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Welcome to the Stay Wealthy Podcast. I'm your host, Taylor Schulte, and today I'm talking about investing and planning for retirement in an uncertain market. In fact, I was recently invited to discuss this topic with Caleb Silver, Editor-in-Chief at Investopedia.com.
Caleb hosts the Investopedia Express podcast, and he's had conversations with everyone from Ray Dalio and Lizanne Saunders to retired quarterback Eli Manning and co-founder of the Carlyle Group, David Rubenstein. Needless to say, it was an honor to be on a show. And while maybe not as exciting as talking to a two-time Super Bowl champion, I truly enjoyed the conversation and the opportunity to talk about investing and planning for retirement in today's environment.
In my conversation with Caleb, I shared how to build a plan for your cash and why it's so important, what mistakes investors should watch out for in today's choppy markets, and how to create a tax-efficient withdrawal strategy in retirement. I also shared my hottest investing take for 2023, my favorite financial term, and what I think the future of financial planning looks like.
If you're not already subscribed to the Investopedia Express podcast, be sure to check it out. You can find it in your favorite podcast app, but I'll also provide links to it in today's show notes, which can be found by going to youstaywealthy.com forward slash 179. Without further ado, please enjoy my conversation with Caleb Silver on the Investopedia Express podcast.
Welcome, Taylor. So good to see you. Caleb, thank you very, very much for having me and thank you for the kind introduction. You're welcome. Well, the biggest question your clients are asking you right now, I have a feeling I know what it is just given the year that we've had and what we're facing right now, but what does everyone seem to be coming to you with right now?
Yeah, I mean, it's been such an interesting environment. I say interesting because I feel like, I don't know, since 08, 09, things have been relatively calm. At least it seems that way. You can pretty much throw a dart and make money over the last decade. And all of a sudden here in 2021, 2022, things have really shooken up. And we've got this likelihood of a recession and higher interest rates and inflation for the first time in a really long time, not to mention geopolitical uncertainty there.
All these things going on, the biggest question that I get from clients, we hear from clients is just, how does all of this affect me? How does this impact me? How does this impact my financial plan? And then second to that, are there opportunities? We have the Secure Act 2.0 that just rolled out. So there are tax laws that are changing. So there's just a lot of things going on. And the biggest question we get is, how do I make sense of all this? How does it impact me? How does it affect my financial plan? And are there any opportunities that I can take advantage of to put myself in a better position?
Yeah, I'm asking that same question myself. I know a lot of our listeners are asking that question as well. And it's personal, right? I mean, what works for me may not work for you, may not work for other people. And that's why we call it personal finance, which is why planning is so important, which I know is something you're so passionate about the
power of the plan. My portfolio had a terrible 2022 like a lot of other people, but when I looked at my financial plan with my advisor at the end of the year, the plan was still relatively intact. How important is that as a core to really getting your arms around your finances?
So critical. My analogy is that the retirement plan or your financial plan is like a diagnosis and your investments or your investment allocation is the prescription. And far too often what I hear from people is they're so focused on the prescription and they're wondering if they're taking the right prescription, if it's the right investment portfolio, if they're holding the right positions, but they don't have that diagnosis first.
It would be strange if I was at a party and I met a random doctor and I said, Hey, doc, should I be taking this prescription? Should I be adding another one? Should I be swapping it for something else? To which they would say, Well, I don't know. Come into my office and let's do a diagnosis and let me do some blood work. And then I'll tell you what you should be taking. So that diagnosis, that financial plan is so important in driving not just your investing decisions, but how much insurance you should have.
