Coasting in Retirement Ep 19: Should I Manage My Own Money?
Segment 1 (Show Open):
Good afternoon, everyone! Welcome in. Welcome to Coasting in Retirement! That’s. Right. Thanks for joining us today, we’re excited to have you! I am your host, Josh Null, alongside co-host Michelle Lee Melton, the Cher to my Sonny, the Simon to my Garfunkel…Michelle, how are you? Here we are once again in Coastal College’s recording studio, beautiful downtown Fairhope, hatching up another great show for those of you tuning in!
Listeners: Michelle and I are here today to discuss financial topics relevant to those of you in or near retirement living your best life along our part of the gulf coast. If you’re just tuning in to our show, welcome, you’re listening to Lower Alabama’s most dynamic financial radio show. Here’s what we’ve got in store for you today: First segment – deep dive on our topic of the day. 2nd segment - at about 20 minutes past the hour - fan favorite, “Michelle with the News of the Week”. 3rd segment, roughly 40 minutes past the hour, ”Josh’s Crystal Ball and…(Michelle:) Big Mouth”. That’s right, big mouth. So buckle up, we’ve got a lot to get to!
Quick background on me for those new to the show. Again, my name is Josh Null, I am a fee-based financial advisor, I hold my FINRA Series 65 securities license, and I am the owner of Gulf Coast Financial Advisors, an independent investment management and financial planning firm with offices in Fairhope and Orange Beach, Alabama. You can find more information on me and Gulf Coast Financial Advisors by visiting our website gulfcoastfa.com, or feel free to give us a call at 251-327-2124. If you missed that, don’t worry, we will repeat our contact info several times throughout the show!
Our topic today is going to try to help investors answer this common question: “should you manage your own money?”. It’s a valid question and one that gets asked a lot by those in or near retirement. But before we answer that question, I want to begin with a history lesson, something along the lines of Paul Harvey’s “Now you know the rest of the story”. (we love history). Michelle, have you ever wondered why gas stations price their gas with the extra “9” at the end of the per gallon price? For example, $3.499 per gallon instead of $3.50? (Michelle responds – it’s also used in property tax assessments so she will know). That’s right, that extra “9” is a nod to a long-overlooked unit of currency measurement called a “mill”. Simply put, a mill is 1/10 of a penny, or 10% of a penny, and the origins of it’s use are pretty interesting. At least to me.
The official recognition of the mill dates back to the Coinage Act of 1792, which standardized the United States’ currency, and according to my research, became part of gasoline’s pricing structure when the Revenue Tax Act of 1932 was passed, which established a federal excise tax on gasoline of 1/10th of a cent…or 1 mill. There’s also some marketing psychology at play too, that is, it’s been proven that people will buy more stuff if it appears cheaper, say the difference between a $9.99 bottle of wine and a $10 dollar bottle.
Listeners, you may be asking, what in the world does 1/10 of a penny (Michelle – “that and the price of tea in China?”) have to do with our topic today of whether you should manage your own investments or not? Oh, it matters A LOT to helping me set the stage for your understanding, something related to the basic fractional math of a mill, something that is a major factor in the cost, and sometimes success, of your investment strategy.
As we discussed, you will still see mill denominations in gas prices, property tax assessments, even stock issuances and electric bills. But did you know the investment world has its own terminology for fractions of a fraction? You will now! Today we’re going to discuss what my industry calls “basis points”, which is usually abbreviated to “bps” and referred to as “bips”.
A basis point, or a bip, is 1/100th of 1%, or .01% for your math nerds out there. Just like with a mill, it’s a fraction of a fraction. Also, just as the mill is still very much part of our everyday purchase decisions, basis points are very much a factor in nearly every investment you make – mutual funds, bonds, ETFs, etc. In these cases, bips are used to be specific with price changes of an investment. We’re going to set that aside that fact about bips for the moment. There’s another use of basis points that has a more direct impact to investors than the price changes in investments, and that is the fees you are paying for your investments, plus the fees you pay is you have someone help manage them. These are fees that you investors have been paying for years…maybe even having your investment strategy infested with too many bips and you don’t even know it!
As the old saying goes, there’s no such thing as a free lunch, and that applies to your investments. Whether you’re a do-it-yourselfer paying 6 bips using low-cost index funds, or you’re a variable annuity customer paying over 300 basis points(!), you’re paying someone a certain amount to invest your money. The question becomes – are you getting what you paid for?
