We’re going to talk about wealth strategies. We’re going to educate you on finance.
Finance is difficult for a lot of people. It’s intimidating. But Bryan, being the wealth professor, he wants to help you understand what you can do for yourself and what he can do for you if you’re interested in finding him at Rigg Wealth Management.
We’re going to cover a couple topics today. We’re going to talk about contributing to an employer funded 401k. We’re also going to talk about options with sudden liquidity. If all of a sudden you’ve got a sudden cash flow, or you’re fortunate enough to have a sudden cash flow.
What are savings accounts with banks? When is saving money enough and when is saving money not enough? We’re also going to talk about any personal needs you may have for your own liquidity. If you need cash back, or say you lost a job, or some sort of health crisis that you need some help with. Bryan’s going to help us with all that.
LISTEN TO THE SHOW HERE:
Rob Dalton: Ladies and gentlemen, welcome. My name is Rob Dalton. This is “Wealth Strategies with Bryan Rigg.” With me today is our own wealth professor, Mr. Bryan Rigg. Good morning, Bryan.
Bryan Rigg: Hey, good morning. Thanks for having me.
Rob: Good morning. Did you get your coffee this morning?
Bryan: I did.
Rob: Good. You got a fresh cup already?
Rob: I hope so. We try to supply you with that so you’re up and running.
We’re around for the next hour. We’re glad to have you with us today. We really are. We’re going to talk about wealth strategies. We’re going to educate you on finance.
Finance is difficult for a lot of people. It’s intimidating. But Bryan, being the wealth professor, he wants to help you understand what you can do for yourself and what he can do for you if you’re interested in finding him at Rigg Wealth Management.
We’re going to cover a couple topics today. We’re going to talk about contributing to an employer funded 401k. We’re also going to talk about options with sudden liquidity. If all of a sudden you’ve got a sudden cash flow, or you’re fortunate enough to have a sudden cash flow.
What are savings accounts with banks? When is saving money enough and when is saving money not enough? We’re also going to talk about any personal needs you may have for your own liquidity. If you need cash back, or say you lost a job, or some sort of health crisis that you need some help with.
Bryan’s going to help us with all that. Bryan, once again welcome to the show. Happy to have you with us.
Why don’t we get started? When people have the job and they have a company that wants to help them with their retirement plans and they have an employer contributed 401k, first of all, describe what that is to everybody.
Bryan: Several years ago you didn’t have 401ks. Basically, these numbers and letters are named after the IRS code. 529 plans for college savings? Just an IRS code. 401k is an IRS code for how you can put away for your retirement.
30, 40 years ago most companies did that with a pension. You didn’t have to think about it.
Rob: Right, we used to have pension plans. We didn’t have to worry about it. Now they’ve put the onus back on us.
Bryan: They’ve put the responsibility on the employee. A lot of people, quite frankly, are lost. If you ask most people about the 401k at their company they don’t know hardly anything about it. A lot of them don’t even know how to get enrolled sometimes if there’s not an automatic enrollment.
A 401k is a plan that a company sets up for you to put away for your retirement. Quite often, with especially larger companies, they have a match. What I always encourage my clients is, and I don’t have any financial benefit from this at all, but if they have a 401k at their company there’s usually a match. The company will match up to three percent of their contributions.
Rob: If I put in three percent the company’s going to match that three percent. They’re going to match dollar for dollar or nickel for nickel whatever I put in.
Bryan: Absolutely. That is free money. There is nothing that I can do in the world that’s going to give you immediate, 100 percent return on your money. Everybody, if you’re listening to this, the one thing you want to take away from this segment, if nothing else, about your 401k is that if you’re not doing the match with your company you are losing out on free money.
A lot of times there’s a vesting schedule because the company wants to keep you for a while. They’ll say, “Hey, we’ll match three percent. The first year, 20 percent will be vested. The second, 40 percent, up to your sixth year being employed with us. Then it’s 100 percent invested.”
They want to hang on to you for a while and get good time in their company with you benefiting the company. They will reward you with that free money being fully vested after a certain amount of time.
A 401k is a self‑directed retirement plan that employers set up but employees have to go in. They have to massage the different selections that are there. Then they have to designate what their contribution level’s going to be.
Rob: Speaking of contribution levels, you say they match whatever, let’s use the three percent example you’ve been talking about. Let’s say someone says, “I can’t afford three percent. I’m only going to put in two percent.” Does the company still put in three percent?
Bryan: No, they’ll put two percent. They’ll match…
Rob: That’s where the term match comes from.
Rob: If I only do one percent, then that company’s only going to do one percent. They’re not going to pay me more than what I’m putting in. They’re going to match my own sacrifice in contribution.
Bryan: If you go beyond the three percent…
Rob: You read my mind. That’s where I was going. Go ahead.
Bryan: If you go beyond, the benefit to you is that you have tax deferment on that. You get that money out of your taxable income for that year.
Let’s say you have $100,000 and you’re willing to put $6,000 away in the 401k plan. You’re only going to be taxed on $94,000 of that salary.
Rob: Let’s get rid of the $5,000 or $6,000. Let’s go with the weekly percentages of five percent. The company matches three percent, but I’ve got a little disposable income so I’m going to put in an extra two percent in there.
The company does three. I do five. What happens with the other two?
Bryan: The other two goes into your account. It’s not matched by the company but it gets invested. That is fully vested. Whatever money you put in, so your five percent that you have is fully invested. The three percent that the company puts in, sometimes it will be fully vested if the company is very nice. A lot of times they have that vesting schedule.
The money that you put in, fully vested. Then it is running forward for retirement. You’re getting it invested in the funds that you have to select.
A lot of times companies have a default. I manage several 401ks. I’ll put a moderate strategy, a combination of bonds and equities. That will be the default portfolio. People put it in. It gets spread out over 20 or 30 different funds.
If you select funds, you can look at the funds that are offered and you can pick which funds you want. Basically, what should determine that is what’s going on in the market and then your age.
