Joe Anderson
ABOUT Joseph

As CEO and President, Joe Anderson has created a unique, ambitious business model utilizing advanced service, training, sales, and marketing strategies to grow Pure Financial Advisors into the trustworthy, client-focused company it is today. Pure Financial, a Registered Investment Advisor (RIA), was ranked 15 out of 100 top ETF Power Users by RIA channel (2023), was [...]

Alan Clopine

Alan Clopine is the Executive Chairman of Pure Financial Advisors, LLC (Pure). He has been an executive leader of the Company for over a decade, including CFO, CEO, and Chairman. Alan joined the firm in 2008, about one year after it was established. In his tenure at Pure, the firm has grown from approximately $50 [...]

Andi Last

Andi Last brings over 30 years of broadcasting, media, and marketing experience to Pure Financial Advisors. She is the producer of the Your Money, Your Wealth® podcast, radio show, and TV show and manages the firm's YouTube channels. Prior to joining Pure, Andi was Media Operations Manager for a San Diego-based financial services firm with [...]

Published On
December 27, 2022

Is it better to choose low-cost index funds or to diversify investments, even if it means paying higher fees? What causes mutual fund price fluctuation? Are mid-cap funds necessary in a balanced portfolio? Joe and Big Al also talk about real estate funds vs. real estate investment trusts (REITs), and annuities vs. bonds in a retirement portfolio. Finally, we revisit some investing strategy questions from earlier in the year that are still relevant in today’s volatile markets, on moving to cash in tough times, analyzing your asset allocation, and rebalancing your retirement portfolio. 

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Show Notes

  • (00:55) What’s More Important, Diversification or Low Fees? (Matt, VA – voice)
  • (06:20) What Causes Mutual Fund Price Fluctuation? (Brent, Bennington)
  • (10:45) Are Mid-Cap Funds Necessary in a Balanced Portfolio? Real Estate Funds vs REITs, TIAA Annuities vs Bonds (Jeff, Kentucky)
  • (18:56) In Tough Times Does It Make Sense to Move to Cash in a Retirement Account? (Kevin, Denver – voice, from episode 379)
  • (25:22) How is My Allocation of Bonds, Domestic Stocks, and International Stocks? (Brian, Albany, NY – from episode 396)
  • (28:40) How to Rebalance Bonds and Stocks in This Volatile Market? (Mick, Davis, CA – from episode 398)
  • (36:29) Comment: Excitement vs. Fear? Worth It! (Chris, straight outta Austin)

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Today on Your Money, Your Wealth® podcast 410, the final YMYW of 2022, what’s more important, choosing low-cost index funds, or diversifying investments even if it means paying higher fees? What causes mutual fund price fluctuation? Are midcap funds necessary in a balanced portfolio? The fellas also talk about real estate funds vs. real estate investment trusts (REITs), and annuities vs. bonds in a retirement portfolio. Finally, we revisit some investing strategy questions from earlier in the year that are still relevant in today’s volatile markets on moving to cash, analyzing your asset allocation, and rebalancing your retirement portfolio. Visit YourMoneyYourWealth.com and click Ask Joe & Big Al On Air to send in your money questions for 2023. I’m producer Andi Last, and here are the hosts of Your Money, Your Wealth®, Joe Anderson, CFP® and Big Al Clopine, CPA.

What’s More Important, Diversification or Low Fees? (Matt, VA – voice)

Joe: Ask Joe and Al – you can write us an email or you can leave a message right there on our lovely website.

Matt: “Hi, Joe, Big Al, Andi. This is Matt from Virginia. I absolutely love your show and have learned so much over the past year and I can’t thank you enough. I drive a Honda Accord and love a cold Modelo. Here’s my question, what is more important, diversification or low-fee index funds? I have a 403(b) and my income is too high to contribute to a Roth IRA. I know you prefer low-cost index funds. However, my plan only offers two index funds, an S&P 500 and a total bond market. The International is a Class A fund with a fee of about 80 basis points. The small and mid cap are active funds and are no load, but they still have a fee of about 90 basis points. Is it worth it to diversify? Or do you think I should just think about staying with the index funds?”
Joe: All right. Matt from Virginia.

Al: Yeah. Usually we’d like to diversify and have low cost, but it seems it’s one or the other here. What’s Class A fund? Maybe you can explain that right off the bat. This is for our listeners.

