Welcome to Make Your Money Matter, the show that aims to change the way we think about financial advice so you can make better financial decisions. Brad Barrett is a managing director and partner at One Capital Management, a wealth management firm serving nearly 1,500 clients nationwide, with over $2.5 billion in assets. They are a group of advisors dedicated to ensuring their clients achieve their investment and retirement goals. And now, here's your host, Brad Barrett.
(00:27): Welcome to make your money matter. The show dedicated to helping you create a better relationship with your money. I'm your host, Brad Barrett. And it's my goal on this show to help distill the best ideas when it comes to your finances so that you can make more confident money moves here at one capital management. Our mission is simple to help our clients and you listeners take control of your finances and build the life you deserve friends today. The challenge is no longer the access to information, but rather it's finding the right information, right? And more importantly, how all of that information applies to you. And that's my commitment here because after all your money matters, if I out more about myself or any one of our advisors here at one capital management, you can go to our website@onecapitalmanagement.com. And as I always say, if you like the show share with someone you like, if you don't like the show, I guess in the show, it's someone you don't like.
(01:24): But this last weekend I was watching Disney plus, as we all do with our kids, my four year old Kate has recently gotten really into beauty in the beast. She's a big bell fan. She has this, you know, bright yellow dress that we got her from target. And she wears it pretty much every day. Veronica pour, Veronica's watching it every night, cuz she only wants to wear in the morning. Anyone with kids understands where I'm going with that. They just have this one thing that they wanna wear and they will not wear anything else. Anyways, I digress but beauty and the beast, I sat down and watched it with her. I watched it many times in my life as many of us have. And the song kind of struck me, right? Tale, as old as time beauty and the beast. It really is a great movie to be honest.
(02:02): And it got me thinking about timeless investing principles. Don't ask me why my brain works weird, but I wanna bring up a few timeless investing principles that I've learned in my nearly 20 years of being a financial advisor and really what I talked to with clients and prospective clients every week here at the firm. And I thought it'd be good to go through as an so specifically around what investors and retirees that are looking for reassurance, especially during challenging stock market times. And they can, you know, take some SOCE or take some heart in these what I consider time tested investing principles. Look, when times are good, it's tempting to throw caution to of the win. We've all done it. This is especially true during a strong economic environment over the 11 year bull market, which to many can be summed up at the end of March of 2020 stocks, rose steadily.
(02:59): We all saw that we've seen the past 11 years or so since the great recession and companies were able to easily obtain financing with low interest rates. Obviously we're seeing that changing right now, and many professions offered secure paychecks and many investors took consistent positive returns almost for granted. I almost say we got a little spoiled. Any clients listening right now? You heard me say that in the past couple years like us as investors, we almost got spoiled in a way not that's a bad thing. Just, we almost took the returns for granted and you know, to quote the legendary investor Warren buffet, you only find out who is swimming naked when the tide goes out. Now speaking of 2020, as an example, over those two months thereafter, the tide went out fiercely. We all saw that again with the market plunging at historic pace.
(03:48): And in a matter of weeks at that time, not too long ago, the S and P 500 dropped nearly 34% and trillions of dollars in shareholder value van, this whole experience. And I'm bringing it up today over the past couple years has in my mind been a wake up call and the good sign that the good times may not always last forever. It's also a harsh reminder of the dangers of stray too far from a prudent investment plan where I'm going with this back to the theme of today, around my dog and I getting back into, I should say myself or her really getting into beauty and the beast and some timeless classics around some really timeless investing strategies because a judicious strategy, in my opinion, incorporates timeless investment principles. Many of which have become, I'll say it cliche Jays over the years, but these investment truths, not only help ensure that investors are on track to achieve financial objectives that they have, but they also keep them out of trouble.
(04:50): As I share often almost taking the sharp knives outta the drawer and really help them avoid financial missteps when times are good. Now is a wonderful opportunity to revisit these principles. In my opinion, because even though it's not March of 2020, as I've been mentioning in the first few minutes of today's show, we've also seen this first quarter of 2022. Now that we're in the second quarter here of what volatility means when other things arise around the world with the in invasion of Ukraine, supply chain issues stemming from last summer, inflation, all the things out there, and many investors are searching for guidance during these challenging times. And that's what we hear at one capital management as advisors do. But these items here of timeless investing, I still think is prudence. Let me give you a little Brad Barrett 1 0 1, if you will. And I'm using an article, I actually read recently from Kiper as well by getting Jonathan Shankman.
