Busting Financial Myths

Transcript

John Stillman: Welcome once again to Wright Money Tips. Isaac Wright is a chartered financial consultant. He's also the president of Financial Dynamics and Associates. He wrote a book one time. It was a while ago, now that I think about it, Navigate Your Way To A Secure Retirement. When was that? It's been a while.

Isaac Wright: Yeah. 2011.

John Stillman: Wow, that long. Wow, I wouldn't have said it was that long ago, but maybe due for a sequel, Isaac. Why don't you ... When are you going to do your memoirs? That's really what we want.

Isaac: Yeah. Well, if you think about where we're at today in today's world, many people don't even read a book. They want to visually watch you or listen to you like we do a podcast now. It's so crazy to think about where we are eight, nine years later relative to ... And most people don't even consider 2010, 2011 to be that long ago, but in the technology world, that really has changed the course of how people communicate.

John Stillman: Well, to your point, I've read ... Well, let me actually check my list because I keep a list of them. I have read 27 books so far this calendar year, but I haven't actually read any of them. I've listened to all 27 of them. I will listen at the gym or while I'm driving or things like that. So I don't have time to sit and read a book, but I'll listen to them all day long while I'm doing other things.

Isaac: Crazy.

John Stillman: It's a good thing to do while folding laundry too, I've learned. So let's talk about some myths that we need to bust in the financial world. You ever watch that MythBusters show? Put on your little chapeu there.

Isaac: Well, I think too, this'll be I think a very short but reasonably hitting show for most of you guys because these are just going to be things that we've heard for a while, and I wanted to have just a good 5, 10 minutes to cover some of the myths that I'm hearing out there when it comes to some people that I've talked to over the course of many years. So hope this is helpful for everybody involved.

John Stillman: Well, I'll give you a statement. You tell me why it's a myth. You can debunk it for us. So the more a financial plan weighs, the more valuable it is. Why might that be a myth?

Isaac: Unfortunately, I do hear that occasionally. Well, I've got this crazy ... And especially when it comes like the legal document. I've got this huge trust. It must cover everything. Well, same scenarios applied to a financial plan. I got 80,000 pages of material that has been developed for me. Well, some people do believe financial advices is deliver by the pound. However, I would like to say that under most circumstances today, if you're going to be going the route of creating a financial plan, you better have it simply to where you can understand it.

Isaac: Keep in mind that just because maybe you have multitudes of pages that come to you in a financial quarterly report or other statements that, that may not even have a direct correlation to your financial plan. It may just be one piece of it. So again, how are you pulling all that together where it feels manageable? What's the goal of a financial plan anyways, just to feel like you're under a situation that's manageable to begin with? And I mean, I don't understand why a dictionary of reports is going to get you there.

John Stillman: Have you ever seen a Formula 1 steering wheel? Do you know what their steering wheels look like in Formula 1?

Isaac: Yes, I know where you're going, but yes.

John Stillman: So if you haven't seen it before, just pull out your phone right now, and Google Formula 1 steering wheel. Do a Google image search on that, and you'll see what I'm talking about. A Formula 1 steering wheel is insane. It has buttons and dials all over the place, and there are all these things you can do with your steering wheel if you drive for Formula 1.

John Stillman: On the other hand, Jimmy Johnson, who has won NASCAR I think seven times, you know what his steering wheel looks like? It's a circle. It's all it is. It just like the steering wheel in your car. And so, there is a value to simplicity. I mean, sometimes you need all that complexity, and sometimes that complexity is getting in your way.

Isaac: Well said.

John Stillman: So be careful with your assumptions that you make on the weight of your financial plan. All right. How about this myth, Isaac? My life is simple. All I need is a will, and I'll have my affairs in order.

Isaac: I'll just go real quick here, right? Sometimes I think this is more of a head in the sand approach. You know, having your affairs in order is more ... Listen. It's about more than just having a plan for how your assets will be divided. Somebody needs to know where instructions are for funeral plans, cemetery info, other final wishes. I think it's also important for somebody to know what bills need to be paid and maybe have access to, now in today's world, like I said at the top of the show, maybe an online safety or these new apps that can help you keep all of your information in order.

