0:00:00 - Speaker 1
Discussions in this show should not be construed as specific recommendations or investment advice. Always consult with your investment professional before making important investment decisions. Securities offered through registered representatives of Cambridge Investment Research Inc. A broker-dealer member, finra, sipc Advisory Services through Cambridge Investment Research Advisors Inc. A registered investment advisor. Cambridge and Greenway Wealth Advisory are not affiliated. It's time to dive into some insider secrets of investing and retirement planning To make your retirement as smart and as elegant as possible. This is Money Chic with Sherry Rash.

0:00:31 - Speaker 2
Hey everybody, welcome into this edition of Money Chic, women and Retirement, with Sherry and myself talking investing, finance, retirement and a little jargon this week on the podcast Some investment terms that maybe you should know and hopefully understand, and some of these you probably do, but it's always a good time to go through a refresher of some of this stuff. They're important items that you're going to come across as you're getting prepared for retirement and some of these items are things you're likely to hear, so we want to cover what they mean and what you should hopefully take away from that on this episode so we won't go like seriously down the rabbit hole where you get all confused or anything. We'll keep it fairly high level, but of course, that's always reinforces the reason why you want to talk with a qualified professional like Sherry before you take any action with anything you hear on our podcast or any other. She is a financial advisor and money coach at Greenway Wealth Advisory. You can find her online, of course, at GreenwayWealthAdvisorycom. Sherry, what's going on? How are you?

0:01:24 - Speaker 3
Good, good. I'm excited to talk about jargon because I always try to pride myself on not using it so much, because it ends up just being confusing and overwhelming. So I'm excited to break down some of this jargon and put it into plain English for everyone.

0:01:40 - Speaker 2
Well, everybody's, every industry's got it right. So it's not, like you know, it's a new thing. But although the financial industry definitely is, you know, not short, they definitely.

0:01:50 - Speaker 3
A lot of jargon, a lot of acronyms, yeah.

0:01:53 - Speaker 2
Have you seen that guide code commercial, where they talk in all acronyms? Now it's a newer one, everything is like JK, lol, you know so like they have these little conversations and different things going on, but they never say anything. It's just all little acronyms or whatever.

0:02:05 - Speaker 3
They really have become words. The acronyms have become words. That emoji say, I think.

0:02:10 - Speaker 2
So, but, anyway, let's get into a couple of these. I got a huge list of them. I'll just, let's just jump around, We'll see how many we can get through and we'll just, if not, we'll, you know, get to more another time. But let's start off with fiduciary. Of course, if you're in the South you might say five, just teasing. But yeah, it's fiduciary, and what is it? What does it mean? Are you one? All that good kind of stuff?

0:02:30 - Speaker 3
Fiduciary is a word that we are hearing more and more when it comes to financial services, and if you see commercials or read articles, you might see the word fiduciary. Or make sure your advisor is a fiduciary, or work with a fiduciary. To put it very, very simply, well, one. Yes, I am a fiduciary, but what it means is that I am sitting on the same side of the table as you, so I am not incentivized to make recommendations based on what I'm going to get paid. I am just making recommendations because you are asking them from me, so that's. And many people may say, well, yeah, of course you should make recommendations on my best interest as your client.

But that's not always the way it has been, or at least the compensation structure for financial advisors hasn't always been that way, where in the past advisors were compensated through commissions, meaning depending on the product they sold was what they received as far as a commission from that product company. So if a one product offered a bit higher commission to the advisor, the advisor may put that product in front of the client to present versus the other product. That maybe both are appropriate, but the advisor of course like the product that paid him or her a little bit more. Today, more and more advisors are fiduciaries and we're working in a fee based arrangement, meaning whatever product you use, whatever investment you use or whatever service you enter into, and it with an advisor, the compensation is the same, no matter what. So we're not motivated by what we can earn, because we already know what we're going to earn and you already know what. You already know, as the client, what we're going to earn. So we're just picking the best thing for you.

0:04:28 - Speaker 2
Yeah, it's all that upfront, and there's that, there's the legal, the moral, the ethical, you know, everything that kind of goes with it. And it is silly that we have to have kind of rules in place and say, hey, just do the right thing by someone. But hey, we've all been around the block, we know that's the case in the world, and I somebody was explaining to me with, the suitable thing is like a lot of times, though, if you have the suitability, that's the other side of that to folks. So there's the suitability versus the fiduciary, and so it's like, if you have, if you know, potential advisor or something has three options in front of them and they can say, well, technically, all three are suitable for my client, they all three technically work, but this one gives me a better incentive, or this one gives me a trip, or something like that, then they could, you know, take that one and not have any qualms about it, where, as the fiduciary is like, no, I have to do the utmost best for my client at every turn.

