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Risk: Why Timeframe Matters

Risk: Why Timeframe Matters

Risk: It bears Repeating

Anything worth saying is worth repeating. – Humble the Poet
We’ve talked about risk many times in the past. In particular, how you view risk. The reason the conversation bears repeating, other than the fact that I field this topic on the regular, is because it is tied to a strong emotion: anxiety.

Not taking a risk is the biggest risk

Many people “feel” like the safest way to save money is to hide it under a mattress (ok, not really, but savings accounts are today’s mattresses). Why? Watch the news. The stock market ticker runs at the bottom throughout many newscasts. People have market changes pinged directly to their phones. Do you know how often the market fluctuates, daily? If you do, then you know exactly what I am talking about.
Do you view taking a risk as losing money? Then this podcast is for you! Join Matt Robison and I this week as we discuss how you should be looking at risk. Spoiler alert: risk isn’t losing money, it is losing purchasing power.

Risk: How long until retirement?

When deciding how to invest, consider the timeframe – it all depends on when you will need to spend the money.

  1. 30+ years until retirement: You are just starting in your career, maybe you have one or two young children at home. Your best option for long-term investments are stocks. Over long periods of time (40+ years), stocks have always outperformed any other type of investment.
  2. 10-20 years until retirement: Your kids are (mostly) grown, you’re paying college expenses, etc. The strategy here is almost the same as above: Stocks are still your best bet for 10+ years of investment. However, you need to balance that with anticipated costs for the next couple of years. For instance, the 529 account for your high school junior should be invested more conservatively than your 401(k).
  3. About to retire or retired: Congratulations! Now your main concern is having your money last, being available when you need it, and keeping up with inflation. See below for the Retirement Bucket strategy!

These time frames are important when you look at historical market returns.

Retirement Buckets

Now that you are about to retire, or even better – you have already retired – you need to keep a close eye on your portfolio to ensure it will keep up with your ongoing needs.

  1. Cash: Keep the next 1-2 years of expenses in cash and money market funds. You don’t want to lose that money!
  2. Bonds: The following 2-7 years of expenses can be invested in very safe bonds or bond funds. This will get you some nice return (hopefully!) while not losing value.
  3. Stocks: Any money that you plan to spend in 7+ years from now, you can consider investing in low-cost stock index funds. Stocks tend to ourperform over long periods (10+ years) and you want your retirement portfolio to keep up with inflation

The first two buckets above (1+2) are your war chest: the money you need to have to cover expenses over the next 5-7 years in case the stock market crashes.

Stocks for the Long Run

Need more proof that stocks are your best bet? Let’s pretend that you were around in 1802 and you were rich. You had a crisp $1 to save. Had you put it under your mattress and pulled it out this year, it would be worth a whopping $.04. Yes, you read that correctly. Four cents. Do you see how the dollars don’t make sense? Had you invested that $1 in the stock market, it would now be worth $1,601,184.

Here is where the purchasing power comes into play. That dollar bill in 1802 could probably purchase dinner for the whole family. Uh, not so much in 2024! You can see from the chart that a dollar from 1802 has lost so much purchasing power that it can only buy 4.7 cents worth of goods. Bonds have done better, with a modest return from $1 to $1,746. Obviously, stocks far outpace cash and bonds. That’s why we say “stocks for the long run.”
It is a common mistake to equate risk with volatility. Separating the two can help assuage the stress and anxiety brought on by market fluctuations if you just keep reminding yourself that time and strategy are on your side.



How to think about risk so that you’re smarter, safer, and better looking. I’m Matt Robeson. It’s Financial Life Planning with my co-host, our resident expert, Mike Morton. Mike, you want to make a point to people that you think will make them feel better. Seriously.


Seriously, I want you to feel great. Yeah.


want to feel great too. That would be a great beginning to a show. It’s like, I want to make you feel terrible. It’s like click,


Click. Next show. This one’s not for me. Not today.


Yeah, you seriously think that a slight twist in how people think about one thing can relieve a lot of anxiety that we all tend to feel about finances.


And make you better looking, Matt. Don’t forget that. That was your promise at the


That is an uphill climb, but I will take, let’s put it this way. Aim for the stars, right? I might land on the moon or whatever that horrible expression is. Um, yeah, I don’t know what we’re going to make me better looking, but, uh, if you can alleviate some of my anxiety, I’ll, I’ll be thrilled.