Rob: You get to manage your contributions yourself. The company will do it by default, but they may give you the option to go in and play around a little bit, have a little fun and see how it goes. If you feel good about the market you can change it. If you’re scared about it, you can go a little bit more conservative.
Most companies give you that option.
Bryan: Almost all 401ks give you that option. Most people don’t know they have it. You’ve got to go in. You’ve got to learn the system. Are you on the platform of John Hancock? Are you on the platform of Schwab? Are you on the platform of Fidelity?
You look at where your money is. Then you can look at all the different investments. You can do percentages.
Let’s say you are big into emerging markets. You think that’s where all the action’s going to be. You can put 100 percent of all your contributions in emerging markets. I wouldn’t recommend that, but you can.
Rob: Right, you can play with it.
Bryan: Yeah, you can play around. You can do 5 percent here, 10 percent there, 20 percent there, depending on what your vision is of the future and what you think the market’s going to be doing.
You can have some flexibility and some independence with how you can construct your portfolio strategy. 401ks are limited, usually, to about 20 or 30 different holdings but it is better than not having anything.
A lot of times you relied many years ago on the company to do a good job with a pension. As we’ve seen recently, like with the Dallas firemen pension plan, if it’s not managed properly those people will take a hit.
A lot of those companies didn’t want to have that responsibility anymore. That’s why it’s on us. With proper planning, you can do a fairly good job with most 401k plans of putting away for retirement.
Rob: We’re talking about contributing to employer funded 401ks in this particular segment. We’ve got our wealth professor, Bryan Rigg, with us. He’s explaining how you actually have more control over your money than you think you do.
If you’re feeling skeptical, you can go conservative. How often can you change it throughout the year?
Bryan: Usually they only allow one change per year, but as you bring in the new assets you can allocate that however you want going forward. Once you get that up and running, they don’t like to see more than one…
Some plans have a little more flexibility, depending on what type of plans they are, but basically you can’t do a whole change. You can rebalance. Usually you want to do the rebalancing.
By way of illustration, if you have a portfolio and you’re like, “OK, I want half of it in large cap and I want half of it in emerging markets. China and India and large cap, the S&P 500.”
Rob: We’ve all heard of that.
Bryan: Everybody knows that one. That’s the benchmark for what the market is doing in general.
Let’s say at the end of the year your emerging market is down 20 percent and your S&P 500 fund is up 100 percent. You can rebalance that, sell off some of the profits of the S&P and then buy into the dips of the emerging market.
Rob: You can do this within the 401k ecosystem.
Bryan: Exactly, or you can shut off…
Rob: Selling off kind of scared me. I thought I literally had to sell it off. [laughs]
Bryan: No. That’s a good thing with the tax deferment of a 401k. When you sell things, if there is a profit you’re deferring those taxes. You don’t have to pay the long term capital gains or the short term capital gains. It gets all rolled into different funds.
You can reallocate, rebalance your fund whenever you want to.
Rob: Good. I don’t actually have to go in and touch my money. I can move it around and play with it. I can watch it and then rebalance. That’s a good example. The rebalance is good. We’re good.
The wealth professor’s been helping us with employee contributed 401k. The going away here is that…describe one more time. What is it about matching your employer contributions?
Bryan: It’s just free money. If there is a match at your employer you want to do it because you get 100 percent return on your money. If you’re putting three percent in, you get another three percent going towards your retirement.
One thing I’ve always emphasized since the show began is that 50 percent of all people who retire today have 50 percent less than what they need, not than what they want. Basically, everybody should be doing that match.
Rob: You can do it yourself. It’s free money. How often do we get free money, people? Really, we don’t.
Bryan, tell me about your company. What’s the website people can go to find out more?
Bryan: It’s Rigg Wealth Management. The web page is RiggWealthManagement.com. That’s Rigg with two Gs, R‑I‑G‑G.
Also, if you have any feedback or have any questions from what we’ve been discussing please call me at 972‑383‑1210.
Rob: Thank you.
Next segment, thanks for joining us, we’re coming up with…our next segment is going to be about what options are there with sudden liquidity. If you, all of a sudden, have a windfall.
Stick around. We’ll be back after these messages.
Rob Dalton: Ladies and gentlemen, welcome back to the “Wealth Strategies with Bryan Rigg” show. I’m Rob Dalton and with us, our wealth professor, Mr. Bryan Rigg.
Bryan, thanks for coming back after the break.
Bryan Rigg: Good to be here.
Rob: This next segment, we’re going to talk about what options are there with sudden liquidity. Liquidity, of course, we like to call a cash windfall. Liquid meaning it’s liquid. You can spend it. It’s cash. It’s coming at you.
Bryan being the wealth professor is going to help us with, what to do if you get, all of a sudden, some instant cash. Not so much millions like the lottery ‑‑ that’s a different situation ‑‑ but everyday stuff.
Bryan, give us an example of a couple of windfalls that people would encounter.
Bryan: On the macro level, you just said, people hear about the lottery winners. You also hear about these young kids that are signing multimillion dollar deals in the NBA and NFL.
Rob: Yeah, young kids.
Bryan: Young kids.
Rob: I wouldn’t know what to do with it now. I can’t imagine when I was 19.
Bryan: Before your brain housing group is developed. They say you can’t make really good decisions until you’re 25. We see that with car insurance, when it drops off with males because they start making good decisions.
You give millions of dollars to a 21‑, 22‑year‑old kid you can imagine what happens. That’s why 80 percent of all NBA basketball players are broke a few years after they play.
That’s the macro level. On the micro level, a relative dies and there’s a life insurance policy. There is a bonus that comes out. There is money that people did not know that was put away for them in a trust.
Rob: Going back to the bonus, like a work bonus?
Bryan: Yeah, a work bonus.
Rob: A work bonus. I’ve got it, and then a trust.
Bryan: A trust. A lot of times people don’t know that there was a trust set up by a grandmother or an aunt and that after a certain amount of time in your life, when you hit 30 or hit 35, it liquidates and goes to you.
