Business Innovators Radio - Interview with Jonathan Leonard, Founder of Leonard Financial Solutions Discussing Market Risk

Episode Date: February 2, 2024

Jonathan founded Leonard Financial Solutions out of his strong desire to improve the lives of everyone he meets. For the majority of his career, Jonathan has worked for non-profit companies and in church ministry. Seeking a career change while still passionate about helping people, Jonathan branched into the insurance and financial services industry to provide his clients with access to all of the best products available with holistic strategies to tie everything together into one comprehensive plan.It is Jonathan’s main focus to build his practice based on honesty and integrity. He cares more about serving his client’s best interests rather than making a “sale.” If you have an existing policy or plan that already suits your needs, Jonathan will always let you know that you are in good hands. He prides himself on ensuring every client he meets finds value in investing their time with him.Learn More:http://www.leonardfs.com/Influential Entrepreneurs with Mike Saundershttps://businessinnovatorsradio.com/influential-entrepreneurs-with-mike-saunders/Source: https://businessinnovatorsradio.com/interview-with-jonathan-leonard-founder-of-leonard-financial-solutions-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 us Jonathan Leonard, who's the founder of Leonard Financial Solutions, and we'll be talking about market risk. Jonathan, welcome back to the program. Hey, Mike, good to be back again. Thanks for having me. Hey, you're welcome. And I think that we've got about a nine-hour talk ahead of us on market

risk, so we'll try to keep it nice and concise, right? Because risk and volatility, that is quite the topic. And we don't want to get into the weeds. But I know that everyone is cautious and confused about risk and volatility. So talk a little bit about just your initial approach when you're working with a new client. How do you bring up the top? of market risk to assess and make sure that they are realizing what market risk can do to their portfolio. Yeah, that's one of the first things we talk about is how risky they want to be, you know, how comfortable they are with risk. Now, some people are more comfortable than others and some people want more protection from volatility in their portfolio. Some people,

they're okay with having a fair amount of risk, you know, and I think a lot of it has to do with age as well. So, you know, for me and my team, most of our clients are over the age of 55. So that's where we specialize in with our with our pre-retirees and retirees. And so one of the things we talk about with them is just one, understanding where they're at and what their goals are. But then two, just talking to them about, yeah, sure, how what with what they currently have, if they don't make any changes what could happen. But I think it comes down to, you know, what I see a lot of clients want is they want some protection from volatility, but also they don't want to completely miss out on all

the market upside either. Okay. So, you know, how do we, how do we balance both of those things? Because, you know, you can't have everything, right? So there has to be some sort of balance where, yeah, we're protecting from volatility with without being like too conservative. And now we're missing all that market upside. So I think a lot of it is just educating them on their different options at that point.

And, you know, a lot of clients, I say when you're in more of your working years, right, in your 20s, 30s, 40s, even early 50s, I think those are the times where we can take bigger, bigger risks. And I think as we're approaching our mid-50s and beyond, not that we have to be completely 100% out of things that are of risk,

but we now have to look at adding in some protection in some way, shape, or form into the portfolio where not everything is 100% exposed to extremely volatile stocks and bonds. Yeah, just start

tightening up just a bit because now we're starting to, you know, see the runway, you know, getting shorter and shorter to the time that you want to retire, whatever age that is. You know, you mentioned balance and volatility and missing out and it reminded me of, you know, you go to the grocery store and you get into one line and, ooh, that other line looks good. So you get into that one. But then you always look back and you're like, oh, man, I should have stayed in that line. So you don't want to miss out, you know, and to your point about missing out in, and you want to be conservative, but not so conservative that you do miss a some good upsides. The, the, um, the flip side of that is chasing, you know, and I, I feel like a lot of

people, maybe your clients are like, yeah, but if I just jump over here and, and they feel like they want to chase this and they, they saw this big move in whatever sector, and they want to chase that, but then isn't it true that when you start chasing that kind of thing, that kind of can kind of nip at your heels too on that volatility and get you out of balance. Yeah. And it's also exhausting. Yeah. So. You know, I think part of what we do is we want to set you up with strategy and a plan where we're going to have, you know, I think everything in life, Mike, is centers around balance, right? And not, we can't be living in certain extremes. I think everything, even like with our health, it's about balance. It's like, you know, do we have to have a strict diet all the time in order to be healthy? No, we can have days where we can go have a pizza or have a hamburger, right? I think 80% or 90% of the time, we should be eating. being healthy and making smart choices and exercising and taking care of our bodies. Do we have to do it every single day?

