Retirement, Cash Flow & Compounding Interest

Sunday, February 5, 2017 Wealth Strategy with Bryan Rigg Radio Show
Every Sunday 1-2:00 on 520 KLIF

Rigg Wealth Management - Financial Advisors

Looking at compounding interest, I like to tell people about the law of 72. Basically what that means is you take the percent your portfolio is gaining. You divide it into 72, and that tells you how often your portfolio will double.

By way of illustration, if you have a portfolio ‑‑ and a portfolio, again, is holding all your assets, your bonds, your stocks, your index funds, your private equity and so on ‑‑ if you have a portfolio that returns 10 percent, that means that every 7.2 years your portfolio will double.

10 percent is a very aggressive number. If you’re obtaining that, you’re doing extremely well. That is above market averages. That’s just an illustration to show you that if you want to get a feel for how fast you’re going to grow, look at your portfolio, see what percent you’re getting on it on an annualized basis, and then take that law of 72 and analyze it.

If it’s five percent, then you’re looking at 15 years until your portfolio doubles. That will help also give you a benchmark for how you need to have the risk reward set up in your portfolio. If you put everything in treasuries, you’re going to have to wait a long time before that doubles.

If you put everything in equities, you can have a better opportunity to grow it at a much faster rate than treasuries. You’ve just got to understand that you’re going to have a lot of volatility with that.

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SHOW TRANSCRIPT

SEGMENT 1

Host:  “RIGG Wealth Management offers securities to Broker Dealer Financial Services, Member SIPC and advisory services through Investment Advisors Corp and SCC registered investment advisor. RIGG Wealth Management is not a subsidy area of Broker Dealer Financial Services. Neither RIGG Wealth Management nor Broker Dealer Financial Services offer legal advice. Client should consult their attorney of choice on all legal matters.

Opinions expressed on this program do not necessarily reflect those of Broker Dealer Financial Services. The topics discussed and opinions given are not intended to address the specific needs of any listener.”

Diversification does not guarantee a profit or protect against a loss in a declining market. It is a method used to help manage investment risk. Examples mentioned are for illustrative purposes only, individual results may vary. Past performance is no guarantee of future results. Investing involves risk including loss of principle.”

[background music]

Host:  Welcome to “Wealth Strategy” with Bryan Rigg for every Sunday at one o’clock on KLIF. Bryan is a celebrated Yale graduate, adding a PhD from Cambridge, a former officer in the Marine Corps, a man of profound integrity and honor, and your wealth professor.

Please, welcome your host for the next hour, Mr. Bryan Rigg

Bryan Rigg:  Good afternoon ladies and gentlemen. This is Bryan Rigg with Rigg Wealth Management. Thank you for joining us today. We are on the air every Sunday from one to two. I am here today with my partners Gary Bilyeu and David Rigg.

We’ll be discussing some of the questions that we’ve gotten from earlier shows from listeners as well as talking about different eyes about retirement, energy, and also some current events. Recently we’ve been getting some feedback about some definitions of terms we’ve been using.

Quite often in the show we use the term portfolio. What that should denote is simply a portfolio is what holds all your investments. In our particular area of investing that means stocks, bonds, index funds, private equity and so on. When we say portfolio, that is what we mean.

When we are telling you that you should work on your portfolio, analyze your portfolio, that’s one way of saying, “Please look at your holdings. Look at your investments. Analyze them and see what your portfolio is telling you, what you should be changing or doing.”

Also we got some feedback about some of the estate planning ideas that we threw out there. It is true you don’t necessarily have to go to a lawyer of your choice to analyze your estate and put a will together.

There is many things that you can do, actually, in the financial industry that can be considered estate planning, whether you put a transfer on death on an account or how you put beneficiaries on your retirement account. A lot of people have not heard about the transfer on death that you can put on an account.

By way of illustration, if you have an individual account in your name, you can put a transfer on death on that account, meaning you can say, “I would like this account to go to my friend, my child, my nephew, my grandson.” When you die that account will bypass probate and go directly to that person that you designate.

While you’re alive you’re in full control of the account, but if you put a transfer on death on it, when you die it will immediately go to the person that you designated for. That’s one way that you can do estate planning without going to a lawyer.

I would strongly encourage people to go to a lawyer of their choice, though, to look at everything that they’re doing with their estate planning. One of the questions we did get from one of our listeners is true.

That’s not the only way you can do estate planning, but that’s one benefit of working with a financial advisor. We work with so many lawyers and so many accounts, that we know an awful lot about that world of estate planning. We can help explore ideas and look at options for you. That’s something that a lot of people need to do.

