Business Innovators Radio - Interview with Jim Phillips, SVP – Managing Director of BRB Wealth Discussing Market Risk

Episode Date: September 17, 2024

Jim has over 30 years of investment and wealth management experience. Jim started his career with Merrill Lynch in Richmond, and most recently developed and managed the investment program at CB&T Wealth Management. Jim believes in a personalized approach to get to know his clients and their financial goals, and then develops a strategy to work toward achieving them. He helps his clients understand the current financial, economic, and political climate to better position their assets to address their preservation, growth, income, or legacy needs. Jim is a graduate of the University of Florida. He lives in Chesterfield with his wife, Nina. Jim enjoys distance running, travel, and spending time with his family.Learn More: https://www.mybrb.financial/WealthSecurities and advisory services are offered through LPL Financial (LPL), a registered investment advisor and broker/dealer (member FINRA/SIPC). Insurance products are offered through LPL or its licensed affiliates. Blue Ridge Bank and BRB Wealth are not registered as a broker/dealer or investment advisor. Registered representatives of LPL offer products and services using BRB Wealth and may also be employees of Blue Ridge Bank. These products and services are being offered through LPL or its affiliates, which are separate entities from and not affiliates of Blue Ridge Bank or BRB Wealth. Securities and insurance offered through LPL or its affiliates are. Not Insured by FDIC or Any Other Government Agency Not Bank Guaranteed Not Bank Deposits or Obligations May Lose ValueInfluential Entrepreneurs with Mike Saundershttps://businessinnovatorsradio.com/influential-entrepreneurs-with-mike-saunders/Source: https://businessinnovatorsradio.com/interview-with-jim-phillips-svp-managing-director-of-brb-wealth-discussing-market-risk

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 Jim Phillips, who's the managing director of BRB wealth, and we'll be talking about market risk. Jim, welcome back to the program. Thanks, Mike. Glad to be here. Hey, so I know that when we hear the phrase market and risk, it's like we don't want to hear about bad things and risk, but we know it's there.

And we know that when we talk about retirement or wealth planning, that, you know, the money in the market carries some risk. So how do you start framing your conversation to educating and teaching your clients about market risk? Where do you begin with? Yeah, that's a good question. everybody has the same fear. They think the stock market is sometimes it's more like a casino than an investment. And a lot of people fear that they could lose all their money, not some of their money, but all their money. So we want to talk to them about risk and what risk really is. And what risk really is to a lot of people is how much their investment goes down in value. Okay. If it goes down,

three or four or five percent, they're like, okay, I understand that. You know, that's not bad. But if it goes down, you know, 15, 20, 30, 40 percent, that's risk that they do not want at all. So the risk that we talk about is how far can your portfolio of investments go down if there's negative market activity, economic activity, or something else? Yeah, how far can it go down before you start really feeling the pain of I need this money to live? And that's going to be different for everybody because you might have someone with, you know, five million dollars and they could go, I only need a million of it. So if it goes down a bunch, that's no problem.

But that's probably 0.0.01 of, you know, of all people out there. So I think that the time to recover from drops in volatility, that's a big factor, right? because if there is a loss that you've got 20 years to recover, then it's not as prevalent as if you've got a year or two or three. So, you know, talk a little bit about the time to recover from volatility and loss. Yeah, that's real important because if you're young, you're in 20s or 30s, you're investing and your account goes down 20% or even if it goes down something big 30% plus, you have many, many years to recover from that. So you're not as concerned about that big of a drop. Now, if you are older, if you're approaching retirement or in retirement and you're counting on those assets to provide income for your retirement years and you have a big drop, you could be in real big trouble. If you want to go back in time, back from 2008, because that was the last big stock market crash, it took.

it took five and a half years for your portfolio to recover to where it was before that crash. So if you are approaching retirement and you thought you were going to retire and it was in 2008, you probably still working for a while. Yeah. You know, and the really, I don't know, scary thing, I guess I'll call it, is if you knew that 2008 or 18 or whatever, you know, dip was going to come up in six months. and two, you know, days, well, then you can plan for that, but we never know. You could wake up tomorrow and the dictator of Greece scratches their head the wrong way and the markets tank. So,

you know, the major market turn downs are huge. But what do you do when you have clients that go, okay, there was a pretty big dip, but it wasn't really a 2008, a major downturn. What do you do about those dips? Because that might be an element of risk of volatility. but it's not a major market turned down. Yeah, and you've got to expect those, Mike. They happen all the time. If you look at the, I guess, the declines that happen. Declines, drops or pullbacks in the market, they do happen on a fairly regular basis.

