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Bonds, stocks, put options, call options, cryptocurrency, derivatives – there are thousands of ways to invest your money. 

Understanding how all of these work is a full-time career. But you shouldn’t invest in something you don’t understand. 

So how do you create a sensible strategy that grows your wealth sustainably? In this episode, Wall Street veteran Lester Himel stops by to share how to simplify your finances without sacrificing returns. 

Want to know exactly how your money is growing? Listen now! 

Show highlights include: 

  • The weird way Wall Street ignores the grim reality of aging and could set you up for going broke in retirement. (3:15)
  • Why anticipating the worst in your financial planning makes you wealthier than looking at optimistic forecasts. (4:44)
  • Why you need to “expect the unexpected” if you want secure finances and long-term wealth. (7:33)
  • How comparison creates unrealistic expectations and nudges you to harmful investment decisions. (11:55)
  • Why mutual funds are “micro-diversification” and only pretend to keep your portfolio safe. (18:38)
  • The portfolio approach that takes care of your 93-year old self (even if you’re still young) (22:42)

Remember to download Grandma’s Top Tips for an Independent Financial Future by dropping into https://grandmaswealthwisdom.com/free/. It's time for YOU to break through to a smart, stable, financial future.

If you’d like to see how Grandma’s timeless wealth strategies can work in your life, schedule your free 15-minute coffee chat with us by visiting www.grandmaswealthwisdom.com/call … just like Grandma would want us to do. 

Links mentioned on the show: 

Find out more about Lester Himel here: https://thefinancefixer.com/planners/lester-n-himel/

Read Lester’s blog here: https://www.himelfinancial.com/blog

Watch the full YouTube video here: https://youtu.be/j8k2Lz0mRZo

Read Full Transcript

A hearty welcome to “Grandma’s Wealth Wisdom” with your neighborly hosts, Brandon and Amanda Neely. This is the only podcast that helps you take charge of your cash flow and leverage your assets, simply and sustainably, the way Grandma used to.

Amanda: Hi, and welcome to our Grandma's Wealth Wisdom, where we help you break through to a smart, stable financial future, with the tried and true wisdom Grandma used.

Today we're continuing an episode we recorded live on YouTube with Mr. Lester Himel. The first part of the interview was amazing. We encourage you to go back and listen to that. It was Episode Number 85, and then today is Episode 86 where we're continuing the conversation.

The last time, he kind of opened up the problems with Wall Street as a former Wall Streeter, and then today he's answering the question “Then, what if I'm ready to do something? What’s the alternative?” and he's going to talk about that a lot, some really good things about business model and things like that. [01:12.5]

Big takeaways for me: looking for a business model, playing on the edges, making our financial lives simple, and then he talks about what questions to ask. Then there are some really good juicy details about mutual funds and micro diversification, so be sure you listen to that, and he drops a really awesome tip at the very end.

Hope you enjoy this interview with Lester. We're going to kind of pick up midstream. Be sure you've listened to the last episode to get the most out of the rest of this interview.

Amanda: Lester, you mentioned people don't know what the right questions are to ask. Can you give us some of the questions that people should be asking? Whoever the financial professional they're working with or maybe they're doing it themselves, what questions should they ask themselves about their financial futures? Let's start with what will you do when you're 82? That's probably a great one to start with. [02:08.3]

Lester: Yeah, and let me repeat a phrase that I gave earlier. In this industry, the business is done backwards. That is, and it goes back to the somewhat comical, dark humor, the story about you're 22 and walk into HR for the first job and you fill out the papers, and you're told this is the thing you're supposed to do. It's very similar when you walk into an investment advisor’s office in my experience, and remember I tested these people constantly. That was quite a part of my career.

