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Words like conservative and aggressive are tossed around in the investment world all the time. Same with passive and active. While these ideas seem to make sense when someone is shouting them at you from your television, reality is different.

These terms can mean various things in the context of different retirement portfolios. The most important thing is to understand how they relate to your individual situation.

In today’s episode, I discuss the importance of understanding your investment strategy and how to be absolutely sure your investments are on the right track to take you to your perfect retirement.

Show Highlights Include:

  • The profound lesson a jar full of rocks can teach you about time management (1:40)
  • Why actively managing your portfolio can destroy your life and finances (4:58)
  • How the definition of risk is stifling your portfolio growth and how to know exactly what to invest in (12:36)
  • Why a “conservative” investment strategy can tank your retirement fund faster than a weekend in Vegas (14:08)

To schedule your free retirement tracking meeting, specifically for first responders, head to http://pensionattention.com/ or call us at 805-409-8150.

Read Full Transcript

Welcome to Pension Attention, the best show for first responders who want to take control of their finances.

After advising Los Angeles city firefighters for over 12 years, financial advisor, Brad Barrett now shares how you can grow your wealth, build your legacy and enjoy a life of freedom. And now here's your host, Brad Barrett. [00:19.9]

Brad: Welcome to Pension Attention, the show for you, first responders who want more out of their deferred compensation and pension plan. My goal with this podcast is to reach you where you are at whatever stage in your career you are in to provide my nearly 15 years of experience working with both active and retired service members on their investment and retirement planning. My team of fiduciary advisors here at ONE Fire and Police are dedicated to ensuring you take control of your finances and build the life you deserve. Before we get started and to find out more about me or any of my advisors ONE Fire and Police, you can go to our website at PensionAttention.com, you can there set your free retirement tracking meeting. You can also call us at (805) 409-8150 again, (805) 409-8150. [01:10.1]

An expert in time management was recently speaking to a group of graduate business students and after a brief introduction, she produced this large Mason jar and she put it on the table. She then brought out a box filled with these big rocks. She removed the rocks from the box and began to carefully place them one at a time into the Mason jar. When no more rocks would fit inside the jar she would ask this class, is this jar full? Everyone yelled, Yes. And she replied, Oh really? She then pulled out a bucket of gravel from under the table and dumps them into the jar. Pieces of gravel moved into the spaces between the big rocks. She continued this process until no more gravel could be placed into the jar. She then asked again, is the jar full? And one student answered, probably not. So then we reached out to the table and brought out a bucket of sand and dumped the sand into the jar. The sand began to fill the spaces between the rocks and the gravel. She continued until no more sand could fit into the jar. Once again, she asked, is this jar full? And everyone shouted, No. [02:10.9]

At this point, everyone understood where she was going with this. Finally, she filled the jar with water and asked, what is the point of this demonstration? An eager student said the point is that no matter how full your schedule, you can always fit in one more meeting. Now, everyone started laughing at that. And then once the laughter had died down a little bit, right, the speaker replied, that's not the point. This demonstration teaches us that if you don't put in the big rocks first, you'll never get them into the jar. This story in the example has always stuck with me. It's been used in a lot of different sessions for different teachings. And the reality is that revolves around a question that I ask a lot of my clients when we first get together. The question is, what are the big rocks in your life? Is it time with your loved ones, your faith, maybe it's education or your dreams or promotions in your career, a worthy cause whatever it is I asked them, what are the big rocks in your life? And I of…I often follow that up by saying, remember that we have to put these big rocks in first, or you'll never get them in at all. [03:04.9]

Today at Pension Attention, we're going to be talking about something I call word misconception. It happens a lot in the investment world and I've seen it for many, many years now. Words like conservative or aggressive or words when it comes to investment strategies like passive or active. If you notice in just those words, those adjectives that describe those things, there's almost an embedded meaning of weak versus strong. And I think that that can be a misconception, it's something we need to be aware of and make sure that the strategy that we're putting in place is a strategy that fits your need, your specific needs. If you're listening to the podcast right now, and you haven't looked at your deferred comp plan in a while, or wondering how much I should be contributing to my deferred comp plan or on today's topic around the words of conservative or aggressive and wondering where you fit into that world of investing, give us a call (805) 409-8150. You can also reach us on our website at PensionAttention.com. [03:57.5]

