Ep 14: Expected Investment Return Forecasts

Ep 14: Expected Investment Return Forecasts

The Smart Take:

You’ve likely heard that making accurate short-term predictions about markets is impossible (it is impossible), but what about longer-term predictions? Kevin discusses a recent Morningstar article by Christine Benz about longer-term stock and bond return prediction and how they should influence your retirement and investment planning.

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Click here to read the full Morningstar article.

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The Host:

Kevin Kroskey – AboutContact

Intro:                Welcome to Retire Smarter with Kevin Kroskey. Find answers to your toughest questions and get educated about the financial world. It’s time to retire smarter.

Walter Storholt:                 Another edition of Retire Smarter on deck, Walter Stoholt alongside Kevin Kroskey. He’s the president and wealth advisor, true wealth design serving you throughout northeast Ohio. He’s got offices in Akron and Canfield and a fantastic team around them. You can find out all about the team online @truewealthdesign.com, that’s truewealthdesign.com. Kevin, great to talk with you this week. Ready for another podcast?

Kevin Kroskey:                  I am, Walter. We’re going to look into the crystal ball on this one and talk about expected investment returns over the coming say of 10 years or so.

Walter Storholt:                Oh, I thought it was a magic eight ball, not a crystal ball, maybe that was my generation, was the magic eight ball.

Kevin Kroskey:                  Yeah. I don’t know what to say. I have a bald head and sometimes I’ll just look in the mirror and trying to rub it and see if the genie appears[inaudible 00:00:58] my daughter actually, my five year old, she doesn’t say bald, she says bulb. She thinks I have a bulb, b-u-l-b which I take as a compliment because I think of a light bulb and an idea generator, so that’s-

Walter Storholt:                I used to actually interview on a local radio station down on the coast of North Carolina, the president of the bald headed men of America. I don’t know what we talked about, but I don’t know why he would ever come into the radio station, I think he was involved … he was a great guy involved in a lot of local charities and he was a good dude. And so I think that he was just maybe involved in … I just had no idea that that organization existed, but there are many out there. So you’re not alone in your baldness

Kevin Kroskey:                  No. I have a good college buddy of mine who we give each other some razzes over time, I was on Facebook a couple weeks ago and shared a post and tagged him that said bald men are more confident and sexier in the eyes of women. And he said, “You posted that like three years ago.” And I said No. And so he actually took the time to go back and sure enough, I did share that with him and tagged him in it three years prior. So I don’t know, act as if, right?

Walter Storholt:                That’s right. Well you’re owning it, and so that’s the key. And with any trend with any style, you just you own it and walk around with confidence and people will think it’s pretty cool. So you pull that off well.

Walter Storholt:                We’re not talking just about baldness on today’s program, thank goodness. We’re going to talk about something maybe a little bit more important than that and maybe not as interesting, I don’t know, it depends on your taste I suppose. We’re talking about long term items on today’s show. So you probably hear at the beginning of the year, in the first couple of months you’re always hearing a lot of stuff being talked about, what’s going to happen this year, what’s 2019 going to look like? What are things going to look like two, three, four, five months from now. But I know that you feel, Kevin, a lot of the times, especially when we’re talking investments and financials, that that’s not really the way that you should be viewing these items, it should be a much longer term view.

Kevin Kroskey:                  Well, if we could predict what was going to happen in the investment markets in the short term, I’d certainly love to do so. But making short term prediction is more akin to flipping a coin. A lot of people do it. I think a lot of people that do it know that it really has no expectation of yielding something useful, but they make the predictions anyway. If they’re right, they look like a genius, and if they’re wrong, they hope nobody notices.

Kevin Kroskey:                  But the evidence on making the short term predictions is pretty terrible but what we’re going to talk about are what you call long term, but basically about 10 years. So if that’s long to you then we’ll call it long, but it’s certainly longer than one year. And the reason why, what we’re doing here specifically, I should mention this briefly, I’m referencing an article throughout the podcast that was published to Morningstar by an author named Christine Benz. She actually is a pretty good financial author and I’m actually going to be quoting some of the information from her public article. And the reason why I do that is as an author, as a writer, she’s not regulated under the Securities and Exchange Commission, and I am. And so if I start talking about some of this information, somebody could misconstrue it as investment advice, and so I’m going to use the back door here and talk about this in a meaningful way. But thank you Christine Benz for lending your work to me.