As we mentioned before, a lot of people do not want to deal with their will, deal with their estates because it’s dealing with their death. That is a uncomfortable reality that we all have to face, but it is indeed a reality that we need to look at and hopefully take care of those we love by getting our estate in order.

As many of you have heard, Prince, the famous rock and roll star, he just died intestate. His estate is going to be in turmoil for probably many years until the courts decide what they should do with his assets since he gave no instruction of where his assets should go.

That’s ultimately what a will does. It helps give direction on what you should do with your assets. Gary, you have a point?

Gary Bilyeu:  Sure Bryan. When we sit down with all of our clients, that’s one of the questions we ask them about their estate. Do you have a will and power of attorney? Quite often I get the question, “Why? Why do I need one?”

I tell the clients, “Well, it’s completely optional whether or not you have a will, but if you do not, if you do not have a will, then, once you’re deceased, then it becomes the state’s issue to try to unravel your estate. They’re going to do things in what they believe is best for your estate.”

I tell people, “Who knows best about your situation, you or the state?” 100 times out of 100 the answer is, “Me, I know.” That’s where I put it back in their court. You have the option. If you do not have a will, then you’re leaving it up to the state to decide where your assets go.

If you want to take control of it, then go through the process of establishing a will. It’s just like a plan, a financial plan. The will can be changed. It can be altered, but it will make the process much smoother. Your assets will be disseminated according to your specifications versus the state.

Bryan:  Absolutely. The point that you just made, Gary, reminds me of the phrase that is attributed to President Ronald Reagan. He said some of the two worst sentences that you can hear is that, “I’m from the government, and I’m here to help.”

[laughter]

Bryan:  We have a wonderful system of checks and balances with our government. We have a system in place that tries to disseminate justice, but leaving your estate to the state to make the decisions of how it’s going to be disseminated throughout your heirs or in society is not a prudent way of dealing with your assets.

You’re absolutely right. The only person who really knows what should be done with your estate is you. You need to get that down in writing. Another thing that was brought up from one of our listeners was talking about retirement and what that actually means.

A lot of people know they are searching for a good way to plan for a retirement. They know that they will most likely retire at some age, but looking at exactly what they want to do in retirement is something that a lot of people have not been giving a lot of thought to.

That’s one thing that our listener encouraged us to explore on the air a little bit, looking at what your goals are in retirement, whether that be focusing on a hobby, whether that would be spending more time with your grandkids, whether that be setting up a new second career doing something independent, building out your own company.

This process of looking at what you want to do in retirement will guide you in how you set up your portfolio, how you manage your investments, and will give you a realistic way of looking at what you need to do now in order to realize those goals later.

David Rigg:  Bryan, I think what we need to do in today’s more modern look at things, retirement is really more flexibility. It’s not necessarily, “This is the day I quit, and I go fishing for the rest of my life.”

If that’s what you want to do, that’s fantastic, but it’s having the flexibility, the options, and the ability due to your financial planning to, like you said, start a second career, go fishing if that’s what you want to do, continue to work.

We all know people now that are well into their 70s, they’ve never quit. They still go to the office because that’s what they want to do. They have the flexibility to do that. I think people need to shift gears, really, from thinking of retirement as going to the home or stopping working, stop your productivity, to having the flexibility to do anything you want to do.

Gary:  Can I jump in here Bryan?

Bryan:  Thanks David.

Gary:  I try to get our clients to think of retirement more than just a means of survival, how much money do I need to survive, and really pump people up on retirement about how great it can be. If you want to travel, maybe you haven’t traveled thus far and you want to. Then that’s one of your goals. It’s our job to help you achieve those goals.

I’m very surprised when I ask people, “What are you planning for, for retirement?” It’s simply that’s just a line in the sand when they stop working. It needs to be much more than that. Think about. You stop working. If you want to take a vacation with no adult supervision and you just want to travel, great. Let’s see what we can do to help you.

If you want to fish, as Dave said, nothing wrong with that. You want to go fishing? Let’s see how we can help you. It’s more than just survival.

Bryan:  It’s interesting to look at this concept of retirement. It’s a very new phenomenon in the history of mankind. It was not really part of people’s realities until FDR with the New Deal. After that, forcing people out of the workforce, and having the luxury of retiring was something that was analyzed and looked at.

Please stay tuned. We’re going to continue on talking about these issues, and discuss the questions that have been given to us from our listeners. We are on the air every Sunday from 1:00 to 2:00. You can find more information about Rigg Wealth Management at riggwealthmanagement.com. That’s Rigg, with two Gs, Wealth Management.