Joe: Well, a Class A is a loaded fund, but they waive the load. So it’s probably like American funds or something like that. So before- I don’t even know if people can purchase Class A mutual funds anymore. It’s like a 5.75% upfront load.

Al: Do they have the back-end fees, too?

Joe: No.

Al: No? Just the front end?

Joe: Yeah. The cheapest fund of any type of commission fund, A shares, B shares, C shares. A, you just pay it upfront and then you get the lowest internal cost. But this is waived load.

Al: Got it.

Joe: I think this is 403(b) plan. What do you think? So index funds? Just go with the bond fund or the S&P 500?

Al: Well, I like those two. I think that’s a good start. I would like to have international if I were Matt, so I would probably add international. I might skip the other two because I don’t really like active funds that much. But that’s probably what I would do. I’d probably add international and with those 3 funds call it good.

Joe: Okay.

Al: What do you think?

Joe: Yeah, I don’t know. I think he’s splitting hairs here. I mean, it’s not huge fees, 80 basis points. I mean, it’s not the end of the world.

Al: Yeah. And the thing about it, with international, it tends to zig and zag at different times than the US market. And the last decade, US has done better, which the next decade, will international do better? Who knows? But it does tend to kind of catch up with each other over time.

Joe: If I was Warren Buffett, I would just say the index funds, because that’s what he told his wife.

Al: True.

Joe: The billions of dollars that he’s going to give to his wife when he dies is those two funds.

Al: But what would you do?

Joe: I would diversify fully. So I wouldn’t care about- you have small cap, and some of that is a little active, I don’t care. If that’s my only choice that I have. I want a fully diversified portfolio. So if I’m going to pay a little bit extra to get that diversification, I would do that all day long.

Al: Okay, fair enough. Yeah, I think I would just have the international and call it good.

Joe: I suppose it depends too on how much money Matt has. If it’s $50,000, then I would just put everything in the S&P 500. If it’s getting into $200,000, $500,000, $1,000,000, then of course you would want to diversify more.

Al: Yeah, well, that’s a good point. The bigger the account, the more diversification matters, right?

Joe: Yes, for sure. Because it’s not going to be worth it. Because the S&P 500, you’re going to get a broad diversified portfolio with that index fund. If you’re putting a few thousand dollars in this fund, then that doesn’t make any sense either. So I think it depends on the size of the overall account. But overall, if you just wanted to go index funds, I think you’re totally fine there too. Yeah, but if it were me, if this was my money, I would probably want a little bit more diversification.

Al: Got it. Okay.

Joe: Because smaller caps are going to outperform the S&P 500, even with a weighted fee over time, because it’s more risky.

Al: Over time. Yeah, true. My only hesitation is active. And now you’re trusting a manager to try to figure out which ones to pick.

Joe: True, but they’re still broadly diversified. I mean, basically, actively managed mutual fund managers are almost like the dinosaur.

Al: Harder to find.

Joe: They’re going extinct. If you look at actively managed funds, I think over the last 10 years, so much flows coming out. Could you imagine being like an actively managed mutual fund wholesaler going to advisors?

Al: “Look at how we beat the market this year.”

Joe: Ever. But they’re just closet indexers. So they charge a little bit extra fee, but basically they’re buying the index. And they might overweight it or underweight it in a certain area of what they think, but you’re basically buying the index fund in most cases. All right, thanks for the voicemail, or the voice recording, I should say. Right, voice recording?

Andi: Yeah, we did that right through our website. It actually worked, Ask Joe and Al.

Joe: Worked first time. Unbelievable.

What Causes Mutual Fund Price Fluctuation? (Brent, Bennington)

Joe: We got Brent. He writes in from Bennington. “Hey, gang. Something I’ve always wondered, how much of mutual fund’s day-to-day fluctuations is attributed to fluctuations of the stocks and bonds that it holds versus people buying and selling? For example, VTSAX-” Isn’t that Vanguard Total Stock Market?

Al: I think so.

Joe: That’s like the biggest fund in the world. A lot of money in that fund. Has nothing to do with the trading of that fund.

Al: Yeah, because there’s so much money in there, it’s like trying to-

Joe: Don’t day trade the total US. Stock market fund.

Al: – trying to turn a cruise ship quickly. Doesn’t happen.

Joe: “Is it the share price only fluctuation because of the stocks it holds? Or does people buying and selling and have an impact as well? It’s the same thing like ARKK or ARKK. Thank you.” Well, ARKK is a totally different story, I believe. Isn’t that what’s her name’s fund? I don’t know tickers.