No, but the majority of time we should. And the same thing in our financial sphere is we don't want to be doing things that are involving extremes all the time either. We need to have balance. You know, there's, you know, there are two schools of thoughts when it comes to, you know, planning. You know, there's investment science and then there's actuarial science, right? And I think the financial world, a lot like other things, has become so divided.

And when I say investment in actuarial science, I say, you know, the investment science is where we're just, we're investing in the market, right? We're, you know, we're looking at stocks, bonds, mutual funds, varying degrees of risks. And then actuarial science is where we have more like fixed products, whether it's an annuity or life insurance or money market CDs. And the two schools of thought constantly, you know, they clash against each other and saying, oh, well, no, this is the right way. No, no, this is the right way.

They have more protection. No, take more risks and ride the highs and lows. So, I mean, part of what we try to do is just to say that there's merit in both sides of the investment side, which we call our growth bucket and the actuarial side, which we call a protected bucket. So there's ways to marrying both things without having to be extreme one way or the other. you can have a balance of both and have a really awesome plan that's going to do great for you and your family. Yeah, I mean, I've said for years and years, and my wife has probably told me two or three times you need to write a book on that on balance because it really is applied to so many areas of our life.

You know, like drinking water is healthy, but if you drank too much water too fast, you can literally drown because it's out of balance. And to your point about the growth bucket and the volatility, all in balance and balance compared to your age versus when it is you want to retire versus how long you need your money to last. Like we mentioned in our last conversation. But I think market risk and market downturn, I think that in the last few, I don't know, decade or two, people are a lot more tuned into market downturn. So what happens, you know, like maybe when your client, before your clients come to you, they got socked in the gut from a market downturn. And now you're talking to them about a nice balance. How is that downturn affecting their retirement savings?

Because I do know that you mentioned your dad took a big hit back in the day and it wiped out, what, 40% of his retirement. And that sure readjusted his clock. So talk a little bit about market downturn. Yeah, market downturn can affect us in a lot different ways. I'd say obviously the people it's going to affect them most when there is a major market downturn like we had in 2022 or 2008. The people that affects the most are people that are closest to retirement. Yeah.

Because now they don't have the gift of time to recover. It's going to take them longer to recover, which, you know, something they weren't necessarily planning on doing. And like you said, in my father's situation, you know, he was 60 years old in 2008. And, yeah, he lost about 40% of his portfolio. And on top of that, he lost his job as well. You know, he worked as a senior vice president for a packaging firm in New York City. So, you know, he made a nice salary. And, you know, now he was left with no job.

He was 60 years old. And, you know, not to, most people weren't hiring 60-year-old executives. Yeah. Sure. And so, you know, my dad had, he and a couple other guys. that also lost their job they had the the courage to start their own business at that time and you know my dad you know it's still the business is still up and running you know to this day you know 16 years later um and so my dad he sold his share of the business about four years ago and so but

yeah there were tough times and so people depending on when those market downturns hit um it impacts them greatly. And last year or, you know, two years ago in 2022, we had a market down 30 S&P was down about 19%. And so, yeah, last year in 2023, we had a lot of people coming to us that said, you know, we were in very aggressive, you know, portfolios and now, you know, we're down, we're down about 20%. We lost about a fifth of our, you know, life savings here. You know, can you help us? So, yeah. Well, remember that we're chasing. I would venture to say that they feel like they need to chase to get that 20% back, but you need more than 20% returns. You need probably 30% returns to recoup that 20%. So probably your advice to them is,

let's put some nice balanced strategies in place. We're not going to try to close that gap and regain that. If it comes, it comes. But we can't chase that because now we're going to be tempted to, you know, dip or toe into that volatility and market risk again, right? Right. And, And most advisors, Mike, are just going to say, you know, hey, just sit tight. You know, it's, market's going to correct itself. And yes, it will over time. But like you said, if people are already in their retirement and they're taking money out of this account that's already lost 20%. So if you're taking, let's say, a 4% withdrawal rate, yeah, they're compounding that loss even further.

