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Posted on May 31, 2019

5 Strategies to Help You Get More from Social Security

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Wealth from Wisdom is a weekly radio show from Carson Wealth.

Paul West: When it comes to retirement income planning, risk is enemy number one. And the most effective way for you to defend against risk against yourself is through what we like to call here on Wealth from Wisdom diversification.

Welcome back. I’m Paul West. So glad to have you on this week’s show. Hey, my co-host today, the one and only Jim Caldwell. Jim, welcome back to the show.

Jim Caldwell: Thanks Paul.

Paul: Yeah, glad you’re here and you’re looking tan. So summer must be off to a flying start here.

Jim: Feeling good. I love college baseball. So this past week we have the Big 10 Championships here in Omaha. So I took in a couple of games.

Paul: Yeah, it’s fun to watch. First of all, college athletics is great because of the spirit, the motivation, what I call the purity of what happens there.

And today’s show, we’re going to spend some time talking with everyone. Like in baseball, you have your game plan, right? You have your lineup, you figure out who’s going to do what. Well, in life you need a financial game plan, but everyone thinks it’s, hey, it’s about what you make, but it really, it’s more about what you keep, what you earn and making sure it lasts throughout your lifetime.

So you have to think about all sorts of things. Taxes, income, investment returns. But really one of the most common mistakes we see people make right now is diversification. And Jim, on the show, we’re going to spend some time talking about that a little bit in terms of what I like to call the dial.

When people tend to turn up the heat. What I mean by heat is the heat of returns.

Jim: They’re chasing returns.

Paul: Yes, there we go. It’s like trying to over-boil water as fast as you possibly can, or hey, maybe I can cook those steaks on the grill a little bit hotter just to get to be done a little bit faster. But do you need to?

I think that most expensive mistakes people make are one, getting gouged by taxes, two, losing their clothes in a stock market correction. By the way, from any of you listening, you maybe have already forgotten that those types of things happen. And three, not producing enough income in retirement.

So let’s talk about these. And Jim, I’m going to call them “diversification blind spots.” So I have two new 16-year-old drivers in my home and that’s been a lot of fun. From a car insurance perspective, 252% increase. Yeah.

From a life perspective, Jim, I’ll tell you, there’s nothing more fun than watching those kids how excited they are to go out and drive by themselves. It’s funny all they say is, hey, we’re going to go get food. But it’s a sense of freedom.

But there has to be rules around the freedom, that’s for sure, in terms of who gets the car when. Who’s going to refill the car with gas and all those other fun decisions that go with it. But what I want to talk about Jim here, back to the show, about risk.

And so first blind spot we see. By the way, I did have to teach 16-year-olds about blind spots in cars and what those are. You know, I don’t know a lot about cars. It’s not my specialty, but I did know when we were on the search and actually I engaged professional to help me find a car.

It was easy. It makes sense. And I told them that, hey, I don’t know enough about this. So I’m entrusting you. The funny part is actually Jim, that’s similar to our business model. As a fiduciary, we have a legal and ethical interest to always do what is in our clients’ best interests.

So when people give us money to manage, I have to make the best decision for them versus me. So let’s talk about that first blind spot and that is people’s investment allocation doesn’t match their risk. I can’t stress this enough.

It is crazy to me how this happens and we’re in this situation right now, Jim, where because 2019 has been off to such a great start that many people are comfortable with buying more stocks than ever before. Or buying more equity-based ETFs. If you don’t know what an ETF is, an exchange-traded fund.

But the reality is that they don’t need to be taking that much risk. But they don’t know that. And Jim, I think you see this all the time, they don’t even have a clue that they’ve actually turned up the heat on their risk dial.

Jim: Most people don’t understand what they own, Paul and they don’t have any rhyme or reason for why they own it. Example, we had a household and we’ve been working with, they’re retired now, teacher and another gentleman, he had 401(k) and a 457 plan where he worked.

Based on taking a risk tolerance questionnaire with us, which everybody has a version of that. Obviously, everybody thinks theirs is the best. Ours I think is very accurate. And it only takes two to three minutes to do.

