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Welcome to Actual Advisor Value, the behind the scenes look at how fiduciary financial advisors enrich baby boomers lives.

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I'm Taylor DeMars, a third generation financial advisor and certified financial planner, making a positive impact on hundreds of retirees.

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Join me to hear short, specific stories of how I address the issues baby boomers like you face, and consider, could this help me or someone I know? Today.

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I had a really interesting conversation with a long time client that I think a lot of retirees can identify with.

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The client I met with today. He's been a client for over a decade now, and he's in his mid not actually in his late eighties now.

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And all those refer to him as John, John came in today and was Curious.

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Take a deeper dive into his investment performance.

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So he wanted to know, Hey, why have things been.

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Up some years and down some years.

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And he was just looking for ways to optimize his portfolio from a growth and income standpoint.

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Which I'm totally happy to have those types of discussions.

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He had heard some things about high yield bonds, as well as preferred stocks.

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I think we had a healthy discussion around that, that when zoom now has some principles that apply to many retirees that are in his type of situation.

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And with his scenario, we have a mix of stocks and bonds, and the stocks are there to outpace inflation geared for long-term growth.

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While the. Bonds are there for stability.

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And providing some interests, but at least a peace of mind of knowing that the income that is being drawn on a monthly or annual basis and, or the RMDs required minimum distributions coming out are not at risk of.

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The market volatility that stocks or equities experience.

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So coming back, full circle, he was bringing up the idea of, Hey, Why don't we try some high yield bonds.

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And I was, emphasizing. Yeah, we can definitely.

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Explore that option, but there's a trifecta.

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That many retirees. Are trying to balance.

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And then in a certain priority, if I might add. In this order.

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Stability. Liquidity. And growth.

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I'll say that again. Stability.

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Liquidity and growth. And this doesn't applied to all people, of course.

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There's no perfect answer for everyone. But especially in his scenario, I said, John, You've got a decent amount of funds here.

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It doesn't mean that you can go to the casino, you don't have to worry about what's going to happen, you do have to be tactful about preserving these assets.

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So I was trying to say, look, first of all, our priority is to preserve the assets.

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It seems that you're bringing up another element, which is, Hey, how do I squeeze more drops out of this line? How do I give him more money out of this portfolio? By the way of high yield bonds? Insured.

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There's all. Wide variety or flavors as I like to call them of bonds, just like stocks or thousands of different stocks.

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some of them, many of us know off the top of our head. Most of them are more obscure companies that were not familiar with.

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Or other forms of equities and the same thing with bonds, lots of different types of bonds.

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One of them being high yield bonds.

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And if I were to draw on a spectrum here of where those fall within the more risky and less risky side of bonds, they definitely fit on the more risky side.

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Why Ohio bonds are.

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Named as such because they pay a higher interest rate.

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Then most other bonds. You have to ask why though? The reason is that they're being issued by companies or entities that are considered more risky.

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I think of it as your second cousin, twice removed, who's always begging for money and says, Hey, I'll pay you back.

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I'll pay you back. I'll pay you double whatever the bank We'll offer for an interest, why.

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They're desperate, right? They're not known to be very credit worthy.

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Maybe their credit score is low. And as such, in order to be able to borrow other people's money in order to convince you to lend them your money, your hard earned dollars, they have to offer it by higher interest rate.

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Now that goes contrary to the first principle is stability.

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I would hate to venture down John's point and say, yeah, let's put money in those high yield bonds.

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And then the issuer goes bankrupt could put is no longer.

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Answerable for those funds. And now trying to squeeze a few more drops out of the line, resulted in, you know what, I'm sorry, your money has gone.

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Ouch. Second priority for retirement assets is liquidity.

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So ensure I didn't feel competent at saying let's chase down the high yield bonds.

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We're invested as of this recording in. ETF bond fund.

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The healthy balance between the short term interest rate environment we are in gaining the highest interest rates.

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Available from the most credit worthy of companies and entities.

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As well as the access to our funds, that's the liquidity so that we can buy and sell at any given day or time.

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Within market trading hours and third.

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We're getting some growth. Now in priority, the first is stability.

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We're only picking the most credit with it worthy of borrowers.

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We're not risking it on Anything less than an a plus record.

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Second. We're looking for liquidity.

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We're at an ETF, an exchange traded fund.

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That allows us to buy and sell those funds.

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At any given time during market trading hours.

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We're not restricted by any sort of bond period that could be 3, 6, 9, 12 months, or even years at a time.

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Or only available to take out on a quarterly basis, for example, Nope.

