Ken Moraif  

As you look at your retirement as we see it, there are three horsemen of the apocalypse, okay? One of them is taxes. One of them is bear markets, which is big drops in your investments. And the third is inflation. So in today’s episode, we’re going to be talking about strategies to beat inflation and to address the third of the three horsemen of the apocalypse, retirement planners of America, RPOA, hello and welcome to the retirement planners of America podcast. I am Ken Moray from the founder and CEO of retirement planners of America, and we’re a firm, as the name implies, that specializes in retirement planning. So today we’re going to be talking about the third of the three horsemen of the apocalypse, as we call them, the three worst enemies you have to your financial well being. But before I get going, let me just tell you that we work with over 6500 beautiful, wonderful families across the country, and our goal is to have you enjoy your second childhood without parental supervision. That’s our goal, and fighting inflation is certainly an important part of that. With me, I have Jeremy, my co host indeed, and I’m going to hand the baton off to you, Jeremy, so you take over here and lead us to the four powerful strategies.

Jeremy Thornton  

Absolutely, inflation is one of those monster words you hear a lot in financial news, but pretty much all the time. It’s kind of one of those things that’s always in the back of everyone’s head when it’s really low, people still whisper about it that like going back, oh no, where is it? And it inevitably rears its ugly head eventually. What is inflation? What’s, what’s, what’s its what makes inflation? What does it do?

Ken Moraif  

Well, you know, I’m going to kind of give you a view of inflation that maybe you haven’t thought of in this way. Okay, inflation, essentially is when a country becomes poorer, okay, so, just to give you an example, let’s say that food costs $300 and you could afford it, and now it costs $500 and now you can’t afford it. The food didn’t change. It’s still food, right? It’s just a you become poor, you now can no longer afford it. So inflation is kind of reversed to the way you may normally think of it, that prices went up. It’s actually a country becoming poorer and not being able to afford the things that it could before. If you compare the US, you know, and with all the inflation we’ve had, we’ve experienced our country becoming poorer because of it, but there are many places you know that can’t afford the things that we can write a cell phone, for example, there are places where only rich people have cell phones. So that country is very, very poor even compared to us, right? And it’s so that that’s really the way I look at inflation, is, it’s a very terrible thing. It’s a it’s a cancer. Is what it

Jeremy Thornton  

is, yeah, yeah. The value of that food didn’t change only in relation to that dollar that you have. Yes, yeah, yeah.

Ken Moraif  

And you know what causes inflation is, unfortunately, you know, it usually, unless there’s an exogenous event, you know, like with covid, we had the supply lines were shut down, right? And so the supply of, you know, whatever it is that we wanted to buy, was cut off. And so what few remaining ones there were. Everybody had to pay more for so scarcity causes prices to go up, and that could be inflationary, but those exogenous events tend to take care of themselves over time, just as you know, with the supply chains, it’s not as big of a problem anymore. But generally speaking, inflation is caused by too much money chasing after a limited or a smaller supply of goods and services. And historically, what has caused inflation is governments bad policy, and when governments decide, you know, to buy votes, and when they decide that you know, they can dispense large amounts of money, what happens then is there they throw a bunch of money into the economy, and now there’s this massive amount of money. But. But the supply of goods and services didn’t change. So you created an imbalance between the amount of money people have to buy things, right? And the amount of things there are available to buy, yeah? And when you do that, you make the price of those things go up, yeah? So, you know, there’s, there’s an old expression about the road to hell is paved with good intentions. I’m not going to ascribe to politicians evil intent, right? I’m just going to say in their desire, you know, to help people and to do things. If they get over exuberant with it and they put too much money into the system, right, then you get inflation. And in our view, if you look back at how much money has been put into our economy since covid, right? I mean, more than, I think, every year. You know, the entire history of our entire country leading up to that point, at a multiple, yeah. And when you put that much money into an economy, even economy our size, it’s going to create inflation. So that’s the thing to keep your eye on. And, you know, I don’t know when politicians will learn fiscal responsibility and learn to, you know, kind of manage their exuberance with with throwing money at stuff, but anytime the government puts too much money into the system, again, too much money chasing after too few goods and services, that’s the definition of inflation. Yeah.

Jeremy Thornton  

And, you know, I’m reminded of the the extreme examples, you know, Venezuela and things like that, where people are paying for groceries with pounds of money. They weigh their money on scales, instead of by individual bills. They wheelbarrow it in, and they have to do it that day. You got paid. You get paid daily, because if you got paid weekly, that money that you’re earning on Monday is worthless. Oh, yeah, by Friday.

