Business Innovators Radio - Interview with Mehran Rad Founder & President of R&AP Financial Discussing Market Loss Protection

Episode Date: August 21, 2024

Mehran Rad is an Investment Advisor Representative with a passion in helping retirees, and those approaching retirement, to avoid the common financial mistakes of retirement through comprehensive financial planning.As a Fiduciary, Mehran works diligently with his clients to help them take control of their financial future through education and use of financial strategies designed to help them with the critical areas of retirement planning, including:• Retirement Income & Social Security Planning.• Tax Minimization Strategies.• Investment & Risk Management Strategies.• Estate & Legacy Planning.Mehran started in real estate development and investment back in 1988 and has been in the financial service industry for the last 22 years. He is a graduate of Guilford College with a BS degree in Business and a minor in Economics. Mehran has passed the NASD Series 65 (Investment Advisor Representative) and has met all requirements for Life insurance and Long-Term Care licenses in several States.PersonalMehran grew up in Chapel Hill, NC, and is a big Tarheels fan. Soccer has been a big part of his life as he played in college, and several years after. All three of his boys have played professionally for teams such as Sporting Kansas City, Hartford Athletic, Huntsville FC, and Portland Timbers.Outside of the financial world, Mehran enjoys walking, golfing, hiking the Arizona trails, and watching soccer, but above all, he loves spending quality time with his family.Learn More: https://www.retirementap.comInfluential Entrepreneurs with Mike Saundershttps://businessinnovatorsradio.com/influential-entrepreneurs-with-mike-saunders/Source: https://businessinnovatorsradio.com/interview-with-mehran-rad-founder-president-of-rap-financial-discussing-market-loss-protection

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, Mayeron Rad, who's the founder and president of R&AP Financial, and we'll be talking about market loss protection. Mayeron, welcome to the program.

Good to be with you, Mike. Thank you. You know, when I hear market loss protection, I really feel like, okay, we need to be protected in a lot of areas, but especially from the markets and volatility. So I'm excited that you're going to be giving us some guidance on this. But let's just first start by defining what is market loss protection. Explain what that is. And then obviously, it's a part of the financial retirement plan. why is it so important in integrating in with a good financial plan? Great. Yeah. So market loss protection or downside protection on an investment happens when

techniques are used to mitigate or prevent a decrease in the value of that investment. It's meant to provide a safety net if an investment starts to fall in value. So the reason that market loss protection is critical in financial planning is that investments have risk and will have losses at some point. But not everyone has the same risk tolerance. So when folks open up a brokerage account, when they establish it, every owner answers certain questions that will determine how much risk or losses they're willing to accept for what rate of return. So the planning should correlate with that individual's risk profile. So with that being said, protecting an entire portfolio from losses may not be necessary at all times or even make sense depending on how much is the protection cost and when the investments are expected to be cashed in or needed.

Yeah, that's a good point. And I like that you use the word mitigate. You know, you're looking to mitigate market loss, not eliminate. Because you can never eliminate really anything. It seems like, you know, we can help mitigate taxes. We can help mitigate risk, but you can never eliminate them. So that's, I think, a huge clarification. So market loss protection is super important.

Obviously, it's critical in financial planning because we don't want our retirement portfolio getting hit with hard market losses because that impacts how long we can have access to that money of retirement. So I'm glad that you brought it up that way. Talk a little bit about how market loss protection is different than other risk management strategies, because I have a feeling that that's such a broad category that advisors will advise their clients on. So talk a little bit about that. Yeah, they kind of sometimes go hand in hand. But market loss protection or market loss control focuses on reducing the possibility and the severity of losses through safety and risk management, kind of that word again.

while the risk management itself focuses on identifying and measuring exposure to loss. So there are risk in all investments. Successful financial risk management requires a balance between the potential risk and potential rewards. So it's a balancing act. Yeah. So one side of the equation identifies it. The other side starts to implement some of the protections. So that's really good.

So what are some of the common methods of putting in. some market loss protection and implementing that once you've identified them? Well, there are three most commonly used methods. One is called diversification. Everybody is familiar with that. And that is a fundamental investment risk management strategy. So diversification involves, you know, spreading the investments across various asset classes like stocks, real estate, annuities, and commodities.

following a diversification strategy can help reduce the impact of any single assets, poor performance on the overall portfolio and create a more resilient portfolio that's less susceptible to market swing. So everybody is familiar with, you know, owning one stock can go down to zero. But owning a basket of stocks, even if that goes to zero, there's a very good likelihood that the portfolio still stays viable. So mutual funds, ETFs, that's diversification of the stocks in more than one. Yeah, that's a good point.