Once we did that and we did a side-by-side with where he was, he had a total misconception of where he was in those two retirement plans. Good news is we were able to roll those out of there in the appropriate way and diversify based on what he really needs now moving forward in retirement.

Paul: So Jim, as he sees it. How did he make that decision? Like, what was the information that became available to him? Because I think that’s important for our listeners is even if you work with an advisor or planner, a fiduciary, they can give you that information but you still have to make the decision. You still have to be comfortable. So how did he actually make that decision?

Jim: So that’s a great point. So we see it all the time where people bring in statements and they just kind of slap them on our table. They’re waiting for us to just go in there and kind of tear it to shreds or at least, you know, put that second set eyes on there and that doesn’t work.

What we did in this situation and in most situations is we just did a quantitative analysis. We just kind of brought him up to date using our technology as to, hey, here’s your world as it sits today. Now do you see anything here that makes you uncomfortable or what do you like? Or what don’t you like? Or what would you like me to educate you on? So that at that point it’s a lot of open-ended questions.

And what really got him over the hump was when we then took all that data and did a simple side-by-side with, okay, based on your risk tolerance, based on this quantitative analysis and based on our solutions that we feel work well for our families. How does this look to you? And I mean, it was like the wife immediately said, I liked that a lot better. And the husband, he couldn’t even talk. So at the end of the day, it worked out very well.

Paul: Yeah. That’s good to hear, Jim. So I think you and I both can maybe share with people. So besides, I want to share some of these blind spots. We were both in Chicago last week. We look at this wonderful world of financial services.

I actually tell people I don’t feel like I work. I love what I do. And so I enjoy educating people. I enjoy making change happen in our industry. It’s great to help make sure that successful people and families actually carry out their life wishes.

We hold an event because of what we look at doing is, we were in Chicago last week at what we call our Excell meetings. I want to share some stories. We have some phenomenal speakers: Colonel Arthur Athens, we had Michael Dubin, the founder of Dollar Shave Club, Avery Johnson, successful NBA coach, all of those things.

But one of the things I will share with you is people keep doing the thing over and over again and making mistakes and don’t get tired of it, or more importantly, don’t want to make a change. So let me just give you an example. Last week, how many of you out there know about Dollar Shave Club? Jim?

Jim: Sure.

Paul: Yeah, we all do. It’s a story. It’s interesting. You’re like, how can I have razors for a dollar? Well, of course, shipping was actually $2 when that happened back, you know, five years ago.

But they’re really a full-service product company. But I had a chance to interview Michael Dubin and Jim, I’m going to tell you, a fascinating entrepreneur, but what he said was his, how did he figure out to start this company? He said, when you experience a problem, you’re not the only one experiencing it.

So what I will tell you is, is his story was, what does everybody do with razors? They sit there and if you go to a pharmacy, somebody’s got to go unlock it. It’s like 20 bucks for four or five blades. So then what do you do your shaving with it? And you know it’s dull but you don’t want to go back to the darn store and you don’t want to pay four bucks a blade.

So what do you do? You keep using it, using it until you cut yourself or there’s a problem. And so that’s what everybody did. So he said, hey, why don’t we take the decision on when you go to the store, out of the equation where if it’s just refilled automatically and it shows up at your doorstep. So that was the problem he solved, it was interesting.

If you haven’t looked at his videos, he uses humor for his marketing. That helped build his brand and his identity, but he helped solve a problem. Now, of course, they’re in many other lines in between soap and body wash and all those things.

But why I bring this up is so many consumers today have a problem of they bought some stocks or bought some funds or bought something and now they don’t want to go through the exercise of actually identifying are they taking too much risk or not? So what do they do? Nothing. Zero. They got quiet just like Jim did there.

Jim: They kick the can down the road.

Paul: Yeah. So they keep using this dull razor on their portfolio. But what’s going to happen, it’s going to cut at some point. What cut means to you is, is if you’re taking too much risk, you’re going to start bleeding at some point.

We will have another economic downturn. We will have another abnormal world event happen that creates challenges out there. But don’t let those blind spots happened to you. I love the story from the Dollar Shave Club – let’s figure out ways to solve problems for people.

