as well as suggestions for any future topics. So, please feel free to stick around and fill out that survey for us. As a side note here as well, there will be a recording of this webinar provided for you tomorrow.

Okay, so here’s a quick agenda of what I want to go through with you today. We’re going to start off by going through two big retirement challenges, and then I’m going to go ahead and make the case for why you need to invest in stocks within your retirement portfolio. Following that, I’m going to address some common concerns that we get when talking with clients, prospective clients about investing in the stock market. And then I’ll end just by giving a few insights and maybe quick tips on how to incorporate stocks within your portfolio.

A boring part here, but it has to be said before I jump in. I do need to say that this is not investment advice, but just for general purposes only. Obviously, I don’t know all of you, but I do know that you all have very unique financial situations. When it comes to investments, there’s no one-size-fits-all plan for everyone. So that being said, I do still hope you find this presentation informative and meaningful. And then I would encourage you to either reach out to your advisor if you’re a client, or just reach out to any member of the team if you’re considering working with us if you do have specific questions about your own financial plan.

So that being said, let’s dive on in.

Understanding Retirement Challenges (4:30)

So how I view it is there are two big challenges that retirees face when it comes to their investments. Now, this is not to say that retirees only have to worry about two financial issues in retirement. Obviously, there are other financial concerns, such as healthcare concerns, tax concerns, fraud, and so on. The list is definitely ongoing. But when it comes to your investments, these are two of the most common concerns that people want to discuss when they walk through the door. It’s longevity and inflation.

Over the last 200 years, life expectancy has increased dramatically due to advancements in public health, medical technology, nutrition, and really just general living conditions have gotten better. We are living better, and we are living longer. So naturally, as an investor, therein lies the problem, right? The question becomes, am I going to outlive my money, or is my money going to outlive me?

So let’s just take a quick glance at how long we’re expected to live. So this is a life expectancy table for those who are currently age 65. As you can see, a man age 65 has a four, let me grab my laser pointer here, make it a little easier. A man age 65 has a 44% chance of living until age 85, and a 23% chance of living until age 90. These odds rise significantly for females. A woman has a 55% chance of living until age 85 and a 34% chance of living until age 90. Here’s the scariest part of this table for me: There is a 49% chance that at least one member of a couple will live to age 90 and a 20% chance that they will live until age 95.

Living too long has morphed from a risk into a stark reality, and retirement planning investment strategies have to accommodate this new reality. By the way, as a little side note here, predictions for children born today suggest that, as long as there are continued advancements in medical technology, they could live on average beyond 90 years. That’s an average number for children born today in countries with higher life expectancies.

Challenge number two is that of inflation. Inflation is really the thief in the night that steals your future day by day until the once prosperous retirement lifestyle that you worked so many decades for is just gone. In reality, most victims of theft by inflation don’t even realize they’ve been ripped off until it’s too late.

So historically, the average inflation rate has been about 3% annually. To put that in perspective, at a 3% inflation rate, a dollar’s worth of purchasing power today will only purchase 40 cents worth of goods and services 30 years from now. That’s a 60% cut in pay if you don’t keep your investments up with inflation over a 30-year retirement.

Another way of looking at inflation is that in 30 years, at just the 3% inflation rate, you’ll need to have $2.45 to equal the same purchasing power that a dollar has today. What that means for you is you’ll be paying $10.70 for a gallon of milk, $243 to put 20 gallons of gas in your car, $23 for your favorite combo meal at your local restaurant, and more than $118,000 for a new average-quality mid-size car.

An additional inflation concern is that of healthcare-related expenses. Obviously, retirees spend more on healthcare than any other group, and inflation for healthcare-related items is growing at about double the national inflation rate. Like longevity, inflation is not a risk or something that may happen; it’s a reality and something that is happening. And I think over the last couple of years, with inflation being a little bit higher, it’s definitely caught more attention than it has in the past.

So given the one-two punch of longevity and inflation, it is imperative that retirees are mindful of that as they invest for their future.

Stocks (8:54)

Now that we understand those two challenges, I want to talk about a solution and why you need to invest in stocks within your portfolio.

Before I get too far, I want to make sure I clear the air on what I mean when I say stocks. A stock represents a share in the ownership of a company. When you purchase a share of stock, you become a partial owner of the company whose stock you purchased. As an owner of the company, you are entitled to all the profits and growth that are associated with that company according to the proportion of the company that you actually own.

