This week’s LIVE! in studio recording gives strategic advice and insight on how to Have a Truly Diversified Portfolio. Watch the video or catch the replay at  

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What if I told you everything you know about diversification is wrong? In fact, that is my next book that I’m going to write. It’s going to be called Deworsification. Everything you know about diversification in retirement is wrong. And how can I say such a strong statement? Well, doing retirement planning for 23 years, I’ve learned different ways. The hard way and, you know, hopefully knowing more than I did yesterday, I can tell you that we manage money more like – talk about endowments.


Like what happens with a lot of endowments – Yale is one I follow quite a bit – is David Swensen, who runs Yale endowments firm, who beats the market over time. They have done very, very well. He’s managed the portfolio since 1985, you know, made money in 2000, 2008 when the market was getting pummeled. He only owns about 30% stock at any one time, yet he beats the market. How does he do that? Well, one of the things he does is he is not just diversifying just by stock. He’s diversifying by strategy. Because he only owns about 30% stock.


How does he beat the stock market owing only 30% stock? Well, there are other ways to make money besides stocks and bonds. And, unfortunately, for all of you, most of you, 99% of you, that’s all you own. And why is that? It is because the firms, whether it’s Fidelity, Vanguard, I don’t care, Merrill Lynch, whoever it is, what they’re going to do – and they have like 15,000 adviser firm, like Merrill, and I’m not beating up on Merrill. I’m talking about firms in general. I’m just giving you an example, A. G. Edwards, whoever it is. When you have that many advisers, you cannot get cute about how you manage money. So what they’re going to do is have your Portfolio A, B, C, and D. It’s some iteration of stocks and bonds. That’s it.


So what ‘s happening is you’re beholden what those markets do and that’s it. And you’re taught that, “Well, David, we’re going to own bonds because they’re safe. And they’re going to reduce your risk.” Well, that’s true in a lot of markets but today that is not true. Stocks and bonds are falling together that happened in ‘08 and ‘09 when the stock market and bond market were falling together. So diversification didn’t work at all. And it’s not working today. So how do you solve that problem? I’m going to tell you.


So we use multiple different strategies. So if you hired us, we’re going to use annuities, we’re going to use real estate, we’re going to use stocks, we’re going to use other types of investments, alternative investments. So if I build a portfolio with four or five different strategies, not 10 different stocks or 20 different mutual funds. We’re talking about different strategies that have their own risk in return. So you start diversifying a portfolio by strategy, you reduce the overall risk of the portfolio because I’m not reliant 100% on the stock and bond market.


I’m going to give you very specific example right now, and it’s real estate. We’ve invested in  real estate for our clients for nearly two decades, so it’s something that we give a lot of advice on, whether it’s 1031 Exchanges, taxes. You know, I had a mortgage company for many years so we give advice on financing, re-financing, real estate, commercial real estate, all those kinds of things that revolve around real estate. So it’s an area that we have a lot of expertise in.


It’s difficult right now to invest in real estate. Why? Because real estate is very overvalued, especially commercial, multi-family apartments, Class A office, retail, you know, through the roof. In fact, areas like New York they’re markets are already rolling over. There’s price reduction right now, reducing of rents. Why am I bringing up New York? Because New York has been one of the fastest growing real estate markets in the world.


You know, I read a statistic “If you have a $4 million property in New York City, the days on market are how long it takes you sell, 400 days.” Average 400 days, that’s over a year. That’s called a soft market. So the only real estate I like right now is what’s called Student Housing. And if you come to one of my workshops or you sit down with me personally, I will go through this with you. But let me give you kind of a brief overview.


Student Housing; It is what it says it is. Basically, we’re going to own real estate in close proximity, adjacent, whatever it is that is convenient for the students to be next to their school. And we have properties – and I say “we,” we or the company that does this. We do Gilderson{SP} worked with for a while. And they’re the ones that purchase these properties. But properties at USC, Notre Dame, Old Miss, Purdue, University of Utah, West Virginia, Oregon State, University of Oregon, Sacramento State – my hometown – all over the country.


