Goal Setting

David: Well, it’s the first of the year again and for many of us that means its goal setting time. Now that’s great but as with most things in life, there is a right way and a wrong way to go about goal setting, on today’s show you’re going to learn all about the right way to set achievable financial and life goals for the coming year and beyond. It’s time to tune out the hype and focus on the facts, facts that matter to you the income generation. Let’s get started, get ready to separate reality from myth.

David: How does it affect the market? How does it affect the economy? Thanks to efficiencies and a new technology and a staff of veteran analyst and portfolio manager. Sound Income strategy tries to set new standards and bring institutional style investing to your portfolio. Hello everyone and welcome to the income generation, I’m David Scranton your host you know as a financial advisor one of the first pieces of advice that I give prospective clients is to set goals. As a business owner and a business coach, I also know that gold setting is the key to maintaining growth and success year after year. But I realize that most people don’t necessarily put in the time and effort it takes to make goal setting worthwhile, many pay lip service to the process then wonder why they always fall short of their goals. Now if that sounds at all familiar please don’t feel too badly, it probably just means that no one’s ever shared with you the secrets of successful goal setting. But that’s all about to change today so stick around. And joining me to share his own insights will be Mihir Desai with his new book The Wisdom of Finance, and later in the show, we welcome back Jeff Small author of the acclaimed new book Turning Financial Planning a right side up. But first, let’s jump right into the secrets of successful goal setting.

Tony Robbins: If you get yourself in a state of certainty that this is going to work and I’m going to find a way and if this doesn’t work, I will make the way. Then you tap a lot more potential and when you’re certain in your potential you take massive action and when you take massive action you really believe in something you get great results. When you get great results your brain goes, see I told you I was a stud, I told you this thing would work out. Now you’re even stronger, you tap more potential, take greater action, greater results that’s how you went from three hundred bucks in a week to twenty-five hundred in five days. To one hundred thousand in a month to a million bucks in a day, same thing with you.

