The X’s & O’s

Investing your money can be difficult. There are many different options to choose from that have individual pros and cons to each one. Today we will be discussing 5 important key points that can help you become a successful investor. Tune in to see if you are on the right path for success.

Listen to the podcast episode…

The Hosts:

Brent Pasqua, Matthew Theal and Joshua Winterswyk




Matthew Theal: Welcome to the Retirement Plan Playbook. I’m Matthew Theal, a certified financial planner with RPA Wealth Management. I’m joined by a president of RPA Wealth Management, Brent Pasqua. Brent, what’s going on today?

Brent Pasqua: Hey, everyone. How are you doing, Matthew?

Matthew Theal: I’m doing great, can’t complain. I’m full of baguettes and wine from my trip to France. Also with us today is Josh Winterswyk. Josh, what’s going on today?

Josh Winterswyk: Hi, Matt. I’m doing well. You look very relaxed after your vacation.

Matthew Theal: Yeah, and I’m speaking French, too.

Josh Winterswyk: Very nice.

Matthew Theal: So Josh, what’s on deck for today’s show?

Josh Winterswyk: Today we’re going to talk about our five keys to becoming a successful investor. And before we get started off with talking about those five keys, we just want to start with a quick question. Brent, when did you start investing?

Brent Pasqua: I started investing… Well, Matthew, what years were you in New York?

Matthew Theal: From 2008 to 2011.

Brent Pasqua: I think I started investing somewhere around 2008 or ’09, and I made one of those mistakes that we always talk about. I asked my friend Matthew, who was living in New York, what stocks I should buy, and he gave me a couple of stock picks. Then what I did was I took a magazine, I think it was one of the money magazines that are out there, and I looked up the list of mutual funds and I just found the ones with the highest returns, and I just bought a few of those. Big mistake listening to a friend and buying some mutual funds. But that’s how I got started.

Josh Winterswyk: Do you remember what stock picks they were?

Brent Pasqua: I do. I remember a couple of them. We should probably leave them off, but one of them was a foreign bank, also a stock.

Josh Winterswyk: Okay.

Brent Pasqua: But Matt had all the stock tips because he was in New York. He was closer to Wall Street. So I figured I should trust him on what he thought, what were the good stocks.

Josh Winterswyk: Right. Right.

Matthew Theal: I thought one of the stock tips was really good, wasn’t it?

Brent Pasqua: Which one was it, Matt?

Matthew Theal: I guess we can say. Didn’t you buy Under Armour?

Brent Pasqua: I did and Under Armour was good, but I think I held it for too long because then it became very bad again.

Matthew Theal: Yeah, that’s a problem, right? You didn’t know when to exit.

Brent Pasqua: Nobody does. I thought at the time I was a financial planner and I knew how to invest, but then I was taking investment stock tips from a guy writing in New York for a financial magazine.

Josh Winterswyk: Then a few months later you asked him what to do with them and he didn’t respond.

Matthew Theal: You were taking the stock advice from some random dude over the internet.

Brent Pasqua: Matt and I would communicate through one of the chat things online…

Josh Winterswyk: Is that AIM?

Brent Pasqua: Yeah, we were talking on AIM and getting stock tips, but I guess he left out the part on when to sell. I’m just now finding that out, so if I still have it, should I sell it now?

Matthew Theal: I don’t know, man. That’s the thing with stock tips, right? Everyone want to tell you when to buy, but no one tells you when to actually sell the position.

Josh Winterswyk: Or what to do with that position.

Matthew Theal: Yeah, that’s true. That’s very true.

Josh Winterswyk: Matt, what about you? When did you start investing?

Matthew Theal: I started investing in 2003 but it was with fake money. I was in high school at the time. My dad told me that he would give me a couple thousand dollars to invest myself if I could prove to him I could do it in a fake trading account. I did it and he was decently impressed, so he signed the custodial forms and I opened my own account at the age of 16, that was 2004. I didn’t do very well, I can tell you the first two stocks I purchased, one was Nortel and the other was Intel. Once I ended up losing a couple hundred dollars, I got scared and sold them.

Matthew Theal: Then I ended up doing that for probably the next six or seven years, just buying stocks. Some of them would make money, some of them wouldn’t. And I’d get scared when they’d drop and I’d sell them, which is a really bad strategy. Which is kind of in a way what led us to start creating our investment philosophy, which we’ll go over in a little bit, but Josh, when did you start?