But importantly, you know, if you’re standing in front of the mirror right now and you get up in the morning and if you look in the mirror and you think about you and your family, are you really making all the right financial decisions?

Jim: Most people would probably say kind of, maybe. I don’t think anybody would say yes or no.

Paul: Yeah, I think they would Jim. But you want to know why? Because of ego. So, I love this, I heard this phrase in Chicago, I’m going to talk about him and a little bit, his name is Chris Davenport, world-famous skier, world champion skier.

And one of the best things he said and the entire time is: do not let your ego or your bias get in the way of good decision making. Do you not let your ego or your bias get in the way of good decision making. And he’s hands-on correct on that.

I would say the same thing about your portfolio. Don’t let that happen. So if you want someone to help you look at whether or not you should have your portfolio rebalanced or it’s time to update it, I know it’s been several years.

We can help. (888) 419-8513. If you’re the type of person that really wants to maximize the most out of every dollar you’ve saved for retirement, give us a call. (888) 419-8513 you’re listening to Wealth from Wisdom.

When you hear the word diversification, you immediately think of investment diversification. But really diversification is so much more than that. It’s not just a mix of stocks, bonds, mutual funds.

This commonly overlooked pillar or financial planning also plays a critical role in what we call income generation. If all of your eggs are in just one income basket, it could actually turn out to be a financial disaster for you.

Hey, welcome back to Wealth from Wisdom, I’m Paul West, my co-host today is Jim Caldwell. And today we’re talking about these five diversification blind spots, but more importantly, how to avoid them.

Coming out in this segment, we’re going to continue to give you strategies and real-world investment advice on how to make it happen. Also going to share some great stories. We run a national event, it’s called Excell, helping people get better.

So let’s talk about blind spot number one was diversification.

So blind spot number two is not consistently updating your plan.

And so the key really to managing risk is we often look at as rebalancing. Rebalancing is really a key to maintaining your risk levels over time. Really the goal of diversification is not to excel or boost your performance, Jim.

But it’s really more about protecting yourself from losses and protecting yourself from not being able to live out life the way you want to. So we see this all the time, Jim, right? What do people do?

I can’t imagine saying, Hey, oh, I mentioned in the last segment, I have two recent 16-year-olds. The car plan has to be continually updated, right? I have to put gas in it, change the oil, get the brakes fixed or what happens? There’s a problem. A car wreck. I create danger and lack of safety.

The same thing as not consistently updating your financial plan. You’re putting yourself in dangerous situations and you’re creating a safety concern for you and your family. You wouldn’t do that in your car. So why in the world wouldn’t you do that on your financial plan?

Jim: Well, because people ignore that. I mean, they let their ego get in the way. I mean as a fiduciary we are required to meet with our families at least once a year and with that, the ones that do have a financial plan, we are required in their best interest and ours also is to update their planning paperwork.

On that paperwork, there’s an area that you check boxes as to what you want to cover or what you want to make sure they understand and that the dots connect accordingly. You go through that together with them to make sure that things haven’t changed or additional items need to be added. So very important to keep that up to date.

Paul: It is. I know we stress on the show, I can’t describe it. How many times I get introduced to someone and I asked them when was the last time their plans updated? They’re like, oh it is. I say, okay.

Jim: Or what’s your will look like?

Paul: Yeah, give me a copy. Exactly. Give me a copy of your will. Jim, last week, met a 45-year-old who has a child under the age of two. They don’t have a will.

Jim: We see it all the time.

Paul: I mean it gives me the shakes. I know right now somebody who’s listening is shuttering and what are you doing? You just looked away. You just want to shut off the radio because you don’t want to deal with it. But no one wants to think about the inevitable, which is death.

But, you have two choices. Either you can embrace it, understand it’s going to happen, but you better at least prepare for it. And one of the ways you prepare for it is actually putting a plan in place.

If you don’t, you’re making a serious, serious mistake. The funny part of – it’s not funny actually. It’s serious. So bad use of words there. The scary part of this for me is when you ask people what’s most important to them, what do people say?

Jim: Their family.

Paul: Family, yeah. We don’t even have to think about it. This is a no brainer. So family is the most number one important thing to you. And yet from a financial and legal perspective, you don’t protect them, then is it really?

