Ken Moraif  

Steve, Hello everyone, and welcome back to the retirement planners of America podcast. And in this episode, we’re going to be talking about the single most important decade of your entire financial life. And if you don’t know why it’s so important and what that decade is, then stay tuned. Retirement planners of America, RPOA, so before we get started, I want to introduce myself. I am Ken Moray from the founder and CEO of retirement planners of America, and as the name implies, we work with people who are over 50, who are retired or retiring soon. So all of our content, our podcasts, everything that we do is geared around helping you to retire when you want to and stay retired once you have and so in this episode, we’re going to be talking about the single most important decade of your entire financial life. Now, what decade is that? Well, it is the five years before you retire and the five years after you retire, that decade, in our view, is the single most important decade of your entire financial life. And why is that? Well, because, let’s say that you are the world’s greatest investor. Okay, so over the last 2030, years, you have made 20% a year. Every single years, books have been written about you. You are. In fact, there’s a statue on Wall Street, a big, giant copper statue, and all the brokers and everybody walking by, they rub your foot on your statue to get the good luck they want to know about you. Warren Buffett calls you and asks you for advice. That’s how incredible you are. And then the day before the months, three months before you retire, we get a, y, 2k, a, 2008 A, Great Depression, the market goes down 5060, 70% and boom, all the plans you had are now gone, and that’s why this decade is so important. So we’re gonna be talking about that with you in this, in this episode. So this, this conversation today, is self serving. I’m going to say it up front, because our belief system is that if you’re going to retire when you want to, or stay retired once you have then it is extremely important to have a strategy to protect what you have built. And in our firm, we have a strategy we call invest and protect, and you can find out more about that in other podcasts and on our website. But I also want here’s a book I wrote a little while ago called buy, hold and sell, and it was an Amazon bestseller, by the way, and all the proceeds from this go to charity. So if you’re inclined to buy the book, please do, and when you do, you know any profits from it go directly to charity. So we don’t keep any of that. But I want to read to you chapter three to illustrate and just a little bit of it. I’m not going to bore you with too much, but this is chapter three. Is entitled the bear and the lake house, and this is a true story, and it illustrates why it is so important. So this is several years ago, a couple came into our firm, and they wanted to take advantage of our free consultation offer, because we offer that to people. They sat down with us and explained their financial situation. They were retired. They had this was, by the way, in 2009 they had $866,000 in their investments, and they were drawing $60,000 a year from those investments so to cover their cost of living. So the first thing we said was, wait a minute. Okay, what you’re taking out is seven and a half percent of your money, and that’s a pretty heavy weight for your investments to have to carry. And so you know, if you do that, likely is you’re going to run out of money, you know, before you get into your 80s. And their answer was, yeah, but what you have to the husband said, but what you have to understand is, is that when we retired in 2007 we had a million and a half dollars, and 2008 took almost half of our money away. So but our expenses didn’t go away. The 60,000 that we were taking to cover expenses that didn’t go away, but our investments came down. So originally we were taking 4% now we’re taking seven and a half percent. But that’s, you know, because that’s what the market did to us. So again, the importance of having a strategy to protect against that downside. And by the way, what they also did when they retired was they sold their home, and they bought a beautiful lake house, waterfront property for $750,000 and they took on a mortgage. They put $300,000 down from the sale of their house, and they wound up with a $450,000 mortgage every month, and they had a $2,700 a month mortgage payment. So here they were, you know, they retired million and a half dollars. Life is good, right? We’re taking up 4% Covers the mortgage. We’ve got our dream lake house, lakefront property home, right? So all is well. And so you know what we said is, we know you’re not clients yet, and so we’re running a risk here, because, you know, sometimes people shoot the messenger, but after analyzing this, we have to tell you that you can’t afford that house anymore, and you’re going to have to sell it, and you can take the equity that you have in the lake house that you have now and buy a new house, and if you downsize, and you pay for that, that will reduce your expenses by that $2,700 and then you should be okay. The wife jumped in then, and she said, But wait, no, you don’t understand, this is where our family congregates. You know, the family we all get together. This is where we have the kids, the grandkids. They come all year round. They come for Christmas, for Thanksgiving, for birthdays. This has become our family home. We can’t sell this. We can’t, we can’t and so we basically said, Okay, well, here’s the thing. You can’t afford it anymore, so you’ve got two two choices. You can sell this house and buy a new one and afford to eat steak, or you can stay in the house and you’re gonna have to eat Beanie Weenies. And the wife thought about it for a moment. She had tears in her eyes, and she said, Well, for now, we’re gonna eat Beanie Weenies. Well, they finally did put their house up for sale. But here’s where it gets worse. They got to the point where they could not no longer afford to stay in the house. It became too strong for them, and unfortunately, by then, it was 2009 Well, if anybody remembers 2009 guess what that was. It was a real estate crisis. So selling your property, your real estate, in a crisis. So prices had fallen so low that they were going to have to sell it at a huge loss. And not only that, but the prospects of selling the house were bleak, right, even in that, even if you could sell it, no, there weren’t many people buying real estate in 2009 everybody’s freaking out. And then to make it even worse, what happened was this house was in Texas. They had, we had our headquarters are in Texas, and we had a severe drought. And in that drought, that lakefront property became beachfront property because the water went all the way back and they had sand in front of their house, so they no longer had the lakefront property. So this couple worked hard and earned their retirement. They had a million and a half dollars. They bought their house, their dream home. The family was coming to it. They had the plan. They were only taking out 4% everything was right, except for one thing, they did not have a plan to address what would happen if a big, bad bear market came, and it did, but in their case, tragically, it was compounded by the fact that 2008 was was a real estate crash, and we had a drought, so they got hit massively. So, you know, I don’t want to kind of dwell on their misery, because that’s not nice, but I think it’s very illustrative of why it is so important to have a plan to address this. And so in our firm, we do. And in fact, in 2008 our strategy, our invest and protect strategy, said to sell and get out and stay out for all of 2008 and actually until June of, oh nine, so almost a year and a half. And during that time, the stock market from peak to trough went down 57% and so I wanted to bring in my chief investment officer, Jordan Roach, to join the conversation. Jordan again, good to see you. Kind of a serious topic. But you know, I think that sometimes, you know, back I remember when I was in high school, they had this program called Scared Straight. So I guess what I’m trying to do here is to is to scare people straight, right? To make them understand the importance of this decade and making sure that during this decade you have a strategy to address the potential for these market downturns. So let’s start with, yeah, but Ken, that was 2008 that was y, 2k you’re throwing the great depression at me. That was over 100 years ago. These things are never going to happen again. I’m not going to worry about it. How do you respond to that comment? Well, I

