Business Innovators Radio - Interview with Financial Professional Bill Andrews Discussing Objectives for Bond Allocations

Episode Date: September 26, 2023

With over four decades of experience in the insurance, banking, and brokerage industries, Bill Andrews began his career in 1979 as a life insurance and securities professional. The financial world became his early playground and he loved it.In the 1980s he joined one of the most respected firms in the securities industry and gained valuable expertise advising and planning for many of the retirees making their way south from the northeastern seaboard.Having grown up in Miami, Florida, he had the opportunity to work with his father, his first mentor and respected private yacht captain who catered to the mega-wealthy, politicians, and corporate titans. The experiences gleaned from living and working on these floating hotels provided him with unique insights, and a rare opportunity to observe and converse with some of the world’s most successful people.Throughout his career, he received numerous awards and accolades, including being recognized as a top representative for numerous nationally ranked banking, insurance, and securities behemoths, thanks to his unwavering dedication to success and client service.Since 1995, he has been managing his own retirement planning practice. Over the past two decades, he sponsored and spoke at more than 200 financial seminars on topics such as 401k/IRA rollovers, cash management, investment tax strategies, annuity and asset allocation, investment and income planning, and Social Security planning. Additionally, he has frequently collaborated with CPAs and attorneys to provide expert guidance on tax, estate, and trust planning.Between 2002 and 2005, he partnered with a physicians’ financial advisory and practice management firm, participating in speaking engagements focused on pre-retirement and retirement planning for practicing physicians.For the past decade, he has been advising on 403b, 457, 401k/IRA rollover and pension planning in 15 San Francisco Bay Area and Silicon Valley school districts, conducting over 100 retirement and compliance seminars for all levels of educators from janitors to superintendents.So far, over the course of his career, he has advised thousands of individuals and families. These relationships and experiences translated into valuable lessons, stories, and life experiences. His clients have benefited richly from his lifetime of seasoned insights.He frequently travels for business or pleasure but usually both. As his clients retire many are relocating from the West Coast closer to their children and grandchildren or simply to realize their dreams. He estimates his client base now spans 17 states. He hikes the Great Northwest forests, rivers, and the most majestic NW Pacific coast beaches. He even indulges in a little salmon fishing on the Columbia River.As he continues to adopt new technologies and grow his practice, he is driven by a passion for the industry and a commitment to being productive, balanced, and helpful thereby, meeting his own retirement goals. He looks forward to building new relationships and experiencing an abundant life filled with love and happiness.“MY STRONG BELIEF IN EDUCATION AND PLANNING HAS BEEN THE FOUNDATION OF MY CLIENT’S SUCCESS”Influential Entrepreneurs with Mike Saundershttps://businessinnovatorsradio.com/influential-entrepreneurs-with-mike-saunders/Source: https://businessinnovatorsradio.com/interview-with-financial-professional-bill-andrews-discussing-objectives-for-bond-allocations

Welcome to influential entrepreneurs, bringing you interviews with elite business leaders and experts, sharing tips and strategies for elevating your business to the next level. Here's your host, Mike Saunders. Hello and welcome to this episode of Influential Entrepreneurs. This is Mike Saunders, the authority positioning coach. Today we have back with this Bill Andrews and we'll be talking about bond allocations. Bill, welcome back to the program. Good morning, Mike. How are you doing today? Doing great. And I know that bonds is a really broad topic. And I think that a lot of times bonds sometimes can be in favor, out of favor. And so let's kind of jump into what you are advising your clients as it relates to bonds and what they should be considering. You know, it's a, it's an alternative or it's a type of investment, stocks, bonds and mutual funds. It kind of is how I kind of flow through some financial products. So what is the first place you do?

start when you're educating your clients regarding bonds? Well, I want to look at why they're in bonds to begin with. Early retirees are being suggested if we're talking about their portfolios, 60-40 splits, in other words, stocks, bonds, and typically using bonds for safety and income. The concern today is with interest rates rising, it's having a drastic impact on bond values. also inflation, if people are locked into certain interest rates with their bonds, you know, they may not be keeping up with their purchasing power. Yeah, that's a really good point is, you know, there is not one set recommendation for every single person. You know, whatever split,

whatever, you know, percentage, you know, everyone is going to be different. So you have to know. So what are, what are some of those objectives that people are looking for when you're thinking about allocating bonds into bonds? Well, first one is interest rate and income certainty. The reason bonds are recommended or that allocations are recommended is to add that safety feature to an overall portfolio. The stocks can rise and fall. Bonds are typically supposed to be pretty stable, plus they pay a pretty stable income.