Isaac: Accounts and passwords, that's a big deal too. A lot of people have multitudes of passwords because they have multitudes of websites they have to go to. So yeah, just having a written will by no means is going to put you in a place where you're leaving an easy situation for whoever's going to administrate your affairs if something happens to you.

John Stillman: The will is certainly an important piece of the puzzle.

Isaac: Oh sure. It's important absolutely.

John Stillman: Well, we're not discounting that part of it, but it's just not the only thing. All right. How about this myth, Isaac? My spouse will be fine when I'm gone. He or she will only need half as much income anyway.

Isaac: You do hear this. To me ... And I've said this for many times, many years that when a spouse is out of the picture, the remaining spouse will normally need a lot more than 50% of income. Under most circumstances, it can be 80% or more. Yes, you may have one less medical bill, or you may have one less premium payment, little less food on the table, but it's not going to be as a percentage, anything close to 50%.

Isaac: If the remaining spouse wasn't involved at all in managing any of the household finances, to me, the surviving spouse that, let's call it, if they needed to be able to have an understanding of what a budget's going to look like, if, let's call it the spouse that was handling all the bills passes away, they're going to be in a bad spot. One thing that I will say with people that come in that we spend time with here at our office, they really want somebody to have a good overview and oversight for that exact situation.

Isaac: So if a surviving spouse is there who was not accustomed to handling investments or finances, that they have somebody that they trust to help administrate some of the things that I just finished covering here. So you have to consider this. You have to consider the income streams that are likely going to disappear at the death of a first spouse, like a social security check, potentially a portion or maybe all of your pension if you have one, maybe other income that would be adjusted. So you have a, what I call after the fact picture, that can be somewhat accurate. And you typically want to do that before you have a death.

Isaac: So that to me, and again, I may be a little bit sarcastic on this, but I think the reality is ... what I'm not being sarcastic about is having a situation where you walk in, if you're married, that you have somebody as a third party. I always call it having that third leg to your stool that knows who you are. So that way the surviving spouse, if it's not just a death, if it's a disability, you have somebody that can help walk you through some of those options.

John Stillman: All right, Isaac, one final myth for you to bust today. When I retire, I need to dramatically shift from stocks to bonds in my portfolio.

Isaac: Maybe this is a little less frequent, but we're finding with people today knowing a little bit more about investing or doing some research, they realize that this is not necessarily as maybe as prevalent as it was in years past, but every situation's going to be different. You may actually need to increase your stock holdings if most of your income is being generated by pensions with no inflation protection. Okay. For example, if you have a good enough income where you may not necessarily have to worry about pulling too much out of your investments, maybe you can take a little bit more risk. On the opposite end, if you don't have a lot of income coming in at all, or maybe you just have a social security check, you may want to look at alternatives to maybe not just necessarily owning a bunch of bonds, but ways to be able to generate income inclusive of just not bonds and stocks.

Isaac: So I think overall, you just have to have a risk review and understand how much cashflow you're going to reasonably be able to adjust from that investment portfolio through your retirement years. And you have to maybe sometimes scale back some of the money you have, both in stocks and bonds, if you have both. It's not necessarily a scenario where you want to move everything to bond CDs. People do, typically ... I'm not trying to blow this off. Typically want to have a lower risk when it comes to retirement because they don't have that paycheck coming in, but sometimes before you snap to that judgment, I think a little bit more due diligence needs to be taken into effect versus just making a blanket statement of, "I need to move more money to bonds or cash." And sometimes that can be a very easy thing to say, but may not be in your best interest.

John Stillman: So there you have it. The myths have been busted. Hope that helps you as you maybe disabuse yourself of some of the notions you've had about the financial realm. Isaac, thank you as always. And if you'd like to get in touch with Isaac and the team at Financial Dynamics and Associates, the number to call or text is 804-777-9999 that's 804-777-9999. That's the main office number, so you can call during regular business hours. You can call after hours and leave a message or you can text anytime, and let us know you'd like some help. 804-777-9999, and we'll talk with you again soon, right here on Wright Money Tips.

Announcer: Information is for illustrative purposes only and does not constitute tax, investment or legal advice. Always consult with a qualified investment legal or tax professional before taking any action.

Announcer: Advisory services offered through JW Cole Advisors Inc. JWCA. Financial Dynamics and Associates Inc. and JWCA are unaffiliated entities.