Ken Moraif  

You know, I had a client a few years ago who was in his 80s, and he was telling me about, you know, his grandfather back in World War One. And they were actually in Germany. They were Germans, and he said that his grandfather worked at a manufacturing plant, and they had this big fence around it, and he would get they paid him in cash back then, you know, didn’t have direct deposit. So he would get, he would get his cash, his pay, and he would literally, like, the moment he got it, would sprint to the fence and hand it through the fence to his wife, and she would literally, like, sprint to the grocery store to buy food, because it was the food was the price was going up so fast. And again, if you look back then, what happened? It was an oversupply of money or an under supply of goods and services, yeah.

Jeremy Thornton  

So with viewing that through the lens of retirement planning, how do you how do you address inflation?

Ken Moraif  

You know, so as I said, inflation is one of the three biggest threats to your financial well being. When you’re retired, when you’re working, not so much, because in theory, you know you’re going to get raises, you know cost of living adjustments, etc. But when you’re retired, social security, to a certain degree, will do that. But generally speaking, you know from your investments, etc, you need to manage those accordingly to have a component of your portfolio that addresses inflation and so strategies that help to address that are important. You know, I’ve talked in previous podcasts about how you have a tool a toolbox, and in your toolbox you got lots of different tools, right? Each one is designed to do a different job, and so you don’t want to be like screwing things in with a hammer, right, right? So in your toolbox, as you look at how you’re invested and the strategies that you use, you need to have a tool in there that is designed to address inflation. You need to have a strategy to address inflation, and that that has to be part of your retirement plan. In our view, if you don’t, you’re, you’re missing, you’re missing a very important threat. Now, over the years, we’ve, we’ve, we’ve heard that gold, yes, is supposed to be like this big inflation beater. It’s the thing you buy, you know, to fight inflation with. I’m sure everybody have seen, you know, a million TV commercials and everything else. You know, buy gold by gold, by gold. Gold got the reputation of being an inflation fighter back in the 80s. Okay, so, and I’ll preface this by saying that gold is not an inflation fighter. Gold is a fear fighter. When people get scared, right? They want to buy gold, right? They want to have a hard asset. You know, when they get. Scared, and so that does sometimes coincide with inflationary periods, but not always. But the big one was in the early 80s, when we had, you know, the highest inflation we’ve ever had in our country, even higher than what we’ve experienced lately. And our economy was literally on its back. You know, we had oil embargo, we had inflation. I mean, everything, it was a it was a giant perfect storm of economic bad stuff. And we were on our back, and the US economy was on the verge of becoming a second tier economy. I mean, that’s where we were. And people were so scared that they bought gold, and so gold went up tremendously and did way better than inflation. Ergo, gold is an inflation fight. Oh, yeah. But if you look at, you know, long term trends, what you’ll find is, is that gold is not always and in most cases, actually is not a good inflation fighter. It’s a good fear fighter, right? If people are scared, and sometimes inflation causes fear, as in, you know, back in the 80s, but inflation doesn’t necessarily always cause the kind of panicky fear where people feel like, I need to put all my money in gold bars. Yeah. But, you know, the other thing I find kind of an interesting question with, with the gold bars, is okay? So inflation has gotten so horrible that, you know, you’re, you have all these gold bars, right? And so, I mean, what are you going to, are you going to go down to the grocery store, you know, with your pen knife, and you’re going to scrape off some gold off of your gold bar. I want to buy my groceries with, you know, five shavings of this gold, you know, and it’s, it’s kind of heavy, and, you know, where you have to, where you’re going to store it. So I don’t, I don’t know that, you know that gold is the best way to invest, the best strategy to use to fight inflation with,

Jeremy Thornton  

yeah, yeah, that was, that was, always been. My question is number one, who decided that? Who decided that gold was this inflation beater? Yeah, I’m guessing people that own gold

Ken Moraif  

back in the early 80s. I mean, there was literally, you know, a cold sweat panic with regard to where our economy was, and where, where we were going to, what was going to happen. And so that that extreme fear caused people to buy gold, and gold skyrocketed, yeah. And people attributed that to inflation, yeah, right. You know, inflation goes up, gold goes up. Yeah, no, yeah. It’s, it’s fear that that causes people to buy gold, right?