Rob: Right, because you may have learned about it when you were 18 and you were trying to figure out ways to spend it but you’re not allowed to even touch it.
When you finally get the money, all of a sudden you’ve got access to that money but you really need to manage it.
Bryan: The major liquidity event that a lot of people go through nowadays is divorce.
Rob: Boy, that’s true.
Bryan: Unfortunately. You split up the assets. Quite often, one party has to liquidate things, sell properties, sell the house. In most cases it was, it’s changing now, it’s about 50/50, but historically it usually was the woman who was coming into it because the man was the breadwinner.
Rob: He controlled the finances. Now, all of a sudden, she’s got some.
Bryan: And all of a sudden she has some.
Rob: What does she do with it?
Bryan: Quite often, I have found, because I was raised by two single women. I have found that a lot of women who are in their 60s and 70s, and this has happened to them, they have not done a lot of homework with how to do things. And so, a lot of times they lean heavily on me to put out a good portfolio to take care of them later on because they were relying on somebody else.
These are examples of liquidity events. Whether you’re on the macro level ‑‑ as we’ve seen with lottery winners and professional athletes ‑‑ or whether you’re on the micro level ‑‑ like we’re talking about with people who have gone through a divorce, or they get an insurance policy from a relative, or they get a trust from a relative ‑‑ they most often do not have a good plan in place to take care of those assets.
Quite often, a few years later, a lot of those assets are gone. That’s why, if you look at courts right now, when somebody is awarded a monetary reward in a court, quite often the court will appoint a financial advisor. Most often putting all those monies into an annuity that will give a certain amount per year so the person who is coming into that reward in the court doesn’t have the whole shebang at the beginning because the court has seen historically that they blow it.
Rob: There the court’s protecting them from themselves. [laughs] That’s what they do.
Bryan: Exactly. You get hit by a truck, you’re paralyzed now. You come into millions of dollars from the trucking company. They’ve found if you give all those millions to the person it’s going to be gone.
Then you have this guy who’s a paraplegic and he can’t take care of himself. It’s based on, “Hey, we’re going to court appoint a financial advisor, give them an annuity through that advisor. Then they have expectations of what is coming in per month.
Outside of the courts, when people go through liquidity events I have found that most often they have not put in a proper plan. A lot of times they’re paralyzed by inaction. They don’t know what to do.
Rob: Paralysis by analysis.
Bryan: They don’t know what to do.
These liquidity events, everybody’s going to usually go through one or two of these. Death of parents, death of grandparents.
Bryan: Divorce. 50 percent of all people go through a divorce. I think that’s where a financial advisor really earns his keep or earns her keep when they help people navigate those new waters of having this cash and what to do with it.
Rob: We’re with the wealth professor, Bryan Rigg of Rigg Wealth Management. We’re talking about what to do with sudden liquidity.
If, all of a sudden, you’ve cash windfall. Let me ask you this, Bryan ‑‑ is it OK to have a little fun with it when you first get it?
Bryan: There’s a fine balance in life. There was a book out there many years ago saying, “Die broke.” Why amass all this wealth when you can’t enjoy it?
There is a balance here, but we find, in America, quite often ‑‑ here again with the theme and the research that I’ve seen that basically supports this theme ‑‑ that 50 percent of all people who retire today have 50 percent less than what they need, not than what they want.
Rob: What they need.
Bryan: What they need.
Rob: There’s a difference, right?
Bryan: Then a lot of people out there need to put more thought into investing now than having fun now because they don’t want to be a burden on others later on. They don’t want to be full of anxiety and worry later on because they don’t know where their next meal is going to come from or how they’re going to support themselves.
Getting to your question, should people have a little fun at the beginning? No. I would say, in general, no.
Rob: [laughs] You’re no fun.
Bryan: I would say, “Let’s sit down. Let’s look at what you have.” A lot of times I’d say, if this person comes into a windfall outside of divorce, because divorce you’re restructuring everything…
Rob: That’s an emotional…
Bryan: …that, always, take your time. Be very methodical.
Let’s say you come into an inheritance. You come into a trust. You have an insurance policy, a windfall there, or you sign a bonus. Sit down, get a plan, and see if you have what I like to call your sacred cow.
Look if you have the money you need to support your life and the salary that you want to replace first. Once that is done, if you have money afterwards then go have fun and do fun stuff.
Also, I tell people…they say, “I want to go on this trip. I’ve got this money. I want to go to France. I want to go to Asia.”
What I tell them is, “If you go Asia now versus if you go in a year, does it matter that much?”
A lot of times they’ll answer, “No.”
And so I say, “OK, we’ve got all this money. Instead of going into the principle, let’s say you’ve come into $100,000 on a life insurance policy.”
Rob: Nice round number.
Bryan: Instead of taking $6,000 of that and buying a trip right now and going to China, let’s invest it. Let’s work on getting five or six percent return. A year from now, we still have $100,000 but we have another $5,000 or $6,000 we can play with. Let your sacred cow continue on living, so to speak.
Rob: Let the principle be the principle and make money. Take some of your reward and reward yourself.
Plus, that way, the thing I look at emotionally is that I get to look forward to going to Asia for a whole year, not in two weeks. I get to plan for it. I get excited about it. I get to brag about it.
Then you’re rewarded when you get to go because you’ve still got your $100k sitting in the account.
Bryan: Also, quite frankly, if you plan out a year versus planning in a few months you’re going to get better deals.
Rob: True. You do.
And also, because then you’re investing your $100,000. It’s making money, whereas if you went to Asia you would only be investing $94,000. You’re not making as much. It’s worth the wait, is what you’re saying.
Bryan: Absolutely. Before 2008, 2009 when we had the debacle with the collateralized mortgage, the debt obligation scenario, we had a negative savings rate in America, one or two percent. People were going into debt every year.
Now it’s a little bit better. According to some stats, we are saving at around three to five percent per year. As we have more and more prosperity, that will invert again.
Rob: It will.