The companies that you see on the screen here, and many others, are some of the most profitable companies the world has ever known. The stock market is simply the marketplace where buyers and sellers of these shares of the corporation come together. Think of it like your Facebook Marketplace, where all of your neighbors are selling their 35-year-old bikes and the poker table they hand-built 20 years ago. The stock market is where you go to buy and sell stocks. It’s really that simple.

Now, there are many different ways you can buy stocks. You can buy individual stocks, for example, you could go and buy Delta, Apple, or Microsoft’s stock and nothing else. Another way you can do it is through mutual funds or exchange-traded funds (ETFs), which invest in more than one company. Most of you are likely exposed to stocks through the mutual funds and ETFs that you own in your own 401(k)s.

For today’s presentation, when I refer to stocks, I am referring to the stock market in general, not any particular company. To clarify that even further, I’ll be mainly talking about the S&P 500 index, which you’ve probably heard of before. The S&P 500 is regarded as one of the best gauges of American equities’ performance and, by extension, the stock market overall. The S&P 500 essentially consists of 500 leading publicly traded companies in the United States. You’ll see it referenced all the time in the news and other prominent media outlets.

Here at Peterson Wealth Advisors, we are very much prominent believers in investing in the market as a whole. We passively manage our investment portfolios and use index funds, such as the S&P 500, to manage our client’s assets. So please do not come away from this saying, “Well, Alek told me to go buy Apple or Costco.” Because if my boss, Scott Peterson, catches one whiff of that, I’d probably be fired on the spot.

Alright, enough of the definitions. Some of you may already be thinking at this point, “Well, this stuff is way too confusing. Why does it matter anyway if I’ll just avoid stocks altogether and not even worry about any of this?” Well, you can’t do that, and let me explain why.

So, stocks have historically offered higher growth potential over the long term compared to other asset classes like bonds or cash equivalents. Although they come with higher volatility, stocks have consistently provided substantial returns to outpace inflation over extended periods, which is crucial for building and preserving your wealth.

So what we’re looking at on the screen right now is a chart showing what would have happened if you had invested one single dollar into the stock market back in 1926, which is essentially when we started tracking the markets, and what the result would have been at the end of 2022.

Since 1926, a single dollar invested into treasury bills would be worth $22 today, with a 3.2% rate of return. Since 1926, a dollar invested into long-term government bonds, getting a 5.2% rate, would be worth $131, and a dollar invested into large U.S. stocks or the S&P 500 would be worth $11,535 today.

Now, some of you may be thinking that I made a mistake, I promise you I didn’t. How could an account that averages 10.1% be worth 88 times more than an account that averaged 5.2%? The answer to that is compound interest. I’m going to talk about that here in just a minute.

But first, let me add this little wrinkle in here and show you the impact of inflation and demonstrate why stocks are so important. The end results that we just went through, you can see that 10.1%, that 5.2%, that’s $11,500 here up here. Those are based on what’s called the nominal rate of return or essentially the rate the actual investment received. So for example, the S&P 500 actually went up 10.1% year after year.

However, if we were to apply the effects of inflation, we would be looking at what’s called the real rate of return or an inflation-adjusted rate. So let’s just use the stocks and bonds here for our example. For bonds, instead of 5.2%, if we apply inflation, which it’s a little more difficult than just saying subtract inflation there, the calculation is a little more complex than that. But essentially you get 2.2% after inflation. What that means is instead of $131 at the end, you’d end up with a whopping $8.

Now let’s take a look at the stocks instead of 10.1%, as demonstrated it’s closer to 7% after inflation is accounted for. This means that instead of ending with that $11,535, you would end with $717. Inflation, as you can see, takes a major toll. We can’t avoid stocks because having a portion of our money in stocks is the best way I know to truly beat inflation.

Now, I mentioned earlier that the reason stocks can be worth 88 times more than bonds is because of compound interest. Albert Einstein said that compound interest was one of the most powerful forces in the universe and the eighth wonder of the world as he described it. Likewise, I’m also very impressed by compound interest. It’s really almost magical. Uh, so just so you know, compound interest is when an investment or a debt earns interest on top of interest, on top of interest, and so on.

Those who figure out how to harness the power of compound interest are wealthy. Those who are in debt and allow this power to work against them are typically forever poor. The key to a successful retirement income plan is to continue to have the magic of compound interest work on your behalf.