And I'm saying that largely, because when we want to look at the misconceptions around these words that are used heavily in the investment world, we want to make sure that we understand that, how that relates to us and make sure it fits our overall retirement planning objective and our investment management objective. The first word I want to focus on is active. When it comes to investment strategy, there's two main strategy or adjectives being used around here in this world, active and passive. The active management strategy for a lot of individual investors tends to have them spend much of their precious time, their precious leisure time I should say, watching the latest business news say, or studying these charts and scanning and posting on internet for investment discussion boards and reading financial trade publications. I mean, the list goes on and on. What they're really doing is focusing on the gravel, the sand and the water leaving really insufficient time for the big rocks. Now, on the other hand, investors who adopt, let's say a passive investment strategy, ignore the “ noise”, the sand, the gravel, and the water they're playing the winner's game and focusing on the big rocks, the really important things in their lives. [05:04.6]

When we meet with our clients here at ONE Fire and Police, our very first meeting when we first get together is something we call our discovery meeting. We call it that because we want to truly understand who they are. We want to understand who you are. If we were to meet with you, who are you? And we'll help define that in terms of your financial life, for sure, but we also want to know what I call the qualitative side of things in your life. So not just always the quantitative, the numbers and the financial side, but qualitatively, where do you want to be spending your time? We need to define those big rocks in my analogy about the time management expert, who was talking about his Mason jar and filling in the big rocks; we want to figure out what are your big rocks, because that's really where we get involved with clients. Is when we start understanding that, Hey, we are the experts in this space, okay. And we want to partner with you to help you define your retirement and investment objective goals. [05:56.9]

I've used the analogy before, but as many of you know, I've grown up in the fire station, my entire life. It's been a wonderful blessing for me to be around different stations for so long, both personally and my family as a kid growing up, but also professionally now working with so many of you. And one of the things I say and relates a lot to this topic is every one of us has a TV by this point. I mean, let's be honest, okay, we can all turn on CNBC or Fox news and watch whatever's going on in the market. We can read, we can go through all the discussions I mentioned about someone working in this active management strategy of just trying to basically, you know, look at day trading and managing their own account, right? You be constantly on discussion boards and trying to find the next guy that you believe in and want to know his statistics versus someone else's. And a lot of times are related to this as much as I've been in the stations my entire life, if to this day, if I were to go into a station, if you were to tell me how to turn the truck on, I would look at you like a deer in the headlights, right? And I've said this analogy before in many station discussions and I've probably even mentioned on this podcast before. [06:54.6]

And I say that because it's a good analogy in terms of you and I can each watch, you know, the markets and understand what's going on potentially, but then putting it to play in terms of actually managing the account. You really want to be cautious there of understanding what is your strategy being disciplined with that strategy and making sure you're following through to the entirety of the goal, which the goal being the retirement goal, the retirement life side of things, and making sure that all fits in there. And that's a big concept we need to talk about. And I think the misconception that happens quite often with the words active versus passive gets really misconstrued. Let me give you a quick example and this word I'm going to bring up, doesn't really have to do with the investment world, but it's a word that is often misunderstood and it brings an example to what I'm going to bring up, right the word meek, M E E K. And when you hear that word automatically, you're thinking someone who is meek. you hear that word and it's like someone who's not strong, and you go through that and you got to look and understand that the Bible actually describes guys like Moses, the guy who led his people out of Egypt as being a meek man. [07:56.7]

So to understand these words that we hear sometimes don't always mean exactly what they, we think they mean, right? And so when we get into the world of passive versus aggressive, right there, those two words, when it describes investment strategy, it's understanding that an active management is something that's going for quantity sometimes over quality. Something at ONE Fire and Police we talk with our clients about is that we want to be, have a passive investment strategy that allows good positions to be held in there and do the active management style like rebalancing the portfolio, dollar cost averaging on your deferred comp plan contributions and rearranging the portfolio as we see opportunities. No different than this year like we saw some opportunities in March and April with the COVID-19 pullback. [08:37.6]

Now Paul Samuelson, probably one of the more famous economists of our time said, you shouldn't spend much time on your investments, that'll just tempt you to pull up your plants and see how the roots are doing. And that's bad for the roots. It's also bad for your sleep. What are you getting at here is setting a course for the investment management strategy that lines up with your ultimate retirement goal, but all the while, making sure that you focus on what brings your money in working for the department and your family and all the big rocks in your life that deserve your attention and be able to partner with those that can provide the experience and the workload, like adding strategies in the investment management to the past strategy, someone like ONE Fire and Police, like what we do for our clients. We have all bunch of our portfolio managers that manage our accounts internally for us, for each one of you managing every two weeks, every other Wednesday, when your paychecks come in, managing those things inside your deferred comp plan, you know, offloading that workload so that you can focus on the big rocks in life. The things that actually matters that will get you to that goal that we'll define together and ultimately make sure that you're not strapped to the TV and the computer and reading in between shifts and those kinds of things that just takes away from some of the things that deserve your attention like family and friends and things that you want to focus on in life. [09:51.5]

