Demystifying Investments

 

If talking about savings and investments seems like a foreign language to you, I invite you to read on. I think it’s about time we talked about money because I know our businesses have been hit hard by the pandemic.  I want to give a sense of hope to many of you and take the mystery out of investing and the tools available to us that we may not know about.

I invited Jeff Warren from Secure Retirement to shed light on the topic. He has over 30 years of experience in the financial services industry.  I thought it’d be really great to hear from somebody who knows and can offer some insight into money and investing. And I know for us hairdressers it can be like, “oh, we’re going to cloud over and it’s going to be too much”, but I think we need to talk about it. 

Market Overview

Jeff Warren: As far as this market and where we’re at, we are in unknown territory, as I say. Unknown in that we started a path in 2008, after the financial crisis, where our central bank, the Fed, began intervening in the economy. 

And they did something that started a huge trend all over the world. They went to what they call zero interest rates. And the idea was, we’d had a financial collapse. And you’ve got to get money out, you got to get people borrowing money and doing things. 

And so the zero rate policy, it was good, right? For we needed it for about a year. But now we’ve had it for about 12 years. 

And so there’s a lot of unintended consequences that come from that. And a lot of people, a lot of corporations borrow a lot of money that they probably shouldn’t. And so you do have, you know, a lot of unintended consequences. Let’s just leave it at that.

Many people know about the term QE or government’s printing money, you hear that terminology, and that’s the Fed and they’re not printing money, but they kind of are. They’re electronically buying trillions of dollars of US Treasuries. And that creates more money supply. And the stock market loves this. They really love it. Because it just keeps the air in the tires all the time. 

So I don’t want to get too much into the weeds. But this is the place where investing is not as fundamental as it used to be. Two plus two used to equal four. We’re having a lot of two plus two is seven. 

So, anyway, the other thing is that we’ve had a lot of speculation over the last year since the market crash in March. And that’s good. I mean, in a lot of ways, there’s some people who’ve made a lot of money from that. But asset prices now, and we’re seeing it everywhere, whether it’s stocks, homes, whatever. They’re pretty inflated, at this point. 

So this is where I try to really help our clients understand what the actual risk is. How to measure that risk versus what they might have known years gone past because it’s changed.

 

A Fundamental Exercise on Clarity

Rebecca: Right. Well, so for those stylists who have maybe, you know, maybe the profit margin isn’t very large. And so something like this comes along this pandemic, and broadsides people.

I’m sure it’s very scary, you know, it has been scary. It’s been an up and down roller coaster ride and some are just getting back to work here in California. So, you know, in that kind of situation, what could they be thinking about?

I mean, it’s sometimes hard to think about saving when, you know, you just spent your savings on, on maybe trying to get through the pandemic, but also for those who, you know, make minimum wage, what is the best-case scenario for them to actually begin to save money? Like we talked about, you know, we titled this sort of the opportunities that are all around us.

What do you see, I know we’re going off-script here a little bit, but what do you see as the opportunity for people at this moment?

Jeff Warren: That’s a great fundamental question. Because one thing that I’ve learned is that, you know, money is money, and it has its purposes. But at the end of the day, everybody’s priorities are a little different.

And so one of the ways to get some clarity about your priorities today because our priorities are, you know, a lot of times, theyre changing. Right?

So, how do you do that? You know, really hone in on your priorities. Not the wish list in your mind. Okay, or things, like, “I want that house. I liked it.” Oh, great. Or, “I’d like to go there and travel to do that spot.” Those are the things that you know, just come into my mind and float around and sound like a good idea. 

But you’ve got to inventory your finances. And the best thing really to do is to say, you know, this is Jeff Warren, Inc here. And I need to inventory my business and I need to inventory it carefully. So I know, so I really know what I have to work with.

But the fact is, it’s an exercise that brings most people that I go through it with some peace of mind actually because we’ve all got the “horribilizer”. And when I think about finances – and unfortunately fear usually comes into play.

Because I’m thinking about the future. Oh boy, what’s gonna – I dont know what’s gonna happen. So you know, this exercise brings things more into reality. Here’s reality, and from here, where are the important avenues you want your money to go to. I’ve done this exercise myself. I do it frequently, actually.

And I always find that I’m spending money on something that is not my true priorities. And so this is why I think this is the beginning. It’s the starting exercise. Of seeing where you are. 