Also, please feel free to call us, and set up an appointment with us. Our number is 972‑383‑1210. Again, that’s 972‑383‑1210. Come in for a no‑cost, complimentary consultation. We’d love to sit down, and go over your goals, what you are planning for retirement, and other issues. We’ll be talking to you here in a few minutes.

SEGMENT 2

Bryan: Good afternoon, ladies and gentlemen. Welcome back to the show. We stopped with the first session talking about retirement, so we’re going to pick up there again. A lot of people have asked what they should bring if they come in and talk to us during one of our no‑cost, complimentary consultations. Then I go into the next one, “I always encourage people.”

I always encourage people to bring the last two years of their tax returns, portfolio statements, financial statements from their banks or their brokerage houses that they’re working at currently, and a list of a lot of their assets that they have, coins, stamp collections, things of that nature.

A lot of people in my industry, financial wealth planning industry, they will charge an hourly rate to give you advice and so‑on. We at Rigg Wealth Management, we don’t believe that. Whether you meet with us 1 time a month or 10 times a month, it’s usually assets under management that we charge.

When you come in for consultation or looking for advice, we don’t charge for that at all. That’s just part of the service that we give our clients and our prospects, try to help you get a good grasp of what you need to be doing for your financial planning.

One thing that I and my partners have talked about that we hear from clients and hear from prospects is that quite often a lot of people look at retirement as being their home. It’s a huge investment that people have, and many of them think that their house is going to appreciate at a certain level.

Then later on, when that time comes to retire, they’ll sell the house and use a lot of the profits to live off of. I would strongly encourage people to reevaluate that if that is something they are depending on because you never know what the housing market is going to be doing.

You never know how much you’re really going to need from that house sell later on with inflation and so on. Depending on just one asset is not usually a wise way of managing your portfolio. Both my partners have a lot of ideas on this, and I’ll turn it over to them. I know, David, you’ve been talking about this.

David Rigg:  I think a lot of people look at their home as an iron‑clad investment. “I buy a house. It will always go up. I should be able to make a lot of money whenever it comes time for me to sell this.”

If you look at it really objectively and you look at it from a financial standpoint and not an emotional standpoint, you take 20 percent. You put that down on your home. You’ve got an 80 percent note, and today they’re normally around 4 percent or something like that for a house note. You’re paying four percent interest.

The housing market traditionally, I’ve heard different numbers, but I’ve heard anywhere from nationwide the home prices go up three to five percent a year, somewhere in that ballpark. You’re paying 4 percent interest on 80 percent of the house, and then you’ve got 1.5 percent, 2 percent inflation rate.

We’re not counting anything for maintenance. We’re not counting anything for taxes, any sort of improvements you do to the house, any sort of updates you do to the house. Over the course of the life of a home, it may or may not make you any money.

You may get a lot of your money back when it comes time to sell the house, but as far as an investment is concerned, it depends on the housing market. It depends on your timing. Obviously people that bought homes and then tried to sell them around 2008‑2009, their timing would have been horrible in that particular case.

Gary Bilyeu:  On this point, David, I want to jump in real quickly. There is a story that supports your point. There were clients of mine that I had. They were depending on their home to help them with retirement, to do the down payment for a senior living place that they were wanting to go to.

They bought the home in the ’90s for about $450,000, $500,000, and it was appraised in 2006‑2007 for about a million and a half. They were getting ready to sell it, get it on the market, and then use those proceeds to help them with the senior living facility they were going into.

Then, of course, the housing crash happened. The house went down in value to about $680,000. They couldn’t sell it for four years. In the meantime, he developed Alzheimer’s.

They were forced to have to leave the house, sell it at a depressed price, and then have to liquidate a lot of assets that they had, family land that they had that they didn’t want to in order to support themselves. Had they been better diversified and not depending on that house, they could have been better prepared for that economic reality that we saw in 2008‑2009.

David:  I think you just need to do a mental shift from real estate or my home, especially my home is an iron‑clad investment, to look at it objectively as you would any other investment. It’s going to be no different from your stocks, your bonds, anything else.

It is dependent on when you sell it, the amount of time you’ve kept it, market forces, all the other things that apply to any other investment. People need to think of it that way.

Gary:  I would agree with that completely. I can’t tell you how many people that we talk to, especially those that are nearing retirement age or at that point in the work cycle, they talk about, “Well, I have my home and social security.” Those are the two biggies, home and Social Security, that people are relying on.

I think it’s exactly what you’re saying, Dave. We need to have other assets. As you know, Social Security was never intended to be the only source of income in retirement. Some of our younger couples, they’re interested in buying a home. We encourage home ownership.