And, you know, I think that sometimes people even get a little fuzzy on diversification. You know, they think that, oh, it means this. What are some of the ways that you get questions from clients when you bring up the concept of diversification? Well, to me, the biggest issue is diversification. everybody thinks of the, what I call Colombian coffee, you know, 30, 70, 60, 40. So that's just because you go to a 50, from a 50, 50, 50, 50, to a 60, 40, you still have full exposure. The diversification didn't happen. The true diversification happens when you go to other assets, as I mentioned, like real estate, annuities, commodities. So it's important to diversify across asset classes,

not just change your percentage within the stock market. Yeah, to me, and I'm a newbie at everything. I'm not an investor. So when you explained that it made me think really clearly, and I'm glad you brought it up that way, because if I take my entire retirement portfolio or investment portfolio and I put it in Apple stock, that's not diversified.

But someone might think, oh, well, I've got half of my investment portfolio in Apple, and the other half in Tesla. So I'm diversified. Nope, because it's still stocks. And maybe it's a different industry, but what you're saying is asset class. And what's the proper mix and all of that? Well, guess what?

It's going to be different for everyone. And what is your goal and your outcome and your need? And that's where that good financial professional could sit down and assess that. But I'm glad you mentioned that diversification because I think a lot of people would go, I don't have all my money in Apple stock or any one stock. So I'm diversified. Nope. Great point. Exactly. So let's think about that.

The second. Oh, go ahead. Yeah. There was three diversification was one. The other one is considered called hedging. Hedging is a strategy that uses financial instruments like options, futures, or derivatives to offset a potential loss in an investment. Now, those words, options, futures, derivatives sounds really dangerous when people hear, oh, lots of risk. But in this example, an investor, let's say, holding a significant position in a particular stock, like you mentioned Apple. And they might buy a put option to protect against a decline in that stock's price. So the put option can give them the right to sell a stock at a set price, which can limit the potential losses. So if a stock's price falls below that set price, the investor can exercise the option to sell at the higher price. but the option was, therefore offsetting the losses from the stocks decline.

So it might not totally offset the loss. It might not upset at 100%, but it might kind of mitigate it kind of help ease the pain a little bit, right? It's all about managing that risk and the loss. Correct. As you said, you can't prevent 100%, but these are strategies to, again, mitigate. And the last out of the three is called it. is stop loss provision.

The stop loss orders, they're designed to limit an investor's loss on a particular investment or holdings by triggering a sale when the asset reaches a predetermined price or percent loss, just like the airbag in your car that is designed to prevent serious injury in case of an accident. Stop loss is an airbag for your investment accounts, which you kind of determine in the beginning. So the strategy helps protect the portfolio from significant losses during market downturns, then ensuring the losses are capped or limited. So these are the, if you have any questions, but these are the three main ones. I love stop losses because you

know going in, meaning when you purchase a position portfolio stock, you know going in how much risk you're willing or how much loss you're willing to stomach. Somebody's risk maybe 10, 10%. Somebody's maybe 20%. Once it hit that threshold, then it automatically goes into cash, get sold and goes into cash. So that's kind of having a plan and what your stomach can handle in terms of losses and risk. And I'm confident that your clients or the pre-retiree has no clue what diversification hedging stop loss. They don't do anything with that. But it's nice to know that when you explain this to them and say, let me just explain how I'm going to help mitigate that market volatility to make sure that everything's as protected as possible. And you can give that, you know,

like 30,000 foot view about what diversification hedging is stop losses. They might not understand every single intricacy, but they go, okay, he's got it covered to protect me and to keep the huge losses. I think that's a really great way that you just laid it out there. Yeah, but Mike, what I'd like to do is add a fourth option to this. That is, not that commonly used or talked about, which I like to introduce and give as an option to my clients. And that is called a fixed index annuity because we talk about you can't prevent a hundred loss. We try to mitigate. But this may be one of those options that you can still participate in certain parts of the market gains.

But you can, just like that stop loss, if you say, I don't want to have any loss. So a fixed index annuity is a money management tool sold by insurance companies that credits rate based on a market index and guarantees that the principle would not be reduced, even if the market turns down. So it has the same fundamental structure as a fixed annuity if you want both safety and tolerance for variability. You can't lose money. It's generally going to be going up over the long haul, you know, five to ten years. years. So we can expect a couple of percentage points more than just a traditional fixed annuity, a little bit more of an upside potential, but with the same safety and not losing principle. And just like we mentioned about diversification, you would never say to a client,

put every dime you have into that solution or that tool, but it's part of a good balance diversification strategy. Absolutely. So talk a little bit. We've been talking about, you know, So how does that market volatility make the, you know, market loss protection so vital and how do you prepare for it? So I know that a lot of people, you know, hear volatility and that's a big old word. But in reality, you open up the news one day and, you know, people are running for the hills going, the stock market is going crazy. And then you look at the news a week or two later and it's like, wow, we're booming. Well, that means that the market is going up and down and all around. So talk a little bit about that volatility.