David: That’s self-help superstar Tony Robbins talking about the magic of visualization. I shared that video with you because Tony, like many other highly successful people, is a true believer in the power of goal setting. But tapping into that power takes much more than just jotting down a short list of goals and hang it on the refrigerator every January. What it does take starts with just one word in the title of the video that I just shared and that is visualization, to put it another way, the people who are good at achieving their goals are those who have mentally lived their goals in advance, in their minds in sensory, specific fashion. Now, I realize some people can get a little bit cynical when it comes to the whole concept of mind over matter, they might associate it with things like mystics and hippies and astral projection. And trust me, I get that I’m a left brain numbers guy myself and so are the majority of financial advisors whom I coach. But just like Tony Robbins, Oprah Winfrey and hundreds of other extremely successful people whom I could name. I’ve learned firsthand that achievement starts with visualization and having the right mindset and when it comes to goal setting that means setting sensory-specific goals. Now, these are goals that you’ve not only identified but have also visualized and you’ve lived these goals in your mind, in advance, in sensory-specific fashion. Long before they’ve ever been achieved in real life and that means that you focused on them to the extent that you can see, feel, hear, taste and smell them. Now, when you take time to create your goals in a sensory-specific way you end up constantly moving toward them on both the conscious as well as an unconscious level. You trigger this thing in your brain called the reticular activating system which is the part of your brain that awakens the subconscious, most people take it for granted even though we experience it in little ways virtually every single day. So, for example, let’s say that you went out and bought a new car, let’s just say it happens to be a red Toyota Camry and while driving it the first hey you suddenly notice every other red Toyota Camry on the road. We’ve all had this kind of experience, haven’t we? It’s not that there weren’t that many cars just there on the road yesterday and the day before and the day before that it’s that buying your own red Camry triggered your reticular activating system. And now your subconscious mind is programmed to notice every other red Toyota Camry on the street. It’s the same principle when you set sensory-specific goals, you’re activating a mental device that unconsciously moves you toward them. Which helps you drive… it helps drive you to take the conscious actions necessary to achieve those goals, but the question becomes how do you go about doing that? What’s the process? Well, the first step is to simply make it a priority of yours set aside the time to do the right way, you need to take a full afternoon if possible. Because you’re going to be doing a lot of writing and go somewhere where you’re not going to be disturbed, where you can think creatively preferably a place that is inspirational for you. And start by writing down everything you want in life, everything you want to have, do and become I advice separating your goals into those three categories. For example, have goals you know maybe you want to buy a new car or a beach house, again, those are the have goals maybe a golfing trip to Pebble Beach or a fishing trip to the Florida Keys could be some of your do goals. Maybe you want to become financially independent. Once you’ve identified these goals it’s now time to visualize them and to live them in your mind in sensory-specific fashion. And to write down what it’s like, right as you’re visualizing and feeling and hearing and smelling your goals make it one stream of consciousness exercise. Because that’s what really focuses your unconscious mind, now naturally the have goals are probably the easiest to visualize and imagine with all your senses. You could even kind of sort of cheat by for example if you want to buy a car doing a test drive in that car and writing down everything about the experience. Writing down about the new car smell, the per of the engine, the trees streaking by your window, your excel orating, of course, not breaking the speed limit, alright. For your beach house, you might imagine sipping your morning coffee as you smell the salt air or what the cool sand feels like on your bare feet in the morning walk along the shore. And you could do some of these things by just going to open houses. So, they have goals are really easy in that regard, the do goals now they might be a little bit harder because most of the time we’re striving to do new things. Well, by definition if you haven’t yet had the experience it’s hard to lean on any kind of memory to help you, it’s not like you can test drive a trip to Italy or an African safari after all. It all has to come from the imagination and I realize that that’s going to be easier for some than it is for others, but all I can tell you is it’s worthwhile to make that effort. You know an example that I always use is of a man whom I know who’s do goal was to spend an entire month working at an African mission, to help move himself toward the goal subconsciously he wrote an entire fictional story about what it would be like. He created artificial characters describing every single detail of the experience now, you don’t necessarily have to go into that much detail of course, but to the greater extent that you can, the more effective this exercise will be. And it helps because you find that once you exercise that part of your brain, it gets easier believe me if you’re left brain like me it will get easier. The bottom line is he ended up achieving his goal in large part because he lived it in advance in his mind in a very sensory-specific way. And that helped his unconscious mind take actions that would move him toward it and you can have a similar challenge with your become goals, so it’s good to narrow them down to a moment in time. Where will you be and what will it feel like the first time that someone else congratulates you for achieving one of those become goals that you’ve always wanted? But we’ll talk about that just a bit more of these become goals a bit later in the show, and again if this sounds all a little bit too touchy-feely. I get that, I was skeptical myself before I started setting my own sensory-specific goals years and years ago and experienced the results for myself in my own life. And it made all the difference in the world, but there’s one more benefit to it that’s vitally important. You know we all know these days how easy it is at home to channel surf, right? Well, as baby boomers it’s funny because we actually grow up having to get off the sofa, walk across the room and change the channels manually. Now we all do it with the flip of a button on a remote control but here’s something that most people don’t realize, you can just as easily change channels in your brain. And frankly, you should when the program playing there isn’t moving you toward your goals and that is a common problem that people have that’s what creates what we call limiting beliefs. People don’t realize when they worry and suffer from things like anxiety, for example, that’s often because their brains are stuck on a channel playing their worst fears over and over again on a continuous loop. Sometimes they’re obsessing consciously about negative outcomes and sometimes it’s one hundred percent subconscious but either way, it’s self-defeating. The classic example is the salesman who shows up at your door and says you wouldn’t want to buy one of these, would you? Naturally, he’s just sabotaged his goal of making a sale but you know we’re all vulnerable at times to sabotaging our own goals in very much the same way. And it’s largely because our brains are stuck on the wrong channel, but we don’t even realize it and that’s why it’s important that after you’ve set your goals to revisit them every day to make sure your brain stay set to the right channel. Think of it as a favorite show that maybe you’ve D.V.R.ed or a mental D.V.D. that you pop in once a day, a D.V.D. of you experiencing your goal or your goals with all your senses as though it’s already happened. Now, the reason I feel so strongly about goal setting as a financial advisor should be pretty obvious, it’s simply a fact that most goals have a financial component. It’s hard to have, do, or become most of the things that we want in life and for always struggling and worrying over money. That’s a literal cost to most goals and often that’s the very thing that people consider to be their biggest obstacle, but money itself isn’t really motivating to most people. Think about it, pieces of green paper with pictures of deceased presidents, visualizing a big pile of this doesn’t really trigger your reticular activating system and start you moving unconsciously toward your goals. It’s one factor involved in your goals but it’s really the means to the end, the key is to visualize and imagine the end itself. To imagine all the things that you want to have, do or become in sensory-specific fashion, that’s one of the main things that separates people who achieve most of their goals from those who don’t. But there are some other important features to successful goal setting and we’ll talk about those in just a bit. Now that we’ve discussed just a little bit about the psychology of visualizing your goals, I’d like to show you this quick video to introduce our first guest, Mihir Desai.