Bryan: What I would sit down with people if they have a liquidity event, say, “Do you have any debt? Do you have credit card debt? Do you have any unexpected expenses that are coming in the future? Kids’ college education.”
Rob: I was going to say college education’s a big one, sure.
Bryan: Also, I look at it from a holistic approach. Do you have a history of medical problems in your family? Do we need to be thinking more about that? Maybe we need to buy some…
Rob: Short‑term and long‑term care insurance.
Bryan: Yeah, long‑term care insurance. They say the last five years of your life you spend, according to some research that I’ve seen, especially at Credit Suisse that they gave us several years ago when I was there in 2008, 2009.
The last five years of your life you spend 80 percent of your medical expenses.
Rob: Oh, my.
Bryan: You have to prepare as we’re living longer and longer for those eventualities that are more important than going to China, or going to France.
Rob: I was just thinking that.
Bryan: Or spending more money. You want to make sure that you’ve got your foundation secure so you’re not a burden to anybody and that you don’t have anxiety and worry later on of how you’re going to support yourself.
Rob: Anxiety and worry is only going to make your health worse.
Rob: It’s not going to help.
Bryan: We’re talking about quantity and quality. We are living a lot longer. How are you going to make that long life enjoyable?
Rob: Planning adequately with the liquidity. Plan now, reward later. This is great advice this particular segment. Thank you, Bryan.
Again, Bryan Rigg, our wealth professor. Bryan, your company ‑‑ tell me about it, the website.
Bryan: We’re an independent financial firm. It’s Rigg Wealth Management, Rigg with two Gs. You can find us under that name in the web page. RiggWealthManagement.com.
Please feel free to call us at (972) 383‑1210. I’d love to hear your feedback and if you have any questions.
Rob: Thanks, Bryan.
Stick around after the break. We’re coming up. We’re going to talk about savings accounts with banks. When is savings at a bank enough and when is it not enough?
We’ll be right back.
Rob Dalton: Welcome back, ladies and gentlemen. It’s “Wealth Strategies with Bryan Rigg.”
My name is Rob Dalton. I’m here, along for the ride, with our wealth professor, Mr. Bryan Rigg. Good morning, Bryan.
Bryan Rigg: Hey, good morning.
Rob: Nice to have you with us.
Bryan: Good to be here.
Rob: Did you get a fresh cup of coffee during the break? I sure hope so.
Bryan: I did.
Rob: God, I did, too. I love a little cream and a little sugar. It’s the perfect way to start my show.
Now that we’re halfway through, I wanted to bring up something. Our next segment’s going to be about savings accounts.
Most of us have something in savings, whether it’s $500, or several thousand dollars, or maybe more. It’s tucked away in a bank somewhere, be it Bank of America, or Chase, or Wells Fargo. We’ve got money sitting in a savings account.
I’m going to ask Bryan a few questions about bank savings accounts. Yes, he’s a financial advisor and he wants to help you make money, but it’s nice to have money in a quick access.
When your money’s in a bank, Bryan, what is it, no matter how much we put in there, what are the banks doing with the money we give them?
Bryan: After the debacle of the 1929 crash and people lost their whole life savings, FDR’s administration with the New Deal, then FDIC insurance. There is federally backed insurance for the banks for a certain amount of money that you put in.
You’re insured as an individual up to $250,000.
Rob: Penny for penny.
Bryan: Penny for penny. If you’re married then it can be up to half a million. That means if the bank goes bankrupt the government will come in and reimburse you for that amount.
If you have more than that in a bank, it’s exposed if the bank goes bankrupt. The good news is we haven’t had any of the requirements of supporting FDIC insurance since FDR put it in place. Banks are more disciplined with their cash and there’s a lot more regulation going on.
Getting to your question, what do banks do once you put money in? Most people are not putting half a million or a quarter million in their savings accounts, in money markets, unless they’re looking at CDs and just wanting to preserve their capital.
You get a little bit of interest rate. Nowadays it’s between 0.25 and 0.5, really horrible.
Rob: Gosh, less than one percent. Significantly less than one percent.
Bryan: It’s horrible. Here in a second after I answer your question, I’ll tell you why if you’re not above three percent you’re actually going in negative territory with purchasing power. Your money is becoming weaker and weaker every year.
What happens with banks, when you put money in there they then, in turn, take your money and they loan it out to businesses. They’re charging those businesses 9, 10, 11 percent. They’re pocketing all the profit.
They’re doing the due diligence, of course. They’re looking at these companies. They’re trying to help business owners grow their businesses. They’re earning a profit by putting all your money at risk, basically.
Rob: Ah, yes. It’s protected but, in a way, they’re putting it at risk.
Bryan: You have full access to that cash. You can write checks on it. You know where it is. You get your statements and the money is there. It’s not going away.
You put $100,000 in. The bank takes that, loans it out to another entity. They’re getting 8, 9, 10 percent on it.
Rob: As a loan.
Bryan: They’re getting $10,000 from a loan value on per year. They’re pocketing most of that and giving you a few hundred dollars in interest. The bank is benefiting from your cash.
For people to get that type of return out there in the market you had to go into private equity. You’ve got to expose your own money to different enterprises. Most people are very poor at doing so.
It’s a secure place to put your money. That’s what the bank is doing. Most people don’t know that’s what the banks are actually doing with your money.
Rob: That’s why I was asking. I was curious. I give them my money. I put some in my own 401. I put the rest in. I’ve gotten more than I need as a safety cushion. I’m wondering, what are they doing with all that money I’ve just given to them?
Bryan: This is one thing at Rigg Wealth Management that I think is very important for people to know. There is an instrument, there’s an asset class, called senior loans that you can get involved with. We have several companies that we go to that there’s a lot of diversification over hundreds and hundreds of companies.
Rob: It’s called the senior loans?
Bryan: Senior loans. It’s not going into senior retirements.
Rob: Not senior citizens. All right.
Bryan: No, no. A lot of people hear that and they think, “Are these loans only for seniors, AARP?”
Rob: The baby boomer generation. That’s what we’re trained to think, but that’s not the case.