Walter Storholt:                So the crux of the article is again, this long-term focus on stock and bond returns and that’s got to be one of the most common things that you get asked about Kevin, is how can I get the biggest return for my money? There’s so much focus on that part of the equation.

Kevin Kroskey:                  I don’t know if there’s a lot of focus on it, but here’s why it’s important, let me put it this way, so when we’re doing a retirement plan for somebody, when we do the financial plan, you have to make an assumption on what the investment returns going to be. And the first thing that we want to do is we go through a client’s financial planning, construct it, we’re really measuring what it costs to live their lifestyle. We’re factoring in how that spending is likely to change over time as they age, going through the go go slow go and no go years, then we’re looking at social security and pensions and other income streams that they may have and making sure that we’re making smart decisions to try to optimize those. But then anything that’s not being met from the zinc up sources, the investments and savings have to do the rest of the work.

Kevin Kroskey:                  And so we measure how much work that they have to do, quantitatively we’ll back into a number and say, okay, we need whatever level of return your plan needs. But then we have to go out into reality because we just can’t throw pixie dust and get you that return. Returns are relative, they change over time, you go back 35 years ago and interest rates were in the double digits. Well that’s not where we’re at today. And stocks have been doing at least up until a few months ago, particularly in the US, they’ve been going on a gangbuster tear since 2009, but really what can we expect going forward? Past is not necessary prologue and in any sort of investment advertisement, you’re always seeing past performance is not indicative of future results. So you see that but that’s the thing that people go to first and foremost, they often use past performance or use some sort of track record, whether they’re selecting mutual funds or something like that to go ahead and use.

Kevin Kroskey:                  But we smartly need to use expected returns and not necessarily just past returns. And that’s going to go ahead and factor in whether you can retire, how much you can spend. It’s certainly going to factor in how your portfolio should be constructed, and if I use the word allocation throughout the call today, it’s basically just the recipe, the underlying investments that you have, the mutual funds or what have you or the ingredients. But then you need to combine the ingredients into a recipe and that’s our asset allocation.

Kevin Kroskey:                  So these expected returns are really beneficial for planning purposes. If you go ahead and change that, expect to return a little bit one way or the other, it’s going to have quite a substantial impact on most people’s plans because a small difference in return compounded over many, many years equals really, really big dollar differences.

Kevin Kroskey:                  So we’re not going to get any sort of exact expect return when we’re talking about these forecasts. But what I want to do today is use Miss Benz’s article to go ahead and talk about expectations, talk about what we should be using in our plan, talk about what we should be using to go ahead and influence our recipe or investment allocation.

Kevin Kroskey:                  So if we go to the first one, and she just provides about a handful or so of large investment companies, and I’m actually going to start with, John Bogle, who actually when recording this, just passed away about a week ago. Basically I want to say the father of indexing, there was actually index funds that were created before he started Vanguard, but he started Vanguard and really was kind of the prime mover behind that movement and behind the lower costs. So he’s quite an amazing individual, and so a little bit of honor shown his way.

Kevin Kroskey:                  I’ll start with his prediction. So he made this prediction in October, 2018 I’m assuming for her article. And so the highlights of the conversation that Bogle had with Christine Benz was four to 5% returns for stocks and 4% returns for bonds over the next decade. So four to 5% of stocks and 4% for bonds over the next decade. Now how he gets there I think is instructive because his model is pretty simple but it’s also pretty accurate. And all the other ones that we’re going to talk about basically are similar to this, but they’ll maybe have a little bit more flair to it.

Kevin Kroskey:                  So whenever you’re investing, you have returns from income, say if you have a bond that’s paying you interest or if you own a stock and it’s paying you a dividend. Not all stocks pay dividends, in the case if you don’t have a dividend paying stock, then all of your return is going to come from the capital appreciation, the growth in the stock price. So you’re always going to have, the total return is the income plus any growth. And growth can be positive or negative.

Kevin Kroskey:                  So what is really easily observable is the current dividend yield. So if you look at just the SNP 500 for example, it’s about 2% and it’s been about 2% for quite some time. I think it got down to a low of maybe 1.8% in 2018 but with the selloff we had over the last couple months, it’s now back up to about 2%. So that’s about 2% of the return.