Walk into a new broker dealer, a new investment advisor, and he says, That's great. Sit down, good to meet you. How much money can you put to work? $100,000? That's great. Okay, and how much more can you contribute every year and for how long, and when are you going to retire? Again, we're trying to figure out, starting today, and when are you going to walk away with all this cash? [02:56.0]

Okay, the story continues. The average return of the last X number of years was this, and if we look forward, we can project this, and our investment advisor group over here, this economist, says it's going to do this this year and our analyst says this is the fund to use and so on. They say, By the time you reach 65, you're going to be worth this. They don't typically say, Now, when you're in your retirement years, have you considered one of you might die before the other, one of you might need long-term care? In fact, statistically, both of you will.

One of you might need more attention with this and maybe the expense will be that, and when they say that your requirements for income because you're going to travel or you won't travel and you're going to need less money or more money, we think taxes are going to go up or down or sideways when you're in retirement.

All of these questions are ignored by so many of the advisors out there. Am I at risk in terms of someone contradicting me saying, You're just wrong. Fine. Find the advisor that is doing all of that and you're in good shape. Most advisors do not. [04:06.8]

They don't want to address long-term care when you're 40 years old. Why? Because that's the threshold upon which long-term care policies start getting sold. Why do they only get started or why do they only go on sale, let's say, at the age of 40? Because that's when the least resistance starts or, more accurately, the insurance companies have the wherewithal to when it gets very cloudy, but the idea of long-term care policies, no one wants to talk about long-term care. The advisor doesn't. The client doesn't. I’ve sold long-term care as a writer on a whole life policy to an 18-year-old and I'm looking to do more of that.

The idea of anticipating the worst is what the planning is supposed to be. It's not supposed to be anticipating the best. The idea of putting all of these things into some sort of a package, again, if you're not being asked or you're not asking about “What happens when I'm 90 years old and I have no options when the market goes down? What are you putting me into that addresses that?” [05:09.6]

To be more specific and I hope clearer, if you're lining yourself up to be in a volatile investment environment when you're in your twenties, thirties, forties, and fifties, funds, stocks, bonds, again, I'm not anti-Wall Street purely, but to continue that game and have that kind of investment scenario in your seventies, eighties, and nineties, does that make sense?

Amanda: Yeah, it totally does. I mean, it doesn't make sense, but I'm following your logic. It's like the people say buy and hold, but if you're going to buy, you’ve got to be able to hold for real, but that’s impossible. I think I’ve heard you talk about that before. You can't buy and hold.

Lester: There's an Ibbotson chart that people tend to or professionals tend to look at saying, if you put a dollar to work in the stock market in 1928 - [06:06.3]

Amanda: Yeah, you gave us the chart.

Lester: - today it will be $15,412 or some silly number. When I'm asked about that chart, I pull it up on the computer or actually I have a full scale up poster here, but I ask one question. Great. In 1928, what was the stock you bought that made it to the $15,412 figure? Every one of the stocks and the Dow Jones Industrial Average in 1928 is no longer part of the Dow Jones Industrial Average. The idea of looking at these charts and graphs and saying, Yeah, but, fine, how?

These charts and graphs are created backwards, right? Somebody sat here in the year 2012 or 2019, or at some point, and said, gee, if I put money to work in the Dow, the Dow would have done this and this and this and this and this, but the reality of the investments is how do you know what to drop and when, and what to pick up and when? And if you don't have that in front of you, neither does the guy at Merrill Lynch. [07:17.2]

That, right away, it should throw a series of hurdles in front of you to assume the best of the stock market is not realistic, and that's why Taleb a number of years ago wrote a book about black swans. The unexpected in the investment arena is to be expected.

Brandon: We actually had two people on our YouTube channel and you guys can check it out, Perry Marshall who is a really amazing speaker, the 80/20 Sales and Marketing guy, and Mike Michalowicz. Both said the idea of black swan events are going to happen more and more frequently, and Mike Michalowicz said we're in the age of agility or something like that, meaning, black swan events are going to happen. [08:06.4]

Now, black Swan events or events that, Hey, I didn't think that was going to happen and that affected my--

Lester: Who knew?

Brandon: Yeah, who knew that a barge was going to get stuck and affect prices, right, in the peninsula? Or we were in North Carolina and who knew there was going to be a hack when we went in North Carolina and there would be no gas? We didn't know and that was a black swan weird event and there's going to be more of those things, and that kind of scares me.