David:  Absolutely.

Gary:  Our society rewards you for home ownership, so we’re not discouraging home ownership. Just because you bought a home does not mean that you made the investment, the single investment that’s going to get you into retirement or through retirement.

Bryan:  Going further with one thing that you just brought out, I think it’s very important, and some of our listeners have mentioned this as well, Social Security was a creation of Benjamin Cohen, who was in FDR’s brain trust with The New Deal. It was to help people who lost everything.

They saw the devastation of the crash of 1929, and they wanted to try to have a system in place that people could have something that the government could give them in times of crisis to support their lives. As we’ve seen with Social Security, it is not something that you should depend on to maintain your lifestyle.

Also, for people who are young listening into this show, who are in their 30s, 40s, and 50s, Social Security is not a given. We don’t know what the political realities will be later on. There’s many people out there that are saying that for people in their 30s and 40s, they’re not going to have Social Security because that fund is drying up.

To maintain a disciplined approach for retirement, having diversification, having different accounts, different assets, is crucial in supporting you later on and giving you the lifestyle that you’ve become accustomed to.

With that being said, when we go back to the house situation, the house example that we’re bringing out, when you’re looking at investments one of the most important things to look at is cash flow and compounding interest.

Is the house making you profits along the way as far as cash flow? No. Some people who rent out homes, they do get that. They do get some cash flow. The one thing to look at with your investments is look at are they cash‑flowing? Are they giving me dividends, coupons, rent, so to speak?

Einstein, this is a loose quote from him. I think he said besides the theory of relativity one of the greatest inventions of man is compounding interest. That’s one thing that we look at as financial advisers, setting up accounts that cash flow well, reinvest, and then continue on building themselves out by reinvesting those dividends in the ordinary income.

That’s something very important to look at when you are building out your portfolios. Make sure you have a lot of assets out there that are throwing off a lot of cash flow because that’s what you’re going to be living off of later on. Is that how you understood it Gary?

Gary:  It is. When you said Einstein, I thought he was even more direct about it. I thought he said it was the greatest force in the universe, something to that effect. Yes, compounding interest, it has the potential to build. We’ve talked about this in previous shows, about the young couples getting started. Time is your friend or enemy.

If you get started early, in my opinion it doesn’t matter how much you have in assets or lump sums of money. It’s about getting started and allowing some of these concepts, compounding interest to work for you. You have the potential to be so much further ahead than where you are now just by starting years early.

Bryan:  Absolutely. These are the issues that I do believe are very important for every person to look at and analyze as they’re looking at their portfolios. We’re going to be breaking away for a commercial break here in a few seconds. Please, visit our website at Riggwealthmanagement.com. That’s Rigg with two Gs, Riggwealthmanagement.com.

Also, feel free to give us a call to come in for a no‑cost consultation. Our number is 972‑383‑1210. Again, that’s 972‑383‑1210. When we come back here in a few minutes, we’ll be talking about further issues about retirement and investments, and how you can build out cash flow in your portfolios. Thank you so much for listening, and we’ll be right back with you here soon.

Thank you so much for listening, and we’ll be right back with you. I made the mistake of saying minutes because Frank said stay away from that.

SEGMENT 3

Bryan Rigg:  Welcome back ladies and gentleman. This Bryan Rigg with Rigg Wealth Management. I’m here with my partners Gary Bilyeu and David Rigg. All three of us are Marine Corps officers, and we’ve been working together in the financial wealth management space for a couple of years. I’ve been on Wall Street for over a decade.

We’ve been talking about retirement, and also we’ve been talking about cash flow and compounding interest, that Einstein was a big fan of that saying it was an incredible invention for mankind, so to speak.

Looking at compounding interest, the one thing that I like to tell people is tell them about the law of 72. Basically what that means is you take the percent your portfolio is gaining. You divide it into 72, and that tells you how often your portfolio will double.

By way of illustration, if you have a portfolio ‑‑ and a portfolio, again, is holding all your assets, your bonds, your stocks, your index funds, your private equity and so on ‑‑ if you have a portfolio that returns 10 percent, that means that every 7.2 years your portfolio will double.

10 percent is a very aggressive number. If you’re obtaining that, you’re doing extremely well. That is above market averages. That’s just an illustration to show you that if you want to get a feel for how fast you’re going to grow, look at your portfolio, see what percent you’re getting on it on an annualized basis, and then take that law of 72 and analyze it.

If it’s five percent, then you’re looking at 15 years until your portfolio doubles. That will help also give you a benchmark for how you need to have the risk reward set up in your portfolio. If you put everything in treasuries, you’re going to have to wait a long time before that doubles.

