Business Innovators Radio - Interview with Steven Michael England,President of Capstone Estate Planning, Discussing Risk and Volatility in Retirement

Episode Date: October 29, 2024

Financial advisor and Retirement Planner since 1982, Best Selling Author of “The Wealth Lifestyle”, honored with numerous industry awards and honors of achievement. I value close business relationships with clients and treat them the way I would want to be treated.Learn more: http://www.thewealthlifestyle.com/This podcast is for informational purposes only and should not be considered legal, health, investment, tax, profession advice. We are not responsible for any losses, damages, or liabilities that may arise from the use of this podcast. This podcast is not intended to replace professional investment, tax, or legal advice. The views expressed in this podcast may not be the views of the host or the managementInfluential Entrepreneurs with Mike Saundershttps://businessinnovatorsradio.com/influential-entrepreneurs-with-mike-saunders/Source: https://businessinnovatorsradio.com/interview-with-steven-michael-englandpresident-of-capstone-estate-planning-discussing-risk-and-volatility-in-retirement

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 Stephen Michael England, who's the president of Capstone Estate Planning, and we'll be talking about navigating retirement with risk. and volatility. Stephen, welcome back to the program. Thanks for having me today, Mike.

Hey, you are welcome, and I know that there's a lot of words that trigger feelings in our gut, which are not great, and risk is one of them. And I know that anytime you're thinking about the markets or your retirement funds, you don't want to have risk and volatility, you know, weighing you down. So I'm excited to hear how you are advising your clients in this. So let's get started first with, let's define what actually is risk and volatility as it relates to a retirement plan. Well, it's really how much you could lose. And I think of risk as really the volatility is probably the risk. It's, you know, markets go up and down. And the first thing we try to do, and it's really factually based. It's just to is to determine,

through software, someone's current risk score, risk and volatility score. So you have a number and it compares it to the market. And it's not saying, and when you receive that score, it's not saying that risk is bad. It's just saying basically you end up with a grade, a grade point average like in school. But basically, it's saying, are you being rewarded for the risk that you're taking? and sometimes people are and sometimes they're not, but the volatility is what really hurts people in retirement, and that's what I try to teach people basically show them.

It's not so much teaching. It's just showing them and help them to understand how volatility can hurt them in their retirement. So you have to protect against that and try to minimize that. That's the whole idea. Yeah. You know, and I think that's a great point you used minimize, not. eliminate because many areas you can't eliminate risk you can't eliminate taxes um so i think that that's a big point to keep in mind to set proper expectations right right and i think if maybe i think you're

right might if you hear that maybe you're not listening to the right or maybe someone's not being 100% honest with you because there always be some risk and some taxes etc if it's too good to be true, it probably is. But you know, one thing that's interesting, for as long as I can remember, you know, I'm age 65 and I started in 1982. So I've seen a lot of ups and downs in the markets from Black Monday when I was a broker young in the business, which really scared me. It did a lot of handholding. And through all the ups and downs, but the traditional strategy would be, what they called the 60-40, which was 60% stocks and mutual funds, equities, and 40% bonds. And that worked pretty well for most people if they didn't want a lot of risk.

And some people had a 70-30 or an 80-20, but that was the whole idea. But when you looked at 2022, everything was down that year. Yeah. You know, stocks were down 25%, bonds were down 15%. So everything was down. So that didn't work very well. And a lot of the retirement funds have, you know, target date funds or lifecycle funds.

And all those types of things just automatically adjust into bonds as things become more volatile. So we've seen that people have had to change their strategy, really ever since the pandemic, things have changed. How you make money has changed, how you protect your, and how you do your blends has changed. And, you know, this year has been fantastic and everyone's made a lot of money. And what I ask people is, well, how do you know you won't slide back down the hill? And they say, well, I don't.

Or that's what I'm worried about. So you have to have, you have to know what your risk and volatility is, not just what someone tells you that you're, that you're, that you're in. some category, whatever that means, but you have to know what your risk score is and you have to have a strategy that you can live with and you have to understand that volatility can really hurt you in your retirement if you don't protect against it. So let's talk a little bit about some of those categories and you said you've got to know your risk score.