So with all of that ground work laid, let’s get back to our original question: “should you manage your own money?”. Well, the only way to answer that question as accurately as possible is to determine what is important to you as an investor, what additional services do you want or need, how much experience do you have, etc, etc. And, most importantly, and the reason for our history lesson, the goal is to try to find the sweet spot of your individual investment requirements that meets up perfectly with…just how many of those bips that you are willing to spend to accomplish your goals.
From my experience and generally speaking, when someone wants to manage their own money, it’s typically because they have some experience, and hopefully some success, buying and selling things such as stocks, bonds, mutual funds and ETFs, maybe even some experience in more advanced trading techniques such as calls and puts, short selling or derivatives. And for these folks, again in general, I say, have at it! If you know how to do it yourself, and you’ve got the time and bandwidth to handle all the work, you’re never going to be happy paying someone else to do what you can do on your own. For example – there’s no way I would pay someone to put together this show outline even if it saved me time. No one is ever going to do it exactly like I would want, for better or worse.
Now for the rest of you, maybe you’ve managed your own investments a little, or maybe not at all, but as you are preparing for retirement, or possibly in retirement, you’re trying to watch every dollar you can and you’re just not sure how much value you would get by bringing in professional guidance. Plus add to that the trust factor and you can see why so many people consider managing their own investments.
As you can see, this is a very individual and personal question. To help you answer it for yourself, we will discuss both the COST of managing your own investments vs getting paid professional help, and the VALUE that some financial professionals can bring to the table, including our own firm, Gulf Coast Financial Advisors.
Let’s get back to bips and discuss the Pro’s of managing your own investments. As we mentioned earlier, there are tons of low-cost index funds out there that cost only a fraction of 1% - Fidelity recently had one advertised at just 15 bips, and there are probably even cheaper options! – and even if you decide to use more expensive actively managed mutual funds, you’re still cutting out the “middleman” broker or advisor. Not only are you eliminating some fees, but you also don’t have to worry bout conflicts of interest – you should have your investing self-interest in mind more than anyone else – and you get to avoid high pressure sales pitches, one of my pet-peeves. There’s also been some research that shows many active investment professionals fail to outperform even passive investments!
Staying with the cost side of the debate, what’s the downside? Well, obviously getting caught in a huge down market, like during March 2021, or 2008, or 2001, or 1999…you get the idea…having huge losses in your portfolio can and will have a huge impact on your retirement dreams. Or maybe the market is doing fine but you pick a real dog of a stock or fund – I feel you day traders nodding your head. Maybe you believe in a stock so much you go all in…again, you get the idea. “Well, Josh, wouldn’t I run the same risk if I had someone investing for me?” you may ask. And you wouldn’t be wrong, except in the particular instances where you are ignoring the VALUE of having an experienced financial professional help you because you were too focused on the cost.
Value? What do you mean? For those of you in or near retirement, this is important. There’s nothing wrong with paying someone to simply handle your investments for you. Maybe you are not comfortable doing it yourself, or you’ve had a good run with a broker, or someone you trust recommended someone. Often that broker’s role is to simply pick and choose investments based on your risk tolerance and time horizon, or maybe even more simple than that, you just want them to do better than you would on your own.
But there’s so much more available to most investors in today’s financial advisory world. Financial planning, tax planning, estate planning, income planning, the list goes on and on. So asking the question about how much someone’s financial guidance costs you is a good starting point, but an even better question is how much value to they bring to the table for that cost.
List some of the things we do, and if you want to have a no pressure, free, no obligation conversation with us, reach out via the website gulfcoastfa.com, or simply call 251-327-2124. Repeat.
Alright folks, coming up next! Every week Michelle and I scour the interwebs for helpful financial articles related to our topic of the day, especially articles that pertain to those in or near retirement. Join us after the break to hear Michelle and I discuss this week’s relevant headlines in our “Michelle with the News of the Week” segment. Don’t turn that dial!