I’m going to challenge you to think that way because what we don’t see people doing, I just need to be transparent with all of you, you have to make that happen.

So that’s why it’s a blind spot. And why is it a blind spot? Because you think if he did eight years ago, 10 years ago, I mean I just got another will and the other day it was 1991, 27 years ago, the world’s changed. Things have been updated.

Those are the types of things that we want consumers and people to look at. So Jim, let’s move into blind spot number three. It’s not as easy to deal with when you’re working, but when you move into retirement, it’s easier.

That is: people don’t diversify their income. By the way, diversification is so much more than just investments. Diversification is your income. So, I mean, if you think about retirement, you have your retirement plan or your assets. So it’s funny, it’s like your whole life, you get paid from your employer. If you’re a business owner, you pay yourself, but then when you get into retirement, you now have to start paying yourself from money that you’ve saved over your lifetime.

Jim: Sure. And the key there is, and we’ve talked about this before, would be the tax ramifications of where you take that money from. We’ve talked about how tax planning differs from tax preparation. People don’t have that tax planning. They don’t take it from the correct buckets and they end up paying more money to the government in retirement than they probably did when they were working.

Paul: Yep, they did. And so let’s think about that. So what are some income sources? So your retirement accounts, social security, for many of you. By the way, you know what actually ensures the success for so many people is actually delaying taking social security.

Why? Because it grows into more and you get more. I’m not saying that’s the right decision for everyone, but there’s empirical evidence. We have a gentleman who joins me on the show frequently. His name is Jamie Hopkins. He’s our Director of Retirement Research and he loves to talk about that. He’s right, but the challenge is people don’t listen.

So we want people to listen. People throw money into a bank account. I mean, and if your money is sitting there in a money market, in a bank, unless you moved into the highest-earning, highest-yielding account, which very few people do, what happens?

Jim: Makes you basically lose money.

Paul: Yeah. Well, because inflation runs a little over 2% and if you’re making less than 2%. So the best way people can understand this is. It’s summer season’s upon us, Memorial Day weekend. Probably going to be a few barbecues this weekend.

I know for me at least it will be. And what do we do? We go grill. People love to grill. They pick up some chicken or salmon or of course steak or Burgers or whatever you’re picking up. But what are people saying? Oh man, I can’t believe how expensive that was. I can’t believe how expensive ground beef is right now, or whatever.

Why? That’s called inflation. Things increase in price. Why? To produce it, to pay the people that make it, to pay the packaging plant to be, you know, all those things. So there’s a natural cost increased and that’s called inflation, but you see it probably most prevalently at the grocery store.

Yeah. So Jim, I would say one of the things we look at from income for people is we have to make sure people don’t spend down their retirement in a way that creates anxiety. And so what are other methodologies? So besides social security and retirement account, are there other ways that people can generate income in their retirement?

Jim: So you could look it at your portfolio and maybe you have predominantly dividend-paying stocks. That’s a nice way to generate income.

Another way to generate income would be if you have solutions in your portfolio that are noncorrelated to the market. What I mean by that is if the market goes up or down, it doesn’t matter. It’s totally a separate bucket. You can generate income off of that.

So there are two areas. I mean the big thing I think Paul would be, you see a lot of people that come in here with heavy 401(k) and retirement plan numbers and to be able to start planning to take some of that money out in their sixties so that when they hit 70 and they take social security then and then they have to take their RMDs, that tax bite is going to be a lot less.

Paul: Yeah, no, it will be. Jim, a lot of people, I’m going to talk about this for an income perspective here, utilize real estate. Especially a lot of people say, oh, I’m going to go buy homes and I’m going to flip them, or I’m going to go buy homes and I’m going to rent them.

And I see our producer Meg’s grinning over there. So maybe she’s debating it at this moment. And so here’s, we’re going to tell you. I am a huge believer in people make decisions with their heart and their soul more than they do on running, I’m going to call it, the economic analysis. So what did I say earlier? Don’t let ego or bias get in the way of good decision making. Where are we right now in the residential real estate cycle in terms of what that looks like?

Jim: I think we’ve made a comeback at this point. It’s not as bad as it was, but I don’t think we’ve hit the top yet. That’s my opinion.