Al: I don’t know. I think that’s probably a smaller fund, but-

Joe: But VTSAX-

Al: That’s a giant fund.

Joe: Giant. People don’t necessarily trade that fund all that often. It’s kind of a buy and hold. It’s Vanguard. It’s John Bogle.

Al: No, that’s right. That’s his flagship fund. That’s what Warren Buffett says to get into, right?

Joe: Yeah. I don’t think you’re going to be moving the markets by trading that fund. But the fluctuations of that fund, I would say, I don’t know, 90% is probably the stocks that are fund holds.

Al: At least. Just to be sure, I asked our chief investment officer, Brian Perry. He is a chartered financial analyst-

Joe: He’s a lot smarter than us.

Al: – and a CERTIFIED FINANCIAL PLANNER™. So here’s what he said. He said, you got it right.

Joe: All right, good.

Al: You nailed it. In normal market environments, the price movement of the underlying stocks is going to cause the vast majority of the fund price movements, particularly for a large fund. Right, here we go. ‘VTSAX $290,000,000,000 in assets. That’s a big one. For somewhat smaller funds or funds that attract a lot of hot money, meaning a lot of kind of new money or money in and out, investors buying and selling can have a larger impact. So ARKK is likely to be more impacted by buying and selling than VTSAX, and that’s only because it’s a smaller fund. Right. For any fund, really bad market environments might lead to an investor exodus, think 2008 where there’s going to be environment of buying and selling. It might have a little more impact, at least in the short term. But as you lengthen out the time from horizon, from weeks, months, or years, buying and selling are going to have very little effect. And the change in the value of the underlying security should produce almost all of the change of the fund value.’ We lost you. But that’s the answer.

Joe: Got it. Hey, who’s the manager for ARKK again?

Andi: Her name is Cathie Wood.

Joe: Got it. Cathie Wood. Cathie Wood. That fund just got its-

Andi: “Lost investors more than $1 billion before this year’s wipeout.”

Joe: Yes, ma’am. She was like the dream. She was the miracle worker. Then oopsie-boopsies-

Al: Well, I’m sure that’s why the question came about.

Joe: That’s a little trendy fund- that’s all the cool guys used to talk about ARKK. Cathie Wood.

Al: Little hot money.

Joe: That is some hot money there, Big Al. But we like the VTSAX. Boring. Big boring cruise ship vs. the speed boat.

Al: We do like that fund. Yeah.

There are no shortage of those risky hot money schemes that seem like they’re just the ticket to grow your wealth, when in reality they can completely rob you of long-term financial security. Download our new Guide to Growing Your Wealth from the podcast show notes at YourMoneyYourWealth.com for 9 basic steps to improve your finances. You’ll learn the factors that impact your rate of return, one of the most overlooked aspects of the retirement plan equation, two ways to diversify your investment portfolio, and much more. Click the link in the description of today’s episode in your podcast app to go to the show notes and download the Guide to Growing Your Wealth for free.

Are Mid-Cap Funds Necessary in a Balanced Portfolio? Real Estate Funds vs REITs, TIAA Annuities vs Bonds (Jeff, Kentucky)

Joe: We got Jeff writes in from Kentucky. He goes, “Hello all. I started listening to you guys a few weeks ago after a friend recommended the show. Very grateful for what you’re doing.”

Andi: Nice. Thank you for the recommendation from the friend.

Joe: Nice little recommendation. “I’m 42, drive a 2019 GMC Canyon. Enjoy, you- Yoonglgling-” what the hell is that called again?

Andi: Listeners have called it Yuengling.

Al: Yuengling. I can’t help you. Complete mystery to me.

Joe: “- Yuengling after work” I’ll throw down some Yuenglings.

Al: Let’s try it tonight.

Joe: Yes. “No pets at this time. Got a couple of questions regarding my spouse’s retirement plan that I’d love your take on. My lovely wife is employed at large university and has a TIAAA for her retirement plan. On the other hand, I have Vanguard and love the choices of the low cost index funds. Need to bounce some ideas off you regarding her fund choices. There is nothing equivalent to a total market fund, so she’s dividing equities between growth and value, large and mid, small international. Most expense ratios are about .3, but mid caps are around .77. Question number one, are these mid cap funds necessary for a balanced portfolio or could we go the large cap, small cap international route for the equity portion?” You wanna answer that real quick?

Al: You could.

