Dr. Preston Cherry, founder and president of Concurrent Financial Planning and assistant professor of finance and head of the Personal Financial Planning Program at the University of Wisconsin-Green Bay, joins us on this episode of The Long View to discuss financial planning, crypto, and retirement.
Key Concerns About Retirement in 2022
Ptak: I wanted to ask you about retirement planning a bit. This has obviously been a tough year for investors, especially those getting close to or entering retirement with losses in most portfolios and inflation running high as we know. What are some of the key concerns that you’re hearing from clients and prospective clients during this period of time?
Dr. Cherry: It’s quite common to hear about emotions during these times. That said, the emotions need to be affirmed. They’re very valid. They don’t need to be dismissed or belittled. It would be better if we could get out in front as professionals, if we can get out in front and call and ask how individuals are feeling right now. Give a call. It’s kind of like Lionel Richie—I just called to say … I just called to say how are you doing? How are you doing? Genuinely asking. How are you feeling right now? And then, hear that. And then, of course, we’re hearing that this is different. And I don’t want to sound cliché. When we had to kindly pass on information—because remember I was suggesting that we need to lead with compassion. That’s the process. Leading with compassion allows for the education to commence, the information to be passed. And then, we can start saying, OK, this is a cycle, this is an economic cycle, this is a market cycle. This has happened before. Just because it happened before, it doesn’t mean that the person that’s feeling it doesn’t dismiss their feelings.
But we can say, we have set up your plan in order to weather instances like this, and this is where setting up expectation during the planning process helps a lot. So, when you’re at the beginning, with clients at the beginning, or if you have long-term clients, during those meetings, you’re saying, when we’re setting up your plan or going through your plan, when these events occur, we’re preplanning for these types of events. So, you get to say, I understand you’re having these feelings. I appreciate you sharing. And as far as those uncertain events, it’s happening right now. The things that you just shared with me right now, that’s that uncertainty that we were discussing a few months ago or a year ago. Your feelings are valid. But we actually inserted a smoother in here, and here it is. Here’s how we plan for that.
So, for right now, we have a six-month cushion for you. We have a nine-month cushion. We have a 12-month, whatever it may be, so we don’t have to drawdown on the market. And this is why we strategize the way we did. And when that information is communicated, because the previous step—one, the expectation was set a while back. Then number two, we led with compassion because we heard what they said, how they felt, and validated it, and affirmed it. Then number three, we got to say, this is what we put in place and then we get to educate and inform about what’s going on in the market and in the economic cycle today and then how we’re going to go forward. So, feelings are pretty much the same. They affect individuals differently because you got different lifecycle, you got different everything, because individuals are unique. But the feelings of worry, is it different, where are we going to go, how we’re going to deal with it—those tend to be consistent. How you, as a professional, hear and handle those areas transfer to how the household is going to hear, handle those areas. And hopefully, your process is in order to where you’re able to help people calm the storm and not be panic in the storm.
Empathize With and Prioritize Your Future Self
Benz: You’ve talked about how one of the central issues in helping people with their financial lives is that they have trouble empathizing with and prioritizing their future selves. And this is a topic that we’ve discussed with other guests. We had Hal Hershfield on the podcast last summer. He’s at UCLA and has looked a lot at this issue. When you work with clients, how do you help them do that where they’re able to see into the future and empathize and think about their future selves?
Dr. Cherry: I love Hershfield. When you’re looking in that mirror and you see a complete stranger when you’re dealing with money, I’m like, oh my goodness. I say, have you seen the movie Back to the Future? And I was like, I think it’s time for a remake. So many things are remakes now. And so, I’ll date myself and say Back to the Future, and people say, or at least my students, will say, “Dr. Cherry, they’re like, what is that?” That’s why I work with Gen X-ers now because everybody knows what Back to the Future is. So, anyway. The movie studios, if you’re listening, let’s do a remake.
But people are not connected with themselves and for the future. So, how I like doing that is to walk people through an arc of connection, walk people through an arc of connection, which is, ask some questions, which is, in the past six months, what is a money event that really resonated with you that you wish you would have done differently? What is a money event that really resonated with you or stuck out that you wish you would have done differently? I’ll pause. And somebody will say, “We did this, we did that,” and so on. “We could have handled that differently.” OK, well, how did it make you feel? Second question: How did you feel about that? “It didn’t feel too good,” or something around those effects. “I wish I could have done better,” this, that and the other. And you get some feelings maybe of regret or doubt or just any of those feelings.