Paul: Well, I’m going to disagree with you. I think we’re in, I’ve used this analogy here on the show before. I’m going to share it again, I think we’re in the eighth inning of a baseball game.

So since we got the Big 10 Tournament town, I’m just going to bring it up. So if we’re close to the end, and again, I don’t know if it’s a nine-inning game, a ten-inning a game or an 18-inning game, that, here’s what I’m going to say. There’s a famous bias out there that I’ve talked about on the show before. It’s called the herd bias.

And what does the herd bias mean? That means people tend to follow others who have had success. And I shared this is: no one wants other people who they feel aren’t as smart as them to make money.

Let me say it another way. I’ll just be direct. If you feel you’re talking to someone who you feel is dumb. I know it sounds bad, but I’m just going to be direct. I’m trying to look at how in the world did they make money off of something like that. I know I could do it.

Herd bias is based on: other people that have done things, so, therefore, they think they should do them. I just bring this up to all of you because I don’t disagree. Real estate can be a good income source for you, but you better have experience. You better not put all of your eggs into that basket. You better be able to understand, the challenges that go into real estate income, whether it’s single-family rental homes.

Be super careful of REITs, they can be loaded and ladled with fee after fee after fee. Again, you need to talk to a professional. By the way, if they don’t put it in writing to you what their fees are for their REITs or other real estate type projects, then run. Right? Don’t walk away from this.

I think a lot of people’s success in retirement is they realize that it’s not built on how much money you saved, but it’s really built on their income and their ability to generate income in retirement.

If you want help, we actually have what we call a free income analysis. If you’d like us to run that for you personally. Again, it’s always confidential. (888) 419-8513.

Hey, welcome back to Wealth from Wisdom. This is Paul West, Managing Partner at Carson Wealth. I am joined with Jim Caldwell, one of our financial advisers. Jim, glad to have you here chatting with me today.

Jim: Thanks, Paul.

Paul: Yeah. Even though you’re an Ohio State fan, I won’t hold that too much against you and today’s show and somehow it’s not even quite Memorial Day and you look like you’re in mid-season, 4th of July tan going there.

Jim: Hey, enjoying life. All right. I wanted to make a comment about planning since you brought up, Ohio state. So I was sitting when I go to a baseball game – I love baseball. I always like to watch the pitchers and catchers and I watched the pitching coach if I can sit where I can see them.

We talk about planning and preparation and everything. It was interesting in one of Ohio State, Michigan game, I was sitting behind the pitching coach and he had a huge notebook. Every time a different batter came up, he flipped the page. And we talk about the importance of planning.

It wasn’t that they were just winging it out there as to what pitches and what situations and where to throw it and what location. They had a plan. If you execute that plan, you win the baseball game. And obviously, they did it well because they held Michigan to one hit in one run.

Paul: Wow. Yeah. So it’s one thing you have to have a plan, but then you actually got to execute on the plan. I mean, there’s a famous movie of course, called Moneyball, right? I’m sure you’ve seen it. And that really started the genesis of planning because what did they do, they solved a problem.

The problem was scouts, baseball scouts sat around in the room and what do they do? They based it purely on what they thought. People who had athletic talent. Okay. So who looked at the biggest, the strongest and the fastest. Therefore they got the best contracts right when they were coming out of high school, college, etc.

But the reality is that world’s actually moved into data and it’s interesting how like Major League Baseball, that professional organization. That all of these teams now are investing a lot of money in data and figuring out how to pay their players based on who actually brings the most value of the team.

Not just in home runs and RBIs, but all those other factors that go with it. And then data for pitching and figuring out how’s the best way to pitch to people. What does it look like? Now the player’s don’t have to carry it all out on the field, but they’re building a game plan based on the data that creates the most likelihood of success.

It was fun for me last week. I was with one of our clients and he was telling me, you know, his son had the opportunity, he actually now is employed with a major league baseball team. He’s working on this project for the team. And that is, how to pay their players based on overall performance and using data to look at it. So actually measurable statistics based on percentage errors, all those things instead of, oh well we think this person deserves the most, so therefore we’re going to pay them the most.