Mihir: Well, I think recently finance has gotten a really bad rap and sometimes for good reasons and sometimes for bad reasons. So what the book tries to do is demystify finance so it becomes clear to people, I think we really need to educate people about finance. And the second thing we need to do is humanize finance, finances like some kind of very complex thing that’s out there and it’s really not. It’s actually really got really intuitive ideas that are really fantastic ideas, so what I want to do in the book is actually make it clear to people that finance ideas are actually easy. They’re accessible but also that we can humanize much more than has been the case recently.

David: Mihir Desai is a Harvard professor and is or next guest coming up and I can’t wait to ask him the pertinent questions related to goal setting and knowledge. Stay with us, we’ll be right back on the income generation. Well, as the saying goes a goal without a plan is just a wish and now that you’ve hopefully at least started to imagine your goals in sensory, specific fashion. And has started to program your unconscious mind, now, it’s time to consciously map your course and that’s a great way to think about it. Let me ask you how many of us drive to a place we’ve never been before without first punching the starting and end point in the words G.P.S.? And even before G.P.S. you probably used mapquest and before that just plain old street maps, the point is you need a map to guide you towards your goals as well and for most of us, our goals let’s face it. Our new destinations, places we’ve never been to before and odds are you’ll never get there without some type of map and creating the map begins exactly the same way by punching in your destination and you’re starting point. You’ve already identified your destination and visualized it and thought about it in sensory, specific fashion, the next question now is where am I today? Have you already put aside some savings for this goal or if it’s a trip blocked out the time for it on your calendar? From where you’re starting what are the key things that you need to acquire or accomplish in order to reach this destination? Identify them and write them down, then answer this question what is my timeframe for ideally achieving this goal? Give yourself a target date for the goal, don’t just say this year or by the end of the year or sometime soon, pin it down, once you’ve identified this starting point and the end target date. Now, ask yourself this important question please be brutally honest with the answer, is my goal realistic? There’s nothing wrong with having ambitious goals but if you determine that your goal will require you to raise a million dollars or become a piano virtuoso within the next six months. It’s probably not that realistic and there’s at least one more important question you should ask when mapping these goals, which is, who can help me? That can mean help in the form of moral support, coaching, teaching or yes financial planning for that matter, and again the reason I feel so strongly about this topic is that there is a financial component to virtually every goal. Sometimes it can be the most important component and if you are not mathematically inclined or feel like you stand a better chance of reaching your goals with somebody professional guiding you. Then go ahead and get that professional help, reach out to a qualified financial adviser, set up a meeting once you have your map and you programmed yourself both consciously and unconsciously to reach your destination. Now, at least you’re heading in the right direction, you’re on your way but the question then becomes what if you should take a wrong turn at some point? You know it does happen which is why it’s so important to track your progress toward these goals along the way. You know we already talked about the importance of revisiting your goals mentally every day to make sure that your brain stays on the right channel. In addition, to the mental benefit, this is also a good practice because it reminds you continually as you track your progress continually of what those goals are and why you’re doing what you’re doing to work toward them. Strategically, financially the question becomes are you moving in the right direction? Are you on track to achieve your goal within the timeframe that you’ve set? If not then what steps can you take to get back on track? Can your coach, can your mentor, can your life partner, could your financial adviser help? Now let’s bring in Mihir Desai, he’s a Harvard professor and an award-winning teacher at the Harvard Business School and Harvard Law School, he teaches finance, tax law, and entrepreneurship. His latest book The Wisdom of finance takes the very complex world of finance and using literature explains many of the more complicated aspects of finance in a readable, relatable way. And because it is a new year we’re talking about goal setting on today’s show. So, the question becomes first and foremost Mihir, first of all, welcome to the show.

Mihir: Thanks so much, it’s great to be here.

David: You believe that financial literacy is important as I do but tell our viewers in your own words why financial literacy is so important to you.