Tall order. Yeah. So the whole reason for this episode is conflate or mix up risk. With volatility, with how I feel anxious or stressed about my money. Because we tune into our investments and we see them going up, which is great. And then we see them going down, which is not so great. And we really start to feel anxious, especially if we get into some kind of recession or something like that. Not that we’re anywhere close to one of those necessarily. I have no idea what’s coming next, but you know, the last one was a few years ago. And we really did not feel good as you see your money lose 5%, 10%, 15%. And that money going down in value makes us feel really stressed and anxious. And we think of that as risk, the risk of investing in stocks, uh, that we know go up and down. Uh, and so today’s episode is really trying to reframe a little bit of that. So that, yeah, when the ups and downs happen, you don’t have to feel as anxious about it.


So people call me and say. Boy, this is really bad. My investments are down. I just looked and maybe I’m the worst person to do this topic with because I’ve got a great solution. I stick my head deep in the sand because I don’t look that often. I just try not to look. And maybe that’s a good thing. All right. So how let’s, let’s do the bottom line up front. How. Should people, how do your clients tend to think about things and how do you give them that magic relief moment where you say, all right, think about it like this and you’ll feel better.


Yeah. Well, actually, it’s funny you say that usually with my clients, we’ll work on projecting the future. So they might be anxious about their, um, goals, right? Hey, I want to retire at this age or I have, you know, college costs. Are we going to have enough? I’m not sure. I’m not sure where to save my money, those kinds of things. And so we’ll often do projections into the future, right? 10, 20, 30 years down the road. Are you going to run out of money? You’re going to work for a while and then you’re going to retire and spend money. Are you going to run out of money? And the real relief Matt is when you show them the numbers, all the statistics and it’s like, no, you guys will be great. There’s, you know, very little chance you’re going to run out of money. We’ll know it way in advance. We can make, correctional steps if we need to. But the models say. You are going to be fine and going to be able to meet your goals. And that’s when people are like, ah, that feels so good because we’re caught. Unlike you who sticks your head in the sand. First of all, this is like our episode last time, hiding behind a rock. That’s a terrible idea. Do not stick your head into the sand.


I, is it true that ostriches actually do that? Or is that one of those? You learned it when you were a kid, but it’s sort of the same way you learned about quicksand. It’s like, no quicksand doesn’t really like that ostriches don’t stick heads. I don’t know. Like why, if you stick your head in the sand, you’re going to die in 30 seconds. That’s a, that’s a bad idea.


You won’t run out of money then. That’s right.


Actually, if you’re afraid of something coming at you. and it’s going to arrive after 30 seconds, then you’re worse off sticking your head in the sand because that’s the maximum that I could hold my breath.


That’s right. So don’t put your head in the sand, but in this case it’s so true. It’s like, yeah, looking once a year is way better for you because it’s all about. How tuned in you are to, you know, this number, right? Your investments, your 401k, whatever it is. And especially when you reach thresholds, Matt, it’s like, Oh man, I got above a million dollars, I’m on my way to, to saving and investing and retiring when I want to. And then that threshold of a million, maybe it goes down by five or 10%. You’re like. Ooh, man, you just don’t feel good. You know, like I had a million now it’s 900, 000. Because it’s on the way down. So That’s where thinking about timeframes, you know, really makes a big difference.


That resonates with me. I not to give away too much of a family member’s financial situation, but my mother calls me from time to say my investments have gone down. She calls for other reasons too. She wants to talk to the grandkids, but she’ll mention along the way. Exactly what you said a minute ago. My investments have gone down and some version of this feels terrible. And I understand in her situation because she’s retired that the time for that’s what the time frame makes sense to me because she needs the money now. If you’re me, it’s awfully glib and uncaring as a son to say, Oh, Pasha, don’t worry because I still have time. And you know, it’s like, I, that’s where timeframe comes in. And that’s where I go, by the way, to your other strategy, you know, years ago, when my mom retired, I did a little spreadsheet as I am wants to do. And I did a little projection. Uh, here is what you have, and here are some very conservative assumptions about growth, and here’s where you will be each year based on the following budget. And she opened it up, and a year or so ago it had turned out to be Unbelievably accurate. Yes. I’m patting myself on the back. I’m yeah, great.


not to strain yourself there, Matt.


Yeah. Oh, oh my poor shoulder That’s what I go to is the same thing you go to with your clients, which is like well We’ve looked at this and yep There’s some volatility, but this has proved to be very accurate and we’ve shown that you’re You are going to be fine, but that doesn’t totally alleviate it either. And so I guess I go back to, I’m, I’m sold on your idea that the timeframe is really the source of the anxiety and, and trying to play with that the way Christopher Nolan does our perceptions of time is the key to alleviating that anxiety. Brom. That was the best article you and I ever shared with each other. There was this great, oh my gosh, this is such a good Google, if you, just Google B R O M. There was this insider expose on the way Brom had overtaken Hollywood sound effects and scoring. And it’s like, if you listen, you can’t unhear it once it’s been pointed out to you, it’s the, it’s most evident in the Christopher Nolan movies, especially in inception, that movie has a soundtrack. There’s a song I can picture it. And like that final scene where the top is spinning, like there is a, there is music. But most of the time in Inception, it’s just going brah, it’s amazing. And there’s this whole article about like, how did that happen? Why are we hearing that in so many movies these days? It’s so good.