Joe: Yeah. I would- I would not invest in midcap because- I would just load up a little bit more in small. Midcap is like one of the worst performing asset classes.

Al: Well, yeah, there’s not a lot of point in it. Small tends to outperform large, but it’s more volatile right over the long term. So it’s nice to have small and we talked about this before a couple of segments ago is getting diversification is great. Now, in certain cases, you’re limited to the funds allowed by the plan. And if the choices are too expensive, like maybe mid cap, it’s not horrible .77. But it’s not great. It’s not like what you’d like to see closer to .1, .2, .05, maybe.

Joe: But I’m saying, me personally, I do not own any mid cap.

Al: You don’t?

Joe: No. I mean, it turns into mid cap. The small caps turn into mid cap, and then it flows into large cap.

Al: Yeah, but don’t- you got some total stock market funds that have midcap?

Joe: Yeah, but I don’t have a mid cap fund.

Al: Got it.

Joe: If I had an option to invest in a mid cap fund, which I do, I would not do it.

Al: Got it. Okay. I guess I agree with that, because large companies are more stable. And so you kind of like to have plenty of those. The smaller ones have a little bit more rate of return, although it doesn’t show up every year and it’s more volatile.

Joe: Those are a little more hot.

Al: Yeah, a little more hot. But it kind of increases the return over time.

Joe: Little juice.

Al: Yeah, mid caps are probably somewhere between-I sort of tend to agree. Mid caps are probably less important in this mix. I like having growth and value. I like having small and large, and I like having international. So there you go.

Joe: There you go. I agree 100%. “Question two, do you like real estate in your retirement portfolios? We have no real estate outside our primary residence. If so, what are your thoughts on the TIAAA real estate versus TIAAA real estate fund, the TRRSX? It appears that TIAAA real estate is some sort of variable annuity, and year to date return is 11.05 compared to negative 27.2 on the TRRSX.” I’m going to take a stab. I’m guessing that the TIAA real estate is probably like a true REIT, like a private REIT that is investing directly in the real estate. Where the real estate fund, the TIAA real estate fund, TRRSX, sometimes they invest in real estate type companies. So they might invest in REITs, they might invest in other types of companies that are in the business of real estate. So those are going to be more volatile. But the real estate fund, I have no idea what they’re investing in. It’s probably a direct investment into real estate is my guess.

Al: And I’m not sure either. I’ll answer this broadly. I do like to have some real estate exposure even in my portfolio. I have rental properties as well, but I do like some real estate exposure because my rental properties are individual homes. Or condos. And when I have real estate exposure, I’m getting commercial and maybe apartment buildings, maybe office buildings, maybe in different locations around the country. Real estate is an asset class, and sometimes it outperforms other ones and sometimes it doesn’t. So I do like that, but I tend to like the liquid real estate investment trust that you can get in and out of on a daily basis if you need to. We’re not really experts at these two funds, so we can’t really advise you on that. But the basic answer for me is yes. I do like to have some real estate in the retirement accounts or non-retirement accounts, because it’s just another asset class that can work well with your other asset classes.

Joe: What’s the holdings there?

Andi: It’s 98% stocks. It’s got Prologis, American Tower REIT, Simon Property Group, Avalon Bay Communities, Equity Residential, Rexford Industrial Realty, Equinix, Public Storage, Sun Communities and Crown Castle, et cetera, et cetera.

Joe: Right. They’re buying stocks that are going to be a lot more volatile. And the TIAA real estate is probably a direct investment into real estate. Well, TIAA CREF is an insurance company, just FYI. So anything that you purchase within TIAA CREF is inside the shell of an annuity, which is not good or bad. It’s just that’s the 403(b) provider. So if you want to get into the TIAA real estate, I would probably do that versus the TIAA real estate fund. But you have to check the liquidity depending on can you buy and sell it? Is it illiquid or is it liquid is probably the only thing that you have to look at. Anyway, last question, this guy has or Jeff has? I’m sorry, I shouldn’t call him this guy. He’s Jeff.

Al: Yeah, we know him. Jeff.