Jeremy Thornton  

Yeah. And then how do you exchange that? Here’s a gold coin, please. I’d like my Yeah,

Ken Moraif  

yeah, as a currency. I think you know cash probably is when the zombies come, or the pulse from the sky or whatever, and there’s no money. Yeah, I don’t know that even gold bars are going to work in that scenario, but cash will, yeah, you know, I don’t. People won’t take your credit card because they won’t work, right? They might not take your digital, you know, on your phone, but cash, cash, money, yeah, would make a comeback, in my view. But anyway, we’re getting into the zombie. Let’s talk retirement planning.

Jeremy Thornton  

Yeah, okay, okay, so having a strategy is super important, so let’s, let’s talk about a couple of those strategies. Yeah, and the first strategy that we want to the first of four is high yield savings accounts. What is a high yield savings account?

Ken Moraif  

Okay, so as the name implies high yield, yield means like interest, you know, and dividends, which also mean interest. So whenever you hear the word yield or dividends, generally, what you’re talking about is the interest rate that this investment is generating for you. So a high yielding savings account is a savings account that pays a high interest rate. Okay, you have to be careful with those, because, again, if you’re if you’re looking for this to be your inflation fighter, right, then, when the interest rate on that high yield investment is higher than the inflation rate, it helps you, but if it’s lower than it doesn’t, so you have to make sure you’re doing that. But generally speaking, high yield savings accounts, what happens is that when inflation starts to heat up, the Federal Reserve wants to, you know, take take the economy. Slow the economy down. Right. Slow spending down, slow demand down, so that when demand goes down, the prices will come down and fight inflation, which we’ve experienced, you know, here over the last little bit, where, you know, the Fed raised interest rates dramatically. Why they do that? They want to drive down inflation. So what happens when that happens is that the high yields. Savings account, usually about 10 days. So when the Fed says we’re raising interest rates by half a point, half a percentage point, usually within 10 days, that high yield savings account will go up commensurately, right? So there’s a little bit of a lag, but generally speaking, it moves right along with what the Fed’s doing. So why does that become, then, an inflation fighting tool? Well, because the interest rate you’re getting will rise as inflation rises, and for like, an emergency fund, or a place like that, you know that certainly could be a place, right?

Jeremy Thornton  

So I have my money, I decide, okay, here’s one strategy. We’re gonna put some money into this high yield savings account. What does it do when it’s sitting there? Like, like, how does that actually works? I get we’re taking it and we’re putting it here. Who’s taking that money? Who’s paying that out? Who is, you know, like, really? Like, how does it how does that actually work?

Ken Moraif  

Well, you know, it depends on what kind of a high yield savings account you’re using. There you can, you can that high yield savings account, the investment behind it could be government backed, right, which would generally, it wouldn’t pay you as high of an interest rate. But if it is a high yielder, and it’s set, and it’s tied to what inflation does, you know it could help you there, there are non government ones which generally are the underlying investment, are corporate bonds and those kind of things. And in that scenario, there’s, there’s more risk involved, right? Than the government, so that’s why you get a higher interest rate. So, yeah, you have to kind of look at what the under that’s a very good question. If you’re in the government ones, then it’s backed by the full faith and credit of the printing press, right, that they have in Washington. And if it’s not, then it’s the full faith and credit of the companies that are behind that, and they go under. Then, you know, right? So does, so does everything else. So, so, yeah, that’s a really good question. Ask, where or who is this, you know, who is this invested in? Yeah, what is it invested in? Who and who is paying the interest, and what’s the risk of their solvency? Because, you know, in 2008 we saw a lot of high yield investments that were considered super safe, right? That turned out to be very high risk. Yeah, and lost a lot of money,

Jeremy Thornton  

yeah. And even recently, there was a certain bank that had to have a lifeline thrown to them by the federal government. And again, that’s, you know, if they didn’t get that lifeline, if you had money with them, it was gone, yeah,