Josh Winterswyk: I started in college, so I think it was my junior year at Cal State San Bernardino, what should have been 2008, great time to start investing and being in markets. But my first account too is fake, our finance teacher made us open up a fake account. We had to do a presentation on a stock and they made us buy them and I remember mine was Chipotle kind of funny that we eat Chipotle in this office all the time, but my first stock purchase was Chipotle.

Josh Winterswyk: I did my whole project on that and then eventually when I started to work at City Group, I opened up my first real account and started trading and didn’t know what I was doing at all, kind of the strategy of magazines and stock tips from friends or family. Lost some money doing that that way, and it’s funny that you say that that’s kind of led us to the investment philosophy we’ve had today.

Brent Pasqua: Not only their research supports our philosophy, but also the experience.

Josh Winterswyk: The real life experience that…

Brent Pasqua: It took us several years to figure out what⁠—

Matthew Theal: Can I make two points?

Josh Winterswyk: Yeah.

Matthew Theal: Did you say you purchased Chipotle and did a project on them?

Josh Winterswyk: Yeah, but the Chipotle stock was the first one that I purchased in the fake account. I didn’t make any money off of it because at that time it did really, really well.

Matthew Theal: Right. You know, he makes fun of us always for getting Chipotle. I feel like he secretly loves Chipotle.

Brent Pasqua: No, no.

Josh Winterswyk: And if he doesn’t have a lunch that day for some reason he just always ends up going back to Chipotle.

Brent Pasqua: No, we talked about it.

Matthew Theal: His Mexican McDonald’s.

Josh Winterswyk: You sold me. We don’t want to have decision fatigue, so Chipotle is just the easiest, relatively healthy option when I don’t bring lunch.

Matthew Theal: Point two, I did one of those stock trading contests or courses in college and I actually won that.

Josh Winterswyk: Did you?

Matthew Theal: Yeah, I smoked the whole class.

Josh Winterswyk: Nice.

Matthew Theal: It was pretty fun.

Brent Pasqua: Because at that point you had already been investing for several years.

Matthew Theal: Yeah.

Brent Pasqua: That’s neat.

Matthew Theal: And it was a really good market this 2007 market, so it was very volatile and a lot of stuff was going down and up.

Josh Winterswyk: Had your class continued through 2008 and 2009 you probably would have lost that competition, I’m assuming.

Matthew Theal: Yeah, potentially. But I was pretty bearish in 2009, actually I didn’t end up losing any money.

Josh Winterswyk: That’s interesting.

Matthew Theal: Because of where I was, I was in cash.

Brent Pasqua: He was just telling me to buy stocks from New York.

Josh Winterswyk: As I was finishing college too, it’s funny because the market started to crash and you had finance teachers ripping out theories in textbooks like, “This doesn’t apply anymore.” That was an interesting time to be trading stocks and them trying to explain what was going on at that time. That was really interesting, in 2008 2009 while I was finishing up college.

Matthew Theal: I think the moral of this intro is we could all agree that individually trading stocks is a bad idea.

Brent Pasqua: And don’t listen to your friend.

Josh Winterswyk: Or teachers.

Matthew Theal: And this is probably why we came up with our five keys to being a successful investor as our investment philosophy. Brent, what are the options to invest in when you’re going to invest?

Brent Pasqua: Some of the different things that you can invest into are savings accounts, savings accounts are generally liquid. They’re not really a real type of investment, but they are a way to invest your money or have some interest on it. You can invest in the CDs at the bank or certificates, deposits online, bonds, stocks, real estate, and of course, you can invest into commodities like gold, silver, oil, those types of things.

Matthew Theal: From a risk reward standpoint, the savings accounts and the CDs are essentially cash-like instruments. They’re safer and then as we go, bonds get a little bit more risky and then stocks, real estate, and then the most volatile or risky is going to be your commodities.

Matthew Theal: When we’re talking about creating a good globally diversified portfolio, we could use all of those, but for the most part we typically are just focused on bonds and stocks, which are usually purchased via mutual funds or ETFs. Josh, mutual funds definition, what are those?