Mihir: Well, as you pointed out finance is an important component of all goals almost all goals in our lives and so, the key thing to kind of question is whether we really have the financial understanding that we think we do? You know what I observe in my classroom with very, very bright people is that people are still really intimidated by finance. And a lot of people are intimidated in finance because frankly, you know a lot of people in finance like to intimidate people and so you know one of the things that I think we really need is to be empowered. By understanding the underlined ideas of finance because if we’re not, we’re going to kind of get hoodwinked or you know kind of bullied into doing something we don’t necessarily really want to do. So…

David: What makes you different though Mihir, compared to most people who teach this stuff is that you don’t teach all numbers in facts, you like to talk about relatable stories, use metaphors and things like that. And I know you have many great stories, let’s use your leverage as an example, you know give us a great story about how people can think of leverage. So they can get a better feel for where it benefits them and where it hurts them.

Mihir: Sure. So you know leverage is such an important idea in finance and you know it can be kind of intimidating to people. People make you know two big mistakes with leverage, one is they don’t understand that it can be a very powerful good force in your life. It allows you to do things you wouldn’t be able to do otherwise and then they often don’t take it seriously enough when they make too many commitments. So if you think about a play like the Merchant of Venice or a pledge of other plays that are kind of about debt and leverage, their normally talking about debt. You owe me money, I owe you money but really what they’re talking about is commitments and the power of commitments and in that play which you really see is that commitments are like a metaphor for debt. Debt is a really, really powerful commitment you made to somebody, and like many commitments in life, if you kind of fulfill it and you’re able to come through with it, it’s fantastic. You make commitments to people in your life, you get access to whole new things, you make a commitment to a lender you can live in a home. You wouldn’t be able to live in in a while otherwise, you get to buy an education, you wouldn’t be able to live…have otherwise. So that link between leverage, which is a financial concept and commitment which is something that we do emotionally. And with people, all the time makes it clear that leverage is actually a pretty human idea that actually master some basic human intuitions.

David: Yeah, and there’s a lot of people that are commitment phobic but still have a lot of debt so it’s still so counterintuitive but what you say makes a lot of sense, how about diversification? I know you have stories for diversification like that, what will be the best metaphor there to help people?

Mihir: Well, what’s interesting is that diversification has been around for two or three millennia and people been talking about it from the Book of Ecclesiastes to Talmud. It’s always been this idea of, I got to break up my portfolio and how to be split up so there’s a lot of great examples. It goes back in history to shipping routes, where people would unbundle all their cargo and do different shipping routes. But the one I like the best is this novel from the last century where a woman is kind of talking about how risky it is to pick a husband. And it’s a risk management problem, right? Like we always have and she basically says you know if only I could marry ten men, then everything would be better and she’s joking of course, but what she’s getting at is… if you can take a choice and split it up then that’s really a powerful way to manage risk. And that’s true with shipping cargo, that’s true with you know portfolios of stocks, it’s just true with everything and she kind of had that intuition wave (unclear 21:33) modern financial period. (Unclear 21:34) I can break up my choices and split them up then it’s a really, really powerful thing.

David: Diversification of husbands, I get it okay. You know it’s funny because…

Mihir: Because that’s really what works for people, actually.

David: And this you know, it makes so much sense but one of the problems as you say financial planning tends to get a very bad rap and sometimes that pushes people away from learning some of the things. Why is that so? Why does it have a bad reputation and how… why does, how does that affect people adversely?

Mihir: Well, I think that affects people adversely because then they tend to ignore it and they tend to kind of put it off, right? So instead of dealing with it they kind of just like I don’t want to deal with that stuff and as you know well David that’s a recipe for disaster. You’ve got to deal with these issues because too many Americans kind of grow up and then they find themselves in retirement woefully underprepared. So the real bad cost of being put off by financial planning is you’ve got to do it and everyone has to do it and you can do it in different ways. But you’ve got to think ahead and if you don’t think then you’re going to have a problem, you can do that with an advisor or elsewhere. But, however you do it you’ve got to do it and the part in the book is to say the way to make sure you do it is to make sure that those ideas don’t intimidate you. So when a financial advisor talks about diversification or talks about options or talks about leverage you should be able to understand that and have the confidence to question that person. As opposed to feeling a little bit intimidated which is a real cost.