Ken Moraif  

you know, since I went through it, I’ll share with you a story of what happened in 2008 so money market accounts funds. At the time, people were looking for the highest interest rate that they could get in a money market fund, and you always had the choice, you know, of a government security backed one and a corporate bond kind of thing, or a real estate, you know, backed investment. And what happened with those money market funds is that there was a fear at the time that they would actually go under, or they, you know, break the break the buck, as they call it, where you put $1 in, it’s worth less than $1 or worse, it could, like, go under, right? And so there was this, this growing fear that I need to get my money out of all these money market funds. And the problem with that is that the money market funds are the lifeblood of our economy. Is what businesses and everybody else uses to pay their bills, you know. And so it’s kind of like, if everybody, if there was a run on the bank, on the money market fund, it’s like, you took the blood out of, out of the out of the bloodstream, and the body’s going to die, yeah. So the Federal Reserve was like, Okay, we got to, we got to stop this before, you know, people panic we have a run. And so they came out and they actually said, we will guarantee money market funds to an unlimited amount. Oh, wow, unlimited. It doesn’t matter how much you have it. You could have $500 million we’re going to guarantee all of it. And so, because they said that, everybody calmed down and the panic went away, yeah, this was in, I think it was around 2009 ish or so. Well, then what happened was survey calmed down, and the panic went away, and the money market funds, you know, the confidence was regained. Two years later, the government came out and said, Okay, we’re not doing that again. So we’re gonna tell you right now is, yeah, they won’t do that again. We’ll see. But we want, we’re not doing that again. So going forward, if you’re not in the government backed one, we’re not covering you. Okay, okay, and, and so what happened was that there was a giant sucking sound, and the move a lot of money, said, Okay, I’m not going there. And. Went into the government backed ones? Yeah, I suspect that over the years, people have forgotten that lesson, right? And are maybe betting that if all heck breaks loose, the Fed will step in again, and maybe they will. But I think there’s a lot of money that is no longer in the government backed side, and it’s gone to the other side because of the higher interest rates you can get right, and people have short memories, but yeah, maybe that little walk down memory lane, little historical lesson will tell you,

Jeremy Thornton  

yeah, yeah, for the for the government, the government to guarantee money that’s not theirs necessarily. That’s a I guess it really shows how much of a panic everyone was in, yeah.

Ken Moraif  

And at the time, you know, there were a lot of conversations about what they called the moral hazard, yeah. In other words, if you do it once, yes, you know, are you forgiving people for their bad behavior? And therefore you set a precedent, and maybe you should let people suffer the consequences of their actions, right? But the counter to that was, yeah, well, fine, let’s watch the economy die while we’re teaching people responsibility. You know, it’s kind of, what a great lesson. It’s like the economy died. There we show

Jeremy Thornton  

you messed up, and now

Ken Moraif  

we’re in depression 2.0 everybody’s on food lines, but, man, we taught you a lesson about where you should keep your money. So, yeah, and so I, I hate to say it, but I think probably, if we got to that point again, that the Fed may step in. But right now, they said, No, don’t. Don’t expect that again. If you’re not in the government, back we were not gonna. Yeah, we’re not gonna. We’re not, we won’t back it, right?

Jeremy Thornton  

Okay, okay, fair enough, I guess. Okay, so high yield savings accounts. Strategy number two, invest in the stock market. Yeah.

Ken Moraif  

Now we have four strategies, right? Yes, I actually want to save that one for last. Can you? Can you skip that one? We can skip that one, okay, because that one’s really important. So let’s go to, let’s go to the others.

Jeremy Thornton  

Okay, all right, we’ll call strategy number two. We’ll call that four. So we’ll just, we’ll just change the numbers here. So real strategy number two is delay Social Security benefits.

Ken Moraif  

Aaron over there, our producer is going crazy, and you can’t flip the

Jeremy Thornton  

numbers on me. What’s happening so, yeah,

Ken Moraif  

so delaying Social Security benefits, yeah. So what happens with Social Security is that the longer you delay starting, okay, you get increases in the amount you’re going to get eventually, right? Okay. So for example, let’s say that you could start when you’re 62 but you choose to wait until let’s say your normal retirement age is 67 right? Okay, so you’re going to wait five years before you start. During those five years, the amount of your Social Security will increase. They add a cost of living adjustment to it. They call it delayed credits. The other thing that happens is that if you wait from your normal retirement age until you’re 70, then you get the delayed credits all the way for another three years, right? So delaying as long as possible gets you the highest payout, right? Because inflation is going to increase the value of those pays, of those payouts. But once you reach age 70, they don’t do it anymore. It stops there. So delaying starting Social Security does have the benefit of the you know, the payments you’re going to get being higher due to inflation. But once you reach 70, they don’t increase it anymore. Yeah. So there is no reason that I can think of that you would want to delay getting social security beyond the age of 70, yeah.

Jeremy Thornton  

What would that mean if we think of that in terms of compounding interest?