Jordan Roach  

hear that too, right? They think that an, oh, wait, based on the structure of the markets today, or what the Fed does today, it’s just different. It can’t happen again. They forget that. Well, there was a, what about 2000 Okay, try explain that one away. What about 1981 82, period? What about study like there’s so many of them. And part of certainly my job, what I do, is being a student of the markets history. You know, I look at the markets, and what I would say is the further actually we get away from a big, bad bear, a reset that sometimes the market needs just to find its next footing, actually, the greater conviction I would have that we got to be prepared

Ken Moraif  

for it, because then the farther we get from the last one, the closer we get to the next one.

Jordan Roach  

That’s right, every time we extend we stretch that band, typically. Be that pullback is harder, yeah.

Ken Moraif  

And using your example, the farther you stretch out that rubber band, when it snaps, it hurt more. It’s going to hurt more, that’s right, yeah. And so. And the thing about these big, bad bear markets is that they’re all different, right? If you go back and look at all we’ve had several of them over the last 100 years, they’ve all been for different reasons, right? The Great Depression was for a different reason than 1941 was the 1965 was in

Jordan Roach  

1975 73 and yeah, 81 and you keep going, yeah. And

Ken Moraif  

in modern day, that maybe people watching this podcast, remember, you know why 2k was a technology thing, right? And then 2008 was a real estate thing. There’s a credit crisis. So they’re always different. You know that, you know, there’s no this is the what is going to be. And the thing about it, also that makes it particularly dangerous, is that they are not what anybody expected, right? That’s