And now the rebound of that, you're probably going to need more something like, yeah, close to like 30, 32, 33% to get back to even. And so, and the reality is if you're, you know, you're 65 years old, you're retired, you just lost 20%, let's say you had a million dollars. Now you're down to 800,000. Having your advisor tell you, hey, just sit tight, markets are going to fix themselves. That's not really what you want to hear, right? That's not comforting.

And the reality is it is a bit misleading because, yeah, it is going to take, several years for hopefully again several years i mean in 2000 2001 and 2002 we had three down years consecutively right so to say to tell someone that the markets are going to correct themselves they they couldn't over time but it might not be that next year might not even be the following year well and those people are feeling it every day and they're looking at the news every day and they're looking at their statements every month and they're feeling like man it's not moving at all and you're like, hey, we've got to broaden that to five and 10 years. That's what, you know, correction is. And they're like, but I'm looking at today. And so it really gets down

to perspective, which also makes me think of how do you assess and determine how much risk clients are comfortable with in their portfolio so that you can then make some recommendations because everyone comes to you from different life experiences. Some just had those three years of bad returns. Some, like your dad, had a big 40% drop. But everyone has their level of risk. And it's almost like asking them, well, how much, what percentage are you willing to lose in your portfolio? And now of a sudden, their answer is probably will zero or, well, 10%. So talk a little bit about how you determine how comfortable clients are in determining their level of risk. Right. So one of the first things you do, and just to kind of go back just real quick, two seconds with when you have those bad downturn years, and let's say if there were multiple years in a row with a negative market return, it adds not only to, you know, you're feeling the financial loss, but then just kind of mentally, you're now fixated on it. You're worried about it. And when those kind of things build up, now it's going to ultimately affect your overall health.

right that can deteriorate as well too and that's that's something we talk about with our clients is i always say you know you can't put a can't put a price on peace of mind right yeah so one of the first things we do is you know we say hey if we're able if you feel comfortable enough to share you know your statements with us we can take a look at your current portfolio right now there's all kind of softwares that that we use that can show you okay if you stay in this portfolio you have you know, whatever percent of chance risk of this, you know, you losing money by the time your age X, right? But we say, you know, again, we go back to the two-buckets strategy of, well, let's take

those risks off the table. You know, we're still able to capture upside for you, but we're adding in some layers of protection for you now. And instead of chasing rates of return, instead of. looking at the risk of having multiple negative return market years in a row, would you rather have the peace of mind of knowing that you have a plan in place where you're getting the income that you need and that you're still getting all the growth that you want to and let it have its fluctuations ups and down? So when we are having down years, obviously we don't want to have down years,

but we're not freaking out about it. We know that's going to happen, right? That's just life. We know we're going to have down market years. And so we want to, but what we want to do is try to mitigate that as much as possible. Yes. Not eliminate it.

We can't eliminate. It's mitigate. Yeah. It's impossible to eliminate it. And, you know, advisors are going to promise you, oh, I'll get you 10% in my portfolio. And one of the first things we tell our, you know, prospects and clients, Mike, is that, yeah, I don't have a crystal ball. I can't tell you what markets are going to do the next 10, 20 years.

I can tell you based on the past, how they've averaged. I can certainly tell you, like, here's the current forecast that some experts are predicting. But the reality is I don't have a crystal ball. We can, we can, we can, we can, we build out plans for you based upon how. past performances have, and we set it up and structure in a way that we're mitigating certain things and we're minimizing certain things while still trying to capture all that upside. But I can't sit here and tell you, I mean, it's completely unethical and quite frankly, it's illegal to say like, oh, yeah, markets are going to do, you know, our portfolio is going to do

11% over the next 10, 15, 20 years. That's just not true. So we can do our best to prevent certain things from happening. and to mitigate those risks as much as possible while still giving you all the the upside. 100%. And I love how you go, here's the line. You know, if anyone is.

And what I heard you just say makes me think, if anyone is out there hearing from some other financial professional, those kinds of statements, please run. Please realize that they are not being acting in your best interest. So that's a huge thing to keep in mind when you're. when you're out there hearing things, right, in the market. Yeah, and I think even Warren Buffett would tell you that too. You know, and he's not very well for himself, and he's brilliant, but yeah, he doesn't have a crystal ball into the future.

