Table of Contents

• Introduction
• How We Get Clients
• Onboarding Process for New Clients
• Why Schwab?
• The 60/40 Portfolio Discussion
• Market Declines and Concerns
• Bonds vs. Stocks Relationship
• Client Case Study: Panic Selling
• Conclusion

Introduction

Madison: Hello everyone, and welcome to the second episode of Not Just Numbers, Honest Conversations with a Financial Advisor and Lawyer. I am Madison Demora, and I am here with Mike Garry. Mike is the founder and CEO of Yardley Wealth Management, a firm he founded in 2006. We are located right outside of Philadelphia in Yardley, Pennsylvania, which is in Bucks County. So, Mike, in episode one, we spoke a little bit about the firm, and I was wondering if we could speak a little more so our listeners can understand a bit more about us.

Mike: Maddie, I think that’s a terrific idea. Where would you like to begin?

Madison: Well, how do you get clients?

How We Get Clients

Mike: So, we get most of our clients from referrals and our website. So people who find their way to our website are either searching for a financial advisor or trying to get the answer to a specific question. Because education is part of our mission. We have lots of blogs and videos answering different questions. We also get referrals from current clients and from some CPAs and other people who know us in the community.

Madison: So when someone reaches out to you because they think they might want to become a client, what’s the process?

Onboarding Process for New Clients

Mike: So Karen, our COO, has an initial call to make sure that they understand how we work. She also tries to find out the sort of help they’re looking for and what their expectations are. As most people who have come to us have never worked with a financial advisor before, this is all to make sure that we might be a good fit. And if that appears to be the case, we invite them in to meet or have a video call for a further discussion to see if it makes sense for us to work together.

Madison: So if someone decides to become a client, what comes next?

Mike: Well, once someone signs up, we start with the financial planning process. It’s a seven step, fairly detailed process, but the basic idea is that we help them gather the necessary information. We talk with them to find out what is important to them and what questions they have in their lives. We analyze all that information, and we come back with some ideas of what we think makes sense and answers to their specific questions. Then we discuss all of this with them so they can decide what they’d like to do. One thing about financial planning, Maddie, is that there are all sorts of ways of being successful, and everyone’s different, so people are much more successful when they buy into an idea. So when there are alternate courses of action available, we lay out the pros and cons, and then help the clients work through the decision so they can make the best decision for them. While we are going through the planning process, at the same time, we’re helping the clients open accounts at Schwab and start transferring their accounts. So by the time the plan is ready, we can implement the investment part of the plan. We actually had a call last night with clients who came on in the fall, and their initial plan was to use some of their assets first in their retirement, and then they get Social Security later. And they talked about it a lot over the holidays. They wanted to have a call, and they’re more comfortable with him starting Social Security and her starting her pension when they retire later this year. And maybe that’s not the optimal plan, but it’s still a really good plan, and they’re comfortable with it, and it’s going to work out just fine for them. So I encourage them to talk about that and come up with something that they’re happy with. And so if in the finance classroom, that plan is not quite as good as the initial plan, it’s still plenty good, and they’ll be happy with it. So we’re going to move to that plan. So that’s the way that the financial planning can work. I lay out the pros and cons of the different options, and we do try to help clients stick with ones that we think will be successful. But once we get to that part, it’s really like, what is comfortable, what seems to make sense, and what they’ll decide to do.

Madison: Okay, so you said Schwab earlier. So why Schwab? What do they have to do with it?

Why Schwab?

Mike: Sure. That’s a great question, Maddie. We are an independent advisory firm. We aren’t a bank, brokerage firm, or insurance company, and we’re not an agent or broker of any of those. So we custody our clients’ money and assets at independent custodians. For years, we used Schwab and TD Ameritrade, but now Schwab is in the process of buying TD. So we’re only opening accounts at Schwab. Sometime later this year, probably by Labor Day, our TD Ameritrade clients will be clients at Schwab. And so there’s no sense opening a new TD account and then having them be a Schwab account a week later. So we don’t work for Schwab. We don’t pay them anything, and they don’t pay us anything. But we both benefit from the relationship. We could log in and see and trade on all of our clients accounts through Schwab’s institutional platform. So we don’t need 150 logins and Schwab benefits because we open accounts with them all the time. So there’s a pretty good benefit to that.