Kevin Kroskey:                  And then you have earnings growth. So companies go out, they do their thing, they’re making investments, they’re doing business, and they’re going to have earnings. So if you think of just kind of as the simple math behind this, you have revenue coming in minus expenses, and then you’re going to get your earnings. It’s a very simplified model, but you’re going to have earnings. And really it’s the earnings growth, so kind of year over year growth that you’re going to have. And he says, “Well, that’s going to be in the range of about 5%.” So two plus five is seven and seven does not equal four or five right Walter?

Walter Storholt:                Not quite.

Kevin Kroskey:                  Okay. So the way that he gets back to the four or five is saying, “Hey, the stock market is historically pretty expensive and it’s been that way for some time.” But basically what he says is that there’s going to be evaluation contraction and kind of going back and the market being less expensive. So he says that that’s probably going to subtract out about two or 3% and that’s where he gets at four or 5% for stocks.

Kevin Kroskey:                  So one other thing that I mentioned, and this is important, it gets a little bit down the rabbit hole, but again it’s worth mentioning at least on some of the high level, we have the yield 2%, we have earnings growth and that tends to be highly volatile as is the evaluation component. So the earnings yield is pretty easy, the earnings growth can vary substantially. The valuation of the price somebody is willing to pay $4 earnings what have you can vary highly. So we got some part of this expected return equation and that is easily forecasted, if you will, and other parts that they can vary good debt. So that’s why I always kind of got ballpark of a forecast that we’re playing in here.

Kevin Kroskey:                  But one of the things that I like about Christine Benz’s article is a lot of these companies that we’ll talk about, will often make forecasts with a decimal point, so something like say 4.2 or 4.7 and that’s how you know, somebody has a good sense of humor because forecasting returns certainly is not that precise, and so using round numbers tends to kind of convey that and show a little bit of humility and doing this. But Jack Bogle, John Bogle, went by Jack is saying that the stock market’s going to do four or five and bonds are going to do about 4%. He didn’t comment on international securities, but how does that strike you, Walter? I mean four to 5% for stocks and 4% for bonds.

Walter Storholt:                Seeing my recency bias feels like that’s good because we’ve had so much growth already over the last decade, not even the last decade, over the last what, two years, but also had a lot of volatility just recently. So my recency bias kind of says, okay, I’m good with four to 5% but that does seem to be, check me, please fact check me on this, but that does seem to be below the average 10 year return in the market, right?

Kevin Kroskey:                  Oh, substantially lower, if we go back … point of clarification, usually when we say recency bias, what that means is somebody thinks what’s happened in the recent past, they can go ahead and just project that going forward. So in your case, you’re not falling subject to recency bias and saying, “Hey, we’re just going to keep getting these high returns, times are good, there’s no end in sight, future’s so bright I better wear shades.” Sort of thing.

Kevin Kroskey:                  So what he is saying is that “Hey, we can’t keep growing at the rate we’ve been. Stocks were low 10 years ago. They’ve appreciated substantially and got a lot more expensive. So we really need to kind of have a cooling off period.” A good example of this is if you go back in the 90s when the tech bubble was going, it was like 20% returns every year. You could just pretty much buy anything and if you bought something with a technology fund or something like that in the name, then the returns were even higher. But the market got so expensive that if you were just investing in the SNP 500 at the start of 2000 and held on for entire 10 years, you actually lost money over the entire decade Investing in the SNP 500 from 2003 end of 2009 which would constitute 10 years.

Kevin Kroskey:                  And a lot of people forget that, a lot of our clients come to us in their mid fifties or so when they really start getting serious about retirement planning, sooner the better, but that tends to be what usually happens. And Yeah, they were certainly working and investing over that time period, but they didn’t have much money invested, and so frankly they weren’t paying all that close of attention to it. So a lot of people forget that, and because we’re US based investors and because the US market has done so well over the recent past since 2009, it just looks like, “Hey, this is the place to be. Let’s keep doing it.”

Kevin Kroskey:                  But again, that example of the tech bubble and going through the two thousands literally you lost money investing in stocks over an entire decade if you invested in the SNP 500. If you had a more diversified mix, and again, I won’t kind of get into all the composition of that but maybe your money would have doubled or what have you.

Kevin Kroskey:                  So diversification is key. Just investing in something that has done really well recently is generally not a good investment strategy, it certainly has been more recently, but as Wayne Gretzky said, “You want to skate to where the puck is going to be, not where it was.” So Jack Bogle is saying about, if you just break it up, if you’re getting say 4% for stocks and 4% for bonds and you got some sort of any combination of those two, you’re getting a 4% return on your portfolio. So if that’s all that you need maybe inflation is going to be 2% so maybe your return after inflation is only going to be four minus two or two.

