The Power of Focus – Episode 004

This transcript was auto-generated and may contain errors.

[00:01] Welcome to the Prosperity Podcast, fresh alternative personal finance talk for independent thinkers who prosper outside of Wall Street. Here’s your hosts, bestselling author, Kim D.H. Butler and No BS Money Guy, Todd Strobel. Hi everybody, welcome to another edition of the Prosperity Podcast. This is No BS Money Guy, Todd Strobel, and we have with us today our co-host and special guest, Kim Butler. Kim is the president of Partners for Prosperity, also a bestselling financial author, and we’re always very grateful to have her with us today. Welcome, Kim. Thank you, Todd. Always glad to be on and totally looking forward to our conversation today. I think we’ve got some wisdom to share and, as always, some good questions to ask.

[00:46] Super. Well, today we’re going to be talking about the power of focus. And to be very specific, we want to talk about as investors, a lot of times we get caught up in the media and the different things that are going on around us. And certainly the economy that we live in cannot be overlooked. But sometimes our investors get focused on things that they have no control over, like the fluctuations in the U.S. currency or the possible even devaluation of the currency as a world currency, different things like that that can simply take up so much time and energy because there’s sometimes just not a lot that you can do about it. So what we wanted to really talk about today is on the things that you should be

[01:36] focusing on, those things that are under an investor’s control. And even though you certainly don’t want to ignore those other things, you don’t want to allow them to put you into a state of paralysis where you don’t take advantage of the opportunities that do exist. So, Kim, I know you’ve written about this topic and I just want to kind of lead you into that and let you kind of teach us a little bit here. Well, thank you. You’ve made some great points already. And you brought up the word control, which, of course, is one of the principles of prosperity that we espouse. And you can reference those on our website, partnersforprosperity.com. That’s what the number for there also in some previous podcasts where we’ve

[02:17] really elaborated on the idea of control. And one of the things that you absolutely can control is your thinking about the news and the media and the various aspects of our economy that put themselves into your head. And we want to help our clients realize that there’s a lot of things they cannot control, like devaluation of the dollar or inflation or things like that, but they can control when they’re where they put their dollars and when they put their dollars and how they put their dollars. And so one of the things that we guide people to do is to focus in on what it is that they’re looking for. And by that, then you will drive what investment products you buy. So let me get an example. I was just on the phone with a client today where she really wanted to

[03:09] have a fairly short-term environment with her money, say one, two, three years. And so that liquidity was of an interest to her. And that’s very common with a lot of people, but at the same time, she really, really wanted to invest that money. And so like a lot of people, she had been sitting on the fence in the stock market because invested in the stock market was to her a way to stay invested, and yet she could still be liquid. Well, to me, that sitting on the fence gets us what we get when we sit on the fence. There’s no focus there. There’s just sort of this gray area of, well, if I sit here in kind of La La Land, hopefully my liquidity will save me if I need it, but my investments will work out too.

[03:54] So I encourage her to really focus on what she wanted, which was income. So let’s get off the fence and let’s take part of her dollars and give her the cash that she needs so that that meets the liquidity. So you could call that on one side of the fence and then let’s take the other side of the fence and really invest it to get the cash flow that she wanted. So now she’s laser focused on what she wants. She’s laser focused on two specific areas where her dollars are instead of this gray on the fence, not really doing a good job of either request that she had the liquidity or the income. And that’s a good example of just focusing in on what you want and then going and finding a product or sometimes it takes a couple of products

[04:41] to get you there. And I think oftentimes getting two products, splitting the dollars and getting two products can quote, get you there, whatever it is there for you better than having one product, try to do it all and be all things to your finances and what you’re trying to get your money to do. Got it. And of course, you know, the questions come in and as they always do is, you know, am I risking my safety by moving my money out of the stock market into some other types of investments? Maybe you can kind of address what level of safety exists if you’re in the stock market or even mutual funds. Yes, I love the whole question of risk and safety and risk analysis, mostly because at Partners for Prosperity, we’re able to provide

[05:31] investments that do not risk principle. And when you look at the stock market, it has all kinds of risk associated with it. I mean, I looked it up one day. There’s 20 some different types of risk. You have market risk and liquidity risk and credit risk and et cetera, et cetera, et cetera. And so at P4P, we really work to maintain the safety of principle while still getting that income that somebody wants or that growth that somebody wants. And those are two totally different things. If you want income off your money, you should be heading in one direction. If you want growth of your money, you should be heading in another. And again, people typically invested in the stock market, try to get both.