The reason that I like student housing is that it is very safe asset. The occupancy rates for the properties that we’re a part of are like 97%. The reason student housing is great is because I call it “recession resistant.” So when the market or the economy rolls over, we go into recession, or bear market in the stock market, what does that have to do with the rents and rental income you are receiving from an apartment building next to USC? Zero. Because education is not cyclical or relative to market. So when you have recessions what happens, people stay in school. Or they get advanced degrees because there are not as many jobs. So we’re not beholden to the economy to have investments that are safe.


The current yield on a lot of these properties, and this is what is currently happening, I can’t promise what will happen in the future, but they are around 6%. So at 6% let’s say you have $100,000. For every $100,000 you’re getting $6000 a year. So that’s pretty good income and that’s a lot higher than bonds. Bonds are paying you about 2% right now. So it’s a proxy for bonds for us. Not only are we diversified from stocks and bonds, we had a hard asset, which I like.


So the great thing about student housing with the company we work with, they are all 12-month leases, they are co-signed by each of the parents. And the nice thing about student housing, which, because I want to make common sense to you, is that if you had a two bedroom apartment that you’re renting to two people, you’re going to have two people, right? If you have a two bedroom apartment and it’s next to USC, you’re going to have typically four students. So the income from the properties will be twice as much it would be with traditional types of real estate.


Student housing is a very, very great asset. We like it. The endowments and pension funds like it. So what they’ll do is they’ll buy seasoned properties. So let’s say you decide to invest in these properties. There is also a fund that is available as well we will talk a little bit about. But after two or three years, when they have stable rents and this property’s been maximized, relative to rents and all those good things, then within about three to five year period, the firm we work with looks to sell the properties.


Now, that we’re getting income around 6%, we’re also getting capital appreciation. And in the past, that’s averaged around 50%. Now, that sounds like a big number, that’s just what it’s been – again, I can’t past performance no guarantee of future returns. But what if you could get really good income that has nothing to do with a stock or bond market? The stock market crashes, the bond market crashes, you’re still getting your 6% in rent. Because it is just rental income. Wouldn’t that be great piece to reduce risk?


So if you want to talk to me, you want to reach out to me, you want to learn more about the way we manage money, how we protect downside. Not just by diversification, but by diversifying my strategy, maybe by using an annuity for 20%, maybe using real estate for X%. Owing some stocks, but have me some downside protection. We have what’s called a stock loss strategy. It does what it says. We stop the loss. The maximum loss in this portfolio is 10%.


We own Vanguard funds, 11 of them on an equal-weighted basis, and if those funds in total drop 10% or more, we go to bonds. We have an algorithm that takes us back into the market. So everything we do is going to be risk managed. We’re going to risk manage by strategy, again annuities, stocks (with outside protection), real estate, all those things.


If you really want to learn how to have a truly diversified portfolio that has a lot less downside and potentially more income and more return, give me a call. I will do a complimentary second opinion, a financial review. I will review what you have. Give me a call…CALL TO ACTION…or again go to our website…CALL TO ACTION…


So we are about out of time here, but I want to make sure you understand. This is not a time to be brave. The market has changed. We have not had this kind of volatility since 2008 and you need to have your portfolio reviewed. You need to have a second set of eyes, whether it’s me or somebody else –  or me and five other people, I don’t really care – but have your portfolio reviewed.


Typically someone comes to me, you know, probably more than not I am the only adviser they are looking at. But so let’s say, 30-40% of the time, they’re interviewing two or three advisers. I think that’s a good idea.


So, again, if you want to reach out to me, you want to get a second opinion from me personally, just give me a call at (858) 597-1966


That’s all the time we have. I look forward to seeing you next weekend. And have a great week and God bless.