Jim: That’s the old way of the open market value, right?

Paul: Yes. And don’t get me wrong, and there will probably still be some of that because how do you rank brand? You know, there are some intangibles in there that go along with it. But it’s interesting that that’s just, that’s how the world’s evolving. I think it’s a very cool thing to see.

So now let’s talk about Jim, we’re talking about blind spots here on the show today. And I’m enjoying this because we want people to watch out for their blind spots. Because guess what? If you ever got in a car accident and you got in it due to your blind spot, what happens now?

Jim: Well, your car insurance rates are going to go up.

Paul: Yeah, that’s definitely going to happen. But you’re going to check your blind spot every time now because you made a mistake. Right? And isn’t it true for all of us as human beings that when we make a mistake, we learn a lot more?

I can certainly tell you as a leader and entrepreneur, I’ve learned more from my mistakes in my life then often you do from your successes.

So blind spot number four I want to talk about today is the diversification of your taxes. What I mean by that is what do you think your biggest expense is going to be in retirement, Jim? Besides traveling to baseball games?

Jim: Yeah, exactly. The food I eat there. Health care expense, Paul, that’s my biggest concern. Taxes I can work to figure out how to minimize it with my tax preparer. I’m worried about healthcare.

Paul: Okay. So you answer how most people answer. And your answer, you’re more educated than most people on this could be correct. But it’s not necessarily correct. So most people think it’s either health care or their mortgage, but the reality is that taxes, for many people, tend to be your greatest expense in retirement.

Why? You work so darn hard your whole life. And you put money in your 401(k) plan, in your 403(b) plan, but you defer the taxes on that forever. Now guess what? You’ve got to take it out. So not only taken out on that, what also is taxable to you, social security. What else can be taxable? Interest income.

So now you have all of these things. So actually, if you looked at it, and if you’re getting $100,000 plus a year in income, and you’re pulling $100,000 a year from your retirement account or $30,000 or just call it $70,000 pulling $30,000 a year from social security.

You’re now paying taxes, right? So whatever that number is for you for the year is a lot more than probably what you’re paying for your mortgage or anything else. So it’s something that you’ve got to be very conscientious.

One of those blind spots related to taxes is everybody says, I have a CPA or I got this handled myself. So what do they do? You know what are popular online programs? Quicken, right? Turbo Tax.

People do it on their own. Why? To save money. Saving money doesn’t mean to save taxes. All you’re doing is saving a tax prep fee. Huge difference.

I’m going to talk to you about all of this right now. There’s a huge difference between tax prep and tax planning. Tax prep. You’re just doing the following. You are recording information. Scribing and writing down what happened in the past. The tax planning that is actually making decisions to influence what you’re going to scribe next year in filing your tax return.

It’s so interesting when people send us a copy of their last two years worth of tax returns, if they’re doing it on their own, almost every time we’re able to point out something in value to them that they’re missing and be like, we’re not doing anything illegal. We’re just helping educate them on better ways to do that.

By the way, if you want us to look at your tax returns and help, again, it’s confidential. If you don’t want to do business with us, that’s fine. We actually do an income tax return analysis for you if you want that (888)419-8513. I know it’s personal, but we are a fiduciary, so I have a legal and ethical obligation to you that of course includes your privacy and those types of things.

But I’m going to share a story from Time magazine here and you have, this one’s interesting. There’s a $2 trillion tax bill coming – $2 trillion tax bill. Did you hear about this yet? You’re like, Oh God, where’s Paul going with this. So there’s a $2 trillion tax bill.

By the way, if, if you’re a Baby Boomer, I’m talking about you. Why? Because you all have what’s called an RMD, required minimum distribution, coming up. So when they look at the world, it looks like about there’s a $2 trillion tax bill due from RMDs that are coming up here shortly because why?

You’re forced at age 70 and a half, you have to start taking money out of your IRA, your 401(k), etc. And so you have to start taking this money. So that’s why this tax bill is due and people don’t even realize it.

So when I look at tax diversification for families, there are really three ways to look at it. One is you can have accounts that are taxed always. That’s your brokerage accounts, your bank, your checking, your savings, etc.. You pay all your taxes on your dividends, your interest, your capital gains.