David: So, for example, (unclear 22:58) people who have you know say they’re bad with math if a financial adviser approaches them all mathematically, that’s how they’re going to feel about it. Which makes sense Mihir we need to leave it there, thank you so much for being with us today on the show and everybody please remember, his book The Wisdom of finance. We’ll be right back with the income generation.

Miranda Khan: Hello, I’m Miranda Khan and this is your Newsmax finance, news update let’s take a look at some of the stories that move the markets this week. Economic analyst Larry Kudlow predicts the Trump administration will tackle infrastructure, but only after it gets a budget passed.

Larry Kudlow: Trump administration wants to increase defense spending, the Democrats do not. They’ll be also big issues about so-called smaller entitlements, food stamps, disability, welfare type things that they’re too generous and their giving incentives not to work. That’s something the president would like to tackle.

Miranda Khan: Kudlow says the budget intersects with the infrastructure plan because you’re talking about spending. Amazon and Google sharply cut prices for their virtual assistant speakers during the holiday shopping season, analysts say they likely lost a few dollars per unit over that season. Meanwhile, Apple failed to ship its three hundred and forty-nine dollars home Pod speaker in two thousand and seventeen as planned but says the device will go on sale early this year. Did you rack up shopping debt over the holidays? Don’t feel so bad, you’re not alone according to magnify money’s annual post-holiday survey, Americans racked up an average of more than one thousand dollars in debt this year. That’s a five percent increase from last year.

David: First, I’m sure that many of you have already taken steps on your own at some point to improve your process of setting and achieving goals and I think that that’s wonderful. Tony Robbins, who we saw before, we talked about earlier has many great books and videos available on the topic and I highly recommend them. They are also some commonly shared basic goal setting tips that you can read up on and use in conjunction with the sensory-specific tips we’ve shared here today, for example, remember the acronym smart. Which helps you remember to set goals that are specific, that are measurable, attainable, relevant and also time specific. The point is there is some overlap when it comes to some of the most proven techniques and process fees for effective goal setting, if you’re pro-actively educating yourself about the topic it means you’re already on the right path. Why? Because you’re mentally focused and motivated. Here to talk more about goal setting and much more than that is my good friend Jeff Small. Jeff lives and works here in Florida and has over thirty years’ experience as the financial advisor, he’s a highly thought after speaker. Who can be seen and heard regularly on shows like Fox Business and Bloomberg Radio and his new book is called Turning Financial planning right side up. Jeff was with us on the income generation just a few weeks back and we’re happy he can join us again. Jeff, welcome and Happy New Year.

Jeff: Happy New Year, David. It’s great to be here.

David: So, you know what have you covered in your book about goal setting? Have you approached that at all or is that kind of a new topic for us here today on television?

Jeff: Well, I think that the goal of the book really is centered around a lot of the things you’ve discussed today in your show. And that is, we really want to find a way if our retirement goal or retirement plan is consistent with meeting the stress test of having a successful retirement during that retired cycle.

David: Okay. Now, Jeff one of the reasons that I wanted to have you here today is because you know we had as you heard just a moment ago, a Harvard professor on here talking about some great things to consider when it comes to goal setting. And learning the basics about financial literacy, but you know let’s face it your… you don’t work for a university. You’re sitting here in the saddle every single day, you’re meeting with clients every single day, real people like members of our income generation that are watching the show. So I’m sure you have a bunch of tales of your own of things that happen with people that have maybe set goals improperly or not understood some financial basics and it’s gotten in their way.

Jeff: Well there’s no doubt that financial literacy is very important so the Harvard professor was exactly right about that and that’s very intimidating, but I’ve got a couple of different stories I can share with you Dave if you’d like to hear them.

David: Yeah, you know so I’d like to start if we can with something that has to do with income. You know I talk a lot on the show and you hear it all the time about how when you get to that certain age where you’re close to retirement and most people that are in the… People, every part of the income generation they forget that it’s no longer necessarily about getting total return, they forget that there’s two components to return. There’s income and there’s growth and as you get closer to retirement you focus less on the G. the growth component and more on the I and I can imagine you’ve got lots of stories. Where people have made the mistake of not making that transition quickly enough can you share?

Jeff: Well it’s a really hard transition for folks because when you’ve been saving your whole life as they say leopards don’t change their spots. But very recently I’ve been telling the story a lot, I recently took on a very large client an excess of ten million dollars in his portfolio. And I asked him specifically point blank, can… if I tripled your money would your lifestyle change and he said no, and I said well if you lost half of it would your lifestyle change? And he said yes and so that was a very crystallizing moment when I realized his portfolio needs to generate income as well as it does for everyone.