(05:48): And I thought it was really wise to go through some of these timeless things that I've experienced in my 20 years of being a French advisor. And he was writing about as well, number one, Cassius king. We've heard this before right now. I've shared this before, but you know, anytime you try to go and buy something in cash of a sizable amount, people almost look at you like you're a drug dealer or something, but the foundation of any prudent financial plan is to have at least some cash. Now cash needs to be dissected here. What do I mean by that? Well, rule of thumb is at least three to six months worth of expenses sitting in cash. What do I mean if you have a $10,000 overhead and that includes everything, your mortgage payment, all the way up to your food and travel requirements or desires, let's say it was $10,000 a month.
(06:34): You should likely have somewhere between 30 to $60,000 sitting in cash. This does not need to be invested. This is the notion of cash as king. Having liquid dry powder is what I call it. Right. Ready to go to make sure that you're able to move on the short term items or if God forbid something happens in work, you have an emergency fund with extra reserve and this is also oh, true to backstop. Any investments you have, we'll talk about in a second. Should the economy take longer than expected to rebound? Number two debt. Let's talk about debt here. Okay. There's good debt and bad debt. Many advisors will point out that borrowing money has both positives and negatives. And my point in me saying this is they're right. And I agree with this notion now in the right set of circumstances, leverage may be helpful.
(07:22): However, people who are in the best shape financially, if you really look at are generally those folks who are not indebted in a large amount to anybody. So just take that as a perspective. I know someone I follow very frequently, Dave Ramsey, who I massively respect speaks heavily on this topic. I tend to differ a little bit than him, simply on the notion of, I think that leverage can be used in a good way. When it's got three components, the debt has a low interest rate it's deductible and it's foreign asset. So I think that it's not just easy enough to just say, okay, no debt is best. I just think that there is wise use of it. But debt becomes a really important here from a timeless investor's perspective because there has been many, many scenarios, uh, from successful investors across the spectrum of wealth that have used debt to their advantage.
(08:09): But it's perspective that matters when it comes to debt. Number three, a clear understanding of time horizon, something I talk about with our clients here at one capital management are around your time. Horizon has a lot to do with the double-headed sword of time, horizon and risk tolerance. We'll get to that second part later, but a clear understanding of your time horizon is key here. A time horizon dictates how much risk can prudently be taken within your portfolio. It also keeps rough market conditions in meaning volatility. If you're a long term investor, then the current bear market should not scare you. In fact, it should excite you in a way. It offers you the wonderful opportunity to buy equities at what you would probably consider meaningful discounts or on sale. If you are a short term investor, speaking of time, horizon who planned properly, you also should not be scared by the current bear market because your portfolio should have been sitting in cash or allocated to higher quality bonds.
(09:06): Depending on the situation right now with inflation may not be the best place. Always. We still want to use those for diversification, but you really wanna make sure it's actually my opinion, irresponsible to invest without having a clear understanding of when you need to use the money. The first question I ask my clients when we're talking about maybe selling a house, having some liquidity coming in, but when they're gonna buy again, time, horizon is one of the key timeless investing strategies that needs to matter and really be a part of your overall planning. Number four. And I talk about this a lot. Dollar cost averaging dollar cost averaging keeps your emotions in check. It creates a system in my mind that helps so many people actually start investing. I share this often too, if you think about it, why is the 401k, the, the, the traditional retirement balance for most Americans, the largest liquid retirement account they have, yes, it has to do with the investments and the advisor they're choosing and the longevity of which they are investing over the future, but it has to do with the first paycheck.