Ken Moraif  

Yeah? So you know the delayed credits are not compounded interest. You know, like, for example, what they say is, is that you’re going to get an 8% increase each year on the amount you’re going to get paid. If you wait that they’re not inflating the value. It’s not, it’s not inflated. It’s an 8% increase. It’s, it’s, it’s, it’s, it’s, it’s confusing on how to explain that, but it, but it is different. Yeah, so don’t assume that what it means is that you’re getting an 8% increase every year on what you’re going to get, because it isn’t it’s an 8% credit. But regardless of that fact, the longer you wait, the higher the amount you’re going to get. And so therefore, if inflation is going up, you want the income you’re going to get to be higher, right? So delaying Social Security can be a way of mitigating against inflation. But again, don’t you know, go past age 70, because once you get after that, there are no they don’t increase anything after that. So if you go till you’re 80 to start. In those 10 years you didn’t get, you didn’t get what you’re, you know, the payments you could have gotten. And then, number two, they’re not paying you more at age 80 than 70.

Jeremy Thornton  

Yeah, yeah. And obviously everyone’s situation is different and unique. So that rule doesn’t apply to everyone all the time. And so it’s really important to have somebody that knows your situation, knows the rules and the laws and that are changing every year, keeps up to date with it, and can make that very personalized kind of plan for you.

Ken Moraif  

Yeah, that’s a very good point, and it’s totally self serving, given that’s what we do. So thank you for that one. But yes, you know social security, as I’ve said many times, if there was an Olympics for complexity, Social Security would win the gold medal every time. There’s over 9000 combinations of when and how to take Social Security. So it’s not just an inflation question when it comes to social security, although that is part of it, it’s also when and how. But yeah, talking with somebody that is versed and trained and certified in Social Security, I think, is very important. And with all of our retirement planners in our firm, we require them to go through our training and our certification so that we can feel confident that when they’re talking to clients and prospective clients, that that they know what they’re talking about.

Jeremy Thornton  

Absolutely, absolutely okay. So delaying Social Security benefits could be a way to mitigate the effects and to beat inflation. Strategy number three, reassess your budget and spending.

Ken Moraif  

Yeah. So again, going back to other things we’ve talked about in other podcasts that we’ve had, we always want to start with what we call an rcfp, a retirement cash flow plan. The retirement cash flow plan helps us to look into the future and make assumptions as to what’s going to happen with your cost of living. You know, how much inflation should we apply to it, and how does that affect the ability of your money to support the lifestyle that you want. So when it comes to looking at that, we want to look at your financial health. It’s kind of like a doctor, you know, where you go in and they they take your blood pressure, and they take your cholesterol, and they do all those kind of things, and basically you want to keep monitoring those things over time, right, to make sure that you’re not headed in the wrong direction, or if you are already in the wrong direction, that you’re headed back into the good direction. And so it’s the same thing with the retirement cash flow plan. We want to look at your financial health and take into account, unfortunately, I think, a cancer that is in your investments and is in your financial life, which is inflation, yeah, and so is it getting out of hand, you know? And do we need to do something about it so? And the important thing is to not look at it on a one year basis, but, but project it out. Yes, you know, obviously projections are never going to happen exactly as you planned, right? But you want to project out. And what we do is we look at a, what we call a semi worst case scenario. Okay? So we want to overestimate on bad stuff and underestimate on good stuff. So we create a a conservative, if you will, you know, scenario, right? Going forward, looking into the future, and if you’re okay with that, then you’ll be okay with something better, yes, but by doing that, by looking at that cash flow and projecting it out over the years. Now, what you have is a picture of how is inflation going to impact me, and what changes can I make now, right? That over time? Because you know, the compounding value of money is all about time, right? And the longer time you have to address inflation and to make small changes today, the they’ll compound over time, as opposed to waiting until the last minute and then all sudden it’s like, oh my gosh. I gotta, like, cut my cost of living in half because I can’t afford it anymore, and that can get problematic. So planning, looking into the future, building your cash flow plan, taking into account inflation and looking 510, 15 years, knowing full well it’s not going to happen exactly like that, sure, but at least giving it a conservative view, yeah, so that you have a high confidence that it’s going to be better than that if it does happen.

Jeremy Thornton  

Yeah, talking about budget and spending, because inflation’s not going to increase the amount you have coming in, usually to as much of a degree as it’s going to affect how much you’re spending, what’s going out, because inflation is going to affect the cost of pretty much everything that you’re touching. What is a cost that you’ve seen that really. Heat adds up over the years. Maybe it looks small in the beginning. Talk about that compounding effect. What’s something that looks small in the beginning, and then you look five or 10 years later, you say, Wow, that added up so fast. Where did that come from?