what sort of estate planning you should be doing, what changes you should be making to your financial life. If you can afford that home, all of these different prescriptions really rely on that diagnosis. And I find that most people skip that diagnosis because it's not fun. It's not fun to sit there and be vulnerable and look at your financial plan and do the hard work. Even if you have a financial planner, it still requires, as you know, for you to be involved. And so I just find so many people skip that step and they just want to talk about the next hot stock or what I should be investing in or what changes I should make. But
That diagnosis is so, so important for long-term success. Yeah, it's that inventory as well. We say do it every quarter if you can, but if you're not going to do it every quarter, do it twice a year. Do it definitely at the end of the beginning of the year because you have to know what's coming in, what's going out, and where you are in terms of your plan and strategy for whatever it is you're trying to do. So a lot of people are asking themselves at a time like this, potential recession coming up, stock market has been no friend to investors lately.
is it a better time to be saving or investing? And I know that's personal depending on where you are in your life, but are you counseling folks to have a little more cushion going into 2023 than they might normally would? Or are you saying stocks are pretty depressed right now? We're still in the midst of this bear market. You want to have powder for that as well.
So we specialize at my firm in working with people over age 50. They're either close to retirement or they're in retirement and generally have tax problems in retirement. So we do a lot of tax planning for our clients. I say that to say that a lot of our clients are not saving money anymore. They're retired. They're no longer generating income. And so it really is focusing on those withdrawal strategies and getting money out of the portfolio or reducing their tax bill. So investing becomes really important, making sure that we're not going to outlive our money and
Second to that, in retirement, cash management becomes really important. So you mentioned dry powder and in the accumulation phase of life, of course, you want to have that emergency fund in place, but you have income, so you don't need to hold as much cash. In retirement, when you're taking money from your portfolio and we go through crazy wild events like we did last year, where bonds and stocks are down for multiple quarters in a row,
you have to have a smart cash management plan. So we're really focused on those things that we can control, especially holding enough cash. But for those that are in the accumulation phase of life, of course, saving more money right now and investing more money is an opportune time. And we don't know if the market will go lower. We don't have a crystal ball. But when the market is down, we have higher future expected returns. And we absolutely, if possible, want to invest more money. We also want to make sure that we have a proper savings plan in place.
For those spending it down, we used to have this rule, or it's still out there, the 4% rule, spending down your retirement funds or your 401k or your IRA. But lots of things have become a lot more expensive and we're living a lot longer than we used to as well. Do you still abide by that rule or do you still counsel that rule? How do you talk to folks about it's okay to spend? In fact, you need to spend down, but how do you do that right now, especially in this environment?
The 4% rule is a great starting point for determining how much money can I take from my nest egg while mitigating the chances of running out of money. So it's some quick back of the napkin math. Take 4%, multiply it by your nest egg, and you can get a general idea. The 4% rule is what I would call a static withdrawal strategy.
What we prefer to use is something called a dynamic withdrawal strategy. And the strategy that we use is baked in academic research done by Jonathan Guyton or the guardrails approach. And you had mentioned, we don't know how long we're going to live. And that's one of the two things that we don't know when it comes to taking money from our portfolio. So one, we don't know how long we're going to live. And two, we don't know what the markets are going to do tomorrow. At least that's our philosophy. We can't predict the markets. We don't have a crystal ball.
So because of that, because we don't know what the markets are going to do tomorrow and what our portfolio balance will be tomorrow, we prefer this dynamic approach to say, when the market does well, we will take a little bit more money from our portfolio. But when we go through tough, rocky times like we're going through right now, we have to be nimble enough and willing to take a little bit of a pay cut from our portfolio. So we kind of bounce around through these guardrails and we take some pay raises during the good times and we take some pay cuts during the bad times.