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We want to be able to know that we can take the money out if there's an emergency car replacement, medical emergency roof replacement.

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What have you life happens? And I just, there've been too many times that clients have needed money out of unexpected basis.

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I want to be able to know that we have that backup.

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And in fact, our goal is to have clients assets, at least.

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Be able to hold four to six years worth of fixed income.

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So access to money is important.

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Third is growth. And so with the bonds that we have, we're in an abnormally high interest rate environment.

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We're taking advantage of that by the short term corporate bonds that our clients are lending money to.

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So they get the highest interest rates. Given those other criteria can offer.

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Can they get even more interest off of their bonds, to pick a different issue or a different type of bond? Of course.

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But it's a matter of how far are we willing to push that? Before we risk.

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Sacrificing the other two factors, again, stability, liquidity, and growth in that order.

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Then the other element that John brought up today was, Hey, what about those preferred shared.

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Of stock. Now in short for those that aren't familiar preferred shares of stock are a different type of well stock offering.

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Most doctor we were referenced today is common stock.

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Common stock has voting rights. And offers dividends.

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It's more of a traditional vanilla type of stock.

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Whereas preferred stock is a little more unique and short because if a company were to liquidate.

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Go bankrupt. For example. They get their money back after those who have loaned money to the company.

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So it would go. Lenders then preferred stock and then common stock.

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in that order. there are some other benefits, but there are also some cons some cons or you can't vote.

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Most of us don't really care about that in a very large company, but in John's case, I had a highlight look, these preferred shares stock, while they do offer sometimes a higher dividend rate.

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Let a common stock. They sometimes they have a fixed dividend payout rather than the variable dividend that is usually paid out by a common stock.

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But they also have liquidity restrictions. And not everyone is exactly alike, but as a whole, many of them have liquidity restrictions either a, because they won't let you sell for a number of months.

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Because they want you to give a little so you can get other benefits, but there are less traders and there are less buyers of those shares of stock.

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So if you think about it in terms of, Hey, if I wanted to.

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Sell a banana. There's lots of people out there who want to buy a banana.

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It's the most imported fruit in our country.

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Whereas, if you wanted to. By a pomelo.

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It's a more unique fruit now found very common in your local grocery store.

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There are less buyers, less sellers of them. So it's harder to get rid of the one.

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If you wanted to find one regarded to sell one, if you wanted to.

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And it's the same thing with preferred shares of stock. You don't have that ability to say, Hey.

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This company isn't going in the direction I want. The stock price is going down.

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I want to get rid of it. Guess what if that is the case? You're in a boatload of everybody else.

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That's in that same situation and you're going to have a hard time finding buyers.

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To take your preferred shares of stock. If there aren't that many people out there.

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Whereas common shares of stock. Like I said, it's more of the traditional and they're potentially thousands, hundreds of thousands or millions of shares of stock just like yours.

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So the chances are of you getting rid of that sock, if you need to, either because of a personal issue or because the.

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The economy is going down, the company is going down.

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You're going to have more options to get rid of that and thus have more liquidity.

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So coming full circle. I love entertaining options and ideas that clients bring up.

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And many times we act on them too. I presented these options in this feedback to John today, and he felt comfortable with our strategy.

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He feel comfortable with the type of stocks that we're owning and the types of bonds that we were owning.

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Which are subject to change from time to time. But as far as the classes of equities and the classes of bonds, those are the trade-offs that I think many retirees have to take into account is.

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Where do you feel your priorities are by way of stability? Liquidity and growth.

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Now you may have ample, Sources of income and different types of accounts in retirement that you may be able to take different priorities and different accounts.

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For example, a Roth IRA, maybe a more aggressive account.

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And you may be willing to have less bonds or no bonds inside of a Roth IRA while you have a more traditional 60% stocks and 40% bonds split inside of your IRA.

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Why would you do that? The IRA tends to be the first account that one draws their retirement income from.

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Filling up that income tax bracket to a certain extent.

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And then if they need more income or surprise income, they always have the Roth IRA as a backup, which given that it's used less frequently, it lends itself to take more risk given it will have a better chance of growth over the longterm.

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Now, every client situation is different and I can't make any promises as far as what works best for you.

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But that is generally an example of how you might shuffle those priorities of stability, liquidity, and growth.

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Thanks so much for listening. Have a great rest of your day.

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Past performances, no guarantee of future results, and the experiences shared in this podcast may not be representative of all clients as each individual's situation is unique.

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This podcast is for informational and entertainment purposes only.

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And should not be relied upon for making financial, legal, tax, or investment decisions.