Joe: “Last question regarding annuities-“ I just talked about that. “-I know most of the time they aren’t the best choices, but TIAA traditional is a little different to my understanding. In our mandatory DCP, her illiquid portion has a guaranteed rate of 3% plus an additional 1.146% for a total of 4.146%. The total liquid portion in her 403(b) and 457 is around 3.4%. Do you like this fund instead of bonds? What about the mixture of both? My understanding is the liquid portion could be reallocated at any time and the illiquid could be moved over 10 years or something like that if we don’t choose to annuitize. Sound right? Sorry for the last question. Turned into a couple. Thanks again. Looking forward to your spit ball.” Yeah. The TIAA portion of the TIAA CREF is a fixed account that is totally illiquid. So you get a premium for the illiquidity. So you can’t move the money out. You can only take 10% out per year. It’s going to give you a little bit higher rate of return. So if you ever try to move the money out of TIAA, move it into your own traditional IRA, it’s going to be hard to consolidate. So that’s one negative, but it is going to give you a little bit higher premium or higher rate of return. So I do like that fund a lot over bonds. But bonds are going to come back versus going into a fixed account. I would want a little bit more liquidity. Again, depending on what my overall goals are. And if you’re going to annuitize, then go into the TIAA. If not, I would probably just do a little bit of balance of both.

In Tough Times Does It Make Sense to Move to Cash in a Retirement Account? (Kevin, Denver – voice)

Joe: Alright, go to YourMoneyYourWealth.com, click on Ask Joe and Al On the Air and we’ll answer your questions right here.

Kevin: “Hey Andi, Big Al, and newlywed Joe from Minnesota. Kevin from Denver via South Dakota with a question regarding cash inside a deferred retirement account. I recently switched jobs and moved money from the 401(k) to my traditional IRA. When I did that, everything landed in a money market settlement fund. I reallocated most of the cash into similar stock investments in my 401(k), but I stopped short of moving the remaining cash to a bond fund. My desire is to retire in about 4 years. And my plan was to have a couple years of cash to ride out, you know, a market like we’re experiencing today. I’ve got an emergency fund, but I don’t see that as being the same thing as holding cash inside a retirement account to ride out, you know, these tough times. So my question is when if ever, does it make sense to move to cash inside a retirement account leading up to retirement? Based upon my calculations, it would be about a 5% allocation in cash upon retirement. As always appreciate your noodling on my random questions. Peace out, time for a barrel stout.”

Andi: I just wanted to jump in real quick and mention the fact that Joe and Big Al spitball, not noodle- noodling is somebody else.

Joe: Did you hear that Minnesota accent? or the-

Al: Yeah, I heard some. Yep. Or South Dakota. Same, same, right?

Andi: ‘Sota.

Joe: Living in Denver now. What do you think Big Al? 5% is not a huge amount. I don’t think it’s going to make or break. He’s not really trying to time the market. It doesn’t sound like with 5%.

Al: No, but I think he’s asking- right now he’s got a bunch of money in cash, probably more than 5%. He wants to have 5% in retirement. But, the question is, should I just stay in cash or he doesn’t really want to move into bonds and I guess in some ways don’t blame him. Because bonds in the short term haven’t done that well. I guess part of the reasoning behind bonds is they do tend to hold their value like cash and they tend to have a better rate of return, like cash. In market declines, the safer bonds, the short-term bonds, actually go up and helps shelter the blow. Cash doesn’t. It just sits there. But nevertheless, we’re getting this question, which is, should I just skip the bonds and go in cash? And they do roughly the same thing, right? It’s safe money in your retirement account. But I’m in bonds right now because I think that’s the right place to be. They do go up, they do earn more than cash. I think if he’s asking the question, what to do today, I would go into bonds. But I’d have them be safer short term. In terms of in retirement, 5% is fine. I mean, that just some ease of distributions, right? So you don’t have to sell anything. So I’m totally fine with that.

Joe: Yeah. I mean, if you’re sitting in cash with a lot of money and just trying to time it out and ride it out over these tough times is what he’s saying. But the definition of tough times is on the flip side a really good time to invest, right? If he thinks it’s tough times now because the market’s down 20% and so is it better to invest in good times when the market’s up 20%? So you’ve gotta be thinking kind of almost an opposite world, George Costanza, you know, when you invest your money, because I think intuitively we’re really bad investors because I mean, there’s two things that people are doing right now, right? It’s like, okay, do I hold the course? Or do I go in cash or try to time the market to ease the pain that way. Those are two of your options. And they’re both very difficult to do. Because if I just hold the course, even though that’s probably the better option, but you’re seeing your account balance go down 5%, 10%, 20%, whatever the number is, depending on what type of portfolio that you’re in. I mean, that blows people up. They can’t do it. I mean, time and time again, shows that people can’t do it. So then you have a situation where Kevin recently changes jobs. He moves his 401(k) and now he’s got money sitting in cash and he’s like, oh, now it would probably be a really good time to keep it in cash and ride out the tough times. I mean, if I were looking at Kevin’s overall portfolio, I would say what is the appropriate balance that he should have to accomplish his goals and have that invested right now today?