And this allows us to take a higher percentage from our portfolio out of the gates, something closer to 5% or 6%, as long as we're willing to be dynamic and adjust those distributions as we go through different market environments. And again, this allows us to solve for, we don't know how long we're going to live, make sure we enjoy life and maximize income, and we don't know what the market's going to do tomorrow. The last thing I want to mention here,
is that one of the hardest things that we see and we coach clients on regularly is actually spending their money. As you might know, the type of person it takes to build a nice multi-million dollar nest egg is not the type of person that's really good at spending money and enjoying money. So a lot of what we're coaching clients on is giving them the confidence that they can go out and enjoy retirement, that they can go spend money, even though we are going through a difficult time period. But it's just that weird psychological thing that's like,
afraid to start to see your portfolio balance go in the other direction when you've been watching it go up into the right for the last 30 years. What are the biggest mistakes, Taylor, that investors and even planners make at times like this in these times of uncertainty?
I think one of the biggest mistakes that planners make, and I can certainly fall into this trap as well, is we're going through difficult times. Clients are asking really good questions or they're venting to you. And we want to solve their problem right away. We want to answer their question. We want to maybe predict the future. In the
These situations, when we're going through difficult time periods, I think a lot of time what clients really want is for us just to listen. They just want an ear. They want somebody to say, you're going to be okay. They don't need us to predict what the S&P 500 is going to do this year or what the 10-year treasury yield is going to be on 1231. A lot of times they just want us to say, okay.
You're okay. We have a financial plan. We've modeled this out and you are going to be okay. So I think that's one of the traps we fall into is we're professionals and we want to answer questions and we want to prove that we're smart. But trying to answer that question or predict the future sometimes can be a slippery slope. So I think that's one of the big mistakes that planners can make.
I think one of the big mistakes clients can make is when things get rocky like this, they want to make a change. For most things in life, if we want to accomplish something, we have to make a change. We want to lose weight. We have to make a change. If we want to get stronger, we have to go to the gym. So most things in life, we have to take action in order to achieve something. But in investing in retirement planning, a lot of times it's to do nothing. And that's really counterintuitive to a lot of other things in life.
markets are rocky, bonds are down, stocks, we need to do something. But in most situations, it's like, no, we actually need to stay put and stay committed to the plan that we worked so, so hard to put together. And it gets just really counterintuitive and really challenging. Doing nothing is also a decision. You have made the decision to stay the course. You've made the decision to not make a rash move in your portfolio or in your plan, ultimately. You came to this industry, to the financial planning industry, out of the wirehouses, out of the big shops, Wall Street, as a lot of us call it. It's not a
only Wall Street, but you came out of that industry because you saw an opportunity to make a change and really touch people's lives. What do you think is the future of your industry in financial planning and advice? There's a lot of technology out there that can do a lot of the things that advisors and planners used to do, but there's something holistic about the way you guys do it that it will never be replaced. What do you see as the future in your industry?
I do think there's a lot of technological advances in the world of fintech is amazing. And I'm sure you've talked about it a lot. I know Investopedia.com has written a lot about the fiduciary standard and working with the fiduciary and fee only financial planners. And I think those are all really important things to take into consideration. I think one of the bigger changes, one of the bigger movements we are seeing and we will see over the next several decades
is financial advisors, financial planners getting more specialized. So unlike other professions like doctors and attorneys, most financial planners are generalists. They're out there to help everyone. They serve business owners and individuals and married couples and young professionals and retirees. But there are a growing number of specialists that have a very specific expertise. We only work with people over age 50 who have a sizable nest egg and have tax problems in retirement. We help them solve their very specific problems.
So just like you wouldn't go to a heart surgeon if you needed brain surgery, I think going forward, and it's something to take into consideration too, if you are going to make a change, thinking about working with a specialist, somebody who has expertise and working with people just like you and you only. So I think that's a trend that we're seeing right now. It's becoming more and more popular. I think that will continue for decades to come.
You play such a big part in helping younger advisors establish their businesses, establish their planning practices. You're a founder of the AGC. What is it that a lot of young advisors are recognizing as they come into this industry? They want to help people just like you wanted to help people when you came into the industry on your own. What is it that you're seeing in terms of trends for these younger folks?