Josh Winterswyk: I think it’s a good time to explain what a mutual fund, I know we mentioned them a lot on our previous podcasts, but never maybe give a really good definition of them. Mutual funds, what they do is they group securities like bonds or stocks together to give you more exposure. So more stocks, or more bonds and it makes it easier for the consumer to purchase. It could be a specific sector or all of the stocks in the US Stock Market, but it’s grouping stocks or bonds or even both of them together to make it easier for the consumer to get more exposure.

Matthew Theal: It’s essentially a bucket creating globally diversified portfolio. Brent, how many stocks can you put into mutual funds? What’s the number? Isn’t it around 14,000 or something like that? 10,000?

Brent Pasqua: Yeah, some high number like that.

Matthew Theal: And bond funds work the same exact way. There’s also exchange-traded funds, which are just like mutual funds except they trade via the stock exchanges, which is a little bit more complex and probably above today’s show, but just know when you hear mutual funds and ETFs, they’re basically pools of stocks or bonds. Pretty good?

Brent Pasqua: Yeah. Yeah, absolutely.

Matthew Theal: All right, we’re going to get into the five keys now. Josh, what’s our first key to being a successful investor?

Josh Winterswyk: Our first key when we’re talking about being a successful investor is going to be emotionally consistent or having emotion consistency. The one thing that I think about when we’re about staying emotionally consistent is staying disciplined through ups and downs in the market. That is something that we’ve already talked about. Matt, you had mentioned, “I saw the stock going down, I got nervous, I sold based off of emotion,” right? There’s nervousness, there’s fear, and then we deal with that when the market’s going up as well. When the market goes up we have a lot of optimism within the market, so our decisions sometimes aren’t based off of a certain philosophy or a certain strategy. It’s based more off of fear and many people struggle to separate their emotions from their investing strategies, especially when markets are going up and down.

Matthew Theal: Right, totally. What I’ve found that people do is they really don’t have a clear understanding and they think that when the market starts to drop the best strategy is to also sell. But that’s actually not true. One interesting fact that we know from historical research is that 25% of the time going out throughout history, the stock market actually falls. That means every one in four years we expect it to decline and it actually declined last year, right? In 2018 was a downer for the stock market.

Matthew Theal: The other thing that I kind of find unique is the ways investors psychology works. Brent, what’s your favorite store?

Brent Pasqua: Let’s just say for retail, Banana Republic.

Matthew Theal: All right, so Banana Republic was having a big sale. Would you run out of the store or would you go in there and purchase?

Brent Pasqua: That’s the only time I’ll even ever step foot into the store.

Matthew Theal: So in the stock market, people seem to do the opposite thing, right? Whenever stocks go down, they’re essentially on sale or cheaper than they were, but for some reason they run in panic.

Josh Winterswyk: It’s funny, I know we’ve been talking a lot about Rami, you like him to personal finance guy and he put it really well. I saw him on his Instagram page yesterday and he said, “You know, it’s not timing the market, it’s about the time in the market.” That’s just a really good summary of that knowing that we’re not trying to time the market or base it off of this emotion of going up and down. It’s understanding the time that you have to be in the market. I know that can overlap of those keys, but it just kind of stuck out in my head yesterday when I saw that.

Brent Pasqua: I think what helps create consistency with someone’s emotion and be less reactive is really having a plan and having an understanding of what the big picture is.

Brent Pasqua: If you’re planning for retirement or you’re transitioning to retirement, if you’ve sat with the advisor, you laid out a very detailed and thorough plan, you know what you’re going to need from your money, you know what your withdrawals are going to be, then it creates a little bit more of a calmness that if the market goes down, you have an understanding, you know that that’s going to happen. We know it happens 25% of the time at least, and so it’s not a big deal when market drops like it has over the last couple of weeks where it’s been pretty significant. We haven’t really had any phone calls. Nobody’s panicking because they really know that there’s a bigger picture and there’s a plan involved here.

Josh Winterswyk: When people do call, how do you manage that emotion?

Brent Pasqua: I always go back to their big picture so we could always reference in their plan this is their percentage of withdraws or this is what’s going on. Sometimes people just want to know what your thoughts are on the news. They don’t always want to be reactive, but it’s that reassurance that they sometimes need, but it’s so minimal. It is so minimal. But they do know that there’s a bigger picture. If they are in more of a panic then always going back through the plan is such a consistent way to help them.