Jordan Roach  

right? I mean, I think markets extend to a point where almost people, you know only can see the optimism and pour in at all the late, the late cycle of the market, you know, they’re going to come in and they’re going to say, well, you know, this is working. And for like, I say, right now, right? This AI theme, this technological boom that is similar to like, the 90s, like, why 2k y, 2k right? You get this boon that says, Well, this has to extend the market’s longevity. This is the next phase. This will lead us into, you know, technological advancements we’ve never seen create all this new profitability, all these new jobs, and let’s invest it’s got to keep marching,

Ken Moraif  

right? And it feels logical, right? Because, like in y 2k when they were talking about, you know, the technology that was going to drive this thing called the internet, and we’re all going to be able to communicate, and it’s going to make us so much more efficient and all this stuff, and it’s going to drive profits. And it was all true. It did happen. That’s exactly what happened, absolutely right. But the problem is that there were too many companies in there that were fighting for that piece of the pie, and investors got very excited about it. And you know, are we experiencing that right now with the AI thing, you know,

Jordan Roach  

there are some parallels. I mean, if you look back in the late 90s, you know, 2000 summer, 2000 when the market peaked, going into white UK. You know, you did have a focus on, what is this all going to create? And what was happening is people are piling in their investments and paying for more than what a company was really worth more than it was currently producing. And eventually people started seeing cracks and looking up and go,

Ken Moraif  

oh yeah, I’ll tell you. It’s not super prevalent, but my favorite right now is crypto currency. Those things have literally no value, but yet they’re they’re valued at 10s of 1000s of dollars per coin, or whatever it is. And I’m like, why? Where’s the value in that? And that’s the question you know, Warren Buffett asks, there’s no value. These things have no value, but yet, they’re, they’re way up there. And then, you know, he was asking the same question in y, 2k These dot coms have no profit. They have no nothing, but yet, because they are associated with the internet, and that’s probably phase two of this. AI is we’re gonna have the infrastructure built out by these big companies like Microsoft and IBM, et cetera. And probably they’re not gonna go out of business. They’ve got hundreds of billion dollars to support that. But once they built the infrastructure, think building the railroad system, then a lot of people are going to build on to this, right? They’re going to build all these things that are transported and the adjunct businesses, and that’s where the excitement comes. That’s also where we could have a market crash. Now we’re not saying that’s going to happen, but certainly it’s possible, right?

Jordan Roach  

Yeah, we’re not saying this has to happen this year, next year, or in any sort and certain time frame,

Ken Moraif  

but you told me before the podcast started that it was going to be October 15, 2020

Jordan Roach  

that was a bald one. We’ll see. We’ll see. It’s fun to prognosticate with big, heavy claims. No, but we don’t. We don’t know how long the rally in the in the bull can extend. We don’t know. But if we just play the odds, is that every time the markets are extending and rallying for, let’s say, broadly, over a decade or more typically. You know, psychology humans don’t really change. Yes, our market structures do and what the Fed does, but our psychology doesn’t. And eventually we get overly optimistic. We’re paying more from what a company is producing, and the market has going to have to reset things.

Ken Moraif  

Yeah, we become complacent. We become overconfident. This is never going to the very premise of our conversation here, just that was 1718, 20 years ago, not to us right now, with our modern technology and everything else, we won’t happen here. And then it does. And the thing about these big bad bears is, you know, I equate it to boxing. You know, I’m a big boxing fan, and my wife told me, I think I showed you this. She said, If I’d known you were such a big boxing fan, I never would have married you. She thinks it’s barbaric, it’s horrible. So I have to watch boxing when she’s off playing my

Jordan Roach  

song. My wife has to look away at every time there’s something gets punched in the movie. Can’t