Right. And we are in the midst of one of the biggest volatility we've had in the wild, right? So market volatility brings increased opportunity, believe or not, to profit in a shorter amount, but also carries increased risk. What do I mean by that? There are two financial phases for everyone in the financial world. One is the accumulation phase and the distribution phase. In the accumulation phase is when we're working and saving for retirement,

some volatility of stock market risk during this phase is actually welcomed. Why? Because when we're contributing to our retirement accounts, you know, 401Ks, 457s, TSPs, 4 or 3Bs, all those accounts. If the market goes down, we can buy more of the same funds. And when the market goes up, the overall portfolio value is going up. This is called the dollar cost averaging. So in the working years, that, That's to our advantage. Again, accumulation years is a perfect strategy, not so much to worry about. And also, if you're five years or more from retirement, you may have a better chance of recuperating any losses if you had experienced that. So during the distribution phase, the second phase, volatility is the income killer. And a comprehensive plan should be in place to eliminate, eliminate, not just manage, but if you can eliminate, market risk from the portion of the portfolio that is designed to generate the guarantee income is vital. So diversification, hedging, stop loss provisions, along with monitoring the portfolio

are the most common ways we prepare our clients for market volatility. If the client is near already in retirement, then we may also introduce the fixed index annuity as another option to the mix, as you said, part of diversification. Because this already has a built-in market loss protection component inside of it. Another great advantage of the principal protected low-cost, new generation in fixed index annuity is that it can provide you with a guaranteed lifetime income feature with long-term care built inside of it at no additional cost. I hope you appreciated what I just said because one thing that we're not going to talk about in this segment is the long-term care, right? But this has that built-in. So if you decide to take

lifetime income, great. If you needed long-term care, great, it kicks in and gives you double or triple the amount. And if you didn't use either one of those, didn't need income or didn't need long-term care, the full value is passed on to your... And it's still sitting in there. Yeah, we won't go deep into that, but I do know it's, it makes me think about like my car insurance. if I pay my car insurance all year long and didn't need to make a claim, they're not going to give me my money back. That's kind of like a long-term care policy. If you have a standalone policy and pay the premiums that didn't need it, well, you don't get your money back. Well, in the vehicle you just mentioned, the benefit is there if you need it, but if not, the money just still sits in that in that tool.

So I think that's a really great point. Again, and you bring up a good point about volatility too, where volatility is not a nasty word 100% of the time. time. It's just bad in the years that you need to take your money out and use it. But if you're in your 30s, 40s, maybe 50s, you got plenty of time to recover from some of that choppy volatility. So it's not a bad thing all the time. A lot of our clients that come to us near retirement or retirees, that's actually how they accumulated their wealth, right? They were in the stock market, most of their working years in 401Ks and sponsored plans. So, no, we don't dislike. stock market or volatility is just there is a time and a place for it. Yes, be aware of it,

prepare for it, all of that. So awesome. So let's just wrap up with what advice you would give listeners that are just starting to think about their investment strategy and maybe even at the same time of just starting to think about, maybe even looking to get a second opinion like what is my investment strategy looking like? But what are some of those things that people should be thinking about. Yeah, the pre-retirees and retirees are the groups that we serve and I'll work with. So I'll try to answer that and focus on them. So the first thing is to understand that they're transitioning from accumulation phase to distribution phase and changing their mindset from go, go, go and grow, grow, grow, grow mentality to keeping their hard-earned money they work for

and save for 30, 40 years by reducing or eliminating losses. at this point is crucial or critical. So studies have shown that if you're going to be taking income from your retirement accounts for over for the next 15, 20 years, because we are living all living longer, a few bad stock market years or volatility years can cause a substantial reduction in assets and worse yet, running out of the money in income years. So as we discussed, there are a few market loss protection strategies we went over, but it's very important. important to work with an experienced and knowledgeable advisor to design a customized plan tailored to your needs as everyone is uniquely different. Yeah. And in addition to finding someone that will have your best interest in mind, you can't do

this on your own. You know, it's like you can't just Google, find this, click, here we go. This is something where it is intricate and complex and you want to just make sure you are getting the right thing at the right time and making the right time and making the right decision. So, yeah, working with someone like yourself is just so key because you want to make sure that you're prepared and mitigating the right thing at the right time. Absolutely. Well, Miran, it's been really great talking with you here, how to get some of these protections in place. If someone is wanting to get that second opinion or reach out to you and have them,

have you take a look at their plan, what's the best way that they can reach out and connect with you? I would say the first place is to visit our website. It's www.R.R.AP.com. They can also reach out, email us at M-E-H-R-A-N-Meyron at Retirementap.com. And if our phone number is needed, it's 602-561-2-6-1-2-3-3-3-3-2. two, three. Excellent. Well,

Ray, Ron, thank you so much for coming back on. It's been a pleasure talking with you. Great. Close to you. All right.

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