Bryan: You want to think of senior loans as let’s go back to high school. Freshman, sophomore, junior, senior. Senior is top of the debt structure. That’s one way you want to think about it. You don’t want to think about it like senior citizens.
Rob: Senior class.
Bryan: A lot of people think, “Man, why are you going into senior living and whatnot?” No.
The top of this chart are senior loans that you’re getting. That’s what, basically, the banks are doing. They’re taking your money and they’re going out. It’s the top of the debt structure because a lot of times you’re giving loans to companies that they have one‑to‑one leverage against the assets of those companies.
They’ll help Toys R Us or they’ll help Exxon or they’ll help Home Depot and say, “If you default on these loans we get your property. We’re going to make sure we’re going to be able to pay back our loans so we can pay back the people who have our savings accounts and pay ourselves.”
Rob: The people who are invested.
Bryan: What I tell people is that if they have a lot of extra cash in the bank, like you just were mentioning. I have a lot more money than I need. I’m having it in the savings account.
Rob: I’ve got more than my safety cushion so I can give you some.
Bryan: I like to keep $5,000 or $10,000 but I have another 30, 40, or 100,000 thousand. What do I do?
I say, “Hey, you’ve already encountered the same amount of risk by going to this bank and letting them do the loans than if you were to go into a senior loan fund. There’s some more volatility. You’ve got up and down movement. You don’t have the FDIC insurance but you have exposure to the same market that the bank has exposure to.”
Rob: Directly themselves.
Bryan: Rightly said. Instead of you getting 0.25 or 0.5, some of these funds are doing 8, 9 percent. If you’re going to expose your money to that risk anyway why not go directly to a senior loan fund and go directly to these companies and bypass the bank.
Your money is still under the same amount of risk. You just now see it more. There might be some volatility of the fund going up five percent or down five percent, but you’re going to have that cash flow coming in. You’re going to reap the rewards of all of that risk.
That’s what you can do with the money. If you’ve already felt comfortable having it in a bank for the last two years but you don’t know what to do with this extra amount that you know you’re not going to touch anytime soon…
Rob: Do what they do.
Bryan: Do what they do.
Rob: We’re talking about savings accounts and when enough is enough and what to do with what you don’t need. Again, our wealth professor, Bryan Rigg, runs Rigg Wealth Management.
He’s talking about senior loans. Not senior citizens but senior class, like sophomore, junior, seniors. These are the better loans. It’s something you work with at Wealth Management.
Bryan: Yes. You have different asset classes. You have muni bonds, which are tax free bonds. Usually, it’s a municipality, sewage plants, utilities, and tollways. When you go up and down the tollway, a muni bond built that. You’re paying it off. It’s tax free.
You’ve got aggregate bonds, unsecured debt. Exxon will say, “Hey, we’ll pay you five percent a year on whatever you give us. That’s an unsecured bond.” [inaudible 7:43] senior loans.
Senior loans are usually one‑to‑one leveraged with the company. They’re the top of the debt structure. By way of illustration, when GM went bankrupt, 2008…
Rob: I remember.
Bryan: Yeah. A lot of people lost everything in the equity market when they had stock. If they had aggregate bonds, unsecured debt, they got about 15, 16, 20 percent of their principle back. If they were in senior loans with GM, they got 100 percent of their principle back.
Rob: Wow. See, you never hear about that stuff because we don’t get those memos.
Bryan: Most people aren’t educated.
Rob: We’re not on the senior market mailing list. [laughs]
Bryan: A lot of people, when you talk about savings accounts and so on, first of all they don’t even know that the bank is doing that with their money. Second of all, when you sit down with most people and you talk about stocks and bonds they don’t know the difference between those two.
Just having an elementary understanding of how assets work, stocks and bonds and senior loans, and then understanding how that can generate income for you makes all the difference when you’re devising a plan for your portfolio.
Rob: That’s why we would come to you because you’re tapped into those particular things because it’s what you do. We don’t have to speak your language. You can speak your language for us. We get to log in and look at the fruits of your labor.
Bryan: Most often people just want to know that somebody’s minding the shop and that they’re giving you a general feel of what can happen. Here again, I’ll give another example.
If you have $100,000 that you haven’t got deployed and you go to somebody and say, “Whether that is up to $103,000 or down to $97,000, if I can get you around six or seven thousand cash flow per year will you be OK with that volatility?”
Rob: Is it better than the bank giving me?
Rob: Then I’m in. Yes. [laughs]
Bryan: Then you have to educate the people on risk. We take risk all the time. People don’t understand that concept, risk.
Rob: But we’re rewarded, too.
Rob: With the risk comes the reward.
Bryan: With more time you’re going to be rewarded more.
Rob: That’s a big element.
I want to circle back around to something you mentioned while we have a few minutes left before the next break. You mentioned percentage rates. I know 0.25 up to 0.5 percentage return on savings accounts.
You were mentioning sometimes you’re actually losing money. Take a moment to describe that.
Bryan: People do not think about this with their money. This is something I think is a huge mistake. If you are not keeping up with inflation, and historically inflation has been around three percent. The consumer price index tracks this, for those of you who are academic and want to look this up. Put the CPI into the Internet, Google, and you’ll see all the information you need to understand it.
Basically, three percent is historically the rate of inflation.
If your money’s not earning at least three percent per year you’re going into the negative because we know that it takes more money today to buy a gallon of milk than it did 30 years ago. That’s an example of inflation.
If your $100,000 that’s in a bank right now is getting 0.5 percent then one way of looking at that is that you are actually earning ‑2.5 percent per year.
Rob: Based on the inflation and the economy changing every year.
Bryan: It’s called purchasing power. That’s what we do here at Rigg Wealth Management. We help people get educated on that and say, “You’ve got to get your money deployed. If you want to keep ahead of the curve and make sure your money is just as strong today or just as strong five years from now as it is today, then you’ve got to make sure you keep up above that three percent hurdle rate.