You’re going to have accounts that are taxed later. So that’d be like your 401(k), your IRA, your 403(b).

Then you’re going to have accounts that are taxed rarely. Your Roth, muni-bond interest, some life insurance, etc. But in order to take control, you’ve got to figure out what’s the right amount of diversification to have in all of those. If you think you’re alone, you’re not, most people feel like they get clobbered by taxes in their retirement. But do you want to actually happen to you?

Jim though, again, the only way I tell people to do is actually to do tax planning versus tax prep. So I shared, we do have a tax reduction analysis if you want help. And by the way, we’ll just show you simple and actionable. I’m not going to go try to over-talk you. I want to make it clear, concise, and something that you can actually act upon if you want that complimentary tax analysis right now. (888) 419-8513.

Don’t let the government punish you just because you’ve been a great saver. Do something about it. Get up. Don’t avoid it. Don’t fall into that blind spot. Help yourself solve your tax problem. Not even solve a tax problem, but avoid future ones. Put more money in your own pocket. (888) 419-8513. You’re listening to Wealth from Wisdom and we’ll be back in a moment.

Hey, guess what? You think you’ve got all the top performing ETFs or mutual funds in your investment portfolio. But according to an article recently out of the Wall Street Journal, most top rated funds turn out to be dogs, not good. And I don’t mean dogs in a bad way, or dogs in a good way. I mean, just things that aren’t working well for you.

Hey, you’re listening to Wealth from Wisdom. I’m Paul West, joined by Jim Caldwell and today we’ve been talking about five blind spots that we’re trying to get people to avoid. And coming out in this final segment, we’re really going about one of the most critical mistakes people make related to their blind spots.

But Jim, before I want to talk about, last week I mentioned we were in Chicago. We had a chance to meet Michael Dubin, the founder of Dollar Shave Club. Avery Johnson was there. Mira Wilczek, founder and partner of Cogo labs, one of the most preeminent, artificial intelligence and data collection. She told me something like they’re collecting 10 billion rows of data a day. Billion.

Jim: Wow.

Paul: Everything is so fascinating. I’m not going to talk about on today’s show. She’s one of those people that you meet and I was interviewing her from stage. We had a one-on-one fireside chat in front of the room and I’m sitting there talking to her, interviewing her.

Jim, you’ve met those people that, you know how uber-smart they are, that they’re trying to talk to you, but you can see their brains processing at a level that the rest of us don’t even operate at. It’s never happened to you because you’re usually that person. I get it!

Jim: Oh yeah! I’m just humble.

Paul: Yeah, there you go. She said your eyes can process information at 10 megabytes per second. All right, you following me here? You’re looking at me. So you’re listening. You’re processing 10 megabytes per second.

Your ears can only process 0.8 megabytes per second. So what does this tell you? What we all thought, but now it’s backed up by data. They say you understand something better if you can visually see it versus if you hear it, you don’t always remember it or doesn’t always stay retained.

But now there’s actually data that it shares that is actually 10 times more powerful for you to visually see something than to do that. So I think that was something that was super interesting that I wanted to share with our listeners.

But also, we had a chance, we had a keynote session and it was truly my honor, I got to introduce him up on the stage, a world-renowned a skier by the name of Chris Davenport. I shared earlier, he shared a story about climbing Everest.

Today he flies all around the world with people. They hire him to go skiing and he lays out the plan and builds the plan for them. But he used the phrase, “do not let your ego or your bias get in the way of good decision making.”

And here we are in the month of May. I saw, unfortunately, there was a tragedy on Everest. You know, people pass away. It happens every year. You have to make decisions at every point in time. Chris told his story about going up Everest and how every day he had to make the decisions on the safety of him, the safety of his team, and importantly to all the safety of all the people that were around them and how they approached it.

So one of the things he talked about and he shared what we called was the team method. All right, so here and he talked about risk. He said the biggest thing I’m trying to do on the mountain is avoid risk, right? I’m trying to prevent it – to look out for it.

So, of course, I was thinking about all the similarities between what we do in financial planning, but he had the team method. So the T stood for transfer. How does he transfer risk? E, how does he eliminate risk. A, does he have to accept risk or em, how does he M, mitigate it?