And I know, there are so many people that have been financially impaired or destroyed in this thing. And so, you know, all the more reason to get on an exercise and talk to people about it that you trust.

 And not necessarily a financial adviser.

Rebecca: You know, I think you said something that triggered me is, you know, I’ve always felt that money is energy. Right? It’s good to get clear about what our expenses are. Really common sense things. What are your expenses? What do you make? You know, what’s leftover? But the whole paying yourself first concept, I think, even gets challenged at this moment.

So yeah, I think starting from that place of really getting clear about what is it you really want to create in your life? 

It just seems like such a fundamental, such a huge question and so hard to face reality because I think it does make us face sort of our spending habits.

Jeff Warren: And if you’ve lost a lot.  It’s an even more difficult exercise. And I’ve got that T-shirt. Many, many, many years ago, our financial life was completely destroyed. And so I understand that feeling of impending doom.

That comes with this. So finding ways to become hopeful is a really good thing. You talked about paying yourself first, which, of course, is a very fundamental thing, right? Well, what my mind tends to do is to say, “Well, that’s not enough. I’ll never get anywhere on that. So why don’t I just blow that off?”

“Okay, I’ll do it later, you know, when I have enough.”

And so one of the things that I see a lot of people doing today, which I think is fantastic with all these apps and everything is saving small amounts of money. I’m a fan. I think that it’s brilliant. Apps like Acorns, you know?

Absolutely fantastic.

Your Goals and Targets

Rebecca: So I do wanna dive more into that for them because I think it can seem so daunting to save when you have little, you know, so. So in terms of, I read back, I don’t know, back this last year about most people don’t have $400 in the bank to cover expenses. And I think this pandemic simply brings on even more of that feeling like, are you kidding? $400 even seems like a lot but in a perfect world. We will move past this. I do believe that and I think we’ll come out stronger, we’ll come out. People are going to want to get their hair done and they’re will want to feel free to take care of themselves. 

And so in a perfect world, money’s flowing. What is the recommended savings percentage for people? Is there a general concept around that?

Jeff Warren: Well, the most common target or goal is retirement savings because that’s typically the biggest goal for people long term. And nowadays, the people that are analyzing that are saying 12% to 15% of income.

But I wanna edit that a little bit. If you can only do 1%,  do 1%.

So yeah, retirement has a lot of parts and pieces. There’s social security. There’s, you know, how much, you know, personal savings and potentially other means.

Of course, there’s a lot of goals everybody has. Maybe they have a goal to buy a house and they want to get together a down payment, or maybe add some education expenses. That’s a priority. And if it’s priority and important, then, you know, you’ve got to make it important by taking action.

And what’s the target? What do you need to do? And so you can really look at what’s it gonna take for me to do this. I think the reality, understanding where you are in this moment is the best thing you can do for your financial life.

Get that clarity because, with that, you will be able to make those decisions better.

Rebecca: Yeah, it’s a reckoning, I think of where you are and where you’ve been, and the piece of where are you going, but the staying present in it is, it can be hard to face. And so, I think like you said, getting the support, whoever it is you trust to talk to about these things. We will go further in, in a minute about how to choose an advisor. 

Jeff, I wanted to ask you your thoughts on health savings accounts.  What do you think about it?

Jeff Warren: I think a health savings account is one of the best opportunities that has come out in a long time. As far as tax-qualified savings, you know, there’s not anybody that couldn’t benefit from being able to kind of rat hole that money for healthcare expenses that your insurance doesn’t cover or – because we all have a lot of different healthcare expenses that are just not, you know unless you have a group plan at a large corporation.

All of us are out here kind of piecing it together.  And so this health savings account being able to put money in there without paying taxes on that money.

It’s a great savings plan. There’s no doubt about it.

Yeah, yeah. Spend it when you need it. And you know, people have all kinds of different experiences. But I’ve seen people who have over many years accumulated, you know, quite a bit of money in their health savings account. I’ve seen people who’ve accumulated as much as $70,000 in there. And they can take that into retirement with them if they haven’t used it.

Finding the Right Advisor

Rebecca: Right. So in terms of your particular firm, Secure Retirement, what distinguishes your firm from others that people are looking at? YOu know some people are thinking, “Oh, my God, how do I ever choose an advisor?” It seems like such a vulnerable and daunting task. So how – what distinguishes your firm, from others?