If you put everything in equities, you can have a better opportunity to grow it at a much faster rate than treasuries. You’ve just got to understand that you’re going to have a lot of volatility with that.

A lot of people are asking right now, “To get good cash flow, how should I set up my portfolio? Aren’t we at historical highs? Isn’t it a dangerous time to get involved in the stock market?” Average bull market is around 3.5. 3.6 years is what some analysts throw out there. We are in the eighth year of this current bull market.

If I were to use history as a pure guide for what we should be doing, once we hit the fourth year or the fifth year of a bull market, you might want to be switching out of all your equities and putting it into bonds.

If you had done that, you would have lost 3 years, maybe 3.5 years of growth that we’ve seen, especially this tremendous growth we’ve seen after Trump won the election. Trying to time the market is not wise. There was a stat that was given at Credit Suisse when I was working there that they looked at the last nine times that we’ve had market corrections.

That’s another way of saying that the market has a pull back, decreases, and they looked at some of the major agencies that track this, Bloomberg and other ones. They found that the experts on Wall Street only predicted three out of the last nine major corrections or downturns on the market.

So they didn’t have a 50 percent success rate of looking at where the market is going. That’s why we believe it’s very important to look at diversification within your portfolio to help manage the risk of what’s going to happen.

As Gary has often said, nobody has a crystal ball. Many people use this analogy. Nobody has a crystal ball, but if you have a diversified portfolio that is cash‑flowing, that will help you get exposure to several different market sectors to allow your portfolio hopefully to grow at a rate that is in‑line with your risk appetite and your goals.

Nobody has a crystal ball, but if you have a diversified portfolio that is cash‑flowing, that will help you get exposure to several different market sectors to allow your portfolio, hopefully, to grow at a rate that is in line with your risk appetite and your goals. Is that how you understood…?

[crosstalk]

Bryan:  …to get from us earlier today when we were talking to them?

Gary Bilyeu:  I think that’s exactly right. One of the things I like to tell my clients is you do not realize the gain or the loss. It’s all on paper until you do one thing, and that’s sell. If you sell a holding, you’re going to realize a gain or a loss.

If you’re investing for the long haul and you still have 20 plus years of investing, I tell my clients not to be too concerned about what it’s doing right now. If you’re going to retire next month or next year, yeah, there’s cause for concern.

That’s where we have to look at the client individually, what their goals and their needs are, what their portfolio, how it’s structured, and give them our best recommendation for them. Unless you are retiring in the very near future, there really isn’t as much of a cause for concern.

Bryan, let’s face it. No one can predict with absolute certainty how the market will perform. However, time ‑‑ I say it, time ‑‑ is your greatest ally to potentially make up for any of those losses.

Bryan:  Yes, one thing at Rigg Wealth Management that we try to do is look at sectors that are down, and try to get exposure in those sectors where it’s suitable and appropriate.

Right now, one area that we have been looking at, when you’re looking at the market ‑‑ and it’s at historical highs, we believe ‑‑ it would not be a prudent thing to put new clients’ assets all in large cap, for example, all in the S&P 500. Having some exposure there is, indeed, wise, but putting everything there at historical highs, chasing performance, is not necessarily wise. One area where we see opportunity that’s trading below the values that it used to trade at is in the energy sector.

Usually, we try to get exposure there through index funds in large-cap companies that are trading below book value, trading below where they went public. They’re trading at a discount. We also look at other areas that are considered alternative investments, like senior loans.

That has helped us tremendously get some exposure in the private equity space for our clients. That can provide good cash flow as well. Many senior loan holdings that are out there are trading also below book value.

The old adage that is very true, buy low sell high, if you practice that consistently, you find opportunities in the market. That is something that I think is very important to look at when you’re looking at investing, especially in the current landscape. David?

Gary:  Go ahead.

David Rigg:  To Gary’s point, though, talking about patience, this is where it really comes into play. Like, for example, the energy sector that you talked about, when the energy slumped and everything, most people didn’t think it would take this long to slowly claw its way back up. It has. It has come back.

It’s come back quite a bit, but if you initially jumped into that thinking you were going to make a very quick turnaround on your investment, you’ve probably been a little disappointed. It is slowly recovering.

We’ve done very well with a lot of our energy holdings that we have done, but people need to insulate themselves from looking at what it’s doing right now, if you have a timeline that allows you to do that.

Bryan:  I want to stay on the energy topic, but another reality that people need to realize when we’re talking about all these different sectors is that there is a political realm out there that influences investments.