Well, how does someone just figure that out? think that's like a Google search. What is my risk score? Right. They won't. It basically, we do a free evaluation to determine someone's risk and volatility score. And then that, they obtain a grading, like a grade point average, like in school. And the software is grading it not because they have risk, but are they being rewarded for the risk that they're taking. And then it's stress tested, and it shows the range going forward that will they be up or will they be down? What will the range be within about a 98% accuracy? And that's really important for people to see what they have. They basically learn more about what they have. And then that

determines how well, you know, do they have a good grade? It does their program fit them? And can they live with the volatility that the software says they'll have. And that's really how you determine, that's how you navigate the risk in volatility. Yeah. And I think also if the software says, you know, here's volatility, can you handle this? One client might say, yep, that's great. The next client might say no way, no how. So it's all, it gets all down to you. What is your personal feeling. So how do you deal with risk and how would that make you feel? And how much can you afford to lose might be different for everybody. So there's never a cookie cutter. Right. I love that question when you ask someone, how much can you afford to lose? Well, and I've had people say, I can't afford to

lose anything. Right. Right. But of course, you'll have to take some risk and you'll have to have some volatility, of course. But I think it's really interesting because the grade point average doesn't say you can't have risk. It's just saying, are you being rewarded for the risk that you're taking? And so can you imagine this? What if you do the stress test and the grading and you find out it's like a C, but you have stock market, 100% stock market risk and volatility, and you're only graded at a C. And you're saying, well, C isn't very good. Plus, at my age, I don't want 100% risk.

And so that's someone where their plan does not really fit them and they need to make some changes. Or someone could have the traditional 60-40 strategy. And you'll find out that's not very effective today. It used to be, but now things have changed. It's really not that effective. And they're much better ways to do things. And I think some people are familiar with 60-40 strategy, but can you define that so we can understand what that is? Right.

The 60-40 is where someone would have 60 percent in equity, stocks, mutual funds, ETFs, and they'd have 40 percent in bonds or bond-type instruments. Or many times people have funds, whether it's an income fund or a bond fund, a life cycle fund, a target day fund. And some of the target date funds, if you're older, they automatically would go into something like a 70%, like a 70-30 in reverse of the 60-40. So you'd have very little equities and mostly bonds just because as you get older, it automatically goes more into bonds. So these things, some of those just do not work very well in this day and age. in the time that we live in. And maybe that's, and we don't need to get into the weeds of specifics,

but maybe it's because the old, you know, 40% in bonds is meant to be more safe and maybe bonds aren't performing well. So we're going to still do the 40% but put it in some other type of category that is more safe and still accomplish the same thing. That is absolutely true. But I think the biggest thing is find out

what your risk and volatility score is, your grade point average and see how it stacks up. To me, it reminds me if you had a newer car and you went to the dealer or the shop and they plugged it into a diagnostic machine, it's just going to spit out exactly what the issue is. There's no, it's just going to tell you the truth about where the car stands. And that's what this does. And then you'll know.

if your plan number one is competitive, but also does it fit you and what you can live with? Because, you know, the old strategies were, and most of the investment groups, they will categorize you into someone conservative, moderate, or aggressive. Those three categories. And what I've found is that that's way to broad and not specific enough. and that doesn't work very well. If you have something like that, that would be like saying,

I don't know how to make a comparison, Mike, but it's just way, it's just, it's just way too broad with those three boxes to determine how your plan is set up. And that's what they do generally. And then you have a lot of people, they just have someone set it up for them.

They ask them a couple of questions. They check off, you know, moderate and then they set up their program. Yep. So are those categories that are typically, you know, like it's the old saying, oh, we do things the way we do them because we've always done them that way. Well, that's scary. And are the old buckets, aggressive, moderate, conservative.

Those are the typical buckets you kind of think of hearing like good, better, best. Those are not really as helpful to be thinking about it because you might need to be dialing it a little bit deeper on each one of those, right? It's so true. And I think a lot of people, well, some people today, whether it's their 401K or their investments, they end up fund that supposedly automatically does it for them.

And it does that blend for them. But as they get older, it just automatically, without looking at the markets or interest rates or anything, it just automatically puts more into bonds as they get older. And ever since we had the pandemic bonds, you know, with rising interest rates, bonds really have been terrible. So it's, I would just say you need to know if your risk and volatility fits you. And then you need to know what your grade point average is with that, you know, plug-in diagnostic test and determine if you have something competitive and if it fits you and if the volatility is something you can live with. Because can you imagine if the software said that you had a high range of the potential of loss if the markets, if we had a correction?

And you didn't know that or you weren't prepared for that. And at least you would know what the range would be. But I would say as we get older, you want the range to be narrowed. So that, and you want consistency because if you start taking income or when you're forced to take income, you want consistency wins. So I think you look for something most people as they get older want something a little more conservative. Reliable. And what consistency. And that's how you make more money because I'll give you one example.

we had a gentleman with a major investment group and he had several million dollars and he said, I have done fantastic this year. I've made a certain amount of money and it was impressive. But when we ran the EKG, the software that did the diagnostic test and grading, the software said that he had like an A grade for a one-year return. but his three and five year returns, especially as five year, was a C. It was not very good. It was like 6%.

And the reason was he lost a lot of money in 2022. And he had to make that all back and then go up from there. So you can see right there the risk and volatility, mostly the volatility really hurt him. You know, that made me think of something you mentioned about when you need to take money out. Well, if you don't have your spread, your mix, your categories, you know, set the right way and there's risk and volatility in happening, then you might need to pull out X number of dollars this particular year because, A, you might be required to, but based on the government's requirements, but B, you might need it to live.