Then what happens now and I have this all the time, people are now asking me, What happens if the dollar collapses? or should I do this or that? and I'm getting a lot of those questions more now and wanting to see a double-digit rate of return, but then they want the guarantees. How do you answer that when they're asking, What if this and what if zombies attack? How is my policy going to perform? Anyway, this does happen. [09:10.5]

Lester: There's a lot to that. The first thing I would point out is that, yes, I agree. There’s going to be more and more of these black swan events and I’ve referred to it on my blog as turbulence. I used to talk only about volatility. Turbulence outweighs volatility. Turbulence is just rougher and the idea of …

Back when I started trading years ago, I got caught up in what was called at the time globalization. The idea of globalization, now it's behind us. Everything is global today. The idea of an economy in Europe not affecting us, no, maybe, in 1860, it was some minimal effect, but today it's direct. The effect of any turbulence, which could be anything from geopolitical economic climate, you talk about any source, and you'll find a way to destroy or to change or to elevate the level of volatility that you're going to be seeing. [10:10.3]

But the answer to the question, unfortunately, and this gets a little bit into the erudite arena, whenever we buy anything, we tend to compare it to something else, right? Even down to if I blue socks or red socks, because I like blue more. Therefore, it's worth 1.98 more than the red. There's a comparison, but it always settles into what you want and what the price is.

When you buy a house, you've got to get a mortgage and you're going to see 3.75 percent versus three and three eighths. There's a comparison, which bank should I use?

When we talk about what we're talking about today, investments, there are, again, comparisons. It's automatic. If someone says to you, Should I be buying this life insurance? Why? What’s the big deal? What are you trying to tell me? what they're doing is they're saying, What's the rate of return? [11:07.5]

If they don't use those exact words, that's what they're thinking of regardless, and they're asking you, Will it outweigh? Will it outperform? Will it do better than my buddy over here with this broker dealer or what my cousin told me over the barbecue that he can get? Your answer, my answer tends to analyze first the comparison. Why are you comparing it to the stock market? Let's go back to the last 25 years, 7.3 percent. No. Let's talk about what it really did or what your perception is suggesting and how we can then take the real numbers, and then let's talk about why we have something worthwhile.

Unfortunately, it's not a two-word answer, but the idea of the comparison is key to everything we do in the financial world. That has to be understood. Once we're there, then we can start to really figure out what we're talking about. [12:06.0]

The reason that whole life insurance as a comparison makes more sense to me than bonds, and I think stocks, but funds anyway, is the consistency of earnings will outweigh, will outperform funds, bonds, and I can prove both, long term. I'm not suggesting a given fund will outperform the index in a given year. I don't know. But over 10, 20, 30, 40 years, I'm pretty confident that I can do well. The idea of that comparison, striking home with the people asking the questions, that's where you have to go.

Again, it's not a two-word answer. In our business, it's all too easy to say, Look at this list of great attributes that we're showing you, but that doesn't ring a bell in any one particular mind, does it? I mean, what you're saying is, yeah, it has this and it has that, but my buddy over here at this broker dealer, he's telling me I can get 17 percent this year like I did last year. No. Over 50 years, what's going to happen? Over 10 years, what's going to happen? [13:15.0]

Going to the other part of the question about what about the dollar loses its value and so on, a bigger answer traditionally has been, which I do buy into, my liabilities have to play a key role in this analysis. If I'm investing in Europe in Euro because I'm going to live in Europe, then I have to be paying attention to what the Euro does. If I'm living in the U.S., my liabilities are here. Does that mean I ignore inflation because all the products are made in China? No. I can't afford to ignore it, but I can't go crazy with this. I have to figure out where I can afford to invest, to what degree. I still want certainty overall in what I'm going to end up with over the course of time. [14:03.8]

Grandma always said, “Eat your vegetables. Look both ways before crossing the road, and never risk your financial future on elements of the market you can’t control.” That Grandma, always good for some tried-and-true advice, and although some of her wisdom seems to have skipped a generation, you don't have to be left behind.