Jeff Warren: Well, we’re a small boutique firm. We have about 300 client families. But we’re big enough that we would like to have – take on more clients for sure. I guess, as a company, you know, registered investment advisors today are kind of a dime a dozen. There’s a lot, there’s a lot out there. And they all have their, you know. They all have their distinctive competency. 

Let’s just say that. Our distinctive competency is really risk management. And that comes because of Richard and I’s background. We both had a real long background in that. So what does that mean for our clients? It basically means, we’re trying to not get any of our clients’ accounts and assets into any harm’s way.

One thing that if you’re not – if you’re younger, you may not know this, but you know, in the years 2000 and 2008, we went through massive market downturns.  And there was a lot of pain from that.

So, you know, that’s part of what we do is, try to avoid that. Now, having said that, I want to say, if you are in the accumulation phase of life, you’re not anywhere, even thinking about retirement. You have the gift of time. Which, in investing is the greatest thing you can have. It’s like Albert Einstein said, the most powerful thing in the world is compound interest. And so with time horizon, you’re able to invest and work with those certain ups and downs that are gonna come. But the US stock market and markets in general, over time, will go up.

And as a younger investor, you need that growth. You really do. Because it really has to do with where you are in your life and what you’re doing and what your priorities are as to how you should best invest your money. And so, yeah. And I guess we recognize that. I think that maybe you know, we’re talking about what makes us different. 

A lot of investment advisors, their belief is that you know, they’re gonna have these portfolios, no matter what, whether you’re 26 or 66. We think that’s a bad idea to come at things that way. 

So, I guess the thing is, at the end of the day there, Rebecca is. And I used to work so much with priorities. What do you want your money to do for you? Because it’s only as good as the peace of mind that you have with it. And that you’re doing the things that are meaningful to you.

And I guess we try to do it with every client we work with, that is interested in working that hard, is we try to help them with that process.

Rebecca: So what information should stylist’s think about when they’re meeting with a financial advisor? I mean, are there some standard things for them to think about? 

Jeff Warren: So here’s the thing. You need to do your homework. How do you do your homework? 

Well, first, if you get a referral from somebody you trust and know and all that. That’s obviously pretty optimal. But let’s say that’s not available to you. So the way you check out any, you know, financial advisor, is first off, go online and just type in, What questions and qualifications should I ask a financial advisor? You’re gonna get a lot of good stuff, which you can use. 

The second thing is, it’s called BrokerCheck. If you are securities licensed, you are part of what’s called FINRA, Financial Investment and Regulatory Authority. So, you can go online right now and go to BrokerCheck through FINRA, right? Or you type in BrokerCheck and you’ll get to it. And you can type your, the person’s name in there and find out all about him.

And if they’ve got, if they’ve had any major complaints, or this or that, it’s there. And so you know, that’s a good tool. I’m telling you what I would do.

Rebecca: Right. Yes. That’s how that can go. Right. I think that’s true. And I think particularly where the money is concerned, it can be a frightening thing and can stop people from doing anything. 

Jeff Warren: Yeah. And just have your radar on.

Just be – you’re doing due diligence if you’re gonna hire an advisor, work with an advisor.

Rebecca: For sure. Well, so then how does an advisor get paid?

Jeff Warren: So different advisors get paid in different ways. There’s the broker-dealer, what we call the broker-dealer channel, which is a commission-based channel. Thats kind of the old school. 

The new school is more the registered investment advisor like we are, where it’s, it’s called fee-based. And so a fee-based advisor is, they charge some percentage of assets under management. So, if Im managing somebody’s account, and there’s $150,000 in there, we’re going to bill – through the account, we’re gonna bill for, in our case, it’s 1% annual. Okay? And then over a million, we start. You know, we have a fee reduction.

Rebecca: Are you a fiduciary?

Jeff Warren: Yes. So that’s a very, and that’s a good question. And nowadays, people are, it’s on their mind. A fiduciary, simply in this industry, a fiduciary should have no conflicts of interest with their client. If they do, they need to discuss that extensively with that client and make sure everybody’s on the same page. So that’s one. The second thing that a fiduciary is supposed to do is very simply have the client’s best interest, always ahead of their interest.