So that's principal certainty is a big consideration. and also reduce bond specific interest investment risk. Different issuers, municipalities, corporations, federal government. They all have different levels of risk when you're looking at that. And a lot of people just thinking put my money into bonds and I've got safety and what we're finding and that we've seen in the past as well is when interest rates rise, that safety of the bonds can go out the window. But another reason people are investing in bonds is they want an opportunity for capital gains.

So they think interest rates are going to pull back. They may invest in bonds to gain some capital gains. It's more of a timing issue. And then, of course, there are possible tax benefits. I mean, if you go into municipal bonds, you may not have to pay tax on the interest earnings. and there are other other features as well for tax benefits. You know, that's a big point is, you know, number one, it's a certain mix. You don't put all your eggs in one basket.

You don't buy every single dime you have in your retirement account into bonds. It's a mix. So what's the best mix? Let's see what everybody's, you know, like what a good financial professional would say is, it all depends. Let's look at your situation. So as good as, you know, interest rate and income certainty is and all of the safety that you just mentioned, there's got to be a flip side. So what are some of the negatives or problems that people should be aware of regarding bonds?

Right. Well, bonds can be a double-edged sword. So if we go to the side of what are some problems inherent with bonds, interest rate risk, inflation purchasing power risk comes to mind. that seems to be in every news broadcast today is, you know, what's happening with inflation and interest rates and the, you know, the Fed raising rates and such. Another one is issuer risk. A lot of people are invested in government bonds, you know, whether it's municipality, states, or federal government. Like I think I'd mentioned in a previous broadcast that the federal government just had, or the Treasury just had their ratings lowered, which increases their cost of capital.

And the same thing is happening with municipalities around the country. People need to stay intimate with the ratings of the issuers of bonds that they may hold. There's a lot of municipalities, for instance, aren't generating the tax revenues to pay their expenses that they used to. And some of those expenses are obviously the interest on the bonds and the loans that they've put out. So we also look at possible current income tax on interest and our capital gains. So, you know, you may think you're generating a certain return on your portfolio and then all of a sudden you find that you have to pay taxes on those gains, whether you wanted to take the money or not or on the interest, whether you wanted to take it or not.

Then there's also lack of control over taxable income disbursements. Now, if we're talking in the context of a retirement plan, income disbursements or how you're going to be taking your income becomes an important question. And if you have no control over that or very little control, then that might cause problems with your overall plan. And then, of course, fluctuating. principal values because as interest rates rise, the values on those bonds can go all over the place. And that might even lead to estate planning issues. For instance, if you passed away and you left

your portfolio to your family, what would happen, you know, what happens is the portfolio the same value as it was? Did it have a drastic decline? We saw this dating myself now, but we're, we saw this back in the 1980s, early 1980s, when interest rates had a major spike, a lot of banks had legal issues because they were supposedly safely investing their elderly clients' estates in long-term treasury bonds. And when the kids came to get the money to pay estate taxes or, you know, help fund the ongoing of a business after mom or dad's death, they found that these portfolios, has been reduced in some cases as much as 50%, which caused obviously major estate planning issues. And there are other things as well, but these are things a lot of people don't consider

when they're looking at their retirement plan. So we're going to help take a look at these things. You know, those are really good points, and it made me think of something that you mentioned like inflation and things like that. Are there times in the economy where bonds are, are better positioned to be a good choice and then other times where bonds are not as good of a good choice. Like, do they perform better during high inflation or low inflation? Or, you know, like right now, the mortgage rates aren't really great, but sometimes the mortgage

rates can be great because it's based on external factors. How does that work with bonds? Oh, you're absolutely right about that. I mean, if I was looking at a chart earlier of long-term treasury interest rates. And back in the early 1980, 80s, interest rates were up in the teens. I mean, I know you're a young guy and you probably don't remember mortgage rates at 13, 14%. But my first home, I had a 12.85% mortgage rate. Now, and in the early 80s, interest rates had a major spike, as I had mentioned, and hit their highest level ever in the U.S. And that would have been a a great time to buy bonds, okay, because you're getting a high interest rate, you're locking your