Ken Moraif  

Well, I’m laughing because the answer to your question is, travel. I Yeah, the reality is that you know different things are more important to your budget than others you know. So depending on your financial situation, food and gas may not be as large a percentage of your cost of living, that it may be for for somebody else, and so in many cases with our clients, you know, yes, their cost of food is going up, and their cost of, you know, those kind of things, their utilities and all that, are going up, but as a percentage of their total cost of living, you know, those things are Not a very big deal. Many of them have mortgages that we want to get paid, pardon me, that we want to get paid off. But mortgages, the payments generally stay the same, right? So they’re not subject to inflation. So really it’s the biggest things I would say are the cost of having fun, you know, goes up, yeah. And since that’s an important part, when you’re retired, you want to have retired, you want to have fun, the cost of stuff goes you seen the price of golf balls lately? No, I haven’t. Oh my gosh, it’s ridiculous. Have you seen the price of, like, a cup of coffee? It’s like, you know, the things that were, like, your little, your little luxuries, yeah, also just like, holy cow, yeah, right. So that’s, that’s that, so, yeah, you have to. The interesting thing is that a lot of the fun things are the ones that that that go up the most for once you’re retired, yeah.

Jeremy Thornton  

Well, speaking of the price of golf balls going up, the prices really stays about the same for me, because I usually just go out into the the water hazards, and just because I usually end up putting them back in there, so I’m reusing them

Ken Moraif  

all the time, as long as you put back as much as you take out, you feel good.

Jeremy Thornton  

Yeah, that’s exactly. Inflation doesn’t affect that, man, okay, so moving on. So recessing your budget and spending the last

Ken Moraif  

one, yeah. And before we leave that, you know, one of the things that we do from the standpoint of looking at your financial health is, you know, there is an assessment that you need to do, you know, at least once a year, where you look at what, what is your cost of living? How much are you spending? And is that still appropriate? Yeah. And so that is an exercise that is a valuable one and needs to be done. You know, in a lot of cases, it’s not a bad thing. You know, sometimes what happens is that you could spend more, yeah, you know? And one of the things that I tell all of our retirement planners is that, you know, our clients, for the most part, right? Are very, uh, they’ve, they put a lot of money aside, you know, they’ve been very diligent. They’ve been, you know, investing and all that. And their nest egg is, is kind of like, you’re not allowed to touch that, yeah, right, you know, it’s like, that’s scary. That’s like, you put it over here, and you are not allowed to touch that. Now you retire, and you got to touch it, right? You got to start taking money out. It’s like you spent your whole life thinking, I must never touch that, you know? It’s like I will do anything that I need to, you know, without ever touching that. And now, now you’re taking it. And so, you know, as as you look at that, one of the things that I tell retirement planners is you need to give clients permission to spend their own money, right? A lot of times they come in and they’re like, oh my gosh, inflation is taking off and all this stuff, you know, and I’m going to be poor, and I can’t handle this. And so you do the retirement cash flow plan with them, and you show them where they are, and if they’re, you know, in the fortunate group. Well, guess what? Yeah, you can actually spend more. Yeah, yeah, you know, in spite of that others, yeah, you need to cut back, right? But that’s, that’s what we do. That’s our job.

Jeremy Thornton  

Yeah, take, take again. We keep going to this over and over again. Know where you’re at and know where you’re going, right? Super important. It’s super important to have that and to have somebody that isn’t as emotionally involved or connected to that money, you know? Yeah, we’re emotionally connected to our clients, obviously, but not to the degree that a client is connected to their nest egg.

Ken Moraif  

Yeah, yeah. I agree with that entirely. I think it’s kind of like, you know, if I was a surgeon and I had to perform surgery on my wife, yeah, that I, you know, I wouldn’t even want to do that, yeah, you know, I’d be too emotionally involved and so, and particularly, and I wouldn’t want to do it on myself either, right? Then, then that would really be difficult. So, yeah, doing this yourself, you have greed, you have fear, you. Got all kinds of emotions that are coming into play. So, yeah, I think working with a professional

Jeremy Thornton  

is important Absolutely. Okay. Anything else, yeah,

Ken Moraif  

so we got to get to number four. Number four, yeah, formerly

Jeremy Thornton  

number two, now number four.

Ken Moraif  

Did you get that? Aaron,

Jeremy Thornton  

investing again, again, strategies to beat inflation, yeah, investing in the stock market. Yeah.