Download “Grandma's Top Tips for an Independent Financial Future” absolutely free, when you visit Grandma’sWealthWisdom.com. Don't wait. Get Grandma's best tips today.

Brandon: I think that's huge. I mean, it's more than just buying a life insurance policy versus stocks. It's what do we do with our everyday money and our voting with our dollars actually matters? I could go into all kinds of politics out here, but really we can sometimes say, Oh, I'm making all this money on this thing that's helping Europe grow or this grow or whatever, and helping my fund to grow, but then we're divesting from our own backyard almost. [15:08.5]

That's why I like somewhat the business model for me of thinking about, hey, what am I doing to help build my own backyard, I guess? Does that make sense?

Lester: Sure.

Amanda: Yeah. The problem is that there's just too much to learn, right? You can't. You can't know everything and politics does influence the economy and vice versa. Most people are talking about the dollar collapsing or cryptocurrency taking over, but nobody's talking about things like I saw a news alert today that the Congress is starting to pursue antitrust and that has to have an impact on the stock market. I have no idea how it couldn't, right? I know you're in New York.

I think New York State is pursuing some antitrust to work, too, on a state level, Lester. I don't know if you know anything about that, but I think that can reshape our economy more than cryptocurrency probably will in the next few years, but nobody's talking about it because it's not being popularized, which actually you mentioned globalization. [16:12.2]

There's actually a whole movement. World Localization Day is coming up nine days from today. It's June 20. I'm going to put a … World Localization Day, all about supporting and promoting local supply chains and making sure we don't have a shortage of things within a local area, just because halfway around the world, some ship got stuck in a canal or there's been a tsunami or an earthquake or something like that.
Nobody is talking about localizing supply chains, except for this group from what I can tell and a couple others. I wanted to give a shout out to them because, I don't know, you guys probably have never heard of World Localization Day before today, but it happens.

Lester: We're going to have to rent garages to store the toilet paper, right? [17:01.7]

Amanda: No, we've had shortages of semiconductors, shortages of IV bags, all kinds of shortages because we've globalized our world.

Brandon: I am not a fan of Starbucks. As you guys know, we are not fans of Starbucks. We haven't drunk Starbucks for almost 20 years, owning a coffee shop. But I heard on the news the other day that there's a big shortage of products and they were just saying it's going to affect you. You're not going to be able to get your latte because there's a shortage of supply.

Now, I don't know what happened. I didn't totally watch the whole thing, but I'm like, Huh, this is interesting that we're going to not have our chai and coffee, that’s happening, too, and it's just interesting how it's going to affect us. Now we're not going to be able to drink our latte.

Lester: On a small level, we're talking about, yes, local, and, yes, specific products, but on a broader scale, how is that going to play into the stock market? How is that going to play into the bond market? How does that affect the credibility and the credit worthiness of bond issuers, for example? It's a growing problem. [18:12.6]

Yes, the news is making sure that they get some readership from all of this speculation and from all of the alerts coming out, but the reality is things do change and we just have to adjust accordingly. Again, I'm not a fan of mutual funds and I actually did say a moment or some time ago, but now I would mention why. Here's why. Mutual funds are what I refer to as micro diversification.

Now, diversification in a portfolio is supposed to be your own, say, antique cars, stocks, on specific companies, by the way. Ming vase. You put money into things, coins, Krugerrands. You put money into things that if one dips because a weak market appears, it doesn't affect the others, non-correlated assets. [19:06.6]

Mutual funds are a diversification of a different sort and that is if I put money into, let's say, 10 different stocks, all in the tech field, IBM, Facebook, the FANG stocks, basically, if I do that, am I diversified? Yes. If one company goes to zero, the others presumably do not. However, if the tech industry stumbles, are they all going down together? Yes.