Ken Moraif  

watch it, but boxing is very similar, I think, to how these things happen. And that is that, you know, you could have two guys that are wailing on each other for even 16 rounds. I mean, they’re just pounding each other, and nobody gets knocked out, even though, by the end of it, you know, it looks like somebody should have but it’s because they see all the punches coming, and even though, you know, it makes their face all, you know, whatever, they brace for it. They anticipate it. They see it coming. But then you have the punch that they don’t see. That’s the one that knocks somebody out. And, you know, I go back to Sonny Liston and Muhammad Ali and what people call the Phantom punch, right? I mean, out of the blue, that punch came, and, listen, was on his back, and it’s like, Whoa, where’d that come from? Yeah, he didn’t see it. He didn’t see it. It was that fast. And you know, y, 2k was the same. 2008 was the same. Suddenly, what was the name of the Secretary of Treasury at the time, or the president of the Fed? Well, you had Paulson,

Jordan Roach  

that was treasury secretary. Was it Paulson? And then you had Bernanke, who is

Ken Moraif  

the guy with the big, curly hair. Anyway, Bernanke, no, anyway, well, it’ll come Greenspan before that. He’s the guy that diagnosed this thing. He was like in the middle of the night. He said, Holy cow, Lehman is going to go under. Biggest bank in the world is going to go under. This is coming. You know, these Bank of America potentially could go under. And he freaked out, and he went ahead and told everybody about it, but that was what happened. That was a knockout moment where nobody saw that until it did. The importance, therefore, of having a strategy that is agnostic to what the event is, you know, our strategy, why it’s being caused, what’s causing that we don’t care. So describe for everybody why our strategy, the invest and protect two point or invest and protect strategy is and why you should have one that is agnostic to what’s happening at the time. And give us some insight into

Jordan Roach  

that. For us, it’s just it’s a very disciplined framework to help us make decisions related to, are we going to be in an offensive posture or a defensive right using mechanical signals? Because, you know, one of the things that gets so easy to do as an investor and I had a conversation two weeks ago with a prospective client that said, this is he said, Jordan, I got hit so bad in white UK. Wow. He still remembers. It still remembers that I basically been afraid to invest in stocks since then. So he was actually the worst where he actually had no framework to get back in. Right now, you have other ones that will look at the last 15 or 15 years and say, always find a reason markets gonna go up. It always does. And they what they’re gonna do is like somebody does. And I think there’s a story actually in your book about this of the market starts going down, and they go, well, that’s just as far it’s going to fall. And then falls more, and then eventually get to get caught in the framework of, well, I can’t sell, because then I’m going to feel like a loser, like I’ve

Ken Moraif  

lost, yeah, or I’m down so much I gotta come back. I want to get back to where I was. So there’s always these

Jordan Roach  

reasons why you’re trying to second guess decisions. Why are you trying to look at the news and say, What does this mean? So what we just want to do is do is supply a quantitative framework to make decisions, to kind of know what is noise versus when do we need to act and not second guess everything right? And I try to guess all the whys behind

Ken Moraif  

everything. And the importance of that is that if it’s mechanical, meaning that it’s it’s based on not your gut or what you think or feel or your emotions. It’s based on what the market’s doing, the dynamics behind what’s going on. Then you then your decisions are going to be, as I said, agnostic to what’s happening. So if it’s if the market’s going down because, you know, the dot coms are falling, or because, in 2008 the real estate market is falling. Our strategy doesn’t care why the market’s falling. It just knows that it is. And therefore we need to protect to go into defensive mode. That’s right, because

Jordan Roach  

sometimes the market doesn’t know why it’s falling, you know, you have this aggregate, cumulative thinking from all the people that invest, and there could be different reasons leading to a sell off, you know. And so what we’re just trying to do is not say, well, the market is selling off for these reasons or recover for these reasons. We just say, well, the market is selling off and we have some things to help judge us, and therefore we need to take action.