Kevin Kroskey:                  If that’s what your financial plan needs, then that’s okay. If your financial plan needs something a lot more than that, then that may not be okay, and you really will have to crunch the numbers about what do you really need and what you need is that really realistic? So we got Jack Bogel and we’ll go to someone else who is a lot rosier next. And who we’re going to go to next is Blackrock.

Kevin Kroskey:                  Blackrock, I think is the largest investment manager in the country. They have all kinds of different investment products that the manufacturer from exchange traded funds to mutual funds. They own several different mutual fund companies, I think it’s like $3 trillion or something that they have. And so they have a research department and they have some of their own funds and they have other funds as well. But they’ll go ahead and make these return expectations. And what their highlights are per Christine Benz is, hey, over the next 10 years, and this is as of the end of December, 2018 you can expect 7% from US big company stocks and outside of the US, if you go international you can expect about 9% and for US bonds, and we do have a sense of humor here because they’re saying 3.3, so let me repeat those numbers one more time.

Kevin Kroskey:                  7% for US stocks, so about two or 3% higher than what Jack Bogle was saying, but they’re saying that international markets you should expect more and about 9% per year over the next 10 years. So if you were just to go ahead and say, combine those two and let’s just use US returns for example, the 7%. so say I’ve got 50% of my portfolio in US stocks, so there’s 7% I’ll just use 3% on bonds, even though they said 3.3 I’ll just round down to show some humility. So we get three and a half from 50% of a stock portfolio. Seven divided by two is three and a half, and we get one and a half percent from bonds, 3% expected divided by two because it’s half the portfolio. And we come up with an overall return of around five.

Kevin Kroskey:                  So not too dissimilar from what Bogle was saying for a balanced portfolio, but they’re saying that you can actually expect a lot more from US stocks. And Christine actually does comment that their forecasts are much, much more so on the higher side compared to other firms that they picked out. So that’s some good news if they’re right who knows. But one of the things that it’s important whenever we’re looking at this as not only the returns, but we’ll know if we’re getting into kind of assembling our recipe, say, hey, how much do I want in US stocks or foreign stocks not getting down into the ingredient selection by just looking at a recipe.

Kevin Kroskey:                  Well, what’s really important is that if you can get the ranking right, say over the next five or 10 years or whatever time period we’re trying to optimize for, then you’re going to end up with the right portfolio. And here’s what I mean by that, Let’s say the Blackrock’s example here is correct, Say it is 9% for outside of the US big companies, so international developed large cap companies and the US does come in at seven, So if I favored foreign markets compared to the US, I’m going to have a better recipe because I’m going to have higher returns than if I were just a US based investor.

Kevin Kroskey:                  And you can take this even down the rabbit hole, even further to say well, we talked about big companies, what about small companies? Are they going to expect to do a little bit more or less? And then you could even look at say a style component where you have growth companies, more technology companies, healthcare, what have you, or maybe stodgy or value companies. So the returns could be disparate between those two as well. And really this is the process that we go through whenever we’re constructing the recipes for our clients for their portfolios, we’re looking at say, hey, what really has the best risk and return trade offs? But then when you combine things, you really want things that move in a dissimilar fashion, so when you look at the overall portfolio as a whole, you’re getting a smoother ride and higher compounded returns over time, at least that’s the whole gist of going through that portfolio construction process.

Kevin Kroskey:                  But if you get that ranking right, you’re going to end up with the right portfolio regardless of whether it’s 9% for non US large caps and 7% for US or whether maybe it’s 6% for non US large caps and four. So as long as you get the ranking right, you’re still going to end up with right portfolio, And that’s important to remember.

Walter Storholt:                And I don’t think a lot of people view it with that lens. It’s just mostly that focus on as a whole market up or market down, you don’t realize that there’s kind of some inside baseball to be played or some analytics to kind of go into making a more sophisticated portfolio or as you said, a sophisticated allocation there. So it’s Kind of interesting to see that there’s different ways to kind of put together a plan and take advantage of some of these prognostications and it’s interesting to read in this article, these different major players in the industry predicting different things and it looks just kind of bouncing around to a few of these other predictions. And I’m not going to try and steal any of your thunder here, Kevin, but it looks like not everyone is maybe as rosy as Bogle and a Blackrock were.