Ken Moraif  

Okay, so before I was talking about, you know, gold, in our view, is not the best inflation fighter, right? It’s had its moments. But again, we think of it as a fear fighter, as opposed to an inflation fighter. So what is the best investment to fight inflation with? The answer, thanks for the spoiler there, Jeremy is, is stocks? Yeah, the stock market historically has been the best inflation fighter that you can use, again, not always, but for the most part. And here’s why, when, when a company, let’s say that they sell something for $100 and when they sell it for $100 they make $5 profit. Okay, so they have a 5% margin, okay, so they make a 5% profit. And what happens next is that the cost of whatever they’re selling goes to $110 it went up by 10% so normally, what they do is they pass that along, right? And they still want to get, you know, their 5% margin. So now the mar the $5 went to $5.50 went up by 10% also, right? So what happens is that, in most cases, companies are valued based on their earnings. Yes, right. So their profits, right? So if their profit just went up, their stock price went up as well, right? So essentially, what happens is inflation is inflating the stock market, yeah, at the same time, yeah. So because of that, the stock market is actually one of the most here’s a word for you efficacious. You like that word. It’s one of the most efficacious tools to use to fight inflation. It’s the one we use. So having said that, Jeremy, if inflation is the best tool to fight inflation with, I’m sorry, if the stock market is the best tool to fight inflation with, then we should just sell everything and put it all in the stock

Jeremy Thornton  

market. Shakes this to me, yeah, yeah. Why wouldn’t we? You

Ken Moraif  

were supposed to say, No, we will never do that.

Jeremy Thornton  

I mean, absolutely do not do that.

Ken Moraif  

Ken, what do you think? Well, because, because, if, in fact, putting all your money in the stock market is the best way to fight inflation. That’s what you’re worried about. Then here’s what I suggest, everybody listening to this, watching this, I want you to turn all your it’s the equivalent of going to Las Vegas and betting it all on black.

Jeremy Thornton  

You’re saying that’s not a good idea. Well, if it

Ken Moraif  

was that everybody listening and watching, then what I want you to do is sell everything you got, okay, turn it all into cash, and we’ll meet out front. We’ll have a bus, and we’ll all get on the bus with our suitcase full of cash. We’ll go down to Las Vegas, and we’ll bet it all on black, okay? And if it hits, we’re gonna be really, really rich, absolutely. But if it doesn’t, then we won’t. Oh, right, well, I don’t like that second one. That wouldn’t be a good outcome, no. So putting you So, determining how much stock market you should have, you know in your portfolio, because it’s risk, right? Stock market is not as safe as, for example, a CD down at the bank from a capital loss standpoint, right? So, determining how much stock you should have in your portfolio, how important is that tool in your toolbox to you is determined, once again, by how much risk you need to take to accomplish supporting the lifestyle that you want. Yeah. Okay, so for example, if we can, if we can satisfy giving you the income you need for the rest of your life, you know, subject to inflation, all the rest of it with a 4% return? Well, that would dictate a different level of stock market in your portfolio than if the answer was 6% Yeah, or 8% Yeah. Hopefully it’s not 8% but if it was 8% you can’t do that by putting it all in CDs or whatever, right, right? Or in bonds, or you have to get more aggressive, go more stock to be able to get that so the amount of risk that is necessary to accomplish your goals helps to determine how much stock market you should have in your portfolio. And you know, as we always say, we want to take the least amount of risk necessary to accomplish your financial goals. So when we create that retirement cash flow plan that helps us to determine how much risk you need to take, and once we know that, then we can construct the portfolio with what we would think is the appropriate amount of stock market for you.

Jeremy Thornton  

And stock market is a very broad

Ken Moraif  

term, yeah. When I went, Yeah, that’s true, yeah.

Jeremy Thornton  

Here we’re talking mainly about the s, p5, 100.

Ken Moraif  

Well, I’m talking about equities, yeah, and so. It would include the s, p5, 100 index is the is 500 very large companies, but it would also include smaller companies and mid cap companies. But the percentage, yeah, I’ll call it equities. That’s another word for stocks. The percentage of your portfolio that is that should be in in equities, in our view, is determined by how much risk you need to take. And how much risk you need to take is determined by your retirement cash flow plan that determines, yeah, you know what, how much do you need to cover for inflation?

Jeremy Thornton  

How do you decide what to invest in inside of that percentage of stock market investments?