I mean, but he does a good job of planning around certain things and mitigating certain things and knowing how to capture the upside as much as possible while minimizing his downside risks. Now, if I'm correct and remembering, there's a quote associated to Warren Buffett that goes something like put all your eggs in one basket and then watch that basket, you know, with all your might. And, and I think that that kind of flies in the face of diversification. So what's your opinion in your two bucket strategy? How diversified should the portfolio be to handle volatility? And a lot of people would go, oh, well, I've got my money in 14 different stocks.

That's diversification. Nope, because it's all in stocks. So it's not different stocks. It's the type of investment. So talk a little bit about diversification. Yeah. So depending on how savvy, investment savvy someone is, you know, we always like to keep it, you know, a conversation. So if they like to be more hands on, they have certain, you know, stocks, bonds, ETFs that they like. Yeah, sure. We can give you our opinion on it. And, you know, that's something you want to look at. That's great. You know, usually on our, we call it, growth bucket. Yeah, we're looking at like a stock bond ETF type portfolio and we have different

varying degrees of risks depending on, you know, we could we could do a 90, 10, we can do a 70, 30, 60, 40 whatever they feel comfortable in doing and we can show them, you know, the rates of return they've had over the last several months, six months, year, three year, five year, 10 year returns. So they kind of get an idea. I always say we like to look at whatever they've done, over the last 10 years, let's anticipate half of that.

So we're showing them a really conservative illustration and expectation. So I always like to say we like to under promise and over deliver. Yeah. So if our portfolio is like our 9010 portfolio over the last 10 years has done about 11.5%. So when I'm showing us when we put together these illustrations for our client, I show them six and just say, let's let's say we do six. Well, then they'll say, well, Jonathan, it says 11 and a half. Yeah, I know what it's done the last 10 years.

But I'm going to, let's assume six. Yeah. Because that way, you know, if we're expecting 11, that's a pretty high number. Yeah. Obviously, I hope it does 11. And that way, if I'm telling you, let's expect six. And even if we do eight or nine, you're saying, hey, Jonathan, thank you. you. You know, that's great. I think giving them a reasonable expectation is important.

Yeah, but if you said 11 and it did eight or nine, they're, they're steaming mad. Right. Exactly. So setting expectations is so huge. I think that is spectacular. Let's think about an example without giving details or names or anything, but what would an example be of a client coming to you? Maybe they've had taken some hits in the market and you're talking. talking about your two bucket recommended strategy and regarding balance and market risk. What are some of the recommendations that you would provide? Yeah, so like I said, we have our growth bucket where, you know, we can look at a stock bond ETF type of portfolio with varying degrees of risks.

And then on our protected bucket side, you know, we say that we want to look at investments that have full principal protection, you know. So on that side, you know, you have money. markets, you have CDs, you have fixed and fixed index annuities and cash. Okay. And so all of them have varying degrees of risk and, well, not risk as far as downside goes, but as far as returned. So some will give you a fixed rate of return. Some will give you some more volatility on the upside. But, you know, so we kind of just go over those different options with them. We talk about the pros and cons of each one of those protected bucket investments and usually leave it up to them to want to decide what they feel comfortable doing for themselves and their family.

You know, and the thing that I listen for when I have people ask that question is, well, we always do this or we make sure the client makes this decision. And that's like what I'm saying about the person that hears from an advisor, you know, statements that they shouldn't be making. Well, what you just described was, well, we show them and we give them options and we guide them and we teach them and we educate them. That was the feeling that I get. And I think that is so powerful to have that overarching. Let's be cautious. Let's be careful. Let's have a nice balanced approach.

Here's some things to keep in mind so that they can make the decision themselves. And I think that that is just the ultimate of making. the right choices given where you want to be and where you are right now. So that is just spectacular, Jonathan. If someone is interested in learning more about what you guys are doing and reaching out and connecting with you, what's the best way that they can do that? Sure. Go to our website. It's Leonard F as in Financials as in Solutions.com or if you want to type out the whole word, you can type out Leonard Financial Solutions.com. And right there on our homepage, you'll see a link to my calendar where you can schedule a free consultation for any

time that's convenient for you. Excellent. Well, thank you so much for coming back on today. It's been a real pleasure talking with you. Thank you, Mike. Thanks for having me. 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.com.com.com.com.com. Welcome.