Oh, I got


right. Where were we before you derailed us with the brah


I got a couple of timeframes. One of the things I want to talk about is, is what this podcast, you know, with busy parents and kids and kind of having a long timeframe to retirement, but you brought up people that are in retirement and there are two things I want to highlight here. One for everybody that’s listening. We do the show and re we reiterate a lot of topics because they’re worth hearing over and over again. Not because you’ve forgotten them, but because emotionally because Matt’s forgotten them,


Where are we?


it’s because emotionally. We get off track. I mean, we’ll, you know, like we’ll be feeling really great. We all had this, we’re feeling really great. And then later in the day, you start ruminating about that project or whatever it is. And you’re like, Oh man, I know I have a lot to do or I’m not feeling so good, you know? And so we forget so that’s why it’s a good reminder, like your spreadsheet or talking, you know, to your mom. Everything’s good. Like so many of my clients. They leave feeling, you know, conversations, very confident, which is great. That’s the goal, you know, but then they’ll come back and be kind of anxious, right? A month later, a few months later, whatever it is, because even though it was only a couple of months, right? And then we got to kind of go through it again. Oh yeah, we’re still fine. You know, I know there’s volatility and the market’s done this or whatever, but you are still set up for success. People just love hearing that and seeing it and reiterating it. So that’s. One comment, you know, keep coming back. It’s just, it’s just being human. It’s fine. You know, you’re going to get anxious. And even though the facts have not changed materially, the other thing I want to say, so retirement, here’s the way we do it, Matt, we have three buckets and they’re time buckets. All right. So if you had the million dollars, I’m retiring, I’m retired. I got a million bucks. I’m going to put it into three buckets. One is for the next one to two years, you hold cash. Okay, because you’re going to spend it this year, 2024, you’re going to spend 50, 000. I want you to have the 50, 000, put it in your bank account, earn the 2%, 5%, whatever you can get in the bank account. It’s not going to go down and you’re going to spend it this year. The second bucket is called an income bucket. And that’s for the following one to seven years. All right. So usually about five years and we hold five years of your million dollars. In bonds. Okay. And when I say five years, that means five years of expenses. So 50, 000 a year. So 50, 000 times five. So we have 250, 000 of dollars in bonds. Okay. They’re relatively safe. We can get five, six, 7%, maybe, you know, three, four, 5%, whatever it is. And that’s the second timeframe, the final buckets for growth, anything that’s for. Five to seven to eight years and further we can hold in stocks and we know they’re going to be volatile and go up or down the whole reason for this bucket strategy. All right. So we got three buckets and the whole reason is to make you feel confident about the plan. If your investments, those stocks go down, you know, you have Seven years of spending. You got a couple in cash and another four or five in bonds and you have seven years of spending before you have to touch those fun. The stock funds that have gone down by 30%, oh my gosh, they’ve gone down by 30%. We’re in a big recession. You got seven years to weather the storm, and that’s a long, long time. You know, think seven years ago where you were you right. That’s a long time. So that’s why we have three buckets and they’re all time based.


You know, that’s super helpful because I mean, again, and just to use my mom as an example, when this happens, which it does from time to time, to be clear, it is definitely rational if you are in retirement and you have More of your funds that you need sooner. It’s rational to be more attuned to the ups and downs of what you have available. I get that. I totally do. I agree with it. And yet there’s still the buckets. There’s still in retirement, these different timeframes that you’re, that you’re working with. And so. She has worked with a good financial advisor. She has a strategy. It is attuned to where she is. She’s in retirement. And so she does have those funds that are in lower volatility places. They’re pretty locked in there. There is some money that’s still in the market and that is for use further out. And so there is still that time to recover. And I say that in part because one of my I guess seminal financial experiences was right at the crash that we had with the recent pandemic crash in the stock market. It was the last time I went to the gym with a friend. Since then, I’ve just been working out in my basement. So I go to the gym with a friend of mine. And working out and he’s like, we’re right in the middle of crushing a set, you know, whatever it is. And he bails out on me. He’s like, no, no, I have to take this call. It’s my broker. Like, oh, that’s a lame excuse. So anyway, he steps out for 15 minutes while I continue, you know, crushing my quads or whatever it is and comes back in and he says, yeah, man, like the market’s about to go down, you know, all this COVID stuff. And, uh, I’m just, I’m pulling out. I’m like, okay. All right. You know, I’m not going to tell anyone else what to do. I didn’t touch a thing, right? Two years later, we’re in exactly the same place. Like the market went down. It recovered. Now, that’s not always the case when the market goes down, but historically it is always the case over time that it comes back and you’ve cited the statistics. I’m going to, I’m going to mess it up. What is the 40 year? What’s the worst you’re going to do? Is it like 9%? Like it’s some insane number. So the point is. You know that that’s going to happen and most of the time it’s going to happen within a few years. I guess my point is just that even if you’re in retirement, you’ve still got buckets. You know, you’ve still got a portion of your money that’s for that longer time horizon. So, even if things are going down now, there is an excellent chance that they’re going to work their way back up by the time you need the money.