Now, a simple math calculation reveals how compound interest works. This is often referred to as the rule of 72. You’ve, you may have heard of it before. By the way, this is a great thing to teach your kids and grandkids, not only will they think you’re smart, but they’ll be forever grateful to you.

So what you do with the rule of 72, you take 72 and divide it by whatever return you get on your investment. What the result is, is the amount of time it would take your investment to double in value. So, for example, 72 divided by a 10% return would take 7.2 years to double in value.

So if I were to expect an 4.8% return on my $100,000 investment, then I would divide 72 by 4.8. And I know that it takes 15 years for my initial investment to double. So at year 15, you can see I’d have $200,000 in another 15 years, I’d end with $400,000 Using that same formula, we find that getting money twice the return of 9.6%, is equates to 7.5 years to double seven and a half years.

Now, none of this information may seem that spectacular until you look at the results over a long period of time. Uh, as you can see at the end of those 30 years, just by having double the return, you actually end up with four times the amount at the end of that 30 year period, not double. You end up with four times.

Now, I just wanted to remind you of this principle to drive home the importance of getting a good return on your investments throughout retirement. Historically, those great returns are harnessed through stocks.

Common Concerns (17:35)

Now this sounds great, I know, just talking about the returns, but obviously there are concerns when it comes to the stock market, and I want to take some time to address those concerns right now. As you can all likely guess, the first and probably most feared concern is that of volatility. The stock market is very well known for its fluctuations where values can dramatically rise and fall in short periods of time. This unpredictability can be pretty intimidating for individuals who are risk averse or unfamiliar with how the market operates, which leads to fears of loss with their investment.

So how do we deal with volatility? Well, to start, I think it’s important to first understand the differences between volatility and risk. The people who believe that stocks are too risky and must be avoided, oftentimes fail to discern the difference between these two. So properly understood, volatility is merely a synonym for unpredictability. It has neither negative nor positive connotations. It just means it’s unpredictable. Risk, on the other hand, refers to the chance of a loss occurring and the severity of that potential loss. Understanding the distinction between these two terms can help frame your investment strategies and expectations more accurately.

Imagine you’re planning a road trip from New York City to Los Angeles. The volatility in this scenario could be compared to the variability in weather conditions that you’ll encounter along the way. Some days might be sunny and clear, while others could bring heavy rain or even snow, depending on the route you take and the time of year you travel. This variability in weather affects your daily driving experience but doesn’t necessarily stop you from reaching your destination.

On the other hand, the risk of the journey involves the possibility of events that could significantly impede or halt your progress. Examples include your car breaking down in the middle of nowhere or running out of gas money along the way. These risks could lead to substantial delays, additional costs, or even force you to abandon the trip entirely. Again, risk is where there is the possibility of experiencing a permanent loss. Volatility only contributes to the permanent loss when poor decisions are made.

Many inexperienced drivers have wrecked their cars because they were not prepared for a severe storm on the road, or they lacked the patience to wait out the storm before continuing their drive. They made poor decisions in temporarily volatile situations and let their emotions override sound judgment.

Financial storms, such as stock market downturns, are similarly frightening but usually short-lived. The experienced investor is prepared for the frequent volatile gyrations that the stock market presents. In contrast, the unprepared and emotionally driven investor may turn a temporary volatile storm into a permanent loss by panicking and selling their stocks at a loss.

Let’s take a closer look at the history of our financial storms. This chart shows the history of bear markets in the United States. Since World War II, a bear market, defined as a drop of about 20% in value from a market’s previous high, has occurred approximately 15 times. They’re very common, occurring about every five to six years on average, although the declines vary in their severity, frequency, and duration. On average, the stock market retreats about 31.7% in a bear market and lasts about 11.1 months, just under a year. After which, the stock market rebounds and reaches new highs.

Given the very real possibility that your retirement could span two or three decades, you’ll likely experience five or six bear markets. It’s important to become accustomed to them. You can’t abandon stocks when they’re down because as sure as bear markets come, the bull markets, or the good times when the market bounces back, will surely follow.

I’ve included a chart of the bull markets since World War II on the far right-hand side. Take a look at some of these returns: 267%, 228%, 582%, 400%. The average bull market rises by 148% and lasts just over four years. Most investors often miss the point by worrying about avoiding the next 30% drop instead of focusing on participating in the next 300% or 400% bull market.

It may also interest you to know that since the end of World War II, the S&P 500 has averaged an 11% annual return. In other words, if you had invested a thousand dollars in 1945, it would be worth 3.4 million dollars today.