Josh Winterswyk: I think that’s a great point that you made too about the media and the news because that can drive that emotion, right? We’re talking about being emotionally consistent, but you’re always looking at stock market news and their job is to sell views or clicks. What are they going to do? Sell you fear, right? Or optimism, the two things that we talked about. Do you have anything to add to emotional consistency, man?

Matthew Theal: Yeah, totally. I got an inside story on that. When I was working in New York, I was actually working for a financial media company and actually our best days when the company made the most money, it was when the stock market was going down because it was so easy to sell the fear headlines to essentially readers. So that’s all the news companies do, is they sell fear to people.

Josh Winterswyk: Yeah, that’s interesting.

Matthew Theal: Those optimistic days when the Dow’s up, 2%, thousand points and all the stocks are going crazy, no one’s clicking on anything. No one’s watching.

Josh Winterswyk: Right, and it doesn’t even look, if you put on CNBC and the market’s down and the whole screen is red and it’s flashing “Market drop 400 points,” and everything’s flashing and red and it’s causing me anxiety looking at the screen, like “I shouldn’t be doing something.” Why don’t they put it in blue or something?

Brent Pasqua: Or make it pink.

Josh Winterswyk: Yeah, everyone’s face looks concerned on the TV. How are we going to stay emotionally consistent when that’s where you’re getting your news from and it’s striking fear in you?

Matthew Theal: I can always tell that the stock market’s a little oversold when CNBC runs their special Markets in Turmoil and they usually put that on after Mad Money. It usually starts around 4:00 PM Pacific time, 7:00 PM Eastern time, and it’s special edition Markets in Turmoil. Then it’s that Kelly Evans and David Faber. It’s like, “Okay, bottom’s coming pretty soon.”

Josh Winterswyk: Very good. Anything else to add on emotional consistency?

Matthew Theal: I’m good.

Josh Winterswyk: Okay, so stay disciplined, right?

Matthew Theal: What’s the next one?

Josh Winterswyk: We have low costs. Brent, do you want to tackle low cost force?

Brent Pasqua: Yeah. Almost a majority of all investments in some form or fashion have a cost or expense on them. Depending on the investment, the expenses can range really from low to high and really everything in between. In general in life, the more cost or expense you pay for something, generally the better quality you’re going to get.

Brent Pasqua: Let’s say you’re at a hotel and you want to stay at a five star hotel, you’re going to pay a pretty good price to stay per night. You’re going to get what you pay for. Same thing happens with cars or food. You pay a little bit more for something, you’re going to get a little bit nicer quality, but that’s not true in investing. Investing is almost the exact opposite. Just because it has a higher cost doesn’t mean you’re going to get a better return and actually cost draws the return down. Cost is a big component of the overall returns.

Matthew Theal: Let’s put some numbers behind that. Great points, Brent. Let’s say your investment gained 10% but you paid a 2% fee on that investment. Well, what you’re left with at the end of the day in your pocket is 8%. That fee eats into your returns, so if you could keep the cost down, it’s going to be more going into your pocket at the end of the day. Josh, anything to add?

Josh Winterswyk: No. I think just a good example too related to travel, if you’ve found a cheaper ticket by shopping online for your plane ticket, and you paid 500 instead of 1,000 and that’s 500 more dollars you have to spend while you’re on your trip, right? We’re looking for that discount, but we’re keeping the airline experience the same. The investment experience is, let’s say the same, but you’re holding on to more of your money. Just trying to give an analogy to the savings.

Matthew Theal: Can I talk about a story about airline travel?

Brent Pasqua: Sure.

Matthew Theal: From my last trip, Haley and I, we bought the cheapest ticket on Air France. Don’t do that. This applies to others. There are so many screaming kids and for a 10 hour flight where we needed to be sleeping, it was miserable.

Josh Winterswyk: Okay, so maybe not Europe, maybe just to Vegas.

Brent Pasqua: Keep more money in your pocket, for sure. And one thing to be said also about cost is, in the past, and it still happens now, the cost in investment is how a lot of other people get paid. The insurance agent, the broker who sells a mutual fund, a fund manager, there’s a lot of people being paid off of that expense. Unless you like paying a lot of people money and not yourself, it’s probably not wise to invest into things that cost a lot of money.