Yeah, that’s exactly right. And you can look at the average timeframes of recessions. You mentioned, two years later and that’s pretty quick recovery, but the average is like four to five years. And that’s why we hold sort of seven years, right? If the average is four to five for that stock market to come back up. The other reason, and you can say, well, listen, Mike, I get it. You got like a couple of years in cash, a few years in bonds and the rest in stocks. Well, that’s just a, you know, maybe a 60, 40. Classic portfolio. Sure. At the end of the day, obviously you can break down the total amount of dollars into cash, bonds, stocks and come up with the percentages, right? But mentally, trust me, when you’re talking to people who are retired and they can see, I’ve got my war chest of cash and bonds to cover seven years of spending. I got this big war chest ready to go in case the market crashes. That’s a way different feeling than saying I’ve got 30 percent in cash and bonds. Like, what does that mean? They’re like, no, I have 400, 000 of spending ready to go in case the market crashes. That’s a really good way of, of thinking about it.


obligated. to address the put your money in a mattress, this scenario, which I don’t think we have to, but it’s sort of like this kind of topic. You’re almost, I don’t know. I think it’s in the contract somewhere. This is also one of those things like putting your head in the sand or, I don’t think it’s real. I don’t think people actually put money under their mattresses. Maybe they did. Do your clients do this? Does anyone put their money under a mattress?


wish I could find some money under my mattress.


I find a 20 in my jeans once in a


I don’t know. It’s awesome.


That’s because I never wear jeans. Oh, it is the best but like this is literally I I hate jeans I think jeans are terrible. I think they were invented as a joke. Like someone was punking us the you know, like Lee Denim or whoever invented jeans and Actually, the guy was Levi right like didn’t Levi Strauss like


Is this the same as you’re like Wild West wasn’t really like the Wild West


Yeah, Levi Strauss truly did And Joe Wrangler also. Anyway, the point is, I wear jeans so seldom that if I ever have cash, which I don’t anymore, I might stuff it into that little tiny, you can’t get into a jeans pocket, and it’s likely to stay there till the end of


what is that little pocket for?


Oh, there is a reason for it. I, I looked it up once. It was one of those clickbaity things that I actually clicked on. And I was told how I could regrow my hair, um, they explained here’s what the little pocket is for. Do I remember it? No, I didn’t retain it. They also explained what that little, metal


metal button. Yeah. What’s that? Come on, Matt. Do some quick Google research. And while I tell the listeners why you don’t want to put money under your mattress. So we all know. About inflation, which is why you don’t want to literally hold dollar bills like that 20 in Matt’s pocket, because we all remember, how much a pack of gum was, like 5 cents when we were growing up and now it’s like 50. Uh, you know with my kids need a pack of gum dad. I need a 20 Go to get some gum Here’s a great chart for you. And we’ll put this in the show notes and stuff As well. This was 200 years of returns. All right, so if we just you know, if we had a dollar to invest 200 years ago and we can look at what it would be if we held cash if we held bonds or we held stocks. All right. 1 invested. All right. Now, if you just held cash, if you literally had that dollar bill today, uh, well, actually it would probably be worth quite a bit. Cause it’s like, you know, it’s like stamp collections, but it would be 0. 04 before cents. Four cents is how much that dollar, can now buy. So this is what we call purchasing power, real returns. What can you actually buy with your dollars? So obviously you did not want to hold just that dollar. If you put it, that 1 into bonds, you would have 1, 700. 1 turns into 1700. That’s, that’s pretty good. Over 200 years, but stocks put 1 in stocks, 1. 6 million. 1. 6, there’s like two extra zeros between bonds and stocks. And this is why any kind of longterm average, you want to be holding stocks over bonds. I’ll give you another more recent if you look at the last 40 years. All right. Like, so what kinds of returns can we get? again, we’ve said if it’s in the short term and you need that money, yeah, you want to be holding either some cash or some bonds because a yearly return for bonds might be. Minus five or 10 percent up to 10%. All right. So you could lose 10 percent of your money. We had that very recently. It’s usually not that high actually, but you could lose 10 percent or gain 10 percent in one year, so not that volatile 10 percent of your money, but you’re not getting much of a return, only an average of like three, 4%, you know, over time. But if you look at stocks. In the short term, we do not want to put money there. If you need that money in one year, you could lose up to 50 percent of your money. Now you might gain 50%, but you don’t want to do that in one year, but when you’re talking about 30 or 40 years, the past 30 or 40 years, the average is 12%. All right. And so that’s why we do stocks for the long run. Anything more than say five or 10 years. Go towards the stocks, anything less than five or 10 years. When you need that money, go towards the cash and bonds.