Madison: Yeah. Benefits on both parts. So, are we ready to get into today’s topic of discussion?

The 60/40 Portfolio Discussion

Mike: I believe we are.

Madison: The 60/40 portfolio allocation. I’m hearing conflicting stories. Is it bulletproof or dead?

Mike: Not to sound too lawyerly qualifying every statement, Maddie, but it’s neither. It’s just a portfolio allocation that is good for a lot of people for retirement. And it had a bad year in 2022.

Madison: Is that unusual?

Mike: Yes, it’s unusual, but it’s not unprecedented, and it doesn’t mean people should necessarily change what they’re doing.

Madison: So we listened to a podcast from the Wall Street Journal after your wife Rachel recommended it. It was called ‘The Historically Bad Year to Retire’. And then that’s what led us to an article in the paper, which we read called ‘The Classic 60/40 Investment Strategy Falls Apart’. Which will both be linked in the description below. Why did Rachel tell you to listen to this podcast?

Mike: Well, Rachel told me to listen to the podcast because she thought it made our industry look bad, and she thought the advice in the articles would lead people to the wrong conclusions. Rachel isn’t an advisor, but she’s been married to one for a long time, so she knows when something doesn’t sound right.

Madison: So I listened to the podcast. I read the article. The journalists, in both sound a lot more alarmed than you do.

Market Declines and Concerns

Mike: Sure. Well, they need to generate clicks and likes and subscribers, right? I need to do what’s best for our clients. That usually doesn’t involve making rash statements or changing course because of temporary changes in the markets.

Madison: So, do you want to talk about the article and the podcast?

Mike: I sure do. Both pieces were published in November 2022, and at the time, the stock and bond markets were both down between 10% and 20%, which is unusual. Usually, when stocks are down, bonds either break even or go up as people sell stocks and buy bonds. 2022 was different because the Federal Reserve was raising interest rates to try to cool down inflation. When interest rates rise, the value of existing bonds goes down. In my opinion, that is the story in a nutshell.

Madison: So what issues do you take with what the Wall Street Journal reporter said?

Mike: A lot of them, actually. Let’s go through them. First, they act as if this was a bulletproof way to retire and as if 2022 was totally unprecedented. No one ever said the 60/40 portfolio allocation was bulletproof. Just a lot of people think that it provides a good risk reward trade off for people heading into retirement. Last year was highly unusual in the way that bonds went down. But the 60/40 portfolio has had many worse declines, even when bonds did well because stocks have done so much worse. Also, they say the year was unprecedented. But that’s a little bit of a fluke because the decline started the first week of January at the start of a new calendar year. A worse time for 60/40, like from September of 2008 through February of 2009, didn’t happen on a calendar year basis, but the decline was far steeper and in a much shorter period of time. In 2008 and 2009, bonds did go up a little bit, but stocks did twice as bad as they did in 2022. So the 60/40 portfolio did much worse. No one came out with podcasts and articles saying 60/40 was dead then. Like a big part. So in 2008 and 2009, that was like a five or six month period that was really bad. Like stocks went down by half, like 50%. And so even if Bonds went up a little, still people portfolios were down way more than they were in 2022. But it didn’t happen actually on a calendar year. So parts of 2008 were good before it went down and parts of 2009 were good after it started to come back up. And so like 2008 and 2009 both had better calendar year returns for the 60/40 portfolio. But that’s just a statistical fluke of the calendar, that the decline started the first week of January last year. So, sorry for my little rant there. One of the things is that a lot of things make so much more sense if you think about it and give context. And one of my problems I have with a lot of the news sources is that the context is missing. So you don’t know. And people who aren’t involved in financial planning and giving advice about investments and planning don’t necessarily know the context. So I’m afraid that people will make poor decisions because they don’t have all the information, and so I’ll stop.

Madison: No, that makes sense. So is there anything else the reporter said that bothered you?

Mike: Yes. Well, first they said it stopped working, as in the markets are down this year, and now this strategy doesn’t work anymore, like forever. When stocks go down a lot, they usually don’t throw in the towel buying stocks. They usually report that you should hold on for a recovery. I don’t understand why this is any different.