money in, but from that point on, for the next 40 years, interest rates were in a downward spiral until about 2020, 2020, okay, when interest rates bottomed out. So while interest rates are coming down, it's, you're also seeing your principal protected. on bonds because interest rates are coming down and you're continually getting a higher rate on your on your bonds um but when interest rates bottom out and start going in the other direction um which we're beginning to experience now we may have an another 30 40 year cycle with rising interest rates which will uh create a very dangerous environment for investing in locking your money on been longer term bonds. So different times of year, based on external conditions, bonds might be in

favor, out of favor. So depending on that situation, what are some effective alternative for bonds? Okay. Well, what we're looking for and when we're designing a portfolio, a retirement portfolio for somebody is low volatility. And we want safety. If we can get guarantees on, on, the money, that's what we want to do. So the first thing I'm going to be looking at is a fixed or indexed annuities because most guarantee your principal 100%. And so that brings us to the safety issue being solved or, you know, getting close to being solved. So that would be the first thing I would take a look at certain annuities have product guarantees like your interest for certain periods of time can be locked in one to two years, five years, ten years, depending on how

comfortable you are with locking your money up or locking your interest rate in for that long of a time. And there are other features like some of these products offer returns based on stock indexes with with no market risk. So you can get stock market like gains without taking the risk as opposed to taking a fixed interest rate. So it really depends on each individual person's risk tolerances or how much they need. Maybe they're comfortable with a 5% return for the next five years. And they're not concerned with interest rates rising or falling or anything. Yeah, good point. That's huge. I mean, safety and guaranteed he returns, all of those things, really, really are certain. When I hear the word alternative to bonds, does that mean that,

you know, you don't, you get out of bonds completely and do some of these alternatives? Or does it mean like, you know, the split is, well, let's have some in stocks, some in bonds, and then let's just have less in bonds, but a little bit more into this. Do you recommend ever getting totally out of bonds and then getting into some of these alternatives? That would be a very specific question when we're looking at somebody's portfolio. Maybe the bond portfolio that they have has proper mix and they want to stay in it. That's not really my bailiwick. They work with their brokers on those things.

But what I'm looking for is to generate as much guarantee and income safety as we can in these. And also we want the characteristics of those investments to meet the client's objectives. So if they're in a bond portfolio that meets their objectives, great, stay there. There's no point to move them. But if those bond portfolios are not meeting their objective, then, of course, you want to investigate alternatives. But that goes with any investment. Yep. Sure. Sure it does. So any final thoughts on alternative for bonds?

Well, like I said, I'm working a lot with the fixed annuities and, you know, with a guaranteed principle and income for the main reason that I'm helping people develop their long-term retirement fund strategies. And today I'm looking a lot at this because of the volatility in the market. I'm trying to eliminate that. And the fixed index annuities tend to be a great place to start. start. That doesn't mean we take all of their money and put it into that. It just means we look at different things. The other thing, too, I mean, there's some other features of these that we're looking for. I think it's important in retirement to have some degree of liquidity. For instance, under these programs, too, you can get up to 100% liquidity for things like death or terminal illness

and or nursing homes, nursing home confinements. And one of the biggest needs for liquidity is income guarantees consistent with retirement bucket and flooring. You can make changes over these portfolios. You're not going to just develop them. And that's it for the rest of the person's life. You're going to review these things annually at least and take a look at if they're meeting your portfolio, if they're meeting your needs, and or if they're covering your longevity risk.

You know, main thing that we're trying to avoid or mitigate is the risk about living one's money. And I think that's the bottom line. 100%. Safety, security, good planning. There's not one plan that's right for every single person. Let's sit down and figure out what you need, where you want to be, where you're at, and make some good recommendations. I think those are some really good piece of advice, Bill, regarding bonds. If someone is interested in reaching out and connecting with you, what's the best way that they can do that? Well, they can reach me at my cell phone, which is 76080303-4833, or you can email me at Bill at Andrewsplan.com. Excellent. Bill. Thank you so much for coming back on today. It's been a real

pleasure talking with you. Oh, thank you, Mike. Good to be on the show. You've been listening to Influential Entrepreneurs with Mike Saunders. To learn more about the resources mentioned on today's show or listen to past episodes, visit www. www.influentialentrepreneursradio.com.