Stacey Andres
Jon Gay

TRANSCRIPT

Jag: Welcome to our weekly podcast, the Art of Wealth Unbroken. We provide our listeners with insights and proven strategies to protect the wealth they’ve built against poor financial planning, investment mistakes, global and national economic conditions, and governmental policies. We discuss the topics in finance, retirement, and politics that are on your mind, giving you certainty and uncertain times.

These discussions can help you make better informed decisions. So you can make better financial choices with the wealth you’ve built and are continuing to grow. Our hosts are Stacey Andres, registered financial consultant and Michael Wallin, certified financial planner. I’m Jon JAG Gay. And for our topic today, guys, we’re gonna discuss some of the safe growth vehicles for that safe money bucket we’ve talked about in previous episodes.

Michael: Hello JAG. Hello, Stacey. As you mentioned in past shows, we very, at a high level cursory commentary. We’ve talked about the bucket approach and we’ve looked at multiple different levels of how you would use that. For today’s show, we’re gonna be looking at the bucket approach of where you have your money that’s allocated in each of the different buckets. The different time horizons and the different levels that of risk that you should have associated with each of those buckets. Now. JAG and Stacey, that first bucket, we don’t want a lot of risk on it. It’s money we’re gonna be dependent upon in a one to two, maybe three year time horizon.

And we really wanna mitigate the amount of risk, especially risk associated with the market. Now, the second bucket, we got a little bit longer time horizon. That might be that two or three year up to four to five year time horizon, we can apply a little bit more risk. We know that as market cycles have happened, typically we’ve seen a correction out of the market in that two to three year time period.

So we can associate a little bit more risk on it, but again, gotta be mindful. We’re gonna be dependent upon that bucket in a mid duration or mid time period. The third bucket. Is our longer duration bucket that bucket’s going to be out there typically that eight to 10 years down the road. So you can associate more of a full market cycle amount of risk on that money.

So for today’s conversation, we’re gonna be talking about bucket number two. 

Stacey: That’s right, Mike. Yesterday I was having a discussion with a client that right now is sitting very heavy cash. He’s not the only one. You and I had a conversation this morning. You’re talking with clients, same thing. And the good thing about that is yes, they have eliminated all the market risk for that money.

Unfortunately, though, and we have discussed this in prior episodes that in this current environment of high inflation, that money is at risk because it is probably gonna lose about 10% of its value this year due to inflation. On July 13th, June inflation numbers were released. They came out at 9.1%. So that number keeps going up.

So money that is sitting there in bank accounts, in a money market account, that’s really doing nothing. It’s still losing value and that needs to be addressed. And that’s a concern that many clients have today. 

Jag: So if this is money that a person two to five years down the road is gonna tap into, what tools are out there that could help at least give them some growth on their money.

Maybe it’s not gonna keep up with inflation per se, but you know, some growth would be nice. Right guys? 

Michael: You know, that’s a great question, Jag. That’s the questions that we’re fielding each day from clients as they’re calling in, and it can really be a balancing act between how much risk do we take because we know that in short period of time that it’s going to be what a client is living off of.

So we wanna make sure that we don’t expose that money to unnecessary amounts of risk over amounts of risk that causes them to have really a squeeze on their household budget. Now there are three vehicles that we feel good that would be a fit for this “bucket two” type of money that that person is looking for safe growth versus letting it sit in a bank or a money market account.

As with everything there are pros and cons to each, and we should touch on each of these as well. The first is the certificate of deposit. The second is a MYGA or what we refer to as a multi-year guaranteed annuity. And the third is a buffered ETF or buffered note. Stacey, do you wanna talk about the pros and cons of the CD?

Stacey: Yeah. Sure. Mike, so a CD, everybody is very familiar with this. It’s a very popular product. We all know about it. Banks offer them. They’re very easy to acquire. There are pros and cons. The pros of a CD is that they can be a safe, secure way to set aside money to help you meet. Future goals, both near term and long term. Another benefit or pro to a CD is that it’s gonna likely offer a higher interest rate than a savings account, a high yield savings account, or a money market account.

The returns are virtually guaranteed. Everybody likes that today, and you can use that to easily estimate how much your money is gonna grow over time. And then you can also use a laddering strategy with CDs that can help you leverage changing interest rates and create liquidity in your portfolio. Some of the cons of a CD are that bank.S credit unions, places that offer them can penalize savers with surrender charges if you withdraw CD funds before the date of maturity. CD rates may not be high enough to keep up with inflation. We know that any safe growth vehicle right now is likely not gonna do that, just because of where inflation rates are at. CDs offer less liquidity than savings accounts, money markets accounts or checking accounts.

So that might be a concern. And then one of the final cons here is that taxes are paid on the interest that is paid out each and every year. 

Jag: And just to be clear, these are CDs that are still accurate. Certificates of deposit the bank. As the former radio DJ, not the form of music CD that have gone by the way of the Dodo. Just to be clear on this. 

Stacey: That is a good point Jag.

Jag: Let’s talk about the second one on the list next, Mike, the MYGA. M-Y-G-A ,multi-year guaranteed annuity. What is that?

Michael: A multi-year guaranteed annuity is, while very different from a CD in many ways, they have the same pros and cons. And they’re quite similar. With a MYGA, it’s issued by an insurance companies.

They’re also safe. They’re a secure way to set aside money for your financial goals. Typical duration of those is going to be a three year up to a 10 year duration. A benefit to a MYGA over a CD is that often you can lock in higher interest rates and it definitely beats a savings account or a money market account.