(10:13): And then every paycheck they're after that is dollar cost averaging. Every two weeks, someone deferring into a 401k plan every two weeks from bear paycheck, from payroll, choose to contribute to their 401k plan. Discipline matters to bring systems into keeping your emotions out of investing. That's why that balance is always so high. So implementing that strategy in your 401k, your retirement savings, as well as your outside savings and investing matters, the benefit of setting up automated routine contributions to your investment counts is that it helps eliminate emotions from the process and the beauty of it. If you really look at it, if you get paid every other Wednesday or biweekly, that's somewhere between 24, 26 pay periods per year, multiply that over 30 years, let's say in the accumulation period, that's a lot of paychecks and a lot of fresh capital going into the markets systematically and able to smooth out volatility and really curtail the emotions when it comes to investing number five rebalancing.
(11:20): Now I've shared this a lot with dollar cost, averaging conversations, active management, but rebalancing allows you to make money without much effort. The active rebalancing is again, when you adjust the waitings of a portfolio as investment values go up and down to maintain their original asset allocation based again on your risk tolerance. So rebalancing allows one to sell the positions that went up in value while simultaneously adding to the positions that went down. Something we as active managers here at one capital management for all of our clients, for the nearly four and a half billion dollars that we manage for clients, just like you, who are listening right now, that's what we do. And that's what you wanna make sure you are doing for your portfolio. Because remember the old adage in investing, the one thing we all know about investing is what sell high buy low.
(12:08): This is a way to do just that. Number six, the diversification is, you know, Milton. Friedman's one statement that I'll disagree with is the only free lunch in investing Milton Friedman, the famous economist, who said, there's no such thing as a free lunch. I'd argue that diversification might be the one free lunch in investment. Hear me out. There is a tendency for investors to find and really pour into the hot investment of the day you listening right now. I know you've done it, I've done it. We've all been around it. And this is great while things are going well, but all companies, all sectors, all industries and all countries go through cycles. When things go south, having an overly concentrated position in any one area of the market can and be actually devastating. This can actually be illustrated. If you look at history with the most recent examples, including tech stocks in the late nineties, financial stocks during the great recession and think about emerging market stocks over just the past decade, the best sway to protect your portfolio from risk of over concentration in one segment is to have a policy, an investment policy statement with your advisor for diversifying across many asset classes.
(13:23): Now, many of those strategies may lead to some investment laggards. It may also ensure that you should also have relatively high performing investments within your portfolio as well. So it also comes down to stock selection. This and steady approach is sensible in the sense of writing out future market bubbles, diversification matters. Number seven, conservative bonds should be in everyone's portfolio. Hear me out when the market is soaring, many investors won't even look at high quality fixed income, cuz after all they want the stock market, they why invest in anything other than high flying tech stocks as an example. But the reality is that bonds serve a crucial purpose in all investors' portfolios. They provide, in my opinion, and I think many would agree the psychological benefit of minimizing volatility during turbulent markets, they serve as a, a cushion that allows investors to draw funds from assets that didn't plummet in value during a market correction.
(14:21): I'd also add that there are rebalancing opportunities when stocks fall in price and the highest rate is bonds actually appreciate that's called uncorrelated assets. You want to have that in your portfolio. Think about it this way. Think of a Seesaw when one side goes down, something else in your portfolio should go up. You wanna find something that in the same market environment, they react inversely to each other or are uncorrelated to frankly, to dismiss bonds as a core element of an investment strategy, I think is shortsighted and really falls short of the timeless investing strategies that I'm bringing up today. Number eight high returns mean a high level of risk, duh, Brad, well, look, investors tend to search for the more magic investment of high returns with no risk. I'm gonna share something shocking here for everybody, but it really doesn't exist. The nature of the risk may come in many forms, including leverage or I liquidity or poor credit.
(15:20): I mean, but the bottom line is if you want to potentially achieve high returns, you need to be willing to take a level of risk. So understanding your risk tolerance as a timeless investing strategy makes sense, right? For everybody it's important for investors to go into every opportunity with their eyes wide open number nine, boring over exciting, hear me out. Okay, boring over exciting. It actually could be the right approach. I say this often in the sense of, you know, sometimes what we do as risk managers or portfolio managers, isn't all that set, but it's the non-sex environment that actually makes the difference. Investors often confuse an exciting idea with a good investment opportunity. I'm sure we've all fallen into that. Trap. Excitement may be generate from the latest fat or maybe it's an exclusive deal or some strategy that promises to trance the, of performance of an S and P 500 or whatever it might be.