[06:17] And oftentimes that is not effective. Now, let’s not confuse the difference. We always want our dollars to do lots of jobs. We want our dollars moving. We want the concept of both is something that we really espouse. But it’s a nuance where you have to be careful when sometimes you’re devaluing or even not getting the right word. You’re lessening your ability when you try to get the dollar to give you, for example, both growth and income. Whereas if you’ll separate those out and go for growth in one camp and income in another, just like in my example, going for cash in one camp and income in another camp. So it’s always something that we need to be aware of. And we need to ask the question, what about risk?

[07:11] But then let’s be clear what we’re talking about when we say risk. And I have to admit that my risk tolerance, which I would define as my desire or ability to lose principle, is zero. I don’t have a risk tolerance. This is my money. I earned it. It was not given to me. And I’m not interested in losing any of it. And I believe that for many of our clients, that is also the same. Super. And I know if we go back to that account of talking about your person that was in the stock market, the only guarantee that can be given on a stock account is you can’t lose more than 100% of the value of the account. Now, with annual fees, you could have to come out of pocket to pay your annual fees after you’ve lost 100% of your account.

[07:56] But you’re only risking 100% of the principle. Is that OK? You state that as if it should be. And it is. That’s what’s crazy, as I think you’ve seen when we go around the country on occasions having conversations with these people, especially when it’s a presentation. Even if the room is full of financial advisors, we will ask them, what can the stock market guarantee? And we often get the answer zero. But that is not correct. You stated it correctly. The answer is the only thing that they can guarantee is negative 100. And gosh, when you add the fees on top of that, yeah, you’re really, really going backwards there. And OK, that’s probably not going to happen. And yet 2008 was not that long ago.

[08:41] And I am amazed at how many people have completely forgotten about it. There are actually studies that show that we have about a seven-year financial history in our brains. And how interesting that we’re right at the cusp of that now in 2015. In other words, we forget what happens through our financial environments in about seven years. And so we need to remind people about 2008. And I hope the stock market does not crash. I hope we don’t have a correction. But come on, we’ve had a million of them. We know we’re going to continue to have them. And whether it’s going to be serious or not, I don’t know. But again, I reiterate that at Partners for Prosperity, we’re looking for investments that can provide double-digit opportunities,

[09:31] low double-digit, without the risk of principal. And I just have never, ever found anything in the stock market that meets that request. And as a student of the stock market, we have to look that even though we can use history as a guide, some things are happening now that have never happened before. And that’s with the pension plans and the mutual funds and the hedge funds that exist right now. There are literally more investable dollars than there are stock market investments. So any time that money is moving in an auction environment, which the stock market is definitely an auction environment, you’re going to see as money flows into stocks, the entire market will go up. As money moves into bonds, the entire bond market goes up.

[10:17] But if there is more money than there are investments, every time there’s an emotional shift in the market and the money moves from one area to the other, it’s not being driven on the same analytics and strength of corporations that we used to look at. It’s this wave of too much money. Even if the money pulls back into cash, which happens when the market gets emotional, the whole entire market can collapse. So what we saw in 2008 was a no safe place to be. If you were exposed to the market, your money was at risk. Certainly, if the economy continues to do well, we see a lot of people who are saying the market’s overheated, I’m going to move to bonds. The market does well, interest rates will increase.