Third question: If you had some different type of information, what would you do differently? What would the new decision be? They’re perking up now. “If we’d had this information, we’d had done this, that and the other.” So, how do you feel about that decision now, now that you’ve done something differently and you have new information? “Oh yeah, feels a lot better now.” So, that’s the arc of connecting now with the future. That feeling that when I say right there and somebody says, “That feels great.” I say, well, that’s transformation, that’s the process right there. That feeling is the it feeling. That feeling that you have is indescribable and that is connecting your now with your later. If you have more information, you have a feeling that you don’t want to do. And you’ve changed it because you have a willingness to change, and you’ve done something differently. And now you feel a different way because you’ve identified what you do want to do, and it feels better. And you’ve connected with yourself like, Oh yeah, that’s what I want to do. I want to experience that some more. That’s transformation right there.
And I generally get this nine times out of 10. People say, yes, I get it now. And if you can inspire and encourage the connection, then it increases the probability that people will connect with their future selves a little better. And also, too, I like to say this: People don’t have to starve themselves now in order to feed the future. You don’t have to do extremes. Right now, there’s a total disconnect for most people of the future. They’re living so much in their now that there’s no nutrition for the future. The pendulum doesn’t have to swing the other way in extreme either where you’re starving now in order to have malnutrition in the future. So, you can do both. This is an and not an or. It’s an and not an or. However, there has to be a plan in order to feed both. That arc of questioning, that arc of connection that I explained, that walk-through that I just explained, if you can aspire folks to have that “aha!” moment, that it factor, and they understand that feeling, that it feeling—man, you’ve done something there, because they feel it.
Lessons From the Fall of Crypto
Ptak: As you know, we’ve seen a dramatic selloff in crypto assets over the past year. Maybe not focusing on crypto assets specifically and more on the lessons that investors should—and observers for that matter—should take away from this experience. What do you think are those lessons?
Dr. Cherry: Yes. Crypto—it’s to understand better individual’s risk capacity and risk tolerance and also knowing what someone’s investment plan is in relation to their investment path, as far as their pathway of life. That’s why mapping out your stages of life is very important, where you want to go, what are your needs are, so on and so forth. Because if you have a life path, an investment path when you’re planning, then you have an investment policy at the household level, then it identifies where your strategy needs to be and how you are shaping your portfolio. And then, when you mix that in with—and that’s when you get to start learning as far as being more educated, because now as a person and as a household you’re saying, this is our pathway and these are our values, this is where we want to go. Now, invest ourselves in a manner that pushes us down that path. I want to be educated in a manner to understand our path. Again, it goes back to that arc.
Once folks are tied in that way, then it says where do risky and volatile assets plug in to where we want to go. That leads to crypto and risk capacity and risk tolerance. You may want to take a whole bunch of risk; your willingness may be high. But what about your capability? And I think this is where these two areas which I’ve just introduced, how do assets fit into your investment pathway, your investment policy, your strategy? And then, number two, understanding more how it aligns with what you can do, but what you should do. Your willingness versus your capability. Then it better understands any type of asset, including crypto. Also, expectations of what investments are. Crypto is so new just like any other new asset. I wholesaled back in the day—we had an asset called risk parity and beta. Risk parity had all these different sleeves of assets, and it was a mechanized area to where it moved in a timely fashion. I’m shortening it up here. But the concept was introduced, but the mechanization was new and how it reacted, it was volatile. That wasn’t for everybody.
And according to someone’s pathway and understanding someone’s portfolio pathway and also the capacity and also tolerance, all of that weaved together, that pretty much understood that that solution probably only needed to be 5% in someone’s portfolio. This is where we are with crypto is putting all that story of which I just shared again, when we get to the point to where someone is able to be open to receiving the information and education of what crypto is and the whole aspect of what it is now, the beginnings of it, the volatilization of it—it’s like OK, I could try crypto, but where does it need to be positioned, where does it belong in my pathway, my investment pathway? And what’s the expectation? Is 300%, is that a realistic expectation? Is 200% a realistic expectation? No, that is not. What it does, to answer your question very specifically and using those things that I just spoke of, it does reiterate the fundamentals of the arc of investing, period, to accomplish an individual’s investment strategy. That’s what it does.
The author or authors do not own shares in any securities mentioned in this article. Find out about Morningstar’s editorial policies.