We’re seeing this recently with President Trump and his tweets. He will talk about Boeing and Lockheed, and all of a sudden their stock will drop. He’ll talk about pharmaceutical companies, and their stock will drop.

It may not have anything to do with the economic realities of how these companies are truly doing, but public sentiment is influenced by these tweets. As financial advisors, that’s where diversification, once again, helps. Not only looking at the economic reality but the political reality is very important.

That brings us back to the energy space. Anybody who looks at the energy world the last four or five decades cannot help but bond the political realities that are influencing it, places that are inundated with war and how that influences the price of war and the energy prices.

The good news about energy right now, I believe, is when you look at it, historically when you have this pull back that we had, we were at $120 a barrel oil a few years ago, and now just a few months ago we were down in the $30s. That’s huge. Usually when you buy on those dips, it is going to come back.

Is it going to come back to $120? Nobody knows, but the one thing that is very important, and I’m using Franklin Square information here, when you look at the consumption of energy, it’s only gone up every year.

One stat that they gave that was very telling a few years ago is they said on average Americans consume around 25 barrels per person. They think here in the next five years that might go up to about 26. What was really dramatic is they looked at India.

They said right now an average citizen of India consumes about one barrel of oil per person but here in the next couple of years that’s going to go up to three. China is even more dramatic. Right now the average citizen in China consumes around three barrels per person.

In the next five years or so, that’s going to go up to nine. When you put that into your calculator, the information that Franklin Square gave said that you need two new OPECs to cover this oil consumption. Energy consumption is just going up and up and up.

One thing that you see in the energy market historically is that when you have this glut in the market, which we have right now, production goes down. We had a few years ago over 2,000 rigs drilling in America. Now it’s around 800.

All of a sudden when that demand increases, we’re going to have to deploy those rigs again, and you’ll have a surge. This is just one example of looking at different sectors in your portfolio where you might find opportunity.

We think one area is energy, and people need to be looking at that. There’s other sectors. A few years ago one sector that was really depressed, and we mentioned it a little bit with the housing market, was real estate.

This is one way of looking at sectors, looking for opportunity, and then finessing your portfolio in such a way to take advantage of these opportunities. It’s a reactionary way of looking at the portfolio by looking at the price range of different holdings. That is extremely important when you’re looking at portfolio management.

Gary:  Bryan, I just want to dovetail on that. I think you would agree that many of these sectors are cyclical. They’re constantly moving up and down. We at Rigg Wealth Management, we take that contrarian view. When something is up, when the cycle is at the apex, at the crest, that’s not when we’re looking to get in.

We may have already been in, and when we’re at the top, that’s when we consider selling those and capturing those profits. What we’re looking for is an industry or a sector that is down. We never know for sure where that trough is going to bottom out.

If we are close, we believe that it’s close, and our clients believe that it’s close and they’re ready to get in that sector, we’re looking to, as you said earlier, as you described it, buy low and eventually sell high. There’s no guarantees that’s going to happen.

Like you said, we don’t have a crystal ball, but that’s what we’re looking at. It’s just a contrarian view. If the rest of the market is buying and we think that it’s at its high, that’s not when we’re telling our clients to get in.

Bryan: Yes, thanks, Gary. We’ll be discussing these issues further in our last segment today. Please stay tuned. Also, please feel free to visit our website at riggwealthmanagement.com. That’s Rigg, R‑I‑G‑G wealthmanagement.com.

Please call in, and set up a no‑cost, complimentary consultation at 972‑383‑1210. Again, that’s 972‑383‑1210. A lot of people have asked what they should bring. Bring your financial statements. Start thinking about your goals. Maybe bring a tax return as well.

We’d love to meet with you. Please stay tuned. We’ll be right back on the air in a few minutes.

A lot of people have asked what they should bring. Bring your financial statements. Start thinking about your goals, maybe a tax return. We’d love to meet with you. Please stay tuned. We’ll be right back on the air in a few moments.

SEGMENT 4

Bryan Rigg:  Welcome back ladies and gentleman. This Bryan Rigg with Rigg Wealth Management. I’m here with my partners Gary Bilyeu and David Rigg. All three of us are Marine Corps officers, and we’ve been working together in the financial wealth management space for a couple of years. I’ve been on Wall Street for over a decade.

We’ve been talking about retirement, and also we’ve been talking about cash flow and compounding interest, that Einstein was a big fan of that saying it was an incredible invention for mankind, so to speak.

Looking at compounding interest, the one thing that I like to tell people is tell them about the law of 72. Basically what that means is you take the percent your portfolio is gaining. You divide it into 72, and that tells you how often your portfolio will double.