Declines of at least 10% have occurred in 10 to the last 20 years. So, yeah, it's 50% of the time. You're going to have a 10% decline. So you need to expect that if you see that, and that's all it is, you're like, okay, Jim told me that was going to happen. So I understand that that is the way that the stock market looks and does at some point. Now, if you're looking at bigger pullbacks, you know, 20%, and then we're getting a little more serious here. That happens about once or twice every five years. So that's going to happen from time to time.

And then you go, oh, my gosh, I don't want that 2008 market crash again. again. That occurs about every 12 years or so. Or that happens maybe it's a 30% or more market correction. So, you know, correction, crash, pullback, whatever you want to call it. Nobody likes it. You've got to expect it. And you need to protect yourself from those big drops. That's, that's the real big risk that you need to protect yourself from. You know, you think about the question that you kind of touched on briefly, how comfortable are you with any level of drop or risk or volatility? And I think that a lot of times people, you know, well, you know, 15, 20 percent. I could be comfortable with that.

But I think when they put pen to the paper and go, hold on, what if what if they're, you know, like a lot of times, you know, people hear these big numbers like, oh, if you had $2 million. But what if it's just like, hypothetically, a $500,000 retirement portfolio that someone has? A 20% drops $100,000. A 10% drop is 50. That's a big hit to the gut. So where do you guide that conversation when you're kind of helping someone realize what a drop or risk or volatility would, how that would impact their specific portfolio? Yeah. And if you use those numbers, you know, somebody's a half a million dollar portfolio and it's 20% drop, they're like, oh, my gosh.

You know, how long is it going to take me to get $100,000? more into that account. Yeah. Most people, now we're talking about market risk. Of course, it's the stock market. You have an investment portfolio. If it was 100% in the stocks, yeah, all those numbers that we talked about, they apply to that portfolio. One of the things that you can do to reduce that is to add some different things in your

portfolio. If you look at the, it's called standard deviation. It's basically how much of a change either up or down can your investment portfolio. Can you kind of expect it to do? So for the stock market in general, it's about an 18% deviation. So on average, you could go up 18%, or it could go down 18%. If you're not comfortable with 18%, you know, maybe you need to look at doing something a little bit differently. the standard, you know, for years and years and years for a kind of a balanced investment portfolio,

it has been 60, 40, which is 60% in the stocks, not 100, but 60% in stocks, 40% in fixed income. And then you basically reduce the standard deviation or the ups and downs by half. So now your portfolio averages, you know, on the upside 9%, but on the downside, which is that's where it can really, really hurt you. is only about 9%. So you've really helped your situation by diversifying it. The thought crossed my mind when you're describing that is if you did take that big hit and you weren't quite yet at rebalancing like you just described and you took that 18% or 20% hit, you might feel like I need to recoup and chase that and catch up, right?

I need to catch that back up. And people might feel tempted to add even more risk to chase that return to get back. up to where they were. And, you know, now all of a sudden, maybe you don't catch up in those two to three to four years and you took on even more risk. And now it's just kind of like this, you know, self-fulfilling prophecy where more risk layered onto more risk. Yeah. And that's a, that's a common mistake is, oh, my gosh, I'm behind. Now I need to load up more on these high growth tech stocks to catch up. And they're probably the reason why you're down in the first place.

But you googled around and you heard someone say this or you saw that headline and you're like, oh, I'm going to jump onto that. And that becomes a problem. So it needs to be measured. It kind of brings up the concept to me of diversification because I think a lot of people do have a misconception on how diversification works. So what are some of the things you talk to, clients, about that? Well, I can tell you what diversification is not. So this was back in, I guess,

it was 2000 after the, you know, the dot-com crash when everybody was making all sorts of money buying internet stocks. And I had, this was after the crash. So I had a client came in to see me because she needed some help and she showed me her portfolio and she had taken her, her college education fund for her daughter. And she saw everybody making so much money. She said, she started to invest it on her own. And she said, I don't understand why it's down so much. I diversified it among at least 10 or 20 different internet stocks. Oh, yeah. Oh, no. So, like, that is not diversification.

But you know what? We're kind of chuckling at that. And I'm glad you didn't mention the person's name because that's not the point. The point is people do think that way. Oh, I don't have all my money in that one stock. I've got it in five tech stocks. well, it's the sector, it's the market, it's that bucket there that you want to be more diversified. So when you are talking to people that would say that, how do you then redefine diversification? How should they be thinking about that? Yeah, if you don't diversify, if you, let's say you just buy one stock and it's it's the hot stock and it's going up like crazy. That is probably the single best way to make a whole lot of money. It is also the single best way to lose a lot of money.