Kevin Kroskey:                  Yeah, good segue. So I’ll comment, we’ll link to this in the show notes if somebody wants to go ahead and read this. I can say that some of these sources of Christine Benz uses here are some of the same sources that we use when we go through our process and put together portfolios for our clients, so that was another reason why I referenced this article, but JP Morgan, which everybody’s heard of, Chase Bank, what they say is 5.25% for US so more aligned with Bogle than Blackrock, and they say about four and a half percent for US investment grade corporate bonds.

Kevin Kroskey:                  And then one other thing, to throw in another wrinkle here is they say that if you look over the next 10 years or so, they’re expecting about eight and a half percent for emerging market equities, so a little bit more than 3% more per year say over 10 years, you compound that, then that’s going to be somewhere north of 30, 35% cumulative return increase for emerging markets on expected basis compared to the US. I went over that pretty quickly but these numbers, again if we’re talking about 8.5 versus 5.25, 3.25% difference per year, but they’re making this forecast over 10 years and so if you compound that over all these years then it’s going to be something more than say 3.25 times 10 because of the compounding factor.

Kevin Kroskey:                  So it could be a big dollar difference. I mean if you had $100,000 in the US equities versus emerging markets and their forecasts actually come to fruition, we’re talking about real dollar differences on the order of probably about 35 or $40,000.

Kevin Kroskey:                  So one of the things when you look at these is the ranking is very similar and frankly it’s been pretty similar between all of these forecasts for quite some time. And that ranking has generally been, people are expecting emerging markets to do the best in large part because they’ve done the poorest over the prior period, and said another way, their valuations are attractive because they’ve been such a stinky investment over the last 10 years. Then outside of the US international developed countries like Japan, Europe, even Canada, our friends up north or outside of the US so they’re in that international developed bucket, the returns have been kind of lackluster and not as bad as emerging markets, but certainly not as good as US. US has really been kind of the darling, the place to be for the last 10 years or so.

Kevin Kroskey:                  And then the US equities are last in literally in three of these, excuse me, there’s more than three that are in this article, but the three that are highlighted and even more. So there is somebody that’s out there that is even more pessimistic on return assumptions and says that the evaluations need to kind of snap back even more to get back into kind of in alignment with historical norms and what have you, but I don’t want to scare anybody on the podcast. They can go read it if they want to read what GMO thinks.

Kevin Kroskey:                  But what’s interesting is here we are in early 2019. Emerging markets did really well in 2017, they did not do well at all in 2018. And if I go back and if I look at these historical forecasts from all of these companies over the last several years, this ranking has been pretty consistent. But in general, the US on average IS still been a better place to be. And it’s been weird, the US returns have really been into these fang stocks, the technology stocks, the Facebook, Apple, Amazon, Netflix, and Google, that’s reversed in a big way over the last couple of months as we went through some downside market volatility recently. But the point that I bring this up for is that these are long-term forecast, going through these different methods that these companies are going through to make these forecasts over 10 years, they’re going to have an explanatory power of about 70%, said another way, they’re going to get it at about 70 maybe 80% right. There’s still going to be a decent band where the actual returns are going to fall outside of what their ballpark was.

Kevin Kroskey:                  But in the short term making these sort of forecast over a year is really a coin flip and even though clients may feel like, hey a year is long or two years or three years is long, there’s a lot of noise and a lot of emotion that drives markets in the short term and you really cannot find any sort of reliable way to make the shorter term predictions, whether it’s valuation based, which is a lot of what we’re going over today on a call and Christine Benz or there’s some sort of like timing, market technician based ways. There’s no evidence that you can really predict what the market’s going to do in the short term.

Kevin Kroskey:                  People try it all the time. Clients would certainly appreciate if we could do it and we had that ability, but you just can’t do it, it just doesn’t work, so why blow the smoke? But if you can take a little bit longer viewpoint, these return expectations can positively influence the outcomes that you’re going to have in your portfolio and their critical that you have realistic expectations going into your financial plan. If you’re using historical returns of US market doing 10 11% like it’s done throughout say the last hundred years or so, you’re going to be sorely upset when you get into retirement and you’re basing your spending patterns on a 10% return assumption and maybe you’re getting something like half of that. That’s not going to be a good situation to be in.