Just to reinforce this, here’s a quick glimpse of how those returns look on a timeline. I know this may be a bit small on the screen here, but the blue shades represent the bull markets—the good times.

The yellow shades on the bottom represent the bear markets or the bad times. I would like to put this in perspective with the timeline because it really shows that the bull markets last a while and the bear markets are often short-lived.

Here’s another way of looking at volatility and how we can manage it. In this chart, we’re looking at the S&P 500, again, since 1937. What we’re showing here is the probability of receiving a positive return over the various periods shown at the bottom. For example, since 1937, if you had bought stock each day and liquidated at the end of the day, you would have made money 53% of the time and lost money 47% of the time.

If you had bought stock each month and liquidated at the end of the month since 1937, you would have made money 63% of the time and lost it 37% of the time. If you had bought stock at the beginning of each year and liquidated at the end of the year, the figures are 77% and 23%, respectively.

If you had bought stock every January 1st of every year since 1937 and kept your money invested for five years, you would have made money 93% of the time and lost 7% of the time. Over 10 years, the success rate is 97% with only 3% losses.

And here’s the kicker: There has never been a 15-year period where you would have lost money in the S&P 500. What does this mean? Well, it means that if you invest in stocks for the long term, you are very likely to make money on your investments. It also shows us that where you’re pulling income from in retirement probably shouldn’t be invested in stocks as if you look at it day by day. There’s no real certainty, a good chance of winning or losing on those days.

Another common concern we get is about wanting investments to be liquid, and this just makes sense, right? People’s financial goals change, their lifestyles change. And so here’s the good news: With stocks, they are extremely liquid. Mutual funds, stocks, ETFs—they trade day in and day out throughout the market. This liquidity provides flexibility, allowing investors to adjust their portfolios in response to changing financial goals or market conditions.

So the question then is, why is there always so much confusion surrounding the liquidity of stocks? Well, unfortunately, there are companies out there that seek to exploit your fear of the stock market to instead get you to invest your money in highly illiquid products. Here is one of those products: it’s called an indexed annuity, and I’m sure you’ve all probably heard the sales pitch before, right? They’re really good at it. How would you like to have a product that’s tied to the stock market and lets you participate in the gains?

But is it guaranteed to not lose money when the markets go down? I can tell you I would love that. I would be all for it. And as enticing as those sales pitches are, the devil’s always in the details.

First, these products have caps or limits on how much they will pay when the market goes up. For example, if the market went up 10, 15, 20, even 30% in a given year, these products only give you the prevailing market cap, often set between three to 7%. So if it goes up 30%, you might only get five percent, and they pocket the other 25%.

Second, index annuities don’t participate in the dividends of the underlying index they follow. This is significant because about a third of the S&P 500’s returns historically can be attributed to the dividends of the underlying companies of that index.

So if you choose to invest through an indexed annuity, you automatically slice your profits by foregoing future dividend payments. Third, here’s where the liquidity comes in. These products often have severe penalties if you liquidate your investment before the surrender period expires. Surrender periods are imposed because the insurance companies that create these products pay a large commission upfront to the agent who sold you the product.

If an annuity owner cancels their annuity before the surrender period expires, they can recoup the commission paid to the agent by taking it out of your investment. These surrender periods can typically last seven to ten years, and the charges run as high as 10%. So it’s important to be cautious about getting into them as well as getting out of them, as it can definitely be costly to you.

Now, rest assured, you can invest in the stock market in much simpler and more liquid ways, such as mutual funds, ETFs, or your 401(k)s. You are always participating in the market with these different funds.

The third concern we commonly get is that people are afraid to invest because they might let their emotions get the best of them. Previous generations of retirees received monthly pension checks. Most members of this generation, and definitely the next, will not be that lucky. Over the last couple of decades, the responsibility to provide a stream of retirement income has shifted from the employer to the employee. We’ve gone from pensions to 401(k)s and 403(b)s. So, you should consider yourself very fortunate if you have a pension.

The responsibility the employee has of saving, investing, and even distributing those funds in retirement is pretty daunting. Most employees are not prepared for the task. They lack the training, education, or experience to manage their investments effectively.

And then there are some people who become good at accumulating wealth and then find that distributing it in retirement is a whole new ball game. It’s a difficult task. Unfortunately, no matter your skillset, the responsibility to grow and properly distribute your retirement nest egg is yours. You all became investment managers, whether you like it or not.