By way of illustration, if you have a portfolio ‑‑ and a portfolio, again, is holding all your assets, your bonds, your stocks, your index funds, your private equity and so on ‑‑ if you have a portfolio that returns 10 percent, that means that every 7.2 years your portfolio will double.

10 percent is a very aggressive number. If you’re obtaining that, you’re doing extremely well. That is above market averages. That’s just an illustration to show you that if you want to get a feel for how fast you’re going to grow, look at your portfolio, see what percent you’re getting on it on an annualized basis, and then take that law of 72 and analyze it.

If it’s five percent, then you’re looking at 15 years until your portfolio doubles. That will help also give you a benchmark for how you need to have the risk reward set up in your portfolio. If you put everything in treasuries, you’re going to have to wait a long time before that doubles.

If you put everything in equities, you can have a better opportunity to grow it at a much faster rate than treasuries. You’ve just got to understand that you’re going to have a lot of volatility with that.

A lot of people are asking right now, “To get good cash flow, how should I set up my portfolio? Aren’t we at historical highs? Isn’t it a dangerous time to get involved in the stock market?” Average bull market is around 3.5. 3.6 years is what some analysts throw out there. We are in the eighth year of this current bull market.

If I were to use history as a pure guide for what we should be doing, once we hit the fourth year or the fifth year of a bull market, you might want to be switching out of all your equities and putting it into bonds.

If you had done that, you would have lost 3 years, maybe 3.5 years of growth that we’ve seen, especially this tremendous growth we’ve seen after Trump won the election. Trying to time the market is not wise. There was a stat that was given at Credit Suisse when I was working there that they looked at the last nine times that we’ve had market corrections.

That’s another way of saying that the market has a pull back, decreases, and they looked at some of the major agencies that track this, Bloomberg and other ones. They found that the experts on Wall Street only predicted three out of the last nine major corrections or downturns on the market.

So they didn’t have a 50 percent success rate of looking at where the market is going. That’s why we believe it’s very important to look at diversification within your portfolio to help manage the risk of what’s going to happen.

As Gary has often said, nobody has a crystal ball. Many people use this analogy. Nobody has a crystal ball, but if you have a diversified portfolio that is cash‑flowing, that will help you get exposure to several different market sectors to allow your portfolio hopefully to grow at a rate that is in‑line with your risk appetite and your goals.

Nobody has a crystal ball, but if you have a diversified portfolio that is cash‑flowing, that will help you get exposure to several different market sectors to allow your portfolio, hopefully, to grow at a rate that is in line with your risk appetite and your goals. Is that how you understood…?

[crosstalk]

Bryan:  …to get from us earlier today when we were talking to them?

Gary Bilyeu:  I think that’s exactly right. One of the things I like to tell my clients is you do not realize the gain or the loss. It’s all on paper until you do one thing, and that’s sell. If you sell a holding, you’re going to realize a gain or a loss.

If you’re investing for the long haul and you still have 20 plus years of investing, I tell my clients not to be too concerned about what it’s doing right now. If you’re going to retire next month or next year, yeah, there’s cause for concern.

That’s where we have to look at the client individually, what their goals and their needs are, what their portfolio, how it’s structured, and give them our best recommendation for them. Unless you are retiring in the very near future, there really isn’t as much of a cause for concern.

Bryan, let’s face it. No one can predict with absolute certainty how the market will perform. However, time ‑‑ I say it, time ‑‑ is your greatest ally to potentially make up for any of those losses.

Bryan:  Yes, one thing at Rigg Wealth Management that we try to do is look at sectors that are down, and try to get exposure in those sectors where it’s suitable and appropriate.

Right now, one area that we have been looking at, when you’re looking at the market ‑‑ and it’s at historical highs, we believe ‑‑ it would not be a prudent thing to put new clients’ assets all in large cap, for example, all in the S&P 500. Having some exposure there is, indeed, wise, but putting everything there at historical highs, chasing performance, is not necessarily wise. One area where we see opportunity that’s trading below the values that it used to trade at is in the energy sector.

Usually, we try to get exposure there through index funds in large cap companies that are trading below book value, trading below where they went public. They’re trading at a discount. We also look at other areas that are considered alternative investments, like senior loans.

That has helped us tremendously get some exposure in the private equity space for our clients. That can provide good cash flow as well. Many senior loan holdings that are out there are trading also below book value.

The old adage that is very true, buy low sell high, if you practice that consistently, you find opportunities in the market. That is something that I think is very important to look at when you’re looking at investing, especially in the current landscape. David?

Gary:  Go ahead.

