S2E6 - Investing for Retirement

Season #2

Q: Is there such a thing as "winning" when it comes to investing? (1:58)

Q: What should we be thinking about when it comes to investing for retirement right now? (3:20)

Q: Can you talk about what people mean when we hear that you should be diversified? (6:30)

Q: Is there ever a time when diversification is not a smart thing to do? 

Q: how do you determine then what's the right investment for you? (10:26)

Q:  Is there a right time for investing for retirement? (12:00)

Q: I wanna make money, but Leibel, I don't wanna lose it all too. Do I have any options? (16:18)

Q: What mistakes do you see most often when people are investing for retirement? (20:48)

Q: So to avoid those types of mistakes, what kind of mindset do you need to have in addition to that plan, to make it easier for you to be really successful in investing and especially for retirement? (23:08)

Q: At what point should we start, uh, looking at the road signs or reviewing our investment, so to speak? (25:52)

Q: My last question, how do you feel about having to rely on investments solely for retirement income and that's all you have? (27:41)

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Q: Is there such a thing as "winning" when it comes to investing? (1:58)

A: I think when it comes to retirement, we need to not think about winning. What we should be thinking about is; achieving our goals!, I think that when we focus on winning or losing, it can be easy to get caught. In the hype of the market and we can get caught up in all the noise that's out there that's just screaming for our attention. When what we need to really focus on is what is going to help us achieve our goals, or is it going to hurt us or impede us from achieving our goals.

As long as we are moving in the right direction, as long as we've got a plan, then who cares what's happening in the market, right?  Who cares whether somebody is winning or losing, what matters is, you know, what we're looking to accomplish and whether we will have a roof over our head, food on the table, or being able to splurge on the grandkids.

Q: What should we be thinking about when it comes to investing for retirement right now? (3:20)

A: Just to recap, and I'm gonna keep repeating this over and over again. There are really, there are two things that we can control when it comes to investments, and those two things will affect everything.

And, and it really is this simple, anyone who tries to make it more complicated. That is the biggest red flag to you, telling you that they don't understand how the markets work, that they don't understand what they're doing and that they're buying into the hype in one form or another.

And there's hype on both sides.

There are some people who are very against investing in the markets, and there are people who are all for it. And you really shouldn't be on either side of those. But we should be on the side of the two factors that we can control; how much risk we have of losing our money or of our money going to zero. So we can control that.

And then we can control how much time we are giving up access to our money? Right.

And the more that we give up access to our money, that's also referred to as time horizon. So the longer we can wait for the return on our investment, the greater our chances of return, and the more risk we take on the greater our chances of return.

And those are the only two factors, right?

So if somebody shows you something and they say, and it looks like it has really great returns on really low risk. Then either you're giving up time, or it's pretend. And that's just how it is.

So when we talk about factors. It's how much risk, how much am I risking giving going to zero and how much time am I giving up?

And then there's another factor that we need to look at. And this is a non-financial non-numerical number, and that's our personal peace of mind, right?

Because you could have an investment that does everything that you wanted to do, but if it's, you know, going all over the place and it, it looks like, you know, a heart tracing on Grey's Anatomy or something you're, you're not gonna be able to sleep at night.

I don't care who you are unless you're a psychopath. You, aren't going to be able to sleep with those ups and downs. And so you need to create for yourself a consistent system that produces the returns that you need with risk and volatility (volatility, being the ups and downs) that is something you can live with.

And there are no right or wrong answers of what that should look like or what that, what it takes to do, there is only the math of, you know, risk and time horizon. 

Q: Can you talk about what people mean when we hear that you should be diversified? (6:30)

A: So diversification is this idea that, and, and it's mathematics, right? We're talking about math and statistics. So if I am, if I own an apple orchard, and all of my work and effort and money is tied up in apples, and something were to happen, right. It rains too much. There's a storm, right? My entire net worth can be wiped.

So, what I would want to do is I would want to split my money between, let's say, you know, apples and something that would be the complete opposite of apples, some other type of thing. So let's say real estate, right? If something were to happen to an apple orchard, it probably would not affect the prices of real estate.