Segment 2 - Michelle with the News of the Week:
Josh: “Welcome back to Coasting in Retirement, your host Josh Null here! As we discussed before the break, every week Michelle and I scour the interwebs for helpful financial articles related to our topic of the day, especially articles that pertain to those in or near retirement. Our job is to help you all understand how these headlines impact you, especially when it comes to your money! So, without further adieu, here’s “Michelle with the news of the week!”:
1. Michelle: Alright Josh, let’s get started with one of the show favorites, Investopedia. They have an article titled “Advisor Fee: What it Means, How it Works, Types”. This article goes into depth into the different ways guys and gals in your industry are compensated, including something called “AUM” which I learned stands for “Assets Under Management”. It also talked about something called “Robo-advisors”, which sounds very apocalyptic to me. Apparently, one Robo-advisor called Betterment has a standard investment management fee of .25%, which I now know means 25 basis points. I also learned that commissions on investments are called “loads” which is hilarious. What I would like is for you to explain in plain English the myriad ways and amounts people in your industry are paid.
https://www.investopedia.com/terms/a/advisor-fee.asp
2. Michelle: Next up is U.S. News and World Report, which sounds like something my grandparents would have read. (Josh – so says the Reader’s Digest reader). Their recent article is titled “10 Best Low-Cost Index Funds to Buy”. As advertised, the article gives the basic details on 10 mutual funds and ETFs, making the case that index funds are great investment portfolio building blocks. The article also quotes an analyst as saying “"There aren't many things you can directly control as an investor, but the major exception is the fees you pay," which falls inline with our conversation about investors paying attention to the bips associated with their investments. So Josh, do you agree with the sentiment of this article, and can you explain what an index fund is?
https://money.usnews.com/investing/funds/slideshows/best-low-cost-index-funds
3. Michelle: So Josh as you’ve shared with me, this radio show tends to drive a lot of traffic to your website, gulfcoastfa.com, which I know you put a lot of time into in an effort to make it useful and educational for your clients and anyone searching for straight forward financial guidance. Our next article is from your site, and you must have felt pretty strong about it because you put it right there on your main page! It’s titled “We are fee-based financial advisors offering a wide variety of services” and I must say, based on the volume of services listed, you ain’t joking. I’m mentioning this article because I think it relates back to your discussion about value and receiving services above and beyond just the investment management piece of a client relationship. Care to expound?
https://gulfcoastfa.com/
4. Michelle: Last article Josh, this one from our friends at SmartAsset. They ask the question “Is it worth paying a financial advisor 1%?”. This article describes the basic differences between financial advisors and financial planners, plus gives feedback to questions about what fee is considered too high for a financial advisor and our show topic, can someone manage their money on their own. From my experience on this show, I’ve learned that in general, a standard advisor fee for what is called AUM, or assets under management, is 1%, but what I don’t understand is how the industry arrived at this number, and what services are typically involved. Does 1% always include financial planning? Free coffee? Turn down service? (add anything you want here Michelle). What do YOU typically charge and what services are included in that number?
https://smartasset.com/financial-advisor/is-it-worth-paying-a-financial-advisor
Josh: Michelle, great job as always with the headlines, these are all important pieces of information that impacts those in or near retirement! Listeners – if you have questions around the topics in our headlines of the week, or questions related to your investment strategy or financial plan, you can set an appointment by calling us at 251-327-2124 or by clicking calendy link on our website, gulfcoastfa.com. It’s in the upper right-hand corner. It’s a free, no pressure, no obligation meeting.
Alright folks, coming up next : Josh’s Crystal Ball and Big Mouth. What have been some of my predictions? Have I been right? Was I ever wrong? How wrong? What do I think is going to affect investors in the near future? We talk about all of these things and poke a little fun at my big mouth. Stay tuned!
Segment 3 – Josh’s Crystal Ball and Big Mouth:
Welcome back! Your host Josh Null here, along side co-host Michelle Lee. So, I am opinionated, I have strong opinions at times, I would say a radio show host that isn’t probably wouldn’t be very interesting to listen to. And I am paid in my profession to offer professional guidance and opinions to my clients, otherwise what use am I? Sometimes I feel so strongly about something that I talk about it publicly, on the various podcasts and radio shows I’ve had, sometimes I’ll even make predictions, and while I usually proved right, there are times I swing and I miss. Want to hear me beat my chest or maybe…eat a little crow? Then let’s get at with Josh’s Crystal Ball and Big Mouth. Alright Michelle, what’s first?