Bonds vs. Stocks Relationship

Madison: So what do you think of this line from the podcast from Akane Otani: “You’re looking at a really scary situation where millions of aging Americans are potentially looking at a very difficult retirement”.

Mike: Look, stocks and bonds go down sometimes. It’s just the way it works. Is this scarier than other times when just the stock market went down but went down much worse? I don’t think so. March of 2020 was a scary time because that was totally different and that we were dealing with a pandemic for the first time in a long time. But even then, the scary time in the markets is only a few months. Now that stocks and bonds have both come down, the expected future returns from them are higher. So while account values may be lower, there is a higher likelihood that the returns will be better in the future.

Madison: So what do you think about their comments about stocks and bonds having an inverse relationship?

Mike: Other than the fact it isn’t true most of the time? Yes. In times of market stress, usually high quality bonds go up as stocks go down. And that’s a distinction they didn’t talk about either. High quality, so government bonds, not necessarily corporate bonds, or munis and junk bonds definitely don’t go up in times of market stress. Sometimes they get trashed, but most times the markets aren’t stressed. And both stocks and bonds provide positive returns. Bonds have positive returns more often than stocks. Stock returns are higher and more variable. Stocks go down every few new years. It’s normal. It’s how it works.

Client Case Study: Panic Selling

Madison: So is there anything else you want to discuss?

Mike: The most important part, they interviewed a woman who was around retirement age. She said she wanted to retire, but didn’t because her account went down so much. She said she hired an investment advisor who put her in a 60/40 portfolio. When things went down, she said she called them. She said she was worried, wanted to take part of her funds out and put it in the money market. They talked her out of it. But in April, after seeing her account fall and fall, she decided to pull her money out entirely. When pressed, she didn’t want to say how much she lost, but that it was 30%.

Madison: Wow, that’s bad.

Mike: Yes, many parts of the story are bad. I’m not sure which is the worst. First, they never asked her exactly how she was invested, and that’s important. For one thing, the main stock and bond markets that usually make up a 60/40 portfolio weren’t down 30% last year. So I don’t know exactly how her portfolio was down that much. Doesn’t make any sense. Either it wasn’t down as much as she thinks, which could easily be the case, or she was invested in riskier stocks than broad market indices, underwear riskier bonds. The so called fang stocks and Tesla were all down much more than the market. It seems likely that she didn’t have what we’d think of as a 60/40 portfolio. We don’t know and we don’t know why. Both are very important. If you’re going to talk about somebody’s portfolio, you can’t just say it’s the 60/40 portfolio, oh, and then, by the way, it did twice as bad as other 60/40 portfolios and not say, like, how she’s invested. That makes no sense. All right. And finally, this is the most important part. Maddie, you’ve been here for a year now. Thank you for staying this long. And you’re in your early 20s. What are you supposed to do if the market goes down?

Madison: Hold on to it for long term.

Mike: Exactly. This woman sold in April, meaning the markets hadn’t even been down for four months and she had already spoken at least twice to her investment advisor and sold out in a panic. Either she should never have been invested that way because she couldn’t tolerate the risk, or something else was going on in her life to cause her to panic. Maybe it was impending retirement or something else. We found over the years that some people just shouldn’t be invested in anything except guaranteed investments like CDs and bank accounts and government bonds. Any kind of fluctuation causes them to panic. For most people, they can handle some ups and downs. Some people can handle giant ups and downs. But even people who have, like, a normal or moderate risk tolerance, sometimes it really bothers them when something else is causing stress in their lives. So when someone calls me in a panic or shoots me an email asking about the market, first thing I do is ask them how they are and what’s going on in their lives. There’s almost always something else going on.

Madison: That’s very interesting. So is there anything else you want to talk about today, Mike?

Conclusion

Mike: No, I think that you wrapped up really well.

Madison: All right. Of course. Thank you, Mike. Thank you for all the information. So for more information on YWM, you can visit our website at yardleywealth.net, you can also follow us on socials at Yardley Wealth Management. This podcast has been produced by Madison Demora and Mike Garry with technical and artistic help from Poe Productions.