So now I'm gonna split my money, 50% I'm gonna put in apples. And 50% I'm gonna put in owning apartment buildings. And so if something were to happen to one of those investments, I still have half my money. And what ends up happening is one of my investments is up by 10%, and one is down by let's say 5%.

Well, I'm still up 5%, right? Because of the math, that's involved in there. if I'm up 10% on one and down 10% on the other, well, they neutralize each other. And I, now I have a 0% loss and that in its simplest form is diversification. It's spreading your risk around so that no one thing. Can hurt you, right?

Diversification is the embodiment of that adage of don't keep all your eggs in one basket.

That is what we wanna do with diversification. We wanna spread our risks out so that if something happens to our one basket, we do not get killed. We do not have to start from zero.

Q: Is there ever a time when diversification is not a smart thing to do?

So there's something called Deworsification. And I talk about this in-depth in my course. but Deworsification is when you do things that you think are diversifying you, but in reality, you're just concentrating your risk. And so you think that, I have five different types of eggs. And five different types of baskets.

So therefore, I'm protected. But in reality, because of the baskets you've chosen, they actually have a compounding effect, and you really only have two different types of baskets and two types of eggs, or maybe you even only just have one type of basket and one type of egg, but they're different colors.

So you think you're diversified and protected - but you aren't.

And the crazy thing about this is that it happens all the time because there is a lack of transparency in the industry. And, and it's not that the information isn't out there for you to find it's just not easily accessible. Something I say over and over again is the definition of a profession is that there is a barrier to entry, that a Joe Schmo off of the street, can't just become an advisor. So what are the barriers to entry, what do we do? We have a hundred question exam to stop them, but it's just a hundred questions. Anyone can pass that. So what do we do? We call things by a million different names.  so that it becomes confusing. And it becomes difficult for the average investor to really tell what they're owning.

And so you gotta be able to know where to look and how to look so that, you know, am I actually diversified or do I have something that is actually increasing my risk? 

Q: how do you determine then what's the right investment for you? (10:26)

A: There isn't really a "determining the right investment." What there is, is a balancing of the factors, right? You need to start with the end in mind.

What do I need as a return on my money? Because you should have a retirement plan. You should have an idea of what you need your money for. And then, and, and the answer could be as fast as possible, but you want an answer to that question, and then you work backward and and ask what can I invest in that will give me that kind of return?

And those are easy numbers to find out, right?

We can see what something has historically done. And then you kind of just combine it, right? You combine high-risk things with low-risk things, and you, you just balance it out. So that you're the risk that you're taking. Is a risk level that you're comfortable with, and it has a high chance of giving you the results that you want.

Now here's the great thing. Right? 10 years ago, 15 years ago, you probably needed, you know, advanced training to be able to pull something like that off nowadays, you can buy a single mutual fund or buy two or three mutual funds, and they will do all the work. You just need to know when you go shopping that this is what I'm looking for...

Q:  Is there a right time for investing for retirement? (12:00)

A: Yesterday is always a great time.  

Freddie: thanks a lot. Live. Well, I feel better. 

Leible: Yeah. Um, I, I actually stole that one. who was it? I think it was Merrill Lynch who was running an ad that's what it is, though. The best time to invest is yesterday. but, but that really is the truth, right? It's whenever you invest, right, you want to invest as often as possible and as, as frequently as possible, when it comes to retirement, what we need to be aware of Is not the "are we invested or not?" It's are we taking on appropriate investments?

Do we have a plan for how we're gonna turn our investments into an income stream when we're working, and we're earning money, and we can replenish our savings, and when the market goes down 20%. That's a sale for us, right? When we are working, we can invest more money. We're buying it at a lower price. or we can take on a side job. We can take on extra hours at work. We can come cut back expenses to be able to, you know, whether that 20% correction or that 40% correction, when we get into retirement or as we get closer to retirement, and we start to liquidate our assets and live off of them, all of a sudden, we need to make sure that we have a plan for how we're selling those assets.

Right. And so the question isn't, when's the best time to invest? The best time to invest is always now. The question is, how do we make sure that when we are divesting, when we're, selling our assets, that we're selling it in a way that doesn't hurt us long term, right? Sequence of return, which we've talked about in previous shows, Google it on my website.