But, more important, imagine now you're buying money. You're buying money. You're investing money in a mutual fund, which has inside it, let's say, 100 different stocks in a given industry. The idea is that if one goes to zero, you're not going to lose a lot of money because the other 99 stocks presumably don't go to zero. But here's the problem. One goes to 1,000 and the other 99 stocks stay stable. Are you going to feel that one stock going to 1,000? No, and you're being charged for the privilege. [20:12.0]

So, the idea of fees and lack of, let's call it, growth potential in comparison to even an index that it's related to, whether it's in the S&P, the Dow, whatever, what you're doing long-term is you're trailing the index by virtue of that fund’s micro diversification. If you're going to trail the index, what you're really saying in investing in funds is you think the market is going up. You don't know where. You don't know how, but it's going up. That's what you're doing by voting with your money.

If that's the case, doesn't it make more sense to just ETF on the index? Why bother with the funds? The fees are higher. They're not going to get you anywhere. Again, long term, whether you feel that tech stocks are going to do well in the next year and a half and the funds are a best way to attack that, then, fine. [21:02.8]

But if you're dealing with a 401(k), you're dealing with an IRA, you're dealing with just general investing, and your investment advisor says, Here's a hot little mutual fund. We can hold on to this for the next 10 years, no, so I'm not a fan of mutual funds.

But they also end up getting inundated with stocks that Wall Street can't sell. They're not the popular items. There are some good ones in there, for sure. You can buy them in the open market. But generally speaking, you'll find a fund all over the place, many funds that have stocks that no one else wants to touch.

Brandon: What would you tell people who are like, I can do this? I can time the market. There's a lot of the fire movement that is like, I'm awesome. I'm better than everybody else, and you probably hear that. I know the average is this, but my portfolio says this. You know you've got those people and they're on YouTube. What do you say to that? And sometimes not even really tracking the numbers right. I see videos on that as well. [22:05.7]

Lester: I have two answers.

Brandon: Go for it.

Lester: Number one is don't you want some certainty in the portfolio? A hundred percent should be I can time the market right. I don't think that works. I know that no matter how good you are, you're not a hundred percent.

Second, what will you do when you're 82? We tend to think that I'm going to be as lucid when I'm 93 as I was when I was 23. I know there are some people out there that they fog over and, yeah, Grandpa wasn't really thinking clearly and that's not me. I'm good. I'm solid. I'm a hundred percent. Sure.

But don't you think it would make more sense to put together a structure, a portfolio, a plan that takes into account the realities of life, and I still believe that the centerpiece should be something with certainty and safety. If we can agree on that and you want to play on the edges with “I can time the market,” again, fine. [23:01.4]

But it's not that everyone is going to agree with what I'm saying or any way you put it. There are a certain number of people out there that, no matter what you say, will always believe they can do better, and maybe they can, but statistically, that's not the case. Statistically, we need certainty in life. Statistically, we need a way to compare against realities and make sure that we cover and address all of those negatives that could come our way.

Amanda: I would just say, and I want to talk to everybody listening right now or watching, Lester said some really heavy stuff today and I know I've needed to hear some of the things he shared multiple times and then research them, run the numbers, look for the alternatives, and every time I've done that, I've always come back to what he said as I agree with that.

You might have heard something today. You might be like, I'm not sure about that. You might need to go back and listen to it a couple of times. You might need to start researching, run the numbers. We encourage you to do that and let us know what results. [24:06.1]

If you want to chat more with Lester, click the links in the description to check out his bios and you'll see as contact information there, too, and, of course, you can reach out to us as well. Let's everybody thank him for being here today.

Brandon: Any final thoughts, Lester, before I wrap it up?

Lester: Okay, one thing. When you're looking at the performance of your 401(k) or your IRA, don't assume that what they're telling you is accurate. You have to really do the arithmetic and figure out exactly what the results have been.

Brandon: With that, you guys, again, take charge of your cash flow, leverage your assets, and break through to a smart, stable financial future. Don't forget to subscribe, write a review, do all kinds of fun stuff, and I’d love to hear from you. [24:50.1]

The topics presented in this podcast are for general information only and not for the purposes of providing legal, accounting or investment advice. On such matters, please consult a professional who knows your specific situation.

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