David Rigg:  To Gary’s point, though, talking about patience, this is where it really comes into play. Like, for example, the energy sector that you talked about, when the energy slumped and everything, most people didn’t think it would take this long to slowly claw its way back up. It has. It has come back.

It’s come back quite a bit, but if you initially jumped into that thinking you were going to make a very quick turnaround on your investment, you’ve probably been a little disappointed. It is slowly recovering.

We’ve done very well with a lot of our energy holdings that we have done, but people need to insulate themselves from looking at what it’s doing right now, if you have a timeline that allows you to do that.

Bryan:  I want to stay on the energy topic, but another reality that people need to realize when we’re talking about all these different sectors is that there is a political realm out there that influences investments.

We’re seeing this recently with President Trump and his tweets. He will talk about Boeing and Lockheed, and all of a sudden their stock will drop. He’ll talk about pharmaceutical companies, and their stock will drop.

It may not have anything to do with the economic realities of how these companies are truly doing, but public sentiment is influenced by these tweets. As financial advisors, that’s where diversification, once again, helps. Not only looking at the economic reality but the political reality is very important.

That brings us back to the energy space. Anybody who looks at the energy world the last four or five decades cannot help but bond the political realities that are influencing it, places that are inundated with war and how that influences the price of war and the energy prices.

The good news about energy right now, I believe, is when you look at it, historically when you have this pull back that we had, we were at $120 a barrel oil a few years ago, and now just a few months ago we were down in the $30s. That’s huge. Usually when you buy on those dips, it is going to come back.

Is it going to come back to $120? Nobody knows, but the one thing that is very important, and I’m using Franklin Square information here, when you look at the consumption of energy, it’s only gone up every year.

One stat that they gave that was very telling a few years ago is they said on average Americans consume around 25 barrels per person. They think here in the next five years that might go up to about 26. What was really dramatic is they looked at India.

They said right now an average citizen of India consumes about one barrel of oil per person but here in the next couple of years that’s going to go up to three. China is even more dramatic. Right now the average citizen in China consumes around three barrels per person.

In the next five years or so, that’s going to go up to nine. When you put that into your calculator, the information that Franklin Square gave said that you need two new OPECs to cover this oil consumption. Energy consumption is just going up and up and up.

One thing that you see in the energy market historically is that when you have this glut in the market, which we have right now, production goes down. We had a few years ago over 2,000 rigs drilling in America. Now it’s around 800.

All of a sudden when that demand increases, we’re going to have to deploy those rigs again, and you’ll have a surge. This is just one example of looking at different sectors in your portfolio where you might find opportunity.

We think one area is energy, and people need to be looking at that. There’s other sectors. A few years ago one sector that was really depressed, and we mentioned it a little bit with the housing market, was real estate.

This is one way of looking at sectors, looking for opportunity, and then finessing your portfolio in such a way to take advantage of these opportunities. It’s a reactionary way of looking at the portfolio by looking at the price range of different holdings. That is extremely important when you’re looking at portfolio management.

Gary:  Bryan, I just want to dovetail on that. I think you would agree that many of these sectors are cyclical. They’re constantly moving up and down. We at Rigg Wealth Management, we take that contrarian view. When something is up, when the cycle is at the apex, at the crest, that’s not when we’re looking to get in.

We may have already been in, and when we’re at the top, that’s when we consider selling those and capturing those profits. What we’re looking for is an industry or a sector that is down. We never know for sure where that trough is going to bottom out.

If we are close, we believe that it’s close, and our clients believe that it’s close and they’re ready to get in that sector, we’re looking to, as you said earlier, as you described it, buy low and eventually sell high. There’s no guarantees that’s going to happen.

Like you said, we don’t have a crystal ball, but that’s what we’re looking at. It’s just a contrarian view. If the rest of the market is buying and we think that it’s at its high, that’s not when we’re telling our clients to get in.

Bryan: Yes, thanks, Gary. We’ll be discussing these issues further in our last segment today. Please stay tuned. Also, please feel free to visit our website at riggwealthmanagement.com. That’s Rigg, R‑I‑G‑G wealthmanagement.com.

Please call in, and set up a no‑cost, complimentary consultation at 972‑383‑1210. Again, that’s 972‑383‑1210. A lot of people have asked what they should bring. Bring your financial statements. Start thinking about your goals. Maybe bring a tax return as well.

We’d love to meet with you. Please stay tuned. We’ll be right back on the air in a few minutes.

A lot of people have asked what they should bring. Bring your financial statements. Start thinking about your goals, maybe a tax return. We’d love to meet with you. Please stay tuned. We’ll be right back on the air in a few moments.