As you can imagine, with little training, Americans have proven to be pretty awful investors. According to J.P. Morgan, the average investor achieved only a 3% return over the last 20 years. They would probably have been better off sticking to any one of these other asset classes shown on the left of this chart. The only factor that explains this blatant underperformance is the investor’s own irrational behavior—emotional decision-making. It appears they followed a herd mentality: buying when stocks were high and selling in a panic when they were low. Plain and simple, there is a lot of misconceptions and confusion when it comes to investing.

Incorporating Stocks into Your Portfolio (30:25)

So, this leads me to my final portion of the agenda today, which is incorporating stocks into your portfolio. Hopefully, these next few slides will give you better ideas on how to invest in stocks and how to keep your emotions from getting the best of you.

The first and foremost plan of attack when looking to invest in stocks is to set your investment goals and know your time horizon. I stress this because oftentimes people don’t even understand why they are invested in what they are. It could be because a favorite news channel talked about it, a friend recommended it, or they set it up 30 years ago when they started working and never changed it. Having a clear goal creates a path for why you’re investing in a particular way.

Time horizon is the length of time you can stay invested before you need to access those funds. Longer time horizons allow for more aggressive investments, as there’s a higher potential for market fluctuations to smooth out as I demonstrated previously. Time horizon goes hand in hand with your financial goals. Someone who needs to access their money in a year or two will not want to invest in stocks, whereas someone who’s investing for a 30-year retirement will want to.

For this reason, I recommend matching your short-term money needs with short-term investments and your long-term money needs with long-term investments, and again, invest in stocks for the long term.

The next consideration is asset allocation. This involves deciding how much of your money you’ll invest in different asset classes such as stocks, bonds, or real estate. Studies conclude that the specific investment you choose within that asset class does not make as much difference over time as the asset class itself does. What does that mean? Well, it’s not about whether you own Coke or Pepsi; it’s rather about whether you own stocks or bonds.

Asset allocation is a huge factor that will determine your overall investment returns and the growth of your portfolio. It’s important when you’re trying to invest in stocks that you understand this because this is ultimately how you balance your risk and reward.

Next is diversification. Simply stated, this means don’t have all of your eggs in one basket, right? The intended result of diversifying your portfolio is to have a safer and less volatile investment experience. In a diversified portfolio, you’re not going to be hitting home runs, but you also won’t be striking out either.

We know about asset classes like stocks and bonds, but diversification takes it one step further. Investors might consider diversifying across different economic sectors like technology, healthcare, and energy, and even across geographical regions like North America, Europe, and Asia. Spreading your investments across these different sectors and regions helps to mitigate risk by reducing exposure to any single investment.

Now, this next topic can be triggering sometimes, but I want to talk about investing irrationally due to politics. Political cycles are relatively short compared to investment horizons, and market performance has historically been influenced more by long-term economic trends than by specific political administrations or policies.

I work with very conservative clients as well as very liberal clients from all over the country. It’s interesting to watch those whose party is out of power think that the end of the world is imminent. We can’t let our feelings about the current resident of the White House influence our investment decisions. Let me share some examples to illustrate this point.

This is XLE, an exchange-traded fund (ETF) that holds about 25 different oil and gas stocks, representing the petroleum industry as a whole. If I were to ask which president was the most oil and gas-friendly in our history, we would probably think of Donald Trump. Conversely, we might consider President Biden as the most unfriendly toward the petroleum industry.

Under Trump’s presidency, this ETF, which favors the petroleum industry, went down 28%. Under Biden’s presidency, it surged up 141%.

This cuts both ways. Here’s another example: TAN, another ETF, is essentially a solar energy fund with about 50 different stocks associated with solar energy. If I were to ask which president is the most environmentally conscious, you’d probably say President Biden. Well, during Trump’s presidency, this ETF surged 569%. During Biden’s presidency so far, it’s gone down 62%.

Although politicians can temporarily influence the markets, ultimately, it’s the earnings of corporations that drive the price of their stock. It’s the American entrepreneur. So, sometimes I like to bring it home by asking the question:

Who’s had the greatest influence in your own life? Was it the president at the time or the creators of the iPhone, Amazon, or Google—products you use every single day? It can save you a lot of heartache to divorce your stock investments from your politics.

I also want to address the importance of avoiding what’s called market timing. Market timing is when someone tries to jump in and out of the market to avoid the bad days and capture the returns of the good days. However, it is impossible to predict when good and bad days will happen.