Al: But Joe, he said ‘I reallocated most of the cash into similar stock investments.’

Joe: Yeah. But he’s riding some stuff out in the tough times. I don’t know what that means.

Al: Well, yeah. It either means exactly what you said or it means what I said, I guess we don’t know. My presumption was he had some bonds in his retirement account and he didn’t want to reinvest in bonds because they haven’t done that well lately. So I don’t know. I’m not really sure.

Joe: I think- whatever- we both get a little different color to this question.

Al: True.

How you invest should be based on how much risk you’re willing to take, how much money you have now, how much you’ll need to spend in retirement, and many other factors – so what’s best for you is going to be completely different than what’s best for Kevin or anyone else. Make a new year’s resolution to get your finances in order: schedule a free, one-on-one, personalized financial assessment with an experienced professional on Joe and Big Al’s team at Pure Financial Advisors to get that ball rolling. Pure is a fee-only fiduciary, which means , #1, legally they must act in the clients best interest, and #2, they don’t earn commissions and won’t sell you any investments of any kind! Don’t leave your entire retirement future up to a spitball – work with a professional to create a comprehensive financial plan, tailored to your specific needs and goals, that’ll carry you through the good times and the tough times. Click the link in the description of today’s episode in your favorite podcast app to go to the show notes, then click Free Financial Assessment.

How is My Allocation of Bonds, Domestic Stocks, and International Stocks? (Brian, Albany, NY)

Joe: “Hey Andi, Joe, Big Al. Thanks for your great comments on previous questions. And thanks for keeping the typical boring topic of finance fun.” That’s what we do, Big Al.

Al: That’s what we try to do.

Joe: Making fun of finance. “I’ve determined that a 70/30 stock bond fund is right for me. I’m really struggling with determining the right mix of international to keep in my equity mix. There’s a seemingly knowledgeable sources are all over the board. From 50/50 to 100/0. I’ve targeted the following mix and would appreciate your comments. 30% bonds/47% domestic stocks. Out of the domestic stocks, he’s gonna go 75% large, 11% mid, 14% small, 23% international. So 85% developed/15% emerging. Am I on track? Brian from Albany. Craft IPA or cheap white wine, no pets.” I think he’s fine. I mean, “am I on track?” What- I don’t know if you’re on track or not. Do I like your portfolio? Sure.

Al: The appropriate question is, is this a reasonable portfolio for 70/30 stock/bond mix, and I would say you’re spot on. I wouldn’t probably change anything.

Joe: That’s fine. I would say spot on.

Al: I think it’s spot on.

Joe: I would say it’s fine. It’s-

Al: Well, at least I’ll answer it this way. This is how- this is probably similar to what I would do in my portfolio if I wanna do 70/30. I can say that. Right?

Joe: Yeah. I like that.

Al: So I like the idea I have having twice as much domestic as international. I think that’s a good ratio. Is it the only ratio? No. Some people do zero. Some people do 50/50, but I like it. Right.

Joe: 2/3, 1/3-

Al: And I would do more developed international than emerging, but I like emerging markets. And I would- just by definition, you’re gonna be doing more large companies than mid and small, because there’s more dollars in large companies.

Joe: Yep. I don’t know. Then oh what’s- how much is in value?

Al: Yeah. We didn’t say that. We could go down to that level.

Joe: Brian, I think you have a lot of knowledgeable sources and they all are all over the board. Because you wanna make it specific to yourself. You know what I mean, you wanna build a portfolio based on what your risk tolerance is, what target rate return that you wanna generate? How much money do you have? How much is- what’s the demand for the portfolio and everything else? So you wanna craft it- but if you’re looking at a generic 60/40, 70/30, or whatever, portfolio, Yeah, I think that’s –

Al: And the 70/30 portfolio is probably fine with someone that has several years to let it grow.

Joe: What was that book? Dan- didn’t Dan Solin…?

Al: Yeah.

Joe: It was The Perfect Portfolio.

Al: The Only Invest Book You’ll Ever Need, I think is what It was called.

Joe: Or The Only Portfolio You’ll Ever Need or… Yeah, The Only Investment Book You’ll Ever Need.

Al: I think so.