David: Yeah, it’s interesting because not only that but you know the psychology, I mean talk about the psychology of that you know I’m sure if somebody’s worth ten million dollars. And they lose half their money, they can retire on five million, right? There’s a lot of people watching this show right now that are retired who probably have five million dollars or less, but it’s not just about the dollar amount the fact that gosh I’m going from ten to five. I can’t afford to retire, but it’s also about the fact that about how you feel you know. Can you talk about that for just a minute?

Jeff: Well, you know we’re at a point right now in market history where the market gets very bullish of course, it’s very sloppy for investors to make mistakes and everybody wants more. By getting an extra ten to fifteen percent on your savings, if you’re just an average investor with an average portfolio isn’t going to really benefit you. What’s going to benefit you is being more financially literate and creating a five percent rate of return on a net basis long term. Than going after the highest rate of return and that’s very short-sighted and it can come back to really hurt you or crush your retirement goal.

David: You know you’re from Southern Florida here you know it’s… I was telling my story I think you probably heard it before about right after the financial crisis being in Palm Beach proper on Worth Avenue on a weekend. And really watching the proverbial tumbleweed going down the street, it seemed like nobody was shopping there and it’s all because that was right after Bernie Madoff was discovered to be a fraud. And people on Palm Beach realized how much money they had lost and you know it’s funny because some of those people probably went from twenty million to ten million like this. But the interesting thing is, I bet when they… their net worth hits ten million on the way up, they were shopping in Worth Avenue but now of a sudden because they went through ten million on the way down. Even though they can still afford to shop there emotionally, they didn’t feel like doing it anymore I’m sure you’ve seen situations like that with people too.

Jeff: Well, there’s no doubt about that we’ve seen that on all the various market cycles but in Madoff’s case there were some people Dave that lost everything.

David: And it’s unfortunate you know we… it’s funny because our… you know previous guest here talked about diversification and we talk a lot about diversification, we talk about averages in this business. One of the fictions that you talk about a lot in your book is the fiction of average return and I know you’ve told me some pretty interesting stories in the past where people have thought they were making one return in… When they realize they were calculating it the wrong way. The return they’re actually earning is much, much different.

Jeff: Well there’s no doubt that that happens a lot with folks because they don’t have the financial literacy to calculate their actual rate of return, so that’s one of the things as financial advisors we have to do. We have to teach them how to do that, in one particular case, I had a client recently who had a very large portfolio at the household name. I won’t mention, very popular household name big brokerage, had no idea they were being charged around one point eight percent but over ten years on seven hundred thousand. They were paying about two hundred and fifty thousand in fees, had no idea.

David: Wow, that’s a lot in…

Jeff: But it lowered their rate of return from five percent down to two point two percent.

David: Yeah and sometimes too it’s also a question of how people calculate it. You know when people calculate things, some people think gosh, you know if I make ten percent one year and I lose ten percent the next year that I’m pretty much back to breakeven. And, of course, you know that that’s not the case and we will take a commercial break and when we come back I’d like to ask you to share with us a story about that too. Because again, you being in the real world meeting with people like our income generation viewers every single day it’s so important that they hear from you. From other people like themselves and so on, so I want to talk about that rate of return dilemma when we come back and I think we’ve got some time so stay with us, please. And you too stay with us, we’ll be right back with more from Jeff Small on the income generation. If you’re near or in retirement head over to the income generation dot com and download your special report written specifically for the needs of the income generation. Again those born before one thousand nine hundred and sixty-six. I’m David Scranton and you’ve been watching the income generation. Welcome back to the show and also a big welcome back to my good friend Jeff Small, Jeff you were… you made the point that fees can really subtract from returns. In the case of that example, you’ve given two hundred and fifty thousand dollars of fees over ten years is huge, no matter how much money you have. But sometimes people miscalculate fees in a different way, so it’s pretty simple though, I mean I would think right if you make ten percent on your money next year and then you lose ten percent the year after you’re back to where you started, correct?

Jeff: Well, it’s not exactly like that David. So let’s say that we have a dollar and that dollar gets reduced to fifty cents but then that fifty cents earns fifty percent or one hundred percent. And fifty percent, it’s only going to go back up to what?