This chart on the screen shows the potential effect that pulling out of the stock market could have on a portfolio. Let me go through it with you. What we’re saying here is the growth of $10,000 invested in the S&P 500 from 1980 through the end of 2023. If you had put that $10,000 in back in 1980 and left it until the end of 2023, your portfolio would have been valued at a little over $1.3 million.

Now, what happens if you miss the best five days over that 43-year period? You just lost yourself half a million dollars, and now it’s valued at $847,000. What happens if you miss the best 10 days? Now, it’s cut by more than half, down to $610,000. If you miss the best 30 days, the best month of investing, that $10,000 grows to $219,000. If you miss the best 50 days, that $10,000 only grows to $96,088.

As you can see, an investor does not have to miss many good days to feel the financial impact over time. Market timing allows you to sit on the sidelines and avoid volatility, but it creates several other problems. First and foremost, it creates the problem of knowing when to get back in. You don’t just have to get lucky once; you have to guess correctly twice—you need to know when to get out and when to get back in. I can tell you, not many people have the ability, when the markets are at all-time lows, to say, “Now is the time I’m going to throw all my money back in.” It’s much easier said than done.

The second problem is that by going to the sidelines, you could miss the potential rebound. And third, beyond that, you’ll miss the potential rebound and all the compound interest and growth on that money going forward. So staying disciplined and not moving your investments will help you have a more successful approach when investing in the stock market.

Finally, a good plan brings it all together. A smart retirement plan ties in all of the considerations you see here on the screen: longevity, how to accomplish your financial goals, the amount of risk you can tolerate, your overall time horizon, and how to allocate and diversify your portfolio.

At my firm, Peterson Wealth, we use a proprietary process called the Perennial Income Model™ to help our clients create a retirement plan that meets their goals. Without that plan, it would be very difficult to know how to invest for our clients, specifically where stocks fit inside their portfolios. Goals are meaningless without the plans we make to accomplish those goals. Having that plan in place will make your stock investment decisions much easier and give you more peace of mind.

Okay, so just a quick recap here. Longevity and inflation are real challenges that you face as a retiree, and we have to do something about them. Stocks can often provide the higher returns needed to mitigate those challenges. You need to have some stocks in your portfolio. Although there are concerns when investing in the market, thoughtful planning and investing for the long term can create the positive outcomes we’re looking for.

Question & Answer (39:50)

So, I’ve done a lot of talking. I’m going to turn it over to Daniel for a couple of questions here, but before I do that, let me just say first and foremost, thanks again for tuning in and giving this a listen. Another quick plug for the survey that will pop up after the meeting ends—if you wouldn’t mind filling that out, our team would be very appreciative. It gives us some ideas on what you want to hear about next.

Daniel Ruske: there aren’t that many questions right now. I’m sure more will pop in now that we’re at the end. So, please stick around for just a few more minutes so we can get your feedback. Alek, we’ve had some really good questions. I’ve tried to answer them, and there are a few that I think will be beneficial for the group. I’ll start with this one: With money to do so, which is the better choice—one, increase my 401(k) contributions to the maximum amount each year, or two, invest the maximum amount into a Roth IRA each year?

Alek Johnson: That’s a great question. The reality is that I would probably recommend first and foremost you reach out to one of us so we can help you walk through it. It kind of depends on what tax bracket you’re in, at what point in time, and where you think you’ll be in the future.

I say that because if you are making a really high income right now and expect to make less when you retire, it probably makes more sense to increase your contributions to your traditional 401(k) so that you’re not being taxed at the higher rate right now, and when you pull it out of the 401(k), it’s taxed at a lower rate. The same thing applies vice versa. If you think you’re making less now than you will later on in your career, it might be beneficial to prioritize a Roth IRA.

Daniel Ruske: And then I’ll just highlight as well, you can do pre-tax and Roth on both the 401(k) and the IRA side. So that’s more of a tax question, and whether you contribute to one or the other, as long as you have good investments, it shouldn’t make a big difference. Would you agree?

Alek Johnson: Yeah, absolutely. Great point.

Daniel Ruske: Okay, moving down the list here. And they keep popping in, so thanks, guys. If we can’t get to them, please email us. I’m 15 years from retirement. I’ve been told to put all my personal retirement savings in the S&P 500 for the next 10 years and then start to switch to lower-risk investments. What are your thoughts?