Joe: Yeah. I would look at that because then he gives different types of portfolios. It’s a quick read. It’s pretty good.

(Andi’s note: It’s The Smartest Investment Book You’ll Ever Read by Dan Solin.)

How to Rebalance Bonds and Stocks in This Volatile Market? (Mick, Davis, CA)

Joe: Where do you want me to go? What page?

Andi: Page 13, if you have it.

Joe: You got it. We got a lot of stuff to go through.

Al: Yeah, we got a lot, don’t we?

Joe: All right, so let’s go here. “Joe, Al and Andi, thank you for your podcast. It helps us make better decisions as my wife and I transition to retirement. This is Mick from Davis, California. We are both 65. I’m mostly retired from my career as a clinical social worker. I used to specialize in children and their families. Now we support graduates, students, social workers in their field placements and do ethic consultations for colleagues on a very part time basis. My wife is a serial entrepreneur-“ pretty close, huh?

Andi: Pretty close. I think you only miss one R.

Al: I’ll accept it. I knew what you meant.

Joe: Got it. “-who now works full time by serving on company boards and consulting with startups.” It’s like I’m reading a bio.

Al: A lot of big words here.

Joe: Mick. Come on, you’re killing me. Just ask me a question already.

Andi: Hey, you asked for the details, he’s got details for ya.

Joe: I love the details. I’m just diving in. This is like really complicated stuff, though. “In our almost 45 years of marriage, we have always had one cat and two dogs. Currently, our 16-year-old cat is more aloof than ever since we both started working from home.”

Al: I wonder why.

Joe: “Our small 12-year-old Heinz 57 dog, Daisy, still runs every morning with my wife and snuggles in the evening. We adopted our 6-year-old half Peke-“

Andi: Pekingese-

Al: Pekingese?

Joe: Pekingese. “-Pekingese guard dog, Nutmeg, during the pandemic.
Who knew that Pekingese were guard dogs? Carwise, I drive an original two-seater, 3 cylinder, 68 mile per gallon, 2003 Honda Insight.” Wow. “My wife enjoys her 2021 Kia Nero plugin Hybrid.” All right. Little Kia plugin. “We barely drink.“ Yeah, because you just write.

Al: He needs to keep clear in his writing.

Joe: He just writes letters.

Al: Every night.

Joe: The specificy-

Al: -the specificy? Is that a word?

Andi: That was great.

Joe: His specifics is just- “On Friday night, we share a Boot Amberly Ale.” Boot. You ever had a little Boot?

Al: No, I haven’t.

Andi: I’ve never even heard of that one.

Al: But anyway, so they do drink on Friday night.

Joe: Yeah, on Friday night.

Al: They share beer.

Joe: They share a beer.

Al: Yep. You got it.

Joe: Perfect. “I have concerns about the 35% bond component of our $6,000,000 retirement savings. Usually when the stock market goes down, the bond market is flat to slightly up, so I can rebalance and buy more stocks on the dips. This time, the bond funds seem to dip at the same time as the stock market. So when I rebalance on the dip, should I sell the bond funds with a higher 5 year duration? Or is this similar to selling the total stock market and replacing it with a value fund? Should I try to keep the same range of bond fund duration, ultra-low to moderate, that I started with before this year stock and bond dips? Or switch to all ultra-low money markets until we get back to the 2008 interest rates? And as we approach a bear market, should we consider our allocation and shift from 65/35 to 70/30? Appreciate your spitball and informed opinions. Thank you and take care.


Andi: And I added, he’s got his little bicycle there.

Joe: Yeah, what is that?

Andi: That is part of his signature and it’s all in the characters. That’s pretty cool.

Joe: So, PhD. PhD MBA.

Al: Right. That’s-

Joe: Way smarter than-

Al: What a combo.

Joe: -both of us combined.

Andi: Such that he can actually draw a bicycle in text.

Al: Just that is amazing. So Mickey, you should be doing the show.

Joe: His name is Mick, not Mickey.

Al: I’m calling him Mickey.

Joe: Oh, got it.

Al: We go way back. We’re Southern Californians.

Joe: Yeah, and I knew he was smart, just reading his little email here. Okay, so, good question. So he’s got a 60/40 or 70/30 split, whatever, it doesn’t necessarily matter. But what he’s realizing this year is that it’s like, wait a minute, when stocks go down, usually my bonds stay flat or they go up a little bit.

Al: Sure. And that’s usual.