So you've got to know what your risk is on this. And most people are not necessarily trying to, you know, double or triple their money every month or so. They want to get some reasonable returns. They want to add money and save and invest and have some good returns. They don't want a lot of risk. Because, again, the biggest fear is, oh, my gosh, the stock market just dropped and I lost all my money. So how do you avoid that? You want to, you want to diverse, and diversification is, you know, putting your money into different investments so that it could be anyone investments, anyone investment is not going to, you know, lose all your money. If you had a hundred different stocks, then if one, you know, if one went out of business, it's one percent of your portfolio. So it's not a big deal. So that's just on stocks. You want to, you want to spread it out. You also want to add some different investments. You don't want it all in the stock market.

You could put it into some fixed income, some bonds. They give you some nice income. They kind of act as a shock absorber for your portfolio. So maybe you're not going to make 30% this year. Maybe you're only going to make 20. But when the market goes down, you're not going to go down as much. And your average return is going to be pretty much the same as everybody else. It's just going to be a little tighter instead of going up and down as much.

You know, you can add real estate. you can add commodities, you can add gold, you can add a lot of different things to your portfolio so that you don't have these big swings. You want a nice, you know, you want a nice climb upwards in your portfolio value as time goes on. Yeah, that's a good explanation of diversification because I think a lot of times people don't think about, oh, gold, interesting, oh, commodities, interesting. You know, they just think of diversification as what you described before. So whatever percent of the portfolio that people would feel comfortable putting into the market, air quote, what are some type of market loss protections that you would say, okay, well, we've agreed on this percent,

but now let's make sure there's even a little bit of market loss protection within that. How does that work? Probably the easiest thing to do for, if you're just looking at your stock allocation, is make sure you are diversified into a lot of. lot of different sectors. You don't want all to be in growth stocks or technology stocks. You want some boring stock. You want some utilities and some banks, some oil companies. You want some retail. You know, you want to have money in a lot of different areas. So that's still your stock portion. You're still going to get some nice returns, but things are cyclical. Things come in and out of favor.

Utility companies, everybody loves utility companies there for a long, long time. They pay nice dividends. I'm paying my bill every month, so I think I should have them pay me too back. But when interest rates go up, like they did a couple of years ago, all those type of companies that pay high dividends went down and value tremendously. So now that interest rates are starting to go back down, now they're back in favor. So you want to have some different sectors of stocks in your portfolio. The other thing that I think is really important, a lot of people miss this too, is if you have a stock portion of your portfolio,

and you have a few stocks that are just doing, you know, terrific. You have, you have, I have Nvidia in my account. Oh my gosh, look, it's wonderful. I have all these tech stocks. I have whatever other small stock that I had that just took off, and I've had big gains. But then I've got the utility company. It's, you know, it's down in value a couple years ago.

I've got some oil companies or financials that are not doing as well. Rebalancing is really, really important, and that is just trimming some of your profits from your tech, your Nvidia, whoever else it is, putting that money back into some other areas that might be underperforming, because now you can buy them cheap. They're on sale. So why not, you know, add some money there? And then that will help again reduce the ups and downs of your portfolio and give you some smoother. so smoother returns and a more all-weather type stock portfolio. You know, I think that is so important. And like we've said before, Google is not your friend to go, oh, how to best balance my

portfolio and diversify my portfolio. You can't just Google that and go click. Here's the one for me because you personally, the retiree or pre-retiree personally, has so many different needs and their age is different than the next person. So working with someone like yourself to understand the full picture. sure before you start making recommendations. You can't just go, what's the best way to rebalance my portfolio and diversify? Because, you know, the 60, 40 for one person might look completely different than another person.

Yeah, everybody is different. You know, timing is a big factor if you're going to retire or you need the money in, you know, a year or two. A lot of people I talk to, they have money and, you know, they're going to use it for. a down payment in a year or their kids are going to go to college in a year. Do not put the money in the stock market. Just put it in a bank or a CD because I don't know what's going to, nobody knows what's going to happen, you know, from year to year. So timing is a big part of what you do. And just your appetite for risk. If you just cannot sleep at night and some people just can't, they watch the news. They see that, and you know, the stock market reports are everywhere. You cannot get

away from no matter what you do. They are just there. And they remind you, hey, you just lost money today. And a lot of people can't handle that. They don't like that. They don't want to see it. So their appetite for risk is a lot lower. So you need to structure your portfolio to reflect the amount of risk that you're comfortable with. 100%. Well, Jim, if someone is listening to this thinking, I don't like risk and I don't know how I should factor risk in properly to my portfolio for diversification, rebalancing, all the things we've talked about, what's the best way they can learn a little bit more and reach out and connect with you? You can go to our website.

It is myBRB. And there will be a tab for the wealth group and click on that and you will be able to contact us. Excellent. Well, Jim, thank you so much for coming back on today. It's been a real pleasure talking with you. Thanks, Mike. Take care. You've been listening to Influential Entrepreneurs with Mike Saunders.

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