Ken Moraif  

So one of the things that we want to there’s a term called the efficient frontier. And the efficient frontier basically looks at how much risk, how much return are you getting for a given level of risk. And so diversification is intended to give you the highest return for the least amount of risk. So it is not the highest return correct, because the highest return would be the highest return with the most amount of risk, absolutely, but it also could come with the biggest loss. So when you’re constructing a portfolio, what you want to do is have a mix and match of things in there that gives you the highest return against you know, the risk. So you’re trying to balance the two, and you want to come up with the efficient it’s called an efficient frontier. And this is something that has been, you know, Nobel Prize laureates have have built for us, you know, have done, economists have done a lot of work on that, and they’re still doing it. Of course, there’s always room for improvement, but we use, you know, economic models to help determine how much of it’s kind of like, you know, recipe for your apple pie, you know, how much salt should you have? How much sugar should you have? You know, how? You know, all the stuff that goes into

Jeremy Thornton  

that, right? Yeah, because, you know, if we’re talking about s and p5 100, that’s 500 companies. I would venture a guess that the companies that they do business in the categories or the business types is pretty broad. Yeah, it is. And so they’re going to be affected by everything that’s happening on in the world. Yes, very differently. Yeah,

Ken Moraif  

those companies are all global scale companies. So, yeah, they’re, they’re, you know, they’re investing overseas. They maybe even have plants or employees overseas, and so they’re global. In most cases, smaller companies may be something that you’re want to smaller companies are kind of like Tabasco sauce. You know, a little Tabasco sauce on your pizza is okay, empty the whole bottle in there, not so good. So, you know, small caps add a little spice, and they can do very, very well in proper environments. Mid cap, same. So they tend to zig while the other one Zags, right? And so, again, a diversified portfolio is one that you’re trying to, you’re trying to hit that efficient frontier. It’s, it’s, there’s no, nobody actually hits it exactly. It’s a moving target, but the idea is to get as close to it as possible. Yeah. So again, what you’re doing is you’re taking, you know, only, as much risk as is necessary to accomplish your financial goals, and since we’re talking about inflation today, to compensate for the effects of inflation.

Jeremy Thornton  

Yeah, that’s those are very in depth strategies that are not very simple. I don’t think I want to be able to go home and figure that out myself. Is there anything we’re missing out of these strategies?

Ken Moraif  

Well, I think strategies themselves. I don’t think that there’s, I think we’ve covered it nicely, but I think what you said is also part, I think it should be part of your strategy, and that is to work with a professional. There are many studies that show that if you’re working with a professional, that your chances of getting a better return for that same amount of risk, right? Is much greater than if you do it yourself, right? You know, I remember, this was many years ago, but I there was a person that came in and, you know, they were 100% in stocks, which first was, like, way too aggressive for them, right? They didn’t need to take that much risk. But secondly, they had in like, 28 mutual funds. And when we looked at all 28 of them, it was like 19 of them were the exact same. They had a different name, you know, they were from different companies. So he, you know, they were all proud that they were diversified, but they weren’t. They were concentrated because, you know, they were all doing the same thing. And so in your zeal to beat inflation again, you know, how much stock should you have in your portfolio? Very rarely. Would we say that, if you are retired, would you have 100% Yeah. Now it’s possible that if you’re not retired yet and you’ve got a few years to go, that it might make sense for that, but, but not for somebody who’s

Jeremy Thornton  

retired, yeah, wonderful. Well. Awesome. Well, those are four strategies beat inflation again. I think the the name of the game is talk to somebody who this is their business. Figure out where you are and what your goal is, yeah. And inflation is just one part of it. It’s one of three,

Ken Moraif  

yep. And the most important one is not inflation. Indeed,

Jeremy Thornton  

yes, that’s not the most dangerous one. It’s ever present, but not the most dangerous. Well, awesome. Well, it was a little bit of a shorter episode to this today, but I appreciate you spending the time with

Ken Moraif  Jeremy, you did a heck of a job as our as a co host. Well done. I appreciate that. So as you saw today, inflation is one of the three horses of the apocalypse when it comes to threats to your retirement. As we see it, inflation is persistent. It’s, it’s, it’s, it’s, it’s reduces your purchasing power. It causes you to have to spend more of your shares of your investments to keep up with it, and having a strategy to address that is extremely important. So I hope you enjoyed this program. Make sure that you subscribe to future podcasts, as well as go back and watch or listen to previous ones, and click below to sign up for that, and I appreciate you watching. Don’t miss any of our delicious and wonderful content in the future. And thanks, thanks for watching. We’ll talk soon.