Well, if you have to pull that out and the market took a dive and your portfolio is having some risk there, you've got a double whammy, right? You pull the money out and the returns are down. It's so true because, you know, when you're younger and you're working and you're putting money away every week or every month, you take advantage. And most people know what this is. It's dollar cost averaging. That's where you're putting in a certain amount of money every week, every month. And you're just buying in, the markets go up and down.

And when they're down, you're buying cheap shares. And over time, you make money that way because you're younger and you have a lot of time. before you're, you know, you're going to retire. And when you retire, reverse, we call it reverse dollar cost averaging can really hurt you. And exactly what you said, Mike, you're taking money out, but markets are down and it costs you more to take that same money out. And it's especially true when people do Roth conversion, required minimum distributions, or can you imagine you have some kind of health issue and you need money? and it's not a good time to take it. It's just, I mean, that's a double whammy too.

So you have to have some protection. You think about what you have. I don't think of a retirement account or someone's investment account as a dollar, as a number, even though it is. But it represents a lifetime of work, 20, 30, 40 years, hard work, savings, and dedication. And you think about what all you went through and all those. years to accomplish that. You certainly don't want to lose it and you need to make it last for your lifetime, your spouses and you, you know, you'd like to pass some of it on. So I think having this whole risk volatility thing in line with, you know, what you can live with and what you can

will make you comfortable so you can sleep at night, that's the key to it. As well as the fact that you want to make some money and take advantage of the markets and everyone wants to make as much as they can and and you know of course brag about it i mean everyone wants to talk about how much they made and no one ever wants to talk about what they lost but um i think that just knowing uh i've seen some people that honestly the stress over the markets and up and down and what's going on is very unhealthy for them and other people it doesn't bother them at all maybe you have five million and you can afford to take some risk and you really don't care. You have great income. You don't need it. Well, that's a different type of person. So you have to have a program that fits you.

But this test I'm talking about and the grading, the grade point average is just such a, I've had people tell me they've never learned so much about what they have. And it just tells you the truth. You can't manipulate it. It's just the truth about what you have. And then you go from there, maybe you don't need to change anything. But about 80% of the people that do the testing that I talk to, they need to either make some tweaks or maybe some significant changes. You know, when we think about risk, there's a lot of things that go into that like we've been talking about. But it makes me think of too. Like, yeah, there's the market risk we've been discussing. but what about, you know, the importance of doing what you're saying to do here, which is be aware of it, make adjustments

were needed. It's so much more important when you start thinking, oh, well, if and when inflation raises its ugly head, and I still have risk and volatility, now that amplifies the concern there. Oh, well, maybe what if the taxes go up, tax rate to go up, maybe that is something that's going to amplify that. So I think that this is so important to think about, you know, people feel like, yeah, yeah, yeah, risk. But I'm, you know, people are living longer. So they need their money to last longer.

That's a risk. Inflation is a thing. Sometimes it's up. Sometimes it's down. Taxes. Question mark. So all of these things have such huge importance. So do you have any when you meet with clients that say, look, I don't care what that

says. I want conservative, guarantee, you know, something where it's like, let's just make sure there's not volatility, are there solutions you recommend to help mitigate that? Of course. There are plans that have, you know, either a stop loss or or a floor, if you will, where the, you know, the money is guaranteed against loss, those types of things. But, and I do have people tell me that. But most of the people are going to, to blend those two things together and have, you know, have the level of guarantees and safety that they can, that they want, and then have the amount of money that they know will be volatile with the markets up and down that they can live with

and have a plan that makes sense and it's competitive. But if you don't have something that fits you, whoever you are and everyone's different, there are some people that line up almost the same but it's always a little bit different but if you don't have a plan that fits you and if you don't know what will happen with your plan

you'll be quite unhappy and what excuse me and what you're trying to do is have an enjoyable life and enjoyable retirement and to be able to focus

on your family and the things you'd like to do So I think if you have your risk and volatility out of line, you're really looking for trouble if certain things happen. And it's a simple process to get that analysis done, then to see where your risk and volatility is. So if someone is interested in learning more about what their risk tolerance and risk volatility score is, what's the best way that they can reach out and connect with you? They can email me at Steve at capstoneestateplanning.com. Excellent. And I will also post the link to your website with some contact information there as well, and that would be really good.

Well, Steve, thank you so much for coming back on. This has been really enlightening because we don't want to take bad risk. We want to take good risks, and we want to make sure that the risk we're taking is in line with what resonates with us so that we enjoy what the future brings. So thank you so much for bringing these insights to us. My pleasure, Mike. Thank you. You've been listening to Influential Entrepreneurs with Mike Saunders.

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