Kevin Kroskey:                  So past is not prologue. You really do have to look under the hood a little bit and have some reasonable expectations about what you are going to spend and this is going to change over time. US, if you go back to 2009 the return expectations were really rosy, Why? Because the market just went down by about half. So this is continually evolving, It’s dynamic. Things can happen where emerging markets are very favorable, if they have a really good 10 year run, maybe even better than what some of these forecasts are, they may start looking expensive, so you need to do some of this constant trimming to your portfolio and go back to the kitchen and maybe come up with a different recipe about what’s going to be best for you looking forward over that intermediate time frame.

Walter Storholt:                I have this image of you as like a baseball manager or general manager and you’re looking at the next year’s draft class and you’re looking at their stats from their high school and college years and minor league times and you’re trying to construct your team for the next couple of years and trying to evaluate who’s going to help where, what’s going to be the best positions and ways to fill those needs and you’ve got an unlimited amount of dollars that you can then spend on those players and on those skill sets and you’d have to start deciding, do we want to pay more for that all star shortstop and maybe give a little bit back from the right fielder. What about the pitching staff? How much do we want to commit there and can we skimp on the catcher position a little bit if we’ve got good pitchers and trying to kind of evaluate all those different things.

Walter Storholt:                I’ve got this image of you doing that here with all of these stocks each year and not just stocks but the markets as a whole trying to figure out what’s going to be the best thing. So how do you sort of take a look at all of these different prognostications out there and these well respected companies in the financial world and some of these great minds like Jack Bogle and trying to figure out and read those tea leaves, not In the short term, but in the long-term and develop the best allocation possible? How do you give more weight to one who is saying there’s going to be seven to 8% versus some of these that are saying we’re going to be in the doldrums for the next decade and how do you arrive at your conclusion for your clients?

Kevin Kroskey:                  We take a survey of about eight different ones that we’re comfortable with our methodology, we understand it, and frankly we’ll compare them and hey, what’s the average? Who are the outliers? What’s kind of causing them to go that way? Frankly, right now it’s been a little bit easier over the last few years in the technical sense because all of these companies have a similar ranking, again, at least on the stock side, it’s emerging markets, it’s international developed and then it’s US. and that’s been like that for several years now, Like I said, in practice, that really hasn’t been the place to be because the US has been disproportionately better on average over the last few years.

Kevin Kroskey:                  But whenever you see that, hey these companies that have good methodologies to make these expected return forecasts are all aligning and they’re all saying that certainly the numbers may vary, but if the rankings are similar then that certainly gives us more conviction about overweighting something like emerging markets than if that weren’t the case. Now what to use in terms of return assumptions and typically we’ll go more towards the average there and maybe throw out some outliers. And certainly when you’re doing retirement plan projections for somebody and telling them that, hey, they don’t have to go back to work, you don’t want to screw that one up. So you don’t want to have to tell them that you have to go back to work, or you have to spend a lot less money than what we thought you were going to have to spend, you don’t want to do that.

Kevin Kroskey:                  So you don’t want to lead with a Chin here, but you want to be reasonable for sure, and frankly, if you have a good planning process and you have those goals that are really in the needs bucket, but some that are more discretionary or in the wish bucket, then you got to make sure that everything that is in the needs bucket is certainly going to be funded regardless of what the investment markets may deliver to us.

Kevin Kroskey:                  That’s really how we go through it. It’s something that we do, literally we have meetings every month, now they expect returns, some firms will update those quarterly, actually I think one does it monthly, but generally that is a little bit of less frequent. As long as you’re doing that once a year, then you should be okay. But the most difficult part is not really that technical part that I just described, it’s really keeping people disciplined and you look at the short term returns of the US market and saying, hey, the US had done really well, we should really start owning less of the US and going outside. And then you start doing that and then the US market still is kind of a better place to be, all these companies, the BlackRock’s, the JP Morgan’s, the GMO’s, they were all wrong, but again, you can’t predict the short term, 12 months is not a long term, three years, frankly, is not a long term.

Kevin Kroskey:                  And so it takes a lot of discipline. If we have a client that really understands the process and the methodology and we’ve earned trust in that relationship, then it’s easier to keep them discipline. Frankly if you start working with a new client and you get off on the wrong foot, which it’s going to happen if you’re in business long enough, even if you have the best process and the best thinking in the world, some weird things can happen in the investment markets in the short term and pragmatically it’s more difficult because you haven’t had that long term track record and a lot of positive experience and build up that relationship.