Rob: That makes sense. That does make sense because you’ve got to stay ahead of…what you can buy for $10,000 today isn’t what you can buy for $10,000 in 10 years from now.
Bryan: Here’s another example I like to give my clients with understanding purchasing power. If I had a dollar in 1926 and I buried it and I brought it back out today, it’s still a dollar. If I put that dollar into the market in 1926 it is worth $2,500 today.
Just in the last 90 years if you don’t get your money working you can see with that example that you have lost out on an awful lot of purchasing power.
Rob: I’ve got to dig mine up then because I’m in trouble.
Bryan: They’re all over the place.
Rob: [laughs] I’ve got metal lock boxes stored in different places. I’ve got to get that money out.
It’s OK to put money in savings in a bank. You’re not saying that’s a bad thing. You can just do more with it.
Bryan: Absolutely. We have an incredible society where we have banks that we can trust. We have the rule of law. We know that what we put there is there tomorrow.
Rob: Yes. Also with the FDIC.
Again, Bryan Rigg. Bryan, your company?
Bryan: It’s Rigg Wealth Management. You can visit us on our web page which is RiggWealthManagement, Rigg with two Gs, R‑I‑G‑G, WealthManagement.com.
Also feel free to call us at 972‑383‑1210. We’d love to get your feedback. You can also send us emails through the web page. Love to hear from you.
Rob: It’s not just handling the money but you educate your clients, as well.
Bryan: Love educating them because that makes them a very good partner in building out a portfolio.
Rob: Stick around after the break. What happens if you need cash quick? We can help you with that, too.
We’ll be right back.
Rob Dalton: Ladies and gentlemen, welcome back. Right here on WRR, it’s “Wealth Strategies with Bryan Rigg.” My name is Rob Dalton. I’m glad to have you back for this segment. With me is our special guest and host, Bryan Rigg.
Bryan Rigg: Good to be here. Thanks for having me.
Rob: Bryan, glad to have you. We know a lot about you from the introduction before the show, but tell me a little bit about yourself. I understand you’re also an author, but start with who you are. Remind us.
Bryan: I was born and bred here, locally, in Arlington, Texas. Went off to Yale University for my undergrad, and did my graduate work at Cambridge University, a master’s and PhD there. A retired Marine officer.
During my graduate work, even as a Marine Corp officer, I was able to do a lot of research, as well. I laid the foundation for four books that I’ve written on World War II and the Holocaust. I used to be a professor at SMU and American Military University.
My first book’s called “Hitler’s Jewish Soldiers” I went around in the ’90s, and I interviewed 500 men of Jewish descent who served in the German military during World War II, and then I documented thousands. Many of them were high‑ranking officers who Hitler actually Aryanized.
Aryanized is a weird term. He actually declared them of German blood and allowed them to be part of body politic that he was trying to create there in the Third Reich.
I did a 10‑year study of this. This was the foundation of my PhD, and then it ballooned into my first book, Hitler’s Jewish Soldiers.
It tells us an awful lot about some of the enduring questions of the Third Reich. Who could have known about the Holocaust, what could you do if you did know anything, how did the racial politics of the Third Reich get out of control, and what does this tell us, ultimately, about the human condition, and how can we prevent this in the future?
I really an awful lot on that in my early years.
Rob: What was the title of that book again? For those that are taking notes.
Bryan: Hitler’s Jewish Soldiers. It was my first book. I’ve written three other books about the Third Reich since then, and I’m working on a fifth one that will be coming out, probably in a year, about a Marine Corp Medal of Honor recipient from Iwo Jima.
I still keep my foot in the academic world. It helps to give me perspective. Also, it helps me stay tuned to history, because history tells us so much about what’s really going to be going on in the future, and that helps me from an investing point of view.
Rob: It does tend to repeat itself.
Bryan: I love the phrase from Mark Twain that, “History may not repeat itself, but it definitely rhymes.”
Rob: [laughs] You’ve got to love Mark Twain.
Bryan: I love him. Love him.
Rob: It even works today.
Bryan: That’s my background with the writing.
Rob: You’ve done books. You’re fascinated by history. It all ties in, not just on the academia level, but in investing.
Bryan: Yes, absolutely. When you study the history of mankind, it is remarkable that we in America have the luxury to worry about investing, worry about money.
Rob: Boy, you’re right. We think of Third World countries and the poverty, but there are a lot of countries that go check to check, or not even check to check.
Bryan: If you lined up 30 people in a row right now, and you thought of them as father, grandfather, great‑grandfather, great‑great‑grandfather.
Rob: Like a family tree?
Bryan: Yeah, a family tree. Let’s say you’re a white Caucasian male, and you go back to William the Conqueror with those 30 generations, 1066, and you look at what people experienced along the way, from 1066, today.
The vast majority of all your grandparents were worrying about food, and how not to die, and how not to be killed off by diseases, and marauders, and so on. In the last couple of generations we’ve had this luxury of worrying about money.
Because it’s such a new phenomenon, a lot of people don’t do a very good job of planning for their future and taking care of their nest egg and their money.
Rob: It’s not something innate. It’s not organic for us to think that way.
Bryan: No, it’s really a new puzzle in the fabric of mankind, of looking at, “OK, I have to be responsible for my retirement. I have to put together a financial plan. I have this money that’s coming in during my lifetime. What do I do to put enough away to decide to make sure that I’m taken care of when I can’t work anymore?”
Rob: That’s a great point, Bryan, because sometimes we don’t know what we’re doing. Now that you say it, and put it in those terms historically and chronologically, it’s OK to not feel comfortable with it, because it’s not something we do every day.
It’s not born and bred in us to plan for our retirement, because we are accustomed to just surviving, which is why we get the check, cash it, spend it. [laughs] Then get the next check, cash it, because, going back to the days of old, that’s all we did. We got our 10 rubles, and we survived on it.
Bryan: Quite frankly, we also have the benefit of long life. Our longer life than most of our ancestors.
When you go back a thousand years, I ask people, “What do you think killed ancient man more than anything else?” People talk about disease, warfare. No, it’s abscessed teeth, dental hygiene. You get abscessed teeth, poison to the head, you’re dead.