So I think it’s a good thought process. Which one of those we were able to transfer, eliminate, except or mitigate. One of the risks, then, I see this today with investors all the time with their blind spots is blind spot number five: transferring risk to making a decision based on past performance.

That is to me, um, scary. It’s sad. Uh, so when you log into your 401(k) and you log into that portal, your 403(b), your IRA, whatever portal you’re logging into. So what do people do if you’re listening, listen carefully here because I’m going to tell you, most people do this.

You log in, you check out your return, then you go click on to see all returns of all the investment choices in there. And then you go look at it and you’re like, Dang it, I didn’t see that large-cap value was the best. Or I didn’t see that mid-cap growth was the best, or I didn’t see the bonds were the best in that down quarter, whatever it was. So then you make a change. Why? Because of past performance. That doesn’t matter! What you have to be looking at is the future.

And so there’s a reason why successful advisors and people tell you past performance is no guarantee of future results. We don’t have a crystal ball. I at least I don’t have one. Do you have one, Jim?

Jim: No, not in regards to investment returns.

Paul: So why do people think that they should go online? By the way, I get asked this all the time and I’m sure you do Jim. So what do you do? So somebody says to you, Hey Jim, I want to see Carson’s historical performance over the last five years. What do you say to them?

Jim: We see it all the time. But I mean, my, my thoughts on that is, hey, it’s like the weather, the weather was a certain way the last couple of weeks. That doesn’t mean the weather’s going to be that way the next couple of weeks.

So I mean, to me, you’ve got to have a higher level of education to be able to give advice. We see this with a lot of do-it-yourselfers that like to base every decision they make on the past. And it just doesn’t work. It’s not the most optimal way to set up your portfolio.

Paul: Yeah. So I love your weather analogy. But I also, I mean I look at a lot of things here. Yeah, I want to make sure if I look at past performance, that okay, at least they better have been in the game. You know, I’d love if they exceeded their benchmark. But at the end of the day that that’s bedrock.

Because I need them to look out on the future. Case in point, we’ve talked about this before. If I would have looked at a past-performing great company, I could have looked at Blockbuster Video making tons of cash building up like crazy all across the country. But if I would have bet on them versus Netflix several years ago, even though on paper, Blockbuster looked a lot better in terms of revenue and profitability, what would happen to me?

Jim: You’d be in trouble.

Paul: I’d be squashed, squashed, smooshed – put in your favorite word their, Jim. Why? Because I would have based my entire decision on the past and the world changes so quickly now that I need to make decisions on how we project out for the future.

Taking a point. China, I mean, it feels like there’s new news on China, right? Every single day.

Jim: Yep. Couple of times a day.

Paul: Yeah. Whether how much it’s going to be in tariffs, whether is their real return accurate or not. So I have to make decisions on what I think the future looks like versus the past. And I think that is one of the biggest mistakes.

Many of you may be used, there’s this tool out there called Morning Star and they do one to five-star ratings. Well, here’s what’s interesting is, if you get a coveted five star rating, which is the best, only 12% of them did well enough over the next five years to earn a top rating, 10% of them actually did so poorly the next five years they went to a one star, which is the worst category.

What does that tell me, Jim? Same thing. There’s empirical evidence that past performance does not predict the future, but what you have to do is have a portfolio design that works for you, works for your income plan, helps protect you, your spouse, if you’re married, your kids, and your grandkids. Most people don’t do this, so don’t let that happen to you.

Make a choice. Make a decision. (888) 419-8513. We can help you out to avoid all these blind spots. Hey, I’m Paul West, and thanks for listening to Wealth from Wisdom

Announcer: Okay. And here’s the legal Mumbo jumbo. The opinions voiced and wealth from wisdom with Rod Carson or for general information only, and are not intended to provide specific advice or recommendations for any individual to determine what is appropriate for you. Consult a qualified professional. All indices are unmanaged and may not be invested into directly. Investing involves risk, including possible loss of principle. No strategy assures success or protects from loss. Past performance is no guarantee of future results. Advisory services offered through CWM, LLC, an SEC registered investment advisor.

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