>> https://www.yields4u.com/blog/search?q=sequence

We've got multiple guides about this. Multiple articles. The sequence of return is real right now when the market is down, you do not wanna lock in those losses. Accelerate them by taking out money simultaneously because now you're making your money and have to work even harder.

It's like being in a car going downhill, right? And if you're going downhill and you go slowly, downhill, your car is gonna have to work even harder to go back up the hill. Whereas if you accelerate, when you're going down, you're gonna be able to use that momentum to go back up. And that's really what the stock market is. Right. Everyone gets scared when the market is going down, and they start putting on the breaks.

And you hear people going, "oh, I don't wanna take on the risk." Right. And it's scary if you've ever written a bicycle down a hill, right? You know, the faster you're going, you start to feel out of control, but. Anyone who has ridden and not hurt themselves knows that the secret to going downhill is to make sure that you maintain a speed where you maintain control, but maintain that speed so that you can go back up that hill. Because if you don't maintain that speed, now, all of a sudden, you're working a million times harder to, to go back up and. Unfortunately, in retirement, we may not have the ability. We may not have the stamina. We may not have the strength to make it back up the hill.

Q: I wanna make money, but Leibel, I don't wanna lose it all too. Do I have any options? (16:18)

A: Yes, you want to invest in the market, and you don't wanna lose it, all right, you have two factors that you can control, right? Think of these as levers or knobs, and by dialing these in, you will be able to determine how much risk or how much potential loss you're comfortable with and be able to dial in the return that you want. And the first one is risk of loss, right? So you can choose to Invest in things with a higher risk of loss versus lower risk of loss.

And then the spectrum on that is anywhere from people, contractually obligated to give you your principal back. So simplest form, Bank CDs, you will always get your initial money. Bonds, right? You give a bond, you buy a bond. And at the end of the bond, whether it's five years, 10 years, whenever it matures, you are gonna get your principal back.

With a bank. If the bank goes bankrupt, you'll get, you know, insurance payouts, FDIC, with a bond, you'll be able to participate in the bankruptcy proceedings and get the money from the company. When it liquidates itself, you won't get all your money back, but you will get some of your money back.

How much of your money is at risk, and how much you'll be able to get back? What are the chances of losing your money? That's really a spectrum, right?

Just like we have, you know, what's it like 90% of startups fail within the first two years? Well, when we're thinking about, companies that we can invest in or that we can loan our money to, you have a spectrum of risk. You can invest it in brand new companies that are startups and have a huge amount of risk of failure. Or you can invest it in companies like IBM that have been around for over a hundred years and probably are not going anywhere. They're not going to make, you know, massive profits. They're not going to, you're not gonna get huge returns, but at the same. They're not going to go bankrupt overnight. And even if they do go bankrupt, the chances of your money going to zero are kind of mill, right? Because, because they own so many physical assets because they have so many investors because they're so integrated into so many aspects of society that if they were to go bankrupt, it would hurt so many people.

There's going to be protections around them, right? So you can very much dial it in. The other thing that you can dial in is how long you are willing to give up your money for right. The longer you're willing to get to wait for your return, the greater of a return you can get. And that's a spectrum as well, right?

Let's take day traders, right? Day traders. They don't give up their money for any period of time. Right. It's literally the, for a few hours, they'll give up their money and if they wanna make any kind of significant return, right? Cause for the vast majority of days, the market doesn't move very far in a single day, right? I think it's the average movement in a single day is under 3%, a 3% return on your investment. And in a single day, isn't a lot of. It's not a lot of money. So in order for a day trader to make any kind of money, they, they have to invest either millions and tens of millions of dollars, or they need to take on a huge amount of risk, and they need to turn $1 into $20 or $50.

And they do that by borrowing. They do that by using risky products that have leverage built into them. So that they're no longer investing in the company, they're investing in a thing of the company or a bet of a bet, of a bet, on the company so much so that the speculation that the traders take on is actually codified in law is not being gambling because by its very definition of what they do, It meets the definition of gambling and would be illegal.

 

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