Yeah. So in addition to getting specialized and working with one single demographic, I think one of the things that younger financial planners are recognizing is exactly what we're doing right now, which is that education and educating the public is so important. And it feels counterintuitive. I remember when I started my retirement podcast, my mom was like, what are you doing? Like, why are you giving away your secret sauce? Like, why are you giving away all this information to people for free? Don't you want people to pay you for that information? Yeah.
it's so backwards, but it does work in educating people and giving that knowledge and then letting them determine if they need help and when they need help. So I see a lot of young financial planners, not only again, getting specialized, but going out into the public, going on Twitter, going on LinkedIn, starting podcasts, doing writing and
educating people. Not only is it helping people better understand the world of personal finance, but it's also helping people get connected with the right financial advisors as well. So I think public education, we've seen it directly. Investopedia is a leader in this, but public education and educating people and not holding this stuff in. I remember when I worked at the Wirehouse, one of the older guys that was there, an advisor, was talking about sitting on a chairlift with somebody and the person on the chairlift asked him for a stock tip. And he said something like,
open up an account and I'll tell you. That's how it was back then. It was like, I'm not going to give you any information. Give me your money, open up an account, and then I'll give you advice. And that's just not really the way things go anymore. And I think that's a trend that the younger generation is adopting. Yeah. You're so good about extending your voice and extending your financial education and people, which is why you're one of the top 10 on the Investopedia 100. This is about generosity of helping people
And you know what? It's a great marketing tool for your business as well. So the more you share, the more it comes back to you. Let's talk a little bit more about 2023. Lots of uncertainty out there. Everybody is guessing on what's going to happen. But what's your hottest take? What are people not talking about, Taylor, that you think deserves a little bit more attention as we go into this year?
I don't know if people are not talking about this, but for the last couple of years, inflation has been the big headline. It's one of the major concerns for investors. And I was reading up, Caleb, on your most recent investor survey, and it said that 70% of the Investopedia audience is still concerned about inflation impacting their investments this year in 2023.
However, I personally wouldn't be surprised to see if instead of inflation, we begin to see disinflation. And I did an entire podcast on this on the Stay Wealthy Retirement Show last year. But in short, disinflation is when the rate of inflation slows down. So if the rate of inflation goes from 7% to 5%, prices are still increasing year over year, but just at a slower rate.
So disinflation could be something that we see. And it is a positive thing. The rate of inflation is slowing down, which is different than deflation, right? Deflation is when prices decrease. And that can be really negative for the economy. So again, I don't know if it's a really hot take or not, but inflation is just still stealing all the headlines. It's still a major concern for your readers. And so I would say, you know what? It wouldn't be surprising if we saw disinflation hit here in 2023.
Yeah, I think you're onto something there. I don't think a lot of folks expect that, but we did see that term popping a lot towards the end of the year. People starting to look that up, people starting to look up stagflation. So inflation in its many manifestations is definitely front and center in people's minds. Well, given that, you know, we're a site that is built on our financial terms and our definitions. I'm sure you have your own favorite financial term. I would love to know what that is, Taylor.
I'm going to be really boring with this one today. And I'm going to say that diversification is my favorite term. It is wildly important, not just in investing, but also in life. We've gone through some really rocky times recently. Diversification has proven to do its job.
even in a year where most asset classes are down, you can look at your portfolio. If you have a properly diversified portfolio and you can conclude that diversification did its job. So if you don't do anything else, if you need to take action and do something, I'd say diversify your portfolio, make sure it's properly allocated.
Yeah, you can't go wrong with that definition. And there's nothing wrong with being boring either. There's a reason that that is such a popular and well-respected term. And I'm not surprised that that is one of your favorites. Taylor Schulte, again, thank you so much for joining us, the founder of Define Financial and also the host of several podcasts, including the State Wealthy Retirement Show. We're going to link to that as well. And Taylor, so good to have you on the Express. Thanks so much for being on the show and for being such a good friend to Investopedia.
Absolutely, Caleb. Thank you so much.