Now, one thing that the fee-based business does is that it really makes that easy. because as an advisor, or advisory, the fees that you’re charging, we don’t have a horse in the race on any investment. We get paid the same. So, you know, that’s a good thing.

Rebecca: That’s really good to know. That’s great to know. So I guess, I mean, for everybody, different advisors are gonna be better for different people for different reasons.

Jeff Warren: Yeah.

Investment Benchmarks and Portfolio

Rebecca:  What are the investment benchmarks that you use? 

Jeff Warren: Yeah. Investment benchmarks are, you know, they’re used throughout the industry. So if we have a more growth portfolio thats got more equities and growth assets in it, we’re gonna use the S&P index, s&p 500 index. That would be the kind of the benchmark, how are we doing against that.

If it’s a much more conservative portfolio that has a lot more fixed income and bonds, we’d use the big, it’s called the Bloomberg Barclays Bond Aggregate Index. And it just, all that means is, it takes all the bonds in the US that are either A and above as far as their ratings. 

And so, you know, again, those are just very common. And that’s what we would typically use. But I have to say, that doesn’t necessarily – it doesn’t mean that much though, quite frankly to, out of the decisions we’re going to make.

Because like retirement, the decisions are more individual.  And so whether we beat an index or not, may not have any meaning.

Rebecca: So what about asset allocation?

Jeff Warren: Very important, as an – you know for anybody’s portfolio, that – and again, priorities are going to drive that. But with growth in mind, with a much longer time horizon type portfolio, you want to – and boy, this is gonna sound, it’s kind of boring, but a diversified portfolio.

You want a large-cap, some medium-cap, and some small-cap. You should have some exposure to international stock. Whether that’s developed world like; Europe or Japan or whether it’s emerging markets like India or so forth. 

So you’ve got that. A portion of the allocation is within that stocks. Fixed Income is in a growth portfolio, although, today is less important. Although it is a good idea to have some fixed income just as a counterbalance to volatility. So if stocks are bouncing up and down, you know, 10% a month, and you’re going, good lord, what’s going on? And the bond portion, although it may not be big. It’ll just be more or less sitting there.

So it does, you know, tame some of that volatility. But there are so many asset classes. Of course, there are the whole commodities, which includes everything from, coffee to orange juice, to oil to gold. But that’s a big world there. You know, exposure. Again, if it’s a long-term hold, the portfolio, you want to have some diversification and you want to have some – really some of all of it.

And you may only have 5% of your portfolio in the commodity line. But again, that exposure if commodities are starting to jump, that 5% will look awfully nice. So, anyway, yeah, asset allocation is a big subject.

Rebecca:  I wonder, is socially conscious investing becoming more important? Are people thinking about that, asking about that?

Jeff Warren: Yes. And it’s something that we’ve been involved in for quite some time.

Rebecca: Hmm. Good to hear.

Jeff Warren: There’s no doubt about it. The big money managers are starting to get into it. But I’ll say this. If you want to invest in, in particular environmental and climate change solutions, which that’s what I tend to focus on. You know, again, you’re gonna need to do a little due diligence or your advisor is because they’re not all created equal. There’s a term called greenwashing. And what that is, is –

Rebecca: Greenwashing?

Jeff Warren: Yeah. It’s like, a company will come out with an ESG climate portfolio, and you dig down into it, and you find, oh, oh, they’ve only got 20% exposure to what we are looking for. So you got because if you’re kind of heart into that, you want to invest that way. You want to make sure that your money is going where you think it is.

Rebecca: Right. Right. So it’s looking under the hood again.

Jeff Warren: Yeah.

Rebecca: Well so, I mean, I think we’ve covered a lot. What I have been inspired by are some of your newsletters that your team puts out. And so I’m wondering how people might be able to tap into that and get a hold of you should they wish to?

Jeff Warren: True. The easiest thing is to log on to our website, where you can sign up for the newsletter, and find all of our contact information. You can look under the hood. That is www.secureretire.com, it’s an easy one. 

Everything is there and we’re happy to provide anybody with, and we have newsletters on the website too, that are current. So yeah. If you want to. Our newsletters are pretty heavy in what the economic circumstances are currently in the market circumstances. So they’re pretty well geared to investing.

End Note

I hope you all find the interview with Jeff very useful and very helpful. If you want more information or more details on what was discussed in the interview, you may reach out to their team by sending an email to [email protected].

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