David: Seventy-five cents.

Jeff: That’s right, so we’re still twenty-five percent below.

David: Wait a minute, so I made… I lost fifty percent, I gained fifty percent and I’m still down twenty-five percent, how does that work?

Jeff: Well just imagine with fees and then also withdrawals for income on top of that and then your portfolio really starts to erode. So those are the types of stressors that we see, that we have to really run money through a stress test for folks that are retired.

David: It’s funny you know in math class growing up we’re always taught if you want to determine an average you add up all the numbers and divide and that’s your average. But it doesn’t work that way when it comes to money and sometimes people eyeball the returns and as they eyeball those returns they say well, yeah that averaged about X. But almost all the time the true average, mathematical average internal rate of return is lower and I’m glad you use the fifty percent example because that’s extreme in that… That really helps our income generation viewers get a good feel for why it’s so important to calculate the numbers the right way.

Jeff: It’s definitely part of financial literacy.

David: Now I know another problem that you deal with and I deal with it too in my own practice sometimes is that transition. We talked early on about the transition between going from a growth-oriented focus to an income-oriented focus when it comes to your investments. But that usually comes about the same time when people have to think about taking their risk down a notch, like the example you gave early on. When you know the person said well if I double my money I won’t live any differently if I lose half my money I just might. Tell us the story that you encountered where you might have had a tough time getting that point across to somebody and finally were able to do so or maybe you were unable to do so. And how did that work out?

Jeff: It’s very interesting, you bringing that up, I had a gentleman that came to one of my group talks and soon was in my office in two thousand and six and I encouraged him to get out of the market. And get a little safer, he was very risky, his brother was a stockbroker and he said, I said but listen you need to go back to your brother and ask him for some alternatives to prevent this. Because if you have market losses you could take a big hit and then several years later he ended up in my office and I asked him what happened? And he basically said well, I’m not talking to my brother and I lost most of my money in the market downturn.

David: So that’s a situation where you did everything you could knowing that he wasn’t going to part ways with his brother who’s a broker. Tried to get him to lower his risk, he turned around and his brother talked him out of it and now not only did he lose a lot of money, but he lost that relationship.

Jeff: That’s correct and we just don’t see that with family members that are in the investment community we see that across the board. It’s part of the financial bias that exists.

David: And is that one of the reasons that you talk about turning financial planning right side up? Is that one of the reasons you think financial planning is upside down right now?

Jeff: That’s one of the biggest reasons, that financial planning is upside down and that’s why we named the book Right side up because folks have to understand the effect of risk as a stressor on their retirement funds and what that means to them financially. And once they understand what that cost really is in a downturn then they can decide okay, I’m empowered to either make a change or become more conservative or stay risky.

David: So what you kind of do when you just talking about what Mihir Desai did in a way that people need more financial literacy, they need to understand the effects of risk more.

Jeff: Education is the only way.

David: So what do we do, I mean you know one at a time it’s great you can write a book and you can help turn financial planning right side up but what can we do kind of as an industry. You know for the greater good to help fix some of those mistakes that…some of those miscommunications, the things that gives as Mihir said, our industry may be a bad rap.

Jeff: Well we try and change the culture on a daily basis through the various media appearances that I do and books that I write and author and groups that I talk to and that’s all we can really do at this point. Is get back to a more reasonably sound, financial, literate perspectives.

David: You know I don’t want to put you on the spot at all Jeff, but I’m going to do it anyway because we go way back and we’re good friends and all this. But you know that I started a nonprofit organization for Financial Education of individual rights, so you know maybe if I can get you to donate little bit more of your time to educating people. Some of those in need then maybe we can make a bigger impact on the world, what do you think? You think maybe I can get a little commitment for a little more of your time?

Jeff: Sure, I’d be happy to do that.

David: I know you always come and see us when I promise to put you on camera but you know this isn’t quite as exotic but I’d love it if you could do that, I think it would be a great help.

Jeff: Everybody needs help I’d love to do that.

David: Yeah and unfortunately Financial Literacy you know you don’t learn it at home, you don’t learn it in school and you might learn it at home if you’re lucky. But let’s face it, some people if they don’t have the assets their parents don’t have the assets they’re not going to learn it at home because their parents can’t teach them. If their parents have a lot of assets sometimes money is not a problem, it’s never a concern. So they don’t learn it there either so financial literacy is important where can they find your book?