When you look at the average lifespan of somebody in the Middle Ages in Europe, you’re looking at 25 or 30 years of age. They didn’t have time to plan, because they were dead.
Rob: I’ve lived twice as long as they did.
Bryan: For the average male in America right now, it’s at 76.4 average years of life. We’re living 30, 40 years, on average, longer than most of our grandfathers.
In this new phenomenon the last couple of generations that we’re living longer and that we’re more responsible for our financial health, there is more burden on our shoulders to make a financial plan and stick to it. Most people don’t do it.
Rob: It’s so stressful. It really is so stressful, because you do your bank account every day. You deposit your checks, and then money in, money out, and then there’s not much left.
You don’t want to worry about it. There’s a phrase I like to use. You can’t take time to plan for retirement. You have to make time to plan for retirement. That’s where people can go to Rig Wealth Management for help.
Bryan: Absolutely. I like to bring the pedagogic foundation I have of how to teach people things, how to go over complex concepts and make them simple, and sit down and help people develop a plan.
It seems like, in America today, at least, two of the things that are so important to our lives we study the least in high school and college. That’s about relationships ‑‑ 50 percent divorce rate. We’re not doing a good job there ‑‑ and then putting together a financial plan.
When you look at the research out there, 50 percent of all people who retire today have 50 percent less than what they need. Not than what they want.
These two areas of life need much more dedication in high school and college of being studied and looked at, so later on you’re not at a loss. Most people are at a loss. They don’t have a financial plan. As a result, they get scared about it, and they avoid it.
Rob: They do, they just walk away. You’re mentioning the communication is the one element, and financial planning is the other element. Here we are, on WRR, communicating about financial planning. We’re trying to solve those at the same time.
Bryan: I encourage all of those of you who are listening right now, if you don’t have a plan, or if you don’t understand your plan, please come talk to us.
Rob: Or somebody.
Bryan: Or somebody. Go.
Rob: Somebody you trust. Somebody you know. A parent. A word of mouth thing. It doesn’t have to be Rigg Wealth Management, but do something, because doing nothing is a decision to do nothing.
Bryan: It’s the worst plan out there.
Rob: Boy, it is.
Bryan: It is the worst plan possible, and we see it all the time. Prince just died, and he died intestate, without a will. There was no plan.
We see it on the high level, people who should be doing it, and then people, in general, usually avoid it, because they don’t understand it. We can help with that understanding.
Rob: It’s intimidating. Knowledge is power, and if you don’t know, you don’t know what you don’t know. Asking questions and listening to our show every Saturday, it will help.
Bryan: Hopefully, it will help.
Rob: Even if you’re just picking up notes and educating yourself, that’s all you need. Bryan, phones might be busy, but what’s your phone number?
Bryan: 972‑383‑1210. Please feel free to call.
Rob: Folks, thanks. It’s Bryan Rigg, our wealth professor, with Rigg Wealth Management. We’ll be back after this commercial break.
Don’t miss it. We’re keeping it simple, and we’re here for you every Saturday. Thank you.
Rob Dalton: Howdy ho, welcome back. It’s Rigg Wealth Management. Our guest is, of course, Bryan Rigg, our wealth professor with Rigg Wealth Management and then this show, “Wealth Strategies with Bryan Rigg.”
I’m happy to have you back. We’re wrapping up the hour here but we wanted to get in something which has happened to a few people I know, and we know, and probably someone you know.
What happens if you need access to cash because, let’s say you get laid off? A friend of mine just, Thursday, heard there were going to be layoffs and she did not expect her to be one of them but she was going home at 4:00 on a Thursday.
She’d gotten laid off. She’s OK with a small severance but we don’t know how long she’s going to be out of work. She was asking me, “What do I do? Where do I go?” I instantly thought of Bryan because of our regular conversations.
My question is going to be, for you, Bryan, what if I need access to the cash that I’ve given you? Let me start with if I am laid off, or if it’s another…let’s say I’m out of work with a long term illness. Working with you and Rigg Wealth Management, how quickly can I access my principle?
Bryan Rigg: Before I answer that question, I want to put out there, very quickly, we like to talk about emergency fund.
Rob: That’s a great definition. Emergency fund.
Bryan: Emergency fund. If you are a single person. One thing here at Rigg Wealth Management, we like to sit down with our clients and get them to be thinking about this, really put it in the forefront of their brain housing group and consciously devise a plan.
Is if you were single you want to have enough in savings to support you for six months. If you are married, each one of you, you want to look at it for three months. That’s the general rule of thumb.
Rob: Like a double income.
Bryan: Yeah, double income. Basically, you want to put away for this eventuality. All of a sudden, if you get laid off and you didn’t see it coming, you may get a little bit of a severance package but what’s going to ensure that you’ve got at least six months to recalibrate, go interview, get another job, make sure you’re taken care of.
Rob: And not be so stressed because you don’t have a job. You don’t have an income, and you’ve got bills still coming in. You’ve got…Yeah, I can see where having that emergency fund is really going to help
Bryan: A lot of people say, “What does that actually look like?” Let’s say you’re earning $5,000 per month right now with your salary and you get laid off. You want to have roughly $30,000 put away.
Rob: Tucked away.
Bryan: That’s going to support you in case that happens. That’s your emergency fund if you’re single.
Rob: Just had a thought. If I’ve got that $30,000 and you’re helping me with that, it’s making me money while I’m not touching it.
Bryan: That is correct.
Rob: OK, good. I’m just making sure. It’s not like in a savings account. It’s actually making money so I’ll always have that $30,000.
Rob: OK, I’ve got it.
Bryan: We can link that up to your bank account and have an electronic funds transfer. We can wire it at any given time.
Rob: In increments that I need.
Bryan: In increments that you need. $500, and so on. How do you get access to your funds, you’re saying, if you have something like this? If you have bank accounts, obviously you’ve got access to those. We have brokerage accounts. You have access to those.