Do you know how much you should be contributing to your deferred compensation plan? Are you getting the most out of your current investment options? Looking at entering or about to exit the drop program? go to www.pensionattention.com to find out how we can help. [10:07.4]

Now before we get off these two words, the words active and passive, neither one are good nor bad. Okay, I want to be very clear about that, right? It's just how, where you want to be spending your time and which of those strategies make sense for you? And, you know, for us at ONE Fire and Police, we are active managers for our clients. We have an entire team of portfolio managers that work for you directly managing the deferred comp on, how we allocate it for you together. And that's an important distinction, or it allows you to focus on the things that you want to be focusing on in your life. But it also asks that it's one of those things that, you know, we're, we're equipped to do so. This is our jobs where we are trained to do this, what we have experienced in, designations in, you know, these are all important aspects when you, when you talk about managing your portfolio cause at the end of the day, it's your money, right? And it's not for me to say, I want to be very clear about this. I get asked this at stations sometimes; it's not for me to say whether or not someone managing their own deferred comp plan or managing their own investments is good or bad. It's not for an anyone to say, really. It really has to do with where you want to be, spending your time. [11:06.1]

I have a lot of clients who may feel like they're having success at that and that's where they want to spend their time and that's what they want to be doing. And there's nothing wrong with that. Plenty good, right. But it has to do with also understanding that, do you want to partner with someone who's experienced in this who manages a lot of money for clients over the years have deep benches in terms of talent experiences and all that kind of stuff. And that's where these two adjectives or these two, you know, words that we use to describe us as investors makes a lot of sense to kind of look at something that works for you. And so if you're listening to this right now and you want to have more of a discussion around that, give us a call (805) 409-8150. You can also reach our website at PensionAttention.com to find out more about me or the discussions we're having here today. There's a whole page we have listed there on our investment philosophy, and I urge you to take a look and if you feel it's, we want to discuss, give us a call (805) 409-8150. [11:57.0]

Now there's two other words in this investment world that I think a lot of investors get hung up on and sometimes can be misunderstood or misconstrued. And those two words are aggressive and conservative. I don't know about you, but I would never want to be pigeonholed into one or the other. Okay, and I'm not saying either a good nor bad, okay. But it's been something that over the years in the investment industry, they're trying to boil it down into classifications of where we land. Right now, to be fair in my opinion, risk means something way different than it did 30 years ago. And risk means different things to different people. Okay, sometimes like 30 plus years ago, risk meant opportunity. Nowadays, it means more about fear. Some of that may be a lot more of the media outlets and a lot more of the news that we can get right at our fingertips is a lot more expeditious than it was in the past. And that lends to a lot of uncertainty in the markets and sometimes reporting that doesn't always need to be is fact-checked here and there. And those are all maybe true, but the reality is fear or risk as investors is always been out there. And so the classifications of these words of where we fit in, are we conservative or are we aggressive and then designing a strategy or an allocation around that you know, it's an important thing. What you're getting involved with here in regarding managing an, a conservative account or managing an aggressive account or two very different animals. [13:09.0]

Now let's talk real quickly about the word conservative. Most people think if you're conservative, you are an all cash person, and that may be true. And you may have allocations towards fixed income or bonds, which tend to be more that stable return still have some risk associated with it, but the cash investor, a lot of times, it's really important, understand there's very few things out there that we can advise on sometimes and really go through with a, a stern, you know, warning, so to speak. But if you're in the cash investment side of things, you're pretty much saying that your investments won't keep up with inflation. If you just look at the average inflation over the past 30 plus years, it's right around two and a half percent. You look at yields right now on a money market or a savings account or a checking account I mean, it's sub 1% right now in most cases. So you ought to understand if you're in cash, being conservative, quote unquote, and labeling yourself as a conservative investor or a conservative person, when it comes to where your money is placed and you're in cash, it's going to be a loser in that sense over the long term, only because it's not keeping pace with inflation, there's nothing wrong with it. It's just, you want to look at the purchasing power over time. [14:08.0]