Ken Moraif  

Yeah, and the last thing we want to have happen is what happened in the story I just told about the bear and the lake house. We don’t want you know, our clients to wake up three years later or two years later and find out that they’re taking out 8% of their money when they were taking out four, because the market took that away from them, and now they’re stuck with their expenses that they don’t want to cut. So let’s talk about that side of it. So you know, I remember when I was in the getting my MBA, and I was in a classroom full of really smart MBA guys and gals and a local billionaire at the time when a billion was a lot of money, it still is, but yeah, anyway, he. He was what he called a serial entrepreneur. He started like 40 companies successfully, and he came in and his talk to us, smart MBA ers was okay, so your biggest best customer just walked in. They represent 50% of your company’s revenue, and they just announced, you know what? It’s been really nice knowing you, but I’m moving my account somewhere else, and I really don’t want to discuss this. It’s not up for debate. I just wanted to do the courtesy, because we’ve been together for a long time. I’m just moving all my business away. So now you’re sitting there, they leave. You’re the CEO, and now you’ve lost 50% of your revenue. So what do you do now? And so we said, well, you you start marketing more, right? You get out there and you shake the bushes to get new customers. And he goes, wrong. You get your sales people out there to go to your other customers and see if they can bring in more stuff. Wrong? You, you know, you these new opportunities that you’re looking at. You go after those. You do that wrong. And so we were stymied. We’re all like we don’t know what to do. And he goes, you cut your expenses by 50% that’s what you do. You have to stop the bleeding. You cannot go after anything. You can’t do anything else. The first thing you have to do is shore up the company so it can survive. You have to cut your expenses, so set you up for that. How does a How does somebody who experiences the next bear market, their investments go down by 50% the revenue they were getting, the income they were getting from their investments? Right? The customer just walked out the door, took 50% with them. Now, what do they do? You’ve worked with clients all the time. They’re selling

Jordan Roach  

their lake house. They have they don’t have that place to congregate. Their family memories are gone, right? Yeah, they’re making decisions that they never thought they’d have to make, that they probably can’t make emotionally, maybe don’t want to make financially, but they’re forced into that, and a lot of times that’s not practical, like they can’t sometimes, right? Yeah, and then,

Ken Moraif  

and then you get into this wishful thinking, well, it’s going to come back. And so therefore, you know, I’m going to wait it out and, and as is the case with these, the example I gave, circumstances may make it to where, if you wait it out, it gets worse, right? So all of those things are not good.

Jordan Roach  

That’s not a fun time. And ladies and

Ken Moraif  

gentlemen, that’s not what we want for you. That’s why you know when, when you think about your retirement planning, when you think about that decade, the five years before you retire and the five years after you retire, that 10 years when you think about that period, in my view, it is super important that you talk to somebody who understands that decade, okay, because it’s very different than anything you’ve done before. You know, the things you did in your 30s, your 40s, and even in your early 50s, these are, you know, you were on offense, you were blowing and going you were living on your wages. You’re putting money away. 401, K, you’re building it, you’re writing to it. All of that is very, very different once you retire, because now you’ve got to live on your money, so you’re not a contributor. You’re now depleting. You’re now taking money out. And that’s a completely different paradigm. In addition to that, you’ve got some hugely important decisions to make about Social Security, because once made, these decisions are permanent. You can’t go back and change your mind. There’s not a do over, and if you make the wrong decision, you could leave 10s of 1000s of dollars on the table. So talk, you know, it’s, I’ve always said, that if you need elbow surgery, you go to an elbow surgeon. Okay, you don’t go to a dermatologist. And so we specialize in these things, and that’s why our focus is so targeted towards preserving what you have. Our goal is for your money to last as long as you do. And part of that, or I shouldn’t say, a big part of that, is to protect against big, bad bears. And please do not think there’s not another one coming, because if you do that, you know, the old expression is that if you, if you don’t learn from the past, you are doomed to repeat it. So, ladies and gentlemen, I hope that I didn’t depress you. The goal here was not to scare you or to, you know, you know, bring the ambulance up to the door or whatever. There’s an expression in French that says an um averti on vote do a man who is forewarned is worth two. So we’re trying to make you worth two. So thank you for watching this podcast. Please go to our website. Check us out if you haven’t already, arpoa.com, like and subscribe to these podcasts. We’ve had over 1 million views. Thanks to you. So that’s phenomenal. That helps us out a lot. And in the meantime, as I said, I hope this found you healthy, wealthy and wise, and we’ll talk soon.