If you don’t have money you can look at doing a reverse mortgage on your home if you have a home. You can go into credit card debt, which is something I don’t recommend but a lot of people are doing it. Then, if you have a really bad time going to a relative, trying to get a loan, [inaudible 3:32] .
You want to be in a position that you know what it would take if you lost your job and you were away from the workforce for a while. You want to make sure that you’re taken care of for at least six months. That’s the emergency fund.
How you get access to the funds? If you have money with us you have full access. You can get to them anytime. If you have a brokerage account with us, your money’s not locked up unless it’s in some private equity.
Sometimes private equity, when you’ve gone into something that is not publicly traded on the stock exchange, then your money might be locked up because you put that money away and it’s building a senior citizen facility or it’s building self‑storage.
Rob: It’s active.
Bryan: It’s active. It’s been deployed. They’re building it. You’ve got to make sure it gets built to be able start paying you back. You’re maybe a few years out. It’s hard to get that. You may have a forced sale. Then you would be selling pennies on the dollar. You don’t want to do that.
Rob: In general, my principle is always with you.
Rob: For the most part.
Bryan: If we have an equity portfolio, the principle you put in may be down. It may be up, depending on the market. But hopefully, the more years you’re with me we have that principle there and then we have growth.
Rob: If I need access to my money, even if I don’t have an emergency fund set up yet, the money I give you is still mine to pull out for the most part.
Bryan: Usually when you do trades…let’s say you have to have some liquidity all of a sudden. Let’s say we have $100,000. We’ll use that example again, all into index funds equities. You need $5,000 tomorrow.
I can go in there with my traders, my custodian, and we can liquidate $5,000 and do same day settlement and then have that money in a few hours, definitely have it by tomorrow and get it to you.
Sometimes, if there’s not a critical need to have it within 24 hours then I can put in the trades. It’s called T+3. It’s trade plus three days. Then it’s fully liquid. You can have access.
Rob: You can have it in three or four days.
Bryan: You have full control. A lot of people don’t know this, but you can call up. Let’s say you don’t like your advisor at Morgan Stanley or you don’t like your advisor at Edward Jones. You can call up those firms that they’re custodians and remove them from your accounts. You can have full control of your accounts.
Rob: Wow. I didn’t even know that.
You work with me, but you also work for me.
Rob: That’s good. I like knowing that. What about, are there issues…? Thinking of what I primarily invest in, is my 401k. Getting money out on a quick basis, not the emergency fund but out of investment portfolios. Are there any tax issues with that?
Bryan: A 401k, and this is…I think the law should have been written differently but I’m not a lawyer. I think this is unfair.
Rob: You’re allowed to your opinion. [laughs]
Bryan: If somebody loses their job, unless they have put away an emergency fund and all they have is that 401k.
Rob: That’s it, right. All the eggs in one basket.
Bryan: All the eggs in one basket. I strongly encourage people to not go into their 401k if they can prevent it because if they’re not 59.5 when they can start drawing out of their 401k or any retirement fund. That’s a traditional IRA, or a 401k, or a SEP. You’re going to be taxed and penalized to use that money.
Basically, you want to be thinking about if you’re at a tax rate around 30 percent the penalty is another 30. It’s a 40 percent hit that you’re going to be taking on the money. If you need $10,000 you’re going to have to pull out about $20,000 to pay your penalty and your taxes to use that money. You can get access to that.
I’ve had many clients that have had problems that they do access their retirements.
Rob: That severe where they need to.
Bryan: It’s that severe. You have 60 days, if you do invade it, to then replenish it and then it’s no harm, no foul by the IRS. After that 60 days, it’s done. Now, you can pull out for disability. You can pull out for first time home. You can pull out for education for a kid.
You do have abilities. There are occasions where you can invade your retirement account and help with the burden of life. If you lose your job and you’re unemployed…
Rob: That’s different.
Bryan: You can’t. You can’t go and invade it. The reason why the government has done that is they have seen if people had easy access to the retirement funds that they put away, most people wouldn’t put away.
Rob: I like going back, just for a moment, to tap what we were talking in a previous segment about savings accounts. You can help someone set up that emergency fund because even if it sits there for 12 years, it’s making money. It’s still available without any tax repercussions.
At Rigg Wealth Management, you can help them do that.
Bryan: Yes. We can set up that emergency fund. A lot of times I actually call the fund the emergency fund. The tax consequences, let’s say we put $10,000 in 10 years ago and now let’s say it’s worth $20,000. If they need to access those funds there’s still some tax consequences.
When we liquidate some of the holdings there might be some long term capital gains. On that $10,000 that was gained on the original $10,000 investment, they may have to pay around 20 percent long term capital gains to be able to utilize those funds.
If you pull out $2,000, you may have to pay $200 on the taxes of that.
Rob: But you know all this. It’s what you do. That’s what you can help us with.
Rob: It’s been great talking with you today. It’s been so much fun and so educational. I hope those of you out there listening have picked up on something, too. Bryan, he’s willing to help you. He’s willing to educate you. He’s willing to work for you.
You don’t have to go to Rigg Wealth Management but he’d be happy to talk to you and answer a few questions. It’s been really insightful. We’ve talked about savings accounts. We’ve talked about liquidity options. Now, if you need to access to your cash for life or whatever.
Bryan, I’ve learned a lot today. Thank you.
Bryan: Thanks for having me.
Rob: Our wealth professor has been with us all day, or the past hour today. Are you coming back next week? I want to do this again next week.
Rob: Same time?
Bryan: Yeah. Absolutely.
Rob: Right here, same station.
Rob: Great. Let’s do it again next week. I’m Rob Dalton. Thanks for joining us.
Once again, Bryan Rigg. Bryan, what’s your phone number?
Bryan: It’s (972) 383‑1210. You can see us on our website, Rigg Wealth Management, Rigg with two Gs.
Rob: Thanks everybody. Have a great day.
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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. Rebalancing can entail transaction costs and tax consequences that should be considered when determining a rebalancing strategy.