This portion of the podcast was brought to you by math, math. Do you want to have a job in the future? Try math. It’s useful. All right. I also, I also use that the actual serious, informative, useful portion of the podcast to do something totally unuseful and to look up. Yes. By the way, I was not wrong. Levi Strauss did invent the word. The modern blue jean design. And in 1873, he came up with a design for that little teeny tiny pocket. Would you like to guess what it was for?


1873, what do they need then? Maybe, Oh, for your, a little bit of tobacco.


That’s a good guess. I don’t know. It turns out that he kept a little fairy in there. He, it was for pocket watches. During the gold rush a lot of prospectors had uh, those watches on a chain and you wanted to keep it in a separate pocket So it wouldn’t smash against the other things you keep in your jeans pocket Keeping things in your jeans pocket is insane because jeans pockets smush whatever you have in there up against your leg and give you cramps Don’t put your wallet in your jeans pocket the last place you but I don’t understand people who put it in their back pocket like you you’re going to sit on this thing that is smushed up against your I don’t, I don’t get it.


now, Matt. Digital wallets and Bitcoin. Go back and listen to the episode. There you go.


There it is. Uh, the, the answer on the little button though is very uninteresting. It’s just a rivet. It’s just to


Yeah, that was it.


So, but that was a good, that was a good way to cover the fact that you don’t put money under the mattress. Like, and it’s just, it’s that old thing. Like the biggest risk is not to take one. And I mean, it does get to you and I were chatting a


actually let me pause on that for one sec. The biggest risk is not to take one is absolutely the case when it comes to long term investing. And when we say the word risk, let’s use volatility All right The biggest risk is not going in and accepting the volatility of the stock market for the long run and trying to play it safe by putting money under the mattress or Keeping it in the bank account or just going with super safe us treasury bonds if you have a time horizon for some money you want to spend and 10, 20, 30 years, the biggest risk is not putting it into the stock market and losing purchasing power.


Well, you have almost a 100 percent probability that you won’t have as much money as you thought you had if you put it under the mattress. Think about it that way, right? In the long run, you have a 100 percent probability of death and you have a 100 percent probability of losing your money if you don’t accept the volatility of other kinds of investments,


you have kids and they find it under the mattress, you’re definitely losing that money


100 percent probability. But then if they put it under their mattress, they also face


That’s right.


that long term probability. I do think that this, it’s useful in that it, it is. I don’t think we’re going to get rid of people’s anxiety. For all the people out there who are identifying more with the call my mom made or even my friend, you know, working out and saying I got to pull out of the market. I don’t think we’re, we’re like trying to shame people about those feelings. Like that’s very real. This is real stuff. It’s just, you do have math, our sponsor math, like, It should make people feel a little bit better.


Emotions are great. Congratulations. You’re human, you know, so that’s great, and as I said before, you’re going to have them. They’re going to, even if as confident as you are now. You’re going to, you know, some of that’s going to creep in over time, especially when you log in and see the numbers. And especially when you’re reading the news and it’s all terrible, uh, you know, it’s going to happen. So it’s going to be there, but just revisit your goals and what you’re striving for and making sure you’re taking the appropriate steps to meet those goals. Thanks,


way to top that. I think we should wrap up there with one final thought. Braum. Braum. All right. For Mike Morton, I’m Matt Robeson. We will see you next time.




Thanks for joining us on financial planning for entrepreneurs. If you like, what you heard, please subscribe to and rate the podcast on Apple iTunes, Google play Spotify, or wherever you get your podcasts. You can connect with . I’d love to get your feedback. If you have a comment or question, please email . Until next time thanks for tuning in

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Risk: Why Timeframe Matters

Episode 133 •

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