Alek Johnson: Yeah, it’s a great question. You can definitely be more diversified than just the S&P 500. It’s a great index, but you can get other stocks in there with it.

As far as right now, I think 15 years out, it’s probably comfortable to have a majority of stocks. Over time, exactly as you’ve been recommended, you’ll want to get more conservative. Typically, we see most retirees have about 60% of their portfolio in stocks and 40% in bonds. If you’re in 100% stocks right now, you’ll likely want to get more conservative as the years go by, moving towards that 60/40 traditional retiree portfolio. Daniel, any follow-up thoughts on that?

Daniel Ruske:  Yeah, well, this is a follow-up question: What are your thoughts on the S&P 500 versus a total stock market mutual fund with a little bit more equity diversity?

Alek Johnson: Yeah, they’re both really good options. For those total stock market funds, you’ll have not only large-cap stocks but also mid-size and small-size stock companies in there as well—still publicly traded. The large-cap portion will still significantly influence the movement and performance of that total stock index, but both can be great, valuable tools to have.

Daniel Ruske: I personally like the diversity of a total market; however, over the last 20 years, it wouldn’t have provided as good a return, but who knows what the future will bring. So, that’s what I’ll add there.

I retire in three years and am planning on working with your group. Do I roll my 401(k) over into the five-year/25-year stock program? When do I do that?

Alek Johnson: Yeah, that’s a great question. As far as the timing of it, oftentimes…We’re in no rush to formalize the official client relationship. We would probably recommend leaving the 401(k) with your employer until you retire. Then, when you retire, we can move that into the Perennial Income Model and start investing in that manner. Sometimes it makes sense to formalize the relationship beforehand. Again, this is more of an individual question, so I would recommend reaching out if you have more specific questions on that. Generally speaking, it’s okay to wait until retirement, but we will want to have at least some conversations beforehand, before you hit your retirement date.

Daniel Ruske: Awesome. I’ll just add that a lot of it depends on your comfort. If you’re comfortable managing it on your own until you want to do the income plan, we’ll let you do that. If you really want someone to take care of it, we’re also happy to talk.

Do you offer a fee-based financial planning option?

Alek Johnson: Great question. Right now, we are fee-only. We have an asset under management fee, meaning Peterson Wealth bills a fee based on what we’re managing. We don’t charge an hourly rate, but we do offer free consultations. That’s how these relationships even start in the first place. So definitely reach out; any of our advisors are more than happy to have a quick 15-20 minute chat with you to steer you in the right direction. Then we can look at formalizing the relationship when you retire.

Daniel Ruske: We don’t have an hourly fee. We just charge an asset under management fee right now. The hourly fee is not an option.

Questions keep coming, so I’m going to do two or three more here if that’s okay, Alek. A question about being almost 80 and how to allocate your investments. Please reach out so we can dive into specifics. It’s hard to give good guidance with just a paragraph question.

How much is the fee that we charge?

Alek Johnson: The fee depends on how much we’re managing. It’s typically around, or just a little over, 1% annually.

Daniel Ruske: I am retired and 76 years old. Do you keep adjusting the stocks and bonds in respect to my age?

Alek Johnson: That’s a great question. A lot of that depends on your goals—whether you’re using it for income, if you’re not using the money, etc. There are many variables, but we’ll definitely be looking to keep you rebalanced with the goals you have.

Daniel Ruske: Let me do one more. My husband has already retired and has his 401(k). I won’t retire for another two years. Should we convert his 401(k) into a Roth now and do mine later?

Alek Johnson: When it comes to Roth conversions, it’s hard to give a clear answer right here. I would say reach out to us on that one. There’s a lot more that goes into it than people often think. Sometimes it makes more sense to not convert. Please reach out to us; we’re happy to chat with you about your specific situation.

Daniel Ruske: Awesome. I think we’ve addressed every question that’s come through. If we missed one or if you want more details, shoot us an email and we can set up a time to talk, as Alek mentioned.

Alek Johnson: Thank you, Daniel, and thank you everyone for your participation. I hope this was informative for you. Please do fill out that survey if you have a moment, and we’ll talk to you again soon.

About the Author
Lead Advisor at 

Alek is one of our Certified Financial Planners® at Peterson Wealth Advisors. He graduated from Utah Valley University where he studied Accounting and Business Management. Alek also has earned his master’s degree in Financial Planning and Analytics from UVU.

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