Josh Winterswyk: Right. And Matt, why is that? Why have you seen consumers, clients pay more for investments? What’s the benefit to the client? Why are they still paying more for investments?

Matthew Theal: I think there’s a lack of education. A lot of times they don’t know what they’re paying. If you have a fund with a 2% fee, that doesn’t sound like that much, but if it’s 2% of $1 million portfolio, that’s some real money, that’s $20,000 a year.

Josh Winterswyk: But you can get a better ETF with 0.03% fee.

Matthew Theal: Right, so now we’re talking a hundred dollars.

Josh Winterswyk: Yeah, right now I think the average fund cost is 90 basis points or 0.90%, we’re seeing investment funds as low as, like Brent said, 0.03%, still a big gap. And I think that with the low cost as well is, people are being sold on pay these higher fees for better returns. But again, not relating it to not doing the research, behind are they actually leading to better returns?

Brent Pasqua: Yeah, and working with a fee-only advisor, the core part of working with the advisors, we’re trying to always drive cost down for the client to increase their return. Trades have become cheaper, funds have become cheaper. Everything has become so much cheaper. If you could drive and continue to drive the cost down just means more money in the client’s pocket.

Josh Winterswyk: How do people find out how much they’re paying in the investments?

Brent Pasqua: They could just simply Google the investments that they have and prospectuses pull up online, reports pull up online. Everything’s public now, so it’s pretty easy to do if you are interested in it.

Matthew Theal: If you Google the ticker symbol, you’re looking for a couple fees. The first fee, if it’s a mutual fund, you’re going to look at your load fee and then your expense ratio, that’s the percent and then you could do the math to figure out how much you’re paying in dollars and cents. Then on the ETF it’s just going to be the expense ratio.

Josh Winterswyk: Got it. So looking up the ticker symbol, that’s a symbol for the underlying fund or stock, like bank of America is BA.

Matthew Theal: BAC.

Josh Winterswyk: BAC. You’re looking at index fund, mutual fund, expense ratios, the percentage of the money invested that you’re paying in a fee.

Matthew Theal: Yeah, absolutely. ETFs, to get a good comparison, the most popular one is Spider S and P 500 shares, and the ticker symbol is S-P-Y, SPY. Compare that to maybe the mutual funds in your 401(k) or the mutual funds your broker’s offering and you could see the difference in cost.

Josh Winterswyk: Perfect. Perfect. Anything else on low cost guys?

Brent Pasqua: No. What’s the next one?

Josh Winterswyk: Stocks and bonds. Allocations, stocks and bonds. Matt, do you want to tackle our third key?

Matthew Theal: Yeah, I’ll take a shot at this. Stocks and bonds have a huge impact on the overall return of a portfolio. What most people do when they think about investing is they only think about the stock side because it’s the side that’s a little bit more interesting. But bonds play a huge role. What bonds do is they reduce the overall volatility of the portfolio, and that’s a very expensive word for saying that the portfolio will go down a little bit less. It has a huge impact on your return over time. Generally speaking, the higher stock percentage you have in a portfolio, the higher it’s going to go up, but the more it’s going to go down. And if you add bonds, it’ll reduce your upside, but also cap your downside more.

Josh Winterswyk: So sort of a volatility control.

Matthew Theal: Yeah, it’s a volatility control and it’s also kind of like a sleeping control too, right? Because if you’re afraid of volatility, just add bonds in your portfolio, then you could sleep at night.

Josh Winterswyk: Volatility meaning how high it goes up and how low it goes down and the movement in between.

Matthew Theal: Yeah, that’s a great definition of volatility.

Josh Winterswyk: It controls the variance too, of your outcome.

Matthew Theal: Sure.

Josh Winterswyk: Got it.

Brent Pasqua: Keeps the return in a certain box or window.

Matthew Theal: For most people, I think the biggest key takeaway here I always try and point to is most likely you don’t want to have 100% of your money in stock. You have some portion of bonds. If you have a lot of stock than you’re clearly very risk averse and you’re okay with the ups and downs swings. If you’re not, then you probably want to add more bonds to the portfolio. The downside is, like Brent was saying earlier, it can impact your plan because now you might need to save more to catch up for the loss upside.

Josh Winterswyk: Less return, you’re having to save more because you’re not getting as much interest or growth out of the portfolio.

Matthew Theal: Exactly.