[11:06] Every time interest rates increase, the face value of previously issued bonds decrease because current issued bonds pay more than previously issued bonds. So there’s a natural decline in our bond portfolio too. If you’re a student of this and you watch it, we’re at a unique place in history where I think it’s pretty frightening to be exposed to the market on a lot of levels. Any comments on that, Kim? Well, I agree with you entirely. And it is a bit of both a personal and a professional opinion. We’ve been out of the stock market since 2000. I have really no interest in going back. And it is amazing to me how more and more we’re hearing from our clients that they too have concerns or they’ve already gotten out

[11:52] or they’re going to get out or what have you. So it’s just something to be aware of. If you are in the stock market and you’re not comfortable making a big change, make some small changes. Shift some of your assets to alternative investments. You’re welcome to contact us to get information about them. And also consider putting on stop losses so that you do have protection against any type of reduction in value at least to a certain degree. And those are things that you can do to sleep a little better at night. And again, the focus of today’s conversation was focused. So get real clear on what it is that you want your money to do and just make sure that what you’re doing is equivalent to that.

[12:32] Not what the government wants your money to do, not what society says your money should do, but what is it that you want your money to do for you? When you can get clear on that, then it makes it very easy for us to help you. So I’m really glad we got to talk about this today. Was there anything else you wanted to cover? I think only one biggie that we want to hit is we kind of started talking about the collapse of the US dollar. Certainly if you go on chat rooms or the web bots they have out there right now, the collapse of the US dollar is like one of the number one words that is being used on the internet today. And how would you advise a client who’s concerned about that? Well, I think it’s valid to do

[13:14] maybe a little bit of research, a little bit of checking into things, but it truly is not anything that we can control. And, you know, I say that, yeah, we can. We can plant a garden. That’s literally a recommendation that I’ve given to people if they’re super concerned about the collapse of the dollar. We can maybe store some food or store water or things like that. Beyond that, we exist in an economy, a worldwide economy that operates off the dollar. So there is not much, unless you have $5 million or greater and you can do some offshore work, etc., which is certainly not our expertise, there is not much that one can do about the collapse of the dollar. So my recommendation, put your focus elsewhere.

[13:56] Go do things that you can control and pare your expenses down if you want to do that. Watch your debt if that’s something that you feel like you need to get a handle on. But beyond that, there is not much that we can do about it. And so I choose to put my focus elsewhere. Gratitude, family, saving the dollars that I do have in places that I know they’re gonna grow. And if the dollar collapses, then we’ll deal with that. Got it. One more question just came in that I think is worth addressing. And that’s that if you’re concerned about the future, focusing more money into your 401k. Well, the 401k is certainly an area that you control absolutely 0% of. And so 401ks, and this is whether you’re matched or not,

[14:45] are going to be in dollars no matter what they’re invested in. And because you don’t control them, to me, that’s a problematic area. Now, if you wanna put in what is up to the match level, I can certainly understand that. Beyond it though, the statistics show that people are raiding their 401ks left, right, and center for all kinds of emergencies and opportunities even. And so we guide our clients consistently to put above match dollars, not into 401ks, but instead into more liquid environments where they can get it for emergencies and opportunities. Got it. And for those of you who might not have thought about this, money inside a 401k, sometimes you can borrow against it, but usually it is impossible to withdraw that money

[15:33] without separating from your employer. We had a client just this week whose employer separated from them. Their employer was bought out by another company. Their 401k plan was terminated. The policy, the loans that they had outstanding against their 401k had to be repaid that day. And if you could not repay it, the amount of loans that you had was calculated as income with a penalty if you were under age 59 and a half and reported as a 1099 on your income that year. Even though the people are going to the same job they did the day before, there’s absolutely no control they have even on the loan side of things. So it doesn’t happen a lot, but definitely something to think about. Anything you want to say in closing there, Kim?

[16:24] No, I appreciate your additions. I know we’ve gone over our time and our commitment to keep people organized today and we just trust that the additional info was good. So onward we go. Awesome. Well, again, this is No BS Money Guide Todd Strobel with bestselling author Kim Butler on the Prosperity Podcast saying thank you and take care. Thank you for listening to the Prosperity Podcast. To take control of your money and have it work for you, visit us at partnersforprosperity.com. If you liked this episode, make sure you subscribe and leave a review.