Jeff: Well the book has a website Financial Planning Right Side Up dot com with Amazon links and it’s a great starter or launching point for understanding the stressors. And educating yourself on having a successful retirement plan.

David: And I read it myself and I think it’s a great buy, so go out and get it stay with us we’ll be right back with more from Jeff Small and the income generation. Have you ever thought about what you’d want people to say about you at your own funeral? If so, you’re certainly not alone, and I know it sounds… it could be just a tiny bit morbid but you know sometimes it’s human nature to have those kinds of thoughts. And this one, in particular, can actually be helpful in the process of goal setting, ask yourself what would you like to have your eulogy say that you’ve accomplished and achieved? Then think about those things and your goals in terms of what we call especially your become goals. You know earlier, I said to imagine a moment in time what will it feel like the first time someone shakes your hand or congratulates you on becoming financially independent. Or being a new business owner or achieving a new title. Well, you can also imagine friends and loved ones talking about and celebrating your achievements in the past tense, yes once you’re gone. It’s another good exercise to help you think about your goals as though you’ve already achieved them, which subconsciously increases your confidence that they indeed are achievable. Because pretty much anything you put your mind to can be accomplished, it’s also a reminder that we all get just one life in which to achieve your goals. So the question becomes what are we all waiting for? So with that in mind let’s bring back my good friend Jeff Small. You know I put you on the spot before when it came to donating more time to our nonprofit organization, Safe. And I’m going to put you on the spot one more time and I hope Jeff really comes back on the show after me doing this to him twice on one show. But now let’s say that I were assigned the task of god forbid if something happened to you, I was assigned a task of doing your eulogy at your funeral. Tell our viewers and tell me what was it you’d like me to say about you that you’d like to be known for after the fact or known as being.

Jeff: Well, I think the most obvious ones, of course, would be being a great husband and a phenomenal father of my three children.

David: And you’ve already done that.

Jeff: I have, I do that every day.

David: That’s right.

Jeff: That’s lots of fun, but we just had a passing on Christmas Eve day in my family, so I did a little bit of a eulogy for my mother in law passed and so I feel where you’re coming from on this question. But I think from a business perspective, I’d like to be known as an advocate who championed his customer’s interest before his own and tried to be an industry leader in changing the investment culture. To benefit consumers as opposed to the culture that currently exists which is more of a house always wins mentality and let’s stick everybody in the same profile.

David: You know it’s interesting, you’re right part of the reason the financial planning gets a bad reputation is because that education first doesn’t come across too often it’s always about let’s sell, let’s sell, let’s sell, let’s sell and you’re not like that.

Jeff: No. I think that the moral compass of all financial advisors needs to be redirected to put customer needs first and that’s why the income generation viewership really needs to focus on working with fiduciaries. Fiduciaries are obligated by law to make sure they do the correct thing morally, financially and legally and avoid conflicts and not be products centric but be client-centered.

David: That’s right, I love it. Alright Jeff, thank you so much for coming in today and thank you for putting up with my verbal and emotional abuse that I apologize and stay with us our income generation viewers. We’ll be right back with more on our show today. I’d like to thank all my guests for joining us for another episode of the income generation, I’d also like to thank you our new and returning viewers if you’re just starting to think about your goals for two thousand and eighteen. I hope that today’s show is giving you some good ideas of how to increase your odds of achieving them. Again, as a financial advisor and a business coach I cannot overstress the importance of goals or of having the right process for setting and subsequently achieving them. Successful, financially secure people in every business and from all walks of life follow a similar process and you can too. So don’t just identify your goals, visualize them, write them down in sensory-specific fashion, although almost as though their memories of the past. Everything you want to have, do and become. Make sure your goals are smart, specific, measurable, attainable, relevant and time specific and revisit your goals every single day to make sure that your brain stays tuned to the right channel and to track your progress. And if you need help or guidance in creating the right strategy for either your short term or long term goals then please go out and get it. Thanks for watching, if you’re close to retirement and you really want to know how to protect and maximize your money it’s absolutely essential that you stay informed and up to date. And right here is where you can do it on the income generation, I’m David Scranton and thanks again and see you next week.

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David: If you’re near or in retirement, head over to the income generation dot com and download your special report written specifically for the needs of the income generation. Again those born before one thousand nine hundred and sixty-six. I’m David Scranton and you’ve been watching the income generation.