Josh Winterswyk: Just depends on devising the right plan for you. I always relate bonds too to the defense in the portfolio. Like the offense defense strategy to where offense and defense is when we watch sports. I always think of the Patriots Atlanta Falcons game where the Falcons just lost all of their defense in the Superbowl when they were up, what was it, 28 to…?

Brent Pasqua: Like three or so.

Josh Winterswyk: 28 to 3 or something like that. Had tons of offense, second quarter had no defense. Ultimately they ended up losing the game, right? That’s how I relate it.

Matthew Theal: I agree. I remember seeing that this last Super Bowl, Patriots-Rams.

Josh Winterswyk: That’s another good example. Yeah, I like that one too.

Brent Pasqua: I think there are really two really key components in determining how much should be in stocks and how much should be in bonds for our clients, at least when we’re meeting with them. I think those two things are number one, where is a person comfortable with that volatility that we’re talking about, with that movement? That’s an easy conversation to have with a client. Once you really start asking good questions, the client will tell you what they’re comfortable with. But also number two, what is the financial plan say that their plan needs to sustain itself over the long term based on the stocks and bonds and returns and so forth and the withdrawals from their portfolios? I think those are two key components that can help you find where you should be stocked upon wise.

Matthew Theal: All right. Moving on, Josh, what is our next key or pillar number, I think we’re on number four, right now?

Josh Winterswyk: Yeah, we’re on number four. Fourth key is strategy. We can also call this our philosophy or strategy. I also like to call this your investment faith. What do you believe in for your investment experience? Every individual investor follows what I like to call the neighbor, or cocktail party strategy. We talked about that strategy early on when we were first investing, where I heard this stock was going a really, really outperform or this mutual fund that my neighbor told me about had the best growth last year. We know that in fact this is not an actual strategy, it’s actually a really good way to just lose some money.

Josh Winterswyk: What our strategy and our key is is to not only defining a strategy but sticking to it and using a smartly, globally diversified portfolio investment strategy. And again, we can save this to go even deeper in a further episode, but index-based passive is another word we use for this style of strategy and making sure that it is globally diversified and combining all of these keys along with low costs and sticking to that strategy going forward.

Matthew Theal: I liked that, Josh. Investing faith. I’m going to have to use that. I’m going to steal that from you.

Josh Winterswyk: You could use that, I allow you.

Matthew Theal: I think you’ve covered it well in my opinion. What’s important is understanding that what your strategy is is going to dictate your returns. Like Josh said, passive investing is an extremely good strategy for the majority of people. It’s going to keep the costs down and it’s going to really limit the mistakes and that’s what we’re trying to do.

Josh Winterswyk: Yeah, and I think it just has a better streamlined investment experience. Like focusing on things you can control, sticking to a strategy so you’re not guessing, there’s not forecasting involved and you’re relying on academic research with a more passive style strategy or philosophy to really just guide you through your investment experience. It also helps with that emotional consistency that we talked about in our first key, when you have that defined strategy. Brent, what do you think about strategy?

Brent Pasqua: Well, I’d like to think that a lot of people don’t take tips from their neighbor, but I think I made the biggest mistake of all, and I listened to what Matthew said through an AIM chat while he was in New York. I made that critical mistake right off the bat.

Josh Winterswyk: That was a tip from your neighbor.

Brent Pasqua: Yeah, that was that exact tip. Because for every one Apple there’s hundreds of failures of stocks. The neighbors usually aren’t correct.

Josh Winterswyk: Yeah, and I think we’ve talked about it before too. It’s like those experience of the stock pick or chasing mutual fund returns have led us to researching a better investment experience. What else is out there that we can, not only help our clients but even for ourselves? How can we achieve a better investment experience?

Brent Pasqua: I think the key, like you said, is have a strategy, understand your strategy and stick with a strategy and as long as there’s the academic research behind it, then the strategy will hopefully work.

Josh Winterswyk: Right, right. Matt, do you have anything else to add on strategy?

Matthew Theal: No, well put.

Josh Winterswyk: We’re going to move on to number five or our fifth key for successful investors. It’s rebalancing. Matt, do you want to tackle rebalancing?

Matthew Theal: Yeah. Rebalancing is an interesting one. Originally when we created this, I thought we should have left it off and just made four keys in a successful investor. The academic researcher somewhat mixed on rebalancing, in a way. But you guys heard that old market adage, right? “Buy low, sell high?”