1. Michelle: Alright Josh, you and several financial industry pundits and commentators once said that when the Department of Labor’s Fiduciary rule went into effect, it would have a huge effect in the financial services industry by forcing most commission-based brokers and insurance salespersons to switch to fee-based compensation or leave the business. This Department of Labor, or DOL for short, started this initiative way back in the Obama administration, and surprisingly, progress was not really held back that much during the Trump administration, finally making it’s way to being implemented during the current Biden administration. OR WAIT, WAS IT? It looks like various lawsuits have held it up, with current news stating that the rule, once called the “Definition of the Term ‘Fiduciary’” to now being re-branded as the “Conflict of Interest in Investment Advice.” So, my question is, did your big mouth nail anything with your opinion, and more importantly, has anything changed at all??
2. Michelle: So Josh on a previous Coasting in Retirement episode we talked about the current potential danger of owning commercial real estate based Real Estate Investment Trusts, or REITs for short. You stated that it was becoming more and more obvious that the work from home phenomenon of Covid was here to stay, plus the carrying costs of the loans on many investment properties were starting to sky rocket because of developers having to re-finance into a much higher interest rate environment. Well according to a recent article by Fortune magazine, quote “Commercial real estate gets even bleaker with $64 billion in property now classified as distressed” end quote. The article goes on to state that the amount of distressed assets rose 10% in the first three months of the 2023, with the potential for another $155 billion of commercial property assets to become trouble this year. Obviously your big mouth was proven correct here, but what does your crystal ball say about investors owning REITs that hold a significant position in commercial real estate?
https://fortune.com/2023/06/22/commercial-real-estate-distressed-assets-rise/
3. Michelle: Next up Josh, you’ve stated many times both publicly and privately that your opinion on Electric Vehicles, or EVs for short, is this: Our generation, which is Generation X for those keeping score at home, and the previous baby boomer generation would be slow to adopt EVs because, well, as you get older you just don’t like change, and for some folks they don’t like change that they feel is being forced upon them. However, you felt that the generations younger than us – I guess that would be Millennials, Gen Z and apparently something called Gen Alpha, would flock to EV vehicles for many reasons, a simple and primary reason being that they are the first generations used to plugging in devices for their entire lives. Well according to a recent report from Reuters, EV vehicle inventories are stacking up and price cuts are becoming the norm, particularly with industry leader Tesla. So what says your big mouth and crystal ball about the future of EV sales?
https://www.reuters.com/business/autos-transportation/slow-selling-evs-are-auto-industrys-new-headache-2023-07-11/
4. Michelle: Last one Josh, and I have to apologize ahead of time because I already know that your big mouth got way over its skis and unfortunately dragged my sterling reputation down with it. On a VERY recent episode of Coasting in Retirement, you asked the question “Is this as good as it gets in regard to fixed interest investments”? Sadly for both of us, the almost immediate answer has been a big fat NO, and the interest rates and yields being offered on money market accounts and bank CDs rising since our episode published. Care to explain yourself?
Well listeners, I hoped you enjoyed a peak behind the curtain on how I form my opinions and predictions, and more importantly, that I’m willing to admit when I am wrong. Which isn’t very often, but still. Now, to our listeners that have more questions the various investments and topics we discussed in this segment, we invite you to reach out to us. Call us anytime at 251-327-2124 to make an appointment or find us at on our website at gulfcoastfa.com.
Folks, that’s it for us this week here at Coasting in Retirement! I want to give a huge thank you to my lovely co-host, Michelle Lee Melton, a thank you to our awesome radio station 106.5, many thanks to the provider of our show music, local band Sloth Racer, and as always my sincere appreciation for all of your out there that have been listening and joining us on this journey. We would love to be a part of your journey as well. Until we talk again next Sunday, have a wonderful and productive week. This has been Coasting in Retirement with Josh Null!
Disclosure:
Advisory products and services offered by Investment Adviser Representatives through Prime Capital Investment Advisors, LLC (“PCIA”), a federally registered investment adviser. PCIA: 6201 College Blvd., Suite#150, Overland Park, KS 66211. PCIA doing business as Prime Capital Wealth Management ("PCWM") and Qualified Plan Advisors (“QPA”). Certain services may be provided by PCIA affiliates. In this format, Josh Null provides general information, not individually targeted personalized advice, and is not liable for the usage of the information provided. Exposure to ideas and financial vehicles should not be considered investment advice or a recommendation to buy or sell any of these financial vehicles. This information should also not be considered tax or legal advice. Past performance is not a guarantee of future results. Investments will fluctuate and when redeemed may be worth more or less than when originally invested.