Case in point, take an example and I use this a lot of times in stations. I mean, guys have been on the job for 25, 30 plus years you just take a look at what your starting salary was when you got on the job and you take a look at the rookies now. I mean, you're looking at it kind of going, geez. I mean, that's inflation. We all know it. And inflation is one of those hard things to understand, because it's not tangible, you know, we can't touch feel and taste it. Right. But you, you hear the examples. I mean, you can look at a cup of coffee 20 years ago. Like I said, you look at your salary when you, when you got on the job versus the salaries of guys starting on the job now, I mean, these are all impacts that may not be seen, but can cause a headwind when it comes to your investing. And so understanding your position where you are and just being fearful of the market versus being an all cash, finding that difference between the two is an important aspect of your investment management plan. [14:52.5]

Now, on the other side, when you think of someone who's aggressive, you may be thinking guys completely in the stock market or in a stock or a couple stocks, and you kind of blow out the window diversification. And I promise you this, that between conservative or aggressive, both scenarios can be diversified. That word that sometimes gets overused, but it's so important, making sure you have the right assets and the right asset classes and in the right arrangement and proportion with your portfolio that aligns up with not only your risk tolerance, but your overall objective. That's where you combine the two between where you are in conservative and where you are in aggressive and make sure that they come together to work for you. People who may be perceived as aggressive to others really are, can be diversified. They don't necessarily to be riding the lightening in one stock, you know what I mean. That's a whole other scenario where that's a day trading environment. That's trying to harpoon a certain situation. That's a whole other environment. What I'm talking about is diversified portfolios and understanding you guys as an investor and where you land on the spectrum of conservative to aggressive and not letting these words of adjectives define you because there is a happy medium, and we help our clients get to that goal. [16:01.0]

Taking some calculator or some quiz with a few questions that can be helpful, no doubt, but really digging into what we do in our discovery process or an advisor should do with you and if you haven't sat with an advisor, I really urge you to find one that you can build trust in. There's plenty out there. There's obviously ones I'm sure you've heard of sadly in the past 10 years, I'm sure there's more and more coming to the stations, but the reality is find one that's that's appropriate that that fits your needs but also you can, you can find some trust in because at the end of the day, you are doing a partnership with them. You are entrusting them with your assets, and that's really important, it should not be taken lightly. Here at ONE Fire and Police, we take that very seriously and it's inherent in what we do to be good fiduciaries to our clients and to provide them the advice, the holistic advice that's custom built for each one of you that hits your goals, not only in the qualitative side of things, your goals, and where you want to spend your time, but also the quantitative and defining what the rate of return that we need to pull. And we need to make for, for you guys and make sure the rate of return lines up with what your distribution rate will be when you retire. [17:01.2]

You know, the money we're going to be taking from defer comp plan and drop to supplement your retirement plan for you, right, making sure that those two match up. And if you haven't built a plan like that, you can give us a call (805) 409-8150. You can also go to our website and schedule some time to meet with one of my advisors at PensionAttention.com. And again, if it's not us, like I said, I'm just a big proponent of making sure that you find that advice because a good advisor can be a really good advocate for you to help you define the words, conservative or aggressive, to define a strategy like active or passive, and make sure that these words, we don't just label them like, Oh, that's strong, that's weak. That's the whole concept I'm trying to get at with regards to word misconception. The misuse sometimes with the liberalizing of words and our investment industry that can really define us as who we are as an investors and the reality, it may not be the case. [17:47.7]

So I urge to sit with someone to help you walk through that discovery process. Well our process, it's called a discovery process to find that out for you, from you and, and to help you build that plan, that lines up with all of those things in place. Thanks for listening to the show today, before acting on anything discussed today, remember speak with a financial advisor near you about your specific situation, or if you'd like our help visit us anytime at PensionAttention.com or you can give us a call at (805) 409-8150. You can set a free retirement tracking and review meeting to take a look at where you're at currently and to help build those goals that we discussed and make sure that it all lines up with each other. And really on today's topic to help you understand where you are on the spectrum of aggressive or conservative, or whether you are looking for a passive or active strategy, how that relates to your overall goals. Next week on Pension Attention, we're gonna be talking about something very important to all first responders. How much should we be contributing to our deferred compensation plan? Looking forward to it, but until then stay safe. [18:49.0]

The information in this podcast is educational and general in nature and does not take into consideration the listeners personal circumstances. Therefore it is not intended to be a substitute for specific individualized, financial, legal, or tax advice.

To determine which strategies or investments may be suitable for you consult the appropriate qualified professional prior to making a final decision. [19:12.0]

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