Josh Winterswyk: Yes.

Matthew Theal: Not what everyone tries to do, but most people end up buying high and selling low. All of us here have done that before?

Josh Winterswyk: Yes.

Brent Pasqua: Right.

Matthew Theal: Rebalancing does the first one, you’re essentially buying low and selling high. Let’s pretend that you have a portfolio that’s 80% stocks, 20% bonds, and we’ve found that that portfolio is best for your financial plan to accomplish your goals. Well, over time we expect the stock portion of that portfolio to appreciate and so it’ll probably, it could get up to maybe 85% of your portfolio because stocks have gone higher, it’s made you money. Now your portfolio has 85% stock instead of 80.

Matthew Theal: By rebalancing we’d be selling stocks and taking that money and putting it into the bond side. So obviously if you’re at 85% stocks, your portfolio is at 15% bond. So by selling 5% of stock and putting yourself back down to 80% and putting it in the bond bucket, you’re selling high, which is something most investors fail to do.

Josh Winterswyk: So it’s like a natural way to sell high? Based off of your allocation and looking at that percentage.

Matthew Theal: Yeah, it’s a forced way to do it.

Josh Winterswyk: It’s a forced way. Maybe not natural, but a strategic way to be selling high.

Matthew Theal: Yeah, exactly.

Brent Pasqua: So it’s sort of like rebalancing your tires then. If you’re driving on one side of your car, your car’s pulling in one side of the cars, the tread running low on the tire. If you rebalance those tires and shift them around, you become balanced again.

Matthew Theal: Absolutely. That’s a great analogy, Brent.

Josh Winterswyk: I love that analogy for rebalance too. Because the longer you go without doing it, the more it could hurt your car or your portfolio, right? As well. You want to have a good strategy behind rebalancing.

Brent Pasqua: I know this because I have to always take my wife’s car in and I always make sure that they rebalance her tires.

Josh Winterswyk: She turns real hard or something?

Brent Pasqua: I think she hits those little center, little magnets in the street, so it wears the tread on one side. I think people tend to drive on one side of the lane versus the other.

Josh Winterswyk: Sure, sure, sure. She favors one side of the road than the other. My wife actually did that one time and popped her tire.

Brent Pasqua: Is that right?

Josh Winterswyk: It wasn’t a rebalance, it was a full tire replacement. She might get mad at me for telling that story.

Brent Pasqua: But obviously rebalancing is important, right?

Josh Winterswyk: Yeah, absolutely. And I think that just to touch on rebalancing too, depending on when you do it and depending on the account, it can potentially save money and taxes.

Matthew Theal: Yeah, absolutely. You could use it as a tax harvesting strategy as well.

Josh Winterswyk: Yeah. And just another thing that you can focus on, something we control is saving money on taxes and leading to a better investment experiences.

Brent Pasqua: What does tax harvesting mean?

Matthew Theal: That’s a great question, Brent. Sorry for not explaining that a little bit better. Tax harvesting is essentially a taxable account, so that would be non retirement accounts. You could sell the losing positions and rebuy other positions that are similar to them and create a tax loss and it will reduce your taxable income, thus reducing the amount of money you have to pay the government.

Brent Pasqua: It makes sense. That sounds like a smart strategy.

Josh Winterswyk: I’m always interested in that. Paying less taxes.

Matthew Theal: Most people. I’ve never met someone who wants to pay more in taxes.

Josh Winterswyk: Not yet.

Brent Pasqua: That’s true. I’m sure they’re out there.

Josh Winterswyk: Anything else on rebalancing?

Matthew Theal: I think we covered it. What are the five keys? Let’s go through them for everybody.

Josh Winterswyk: I’ll start with the first one since I covered that. Staying emotionally consistent. Brent, you had the next key?

Brent Pasqua: Yeah. The second one was low cost and keeping costs low. The third one was stocks and bonds.

Matthew Theal: The fourth was strategy.

Brent Pasqua: And the last one was rebalance.

Josh Winterswyk: Perfect.

Brent Pasqua: Rebalance those tires.

Josh Winterswyk: Yeah, rebalance the tires.

Matthew Theal: Balance those portfolios, people.