Joe: It’s called negatively correlated. And so when that happens, you can sell the bonds and you can rebalance and buy more stocks-

Al: – or vice versa.

Joe: Right. Or stocks go up and you’re like, okay. Or maybe small companies go down and large companies go up. You sell large, companies, buy more small, right? You’re selling high and buying low. But he’s looking at his portfolio, he’s like-

Al: – everything’s down.

Joe: – everything’s low.

Al: What do we do?

Joe: What the hell do I do now? My whole strategy is out the window. So I would be careful with any type of quick movements in this environment. Because let’s say if he already has moderate or somewhat high duration bond funds, those bond managers are still holding the bonds. When they come to maturity, it’s going to come back. So you’ve got to be careful if you’re selling low and trying to shift your strategy just because you’re looking at timing and thinking, all right, well, when interest rates get back to this level, I’d be careful with that type of thinking. If you have asset classes that you want to rebalance, but if everything is down, then it’s like, okay, what is your overall strategy? What is the money for? Then you might have to rethink your overall financial plan. So I would change my investment strategy based on my planning and income needs versus a rebalance strategy?

Al: Yeah, and I think the other thing that people do is maybe they’ll have just two or 3 or 4 investments. Maybe they have a total stock market fund, maybe they got an international fund, maybe they have a bond fund. And all 3 of those are down right now. Now, if you had a little bit more, maybe you had a small and value fund and an emerging markets fund. These are going to probably move a little bit differently and then you actually can rebalance to take advantage of lower prices, ones that have gone down more than other ones, which will likely over the long term recover. So that might be something to do. I also agree with you. You do have to be careful because everyone wants to make changes during markets like this. And the whole point is to do your financial planning beforehand so that you know you’ll be fine when this happens and we all know it’s going to happen. This is not unusual. And in fact, it was, I think, 2008 where every single asset class went down. It’s not normal, but it happens. And that’s the environment we’re in.

Joe: Yeah, and I agree with his analogy. It’s like, I don’t know if I would want to sell my bond funds with a higher 5-year duration and buy ultra-short at this point. You already bought the risk. There’s a reason why you get a higher expected rate of return in certain asset classes just because there’s more risk involved. And as markets go down, you bought that risk because you’re anticipating a higher expected return in the future. So should I sell that and buy something else? Is it like selling a value fund and buying a total US. Stock market fund? Yeah, kind of, I think so. If you’re buying on the dips, I would have a more calculated strategy on my rebalance. When am I going to rebalance and how am I going to look at it and what percentage it needs to deviate for me to make a move. Right. But looking at this- I have no idea what else to say here, because I have no idea what he has.

Al: Yeah, we just know what kind of beer he likes on Friday.

Joe: All right, thank you, Mike or Mick and the little bicycle guy.

Comment: Excitement vs. Fear? Worth It! (Chris, straight outta Austin)

Joe: We got Chris writes in straight out of Austin. “Hi, Andi. Just heard Big Al and Joe debate my One and Twosy financial scenarios. I can’t believe- I can’t begin to tell you how much it helped to listen to both of the sides of my scenario, even though it was admittedly long.” Yes, it was very long.

Al: So was the question.

Joe: “As usual, you all do it priceless. I want to take the time to thank all of you for the common sense approach to thinking through these financial situations. PS. It’s funny, It’s always exciting to hear your question being answered on the show. Then about the same time, a streak of fear comes across on what will be said. Worth it. Still put your show up for a Rothy when it becomes a thing. Thanks again and happy trails. Chris.” All right. Well, Chris, thanks for your questions. Thanks for being a loyal listener. Yeah.

Al: Yeah, that Onesie, Twosy-

Joe: That Onesie, Twosy kind of a –

Al: Never forget that question.

Andi: Hey, I was going to say it made an impact on you guys. You actually remember it because of that.

Al: We do.

Joe: It took 45 minutes.

Andi: Right. Exactly.

Al: So that’s why we were long winded, because it was mostly reading the question.

Joe: It took us 4 segments.

Andi: Help us start 2023 off right by leaving your honest reviews and ratings for Your Money, Your Wealth in Apple Podcasts. You can also rate or review us on Spotify, Stitcher, Podchaser, Castbox, Podcast Addict, Goodpods, Amazon, and Audible to help new listeners find YMYW. The rules have changed and that’s the first time I’ve ever been able to say that. So thank you, compliance! And thank you, for being a YMYW listener. Have a happy new year, everybody.



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