(16:14): But these quote opportunities are more often than not being sold on the hype and not on their fundamentals. I'm not to pick on one company here, but Tesla recently is a great example. I'm a huge Elon Musk fan. I'll admit by far I love his entrepreneurialism. I love when he sold PayPal and basically invested all of his money into Tesla and SpaceX. I mean, that takes genius, frankly, but Tesla, if you look at the fundamentals, the PE trading at hundreds times multiple, and just understanding that it's more of a, of a fad and I get it, it's a great story, but it's marketing and it doesn't have a whole lot of the fundamentals that me as a, I would consider a fundamental investor for our client. I just don't see it there. Can we have an allocation to it? Sure. But do we wanna ride the lightning on that one position as an example, maybe, maybe not.
(17:01): And again, any individual stock position discussed here should be assessed with your financial advisor, but I wanted to bring that up as a hypothetical, as an example, because these opportunities may often be, are hype and fundamentals. And if you wanna avoid being lured into one of those situations, then you wanna pursue sticking with plain vanilla boring investments. I know how bad that sounds, but it's proven time and time again, that this may be a combination. You think about it between blue chip stocks, you know, index funds or, or et Fs or individual what we call shells and bells of the world, the good value and growth companies and high grade bonds. Now you may miss out on that next hot IPO, but you also may not get sucked into the next Ponzi scheme as an example, either the trade off sometimes seems worth it. So just understand that.
(17:52): I think something to be said about timeless investing strategies that boring may actually be exciting. Number 10, when do you stop? Like once you quote unquote win the game, when do you stop playing? I mean, look, the stock market can be an addicting place, especially you've accumulated a substantial level of wealth over your investing career. And it's important to understand that the purpose of investing is for one to be able to achieve their financial goals and aligning your goals and objectives matters when it comes to your investing strategy. Something I speak heavily with our clients about is their why, what is your why for investing? Is it to grow your wealth, manage your debt, have liquidity retire on time, uh, provide legacy assets for your kids, for your grandkids. All of those are just examples of many different answers I get from the thousands of clients that we are blessed to be able to serve.
(18:46): But it's important to remember that once the investor reaches that quote unquote, a number there needs to be context in moving forward past that. I mean build adage for any good investor on wall street is, you know, what more returns can you get? And the answer is always more and the reality is that's fine in a way, if the goal is still there to provide for legacy assets or things like that, but we wanna make sure a goal is assessed and a timeless, the 10th and final one I'll bring up is understanding the game that you're playing for your family. I don't mean to use it that way in terms of the game, but like the plan you're trying to put in place for your family is you need to set some milestones on some markers, but once you achieve those really sit with your advisor and put context into where do we go from here?
(19:31): And ultimately the silver lining of a severe market downturn, whether you're looking at in recent years of the COVID pandemic of 2020, the 2008 financial crisis, 2001 tech bubble, even as recently, as you know, the small little, 10, 15% correction we had this year heading into 2022 with all of the items carrying over from last year. And then the invasion of Ukraine, you know, a severe market downturn is that it causes investors to reflect on the decisions they've made during the good times. And as they introspect, they're forced to face the cold hard truth, I think. And we see this in our clients of whether they've stuck to the timeless investment principles. I mentioned today, and I thought after my meetings with clients this last week, I wanted to write on these and kind of put down 10 different investment principles that I've seen work tried and true for nearly 20 years.
(20:26): And again, if you're listening right now and if, if you've strayed from those principles in a way you gotta be careful, it's not too and, and sets you back for the years ahead. But if you stay true to those principles, ideally, and historically proven it should increase the chances of success in the long run. I want to thank you for listening to the, make your money matter show. Remember before acting upon anything discussed today, speak with a financial advisor near you. And if you're not sure where to turn and you'd like our help, you can visit us@onecapitalmanagement.com for a complimentary retirement track review meeting, and remember always make your money matter.
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.