Josh Winterswyk: Both. Matt, how was your vacation?

Matthew Theal: You know, I didn’t know if we had time to go into it, it was great. We went to France and Switzerland. Switzerland’s okay. I didn’t like it as much as France, but it’s very adventurous. If you are into adventure vacations, Switzerland is perfect for you. Beautiful country. France is for people who love food and wine, which I happened to.

Josh Winterswyk: We know this.

Matthew Theal: So a big food guy here.

Josh Winterswyk: Food in Switzerland? Drinks in Switzerland? Are they good?

Matthew Theal: Switzerland is a weird country. I don’t know how many people know this, but half of it is German, a small portion is Italian and the the other half is French. I’m not a big fan of the German style foods. The food wasn’t that great over there. They’re very big on fatty cheeses and fatty meats. But once you get to the French speaking side, the food improved.

Brent Pasqua: Anybody who’s German listening to this is probably not going to call you and ask you for any advice, because you just told them you don’t like their food.

Matthew Theal: Well, that’s okay. They might not like my food.

Brent Pasqua: I don’t like your food. We can’t do anything with-

Josh Winterswyk: It’s funny because he’s so critical of the food, but he eats Chipotle once a week.

Matthew Theal: Maybe for my next lunch I won’t eat Chipotle.

Josh Winterswyk: Well, I like⁠—I doubt that.

Josh Winterswyk: So France, you really came back to the office with nothing but good things to say about France.

Matthew Theal: The first time I went, I had a really bad experience. I found the French to be a little bit rude, but this time it was much better. I do know a few sentences in French, so that really helps. But for the most part we were speaking English with almost everyone we came in contact with and that was really nice and refreshing. I guess what’s been happening over there is, in the late eighties early nineties in the school system, they made it mandatory to pick a second language and most of the French students started picking English. So basically anybody under 35 is speaking fluent English.

Josh Winterswyk: That’s actually nice to hear, and especially for anyone traveling to France. I’m just disappointed because you didn’t get to use your French lessons as much as maybe you thought.

Matthew Theal: No, we use it a little bit, conversation starters and stuff.

Josh Winterswyk: Very nice. Anything else on France?

Matthew Theal: No, that’s it. I think we’re ready to-

Josh Winterswyk: Favorite restaurant?

Matthew Theal: We ate at a new restaurant there that just got a new Michelin star and that was in Paris. But actually the best meal we had was at this small restaurant, called Emma restaurant and it was just an incredible meal and highly recommend it, anyone’s going out there.

Josh Winterswyk: Awesome. I think we’re all closed up today, right? Anything else? Thanks for sharing on your vacation. I think that if any of the listeners want to reach out to Matt for French wine region tips, are you opening up the phone lines for them?

Matthew Theal: Yeah, we are. If you want help planning your France or Switzerland trip, definitely email me. I’d love to give some tips.

Josh Winterswyk: Your itinerary looked pretty in depth.

Matthew Theal: Well, that’s not me, that’s my wife, but I’ll gladly steal her work. Anything left today?

Josh Winterswyk: No. Brent, you got anything for us?

Brent Pasqua: No, that’s it.

Josh Winterswyk: All right.

Matthew Theal: All right. Thank you for joining us on the Retirement Plan Playbook. If you go to you can check out our show notes and then if you leave a review on iTunes, we’d greatly appreciate it. Thank you and have a great day.

Brent Pasqua: Thank you.

Josh Winterswyk: Thank you.

Announcer: RPA Wealth Management is a state registered investment advisor located in Rancho Cucamonga, California. Registration does not imply a certain level of skill or training. RPA Wealth Management may only transact business in those States and jurisdictions in which it is registered or qualifies for an exemption or exclusion from registration requirements. A copy of RPA Wealth Management’s current disclosure statement Form ADV Part 1 containing RPA Wealth Management’s business operations, services and fees is available by accessing the SEC’s investment advisor public disclosure website. RPA Wealth Management will provide Form ADV Part 2A firm brochure, and 2B brochure supplement to interested parties upon request. Information provided on this podcast should not be construed as a solicitation or offer or recommendation to acquire or dispose of any investment or engage in any other transaction. RPA Wealth Management does not render or offer to render personal investment advice or financial planning advice through its podcast. RPA Wealth Management podcasts are intended for information and educational purposes only.