And when you’re using a MYGA, you get tax deferred income. They’re backed by very large insurance companies. So you do get a contractual obligation from the insurance company. Returns are guaranteed and you can easily estimate exactly what you’re going to grow. You know, when you go into that contract, if it says you’re gonna get 4% for five years, you’re locking in that return. You’re gonna get that payment. It’s gonna be applied to your interest.

And after five years, you’re out of surrender, you can take that money and do something else with it. As with a CD, you can also create laddering strategies with MYGA’s that can help you leverage changing interest rate environments and create liquidity when you’ve become dependent upon those resources to meet part of your income needs.

Now. I’ve told you all about the bloom on the rose, but we also gotta talk about the thorns. So MYGA’s also have some cons. It is a time commitment, for instance, you know, as we said, it could be anywhere from 3 to 10 years, there will be surrender schedules on those. So you know that if you take your money out early, you know exactly what that penalty is going to be, but it is gonna cost you to get out of that contract early.

And they have a little thing in there called a market value adjustment on a lot of these accounts, which means that if bond rates are going the opposite direction for the insurance carrier, you’re going to participate in those additional expenses to the insurance carrier. Another con of a MYGA is that they are not FDIC insured, whereas CDs may be FDIC insured.

Jag: At Optivise Advisory Services, they combine the expertise of their seasoned professionals in financial planning, tax legal and investment to assist their clients in achieving the lifestyle they’ve always dreamed of through their proprietary Info Right system. They address each of the 10 pillars in their planning process: investment retirement, income tax, social security, education, healthcare, personal care, charitable legal, and wealth transfer.

Their comprehensive approach brings certainty in uncertain times. To receive your free Arc of Life report you can visit artofwealthunbroken.com. Again, artofwealthunbroken.com or call 855 378 1806. The information will be in our show notes, 855 378 1806. The Arc of Life report will show you how to each of the 10 pillars in the Info Right process connects together to form your unique, personal financial canvas.

Stacey: Well, that brings us to the final vehicle that you had mentioned earlier, Mike, and that is a buffered ETF or a buffered note, a structured note it’s sometimes called. There’s a number of different buffered products out there that are gaining quite a lot of popularity. And this is a product that Michael and I both really like.

What I’m gonna do here in today’s show, I’m gonna touch on the pros and the cons like we did with the other two vehicles. But on the next show, we are going to take a deeper dive into these buffer products because we think that these could be a great fit for a number of clients and their portfolios. So the pros to a buffered product. First it aims to protect investors against significant downside moves to the market of up to 30% over a 12 month period of time.

If you look at historical returns over time since 1975, there are only two instances where in any 12 month rolling period, that the market has been down more than 30%. So the majority of the time, these things come out very, very strong. They’re making clients money, and most importantly, they’re not losing clients money.

The second pro to it is that it gives opportunities for returns that can beat both what a CD offers and what MYGA’s offer. They are designed to mute the volatility caused by turbulent markets. We all know what that is right now. Here’s a great one. They’re 100% liquid, and they’re easy to access, if you are using the right products. The products that Mike and I use are very accessible and we want clients to have access to their funds and they can be highly customized.

It’s not a cookie cutter approach that is taken. It’s not a one size fits all. There’s there moves and things that you can do within these and how they’re layered into a client’s portfolio that makes ’em very customizable, but onto the thorns, as Mike had mentioned last time around, so there are cons to it with a buffered product. You are not protected 100% against the loss. As I mentioned, there have been a couple occurrences where it has been down more than 30%. And we will get into that in the next show. Growth opportunity with a buffered product is capped. So while they give you downside protection, they are going to limit your growth potential because of that downside protection that they offer.

And then because of how they’re structured, one of the things is they do not receive dividend payments within that. 

Michael: Yeah. One of the things that I mentioned yesterday, Stacey, to a client is if we go back to November 2021, we were hitting a peak point in the market. Today, as we’re doing this, recording the market from that peak point down to where we are today is probably about 25 to 26%.

And talking about a buffered product that gives downside protection of another 30%. Because as you go into these products, you’re buying in on that date at the end of that month. And so if you start from where we are today and you bought into a buffered ETF, you’re talking about a 30% protection on the downside.

The market actually would’ve had to have gone down 56% from peak to trough before you had actually experienced any losses. So it is a great tool for individuals mostly when we’re looking at that second bucket of money. And again, it’s not a cookie cutter approach, it’s not the right solution for everybody.

We’re not making a recommendation that individuals run out and meet with an advisor and buy buffer ETFs. But I think that it does warrant some discussions. If your feelings you’re having today is to rush out, sell out of all of your equity positions, sell outta your bond positions and sit in cash. When we know you’re losing at least 10% buying power in doing that, this is an alternative to be able to look out and say, Hey, do I still wanna be there when the market recovers and benefit from some of that upside potential while also leveraging with some downside protection?

Stacey: That is exactly right, Michael. Our planning process is centered around, making sure that once you reach retirement, whatever age that is, that you do not run out of money. We want your wealth and your income to not be broken and fall apart because of poor planning or poor strategies that have you running outta money when you are most reliant on that.

Jag: This has been a really good discussion today, guys. And again, we’re gonna dive into the buffer ETFs in depth next week, as you teased Stacey. In the meantime, if somebody wants to come talk to Stacey and Michael. And the team at Optivise, best ways to do that. Visit our website artofwealthunbroken.com or give them a call 855 378 1806, 855 378 1806.

The link and phone number will be in our show notes, wherever you’re listening as well. You can feel free to check that out. And gentlemen, we’ll talk to you next week. 

Michael: Thank you, Jag. 

Stacey: Thank you, Jag.