Kevin Kroskey:                  So I think when you look at most financial advisors, the relationships tend to be very long term, but if there is a relationship that’s lost, the actual research shows that typically it’s lost in like the first 12 or 24 months. And I would speculate that it’s probably because the investment markets went a different way, even though the philosophy and the methodology could have been very sound, it’s just that the clients didn’t understand or not enough trust was built up. So you can have the greatest portfolio in the world, but if the clients can’t stick with it, it doesn’t do any good. But if there’s one thing that anybody that’s listening to this should take away from today is, one or three years is not the long term. So the process is really going to drive the results over time and I know that can be difficult when you’re paying somebody for advice and you’re not seeing really good returns or what you perceive as good returns, but they should be able to explain it to you what’s going on, what the reasoning is. And if you understand the underlying philosophy and it makes sense that a lot of times you just need to have the patience for it to work.

Walter Storholt:                So Kevin, let’s say that I’m listening to the program today and as fascinating as this is to you and I, kind of this high level stuff and looking at these different conversations about expected returns and the 0.8% versus the 0.7 we get a kick out of that kind of stuff. What if I don’t, and I’m thinking about working with a financial advisor, maybe working with your team and want to learn more about this and get a good financial plan in place, but my brain just doesn’t have the capacity to dive in or the will to learn about all these little moving parts. So what does the conversation look like kind of taking it from this high level financial advisor point of view to the everyday planning process?

Kevin Kroskey:                  Sure. Well, I guess what I would say is, honestly, in my experience, most financial advisors don’t get into this level either. So I probably owe an apology to all the listeners. Hopefully I didn’t get too too far down the rabbit hole. But again, you need to have these expect to return assumptions and then it has some pretty decent ones at that to factor into your planning, it’s going to factor into when you can retire, how much you can afford to spend, what have you, and it’s also going to go ahead and influence the recipe for your portfolio.

Kevin Kroskey:                  So if what we talked about today make sense to you, you want to learn more about it, you’re not doing this work and maybe you’re kind of handling things yourself, but you do need some more guidance, you’re not sure if your recipe is really the right recipe and we didn’t even talk about sourcing ingredients, which is a whole other ball of wax or if you’re going down a path that you just need a second opinion and maybe the advisor that you’re currently working with, you’re not sure if he or she is really kind of taking an approach like this very deliberate and thoughtful approach into your planning. Or maybe you’re just getting sold some investments or insurance products, we’d be happy with to talk with you if you just go to our website @truewealthdesign.com it’s truewealthdesign.com there’s a little button there that says request a 15 minute call, so it actually says “Are we right for you?” And which then goes into then go ahead and request a 15 minute call.

Kevin Kroskey:                  We currently have four certified financial planners and one CPA on staff and one of us would be happy to talk with you and see if there might be a good fit to go ahead and get together and explore relationship and give you some of the information that you’re looking for so you can make a smarter decision about your planning for today and ensure you’re going to be okay for tomorrow.

Walter Storholt:                Hey, we called the show Retire Smarter and I feel like I added a few IQ points today to the ledger, thanks to you Kevin. So I do appreciate the high level approach. Sometimes I think it’s important, we shouldn’t shy away from getting informed, getting more information, getting educated, and sometimes challenging ourselves to try and absorb and learn a little bit more about kind of what’s going on out there. If we’re talking about working with you, it’s our money after all and so we should know as much as possible about what goes into these different decisions behind the scenes and I found it very helpful.

Walter Storholt:                Again, 855-TWD-PLAN is the number to call if you’ve got questions for Kevin about anything we’ve talked about on today’s show or if you have suggestions of maybe a podcast you’d like to hear about in the future, a particular subject you’d like to hear discussed, we’re open to those suggestions of course. 855TWD plan is the number or go to truewealthdesign.com to find out more, listen to past episodes of the podcast, subscribe and to contact us all through the site there, truewealthdesign.com.

Walter Storholt:                Kevin, thanks for all the help and we look forward to another great podcast next week.

Kevin Kroskey:                  Thank you, Walter. I appreciate it.

Walter Storholt:                Much appreciated. That’s Kevin Kroskey, I’m Walter Storholt, thanks for joining us. We’ll talk to you next time on Retire Smarter.

Speaker 3:                           Information provided is for informational purposes only and does not constitute investment, tax or legal advice. Information is obtained from sources that are deemed to be reliable, but their accurateness and completeness cannot be guaranteed. All performance reference is historical and not an indication of future results. Benchmark indices are hypothetical and do not include any investment fees.