0:05:13 - Speaker 3
Exactly, I also, when I start to work with clients and I explain how I work and my services that I provide and that I am a fiduciary, I equate it to going to the doctor. You make your appointment, go to the doctor, you go right away. They collect your co-pay, you fill out forms, they take you back, they take all of your vitals, maybe some blood work, take your blood pressure, all of that, and then you go and meet with the doctor and they ask more questions why are you here, what's going on? And look at your history, and then, based off of the your answers to the questions and your vitals, they then make recommendations. So they may say, lay off the salt, or cut out red meat or reduce your wine intake, and you can essentially take that information and do what you like with it.

Right, because the fee to the doctor has already been paid, it's already been submitted to insurance, and now it's up to you to do something about it. It's the same experience with me as an advisor I'm going to collect information from you, I'm going to ask you questions and then, based off of all of that, I'm then providing you recommendations. You already know, though, what you are essentially paying, what you are paying me for my recommendations because it's completely transparent and you can do with it, with my recommendations, essentially whatever you'd like, I can help you or you can go and DIY it yourself.

0:06:43 - Speaker 2
Exactly, all right. Well, that's fiduciary. That's the first one. Let's go to inflation Again. A lot of some of these we're going to know. I think we all know what inflation is, but we're hearing it a lot, obviously because we're dealing with it. So let's just do a quick breakdown.

0:06:56 - Speaker 3
Really what inflation is is how much does your dollar buy you today versus a year ago, or what can it buy you a year from now? Go to the grocery store. Your hundred dollars is not going nearly as far today as it is as it did two years ago or 10 years ago. I actually have a great analogy for that too.

0:07:15 - Speaker 2
Yeah, if you don't mind me sharing.

0:07:17 - Speaker 3
Please.

0:07:17 - Speaker 2
Yeah, so you have, somebody broke it down for me like this once and it just always stuck with me. I think it's a really easy way to work with and it's good for kids and stuff as well. I can teach anybody with it what inflation is. So you have, you know, on one hand you have 10 apples, right, and on the other side you have $10. And that's the. You know the supply and demand. So how much does each apple cost? Costs a dollar, right, you got 10 and 10. Well, if you put a bunch of cash into your hand that $10, like we've done through the stimulus over the last couple of years, Sherry, you add all this money. Now let's say, let's say, 40% increase, and now you've got, you know, $14 in your hand. Well, how much does each apple cost? Costs a dollar 40, right?

0:07:54 - Speaker 1
That's inflation.

0:07:55 - Speaker 2
You take away three apples and you only have seven now, but you still have the 14 bucks. Each apple costs $2. So that's the easy way to think about inflation.

0:08:05 - Speaker 3
Absolutely. Think of anything that you're purchasing. It's probably cost you more today than it did a couple of years ago, but inflation's healthy for economy. We want some type of inflation, and when it's around 3% or so, that's that's good. We like that. When it's hitting 10%, that's where that's not so good, yeah, and we've got all this.

0:08:28 - Speaker 2
we've got all this money basically because people weren't spending through COVID, right? So not spending as much, obviously because we weren't going any place. And then so we started putting all this money in, so people had stuff saved and now we've got more excess. But then the supply chain shortages started to happen when people started to go back to work because they hadn't caught everything back up. And so until this all works itself out and typically that's what winds a lot of people say, well, how long is this going to last? And it's like what's hard to tell because it has to kind of somewhat naturally work itself out.

But then also, at the same time, then you have the issue of the feds talking about. Earlier this week they raised it in 25 basis points, so they're talking about raising interest rates because that's supposed to help curb, you know, the inflation. So there's lots of little things like that can factor into it, but some of it's going to just take time. So we have to deal with what's in front of us. But we can be smart about it and just kind of be as efficient as we can be with our dollars and stretch them out. And that's going to take me to my next term, sherry, which is dollar cost averaging. People are hearing that. What is that?

0:09:26 - Speaker 3
Dollar cost averaging is spreading your money out with your purchasing as far as investing goes over a period of time.

So, using $100 as an example, if you were to systematically invest into your investment every month and you were to contribute $100 a month, if what you're buying so the mutual fund, for example costs $20 a share, in March, you're buying five shares. If in April, your that same mutual fund is now trading at $25 a share, your $100 is buying you four shares. But then, say May, that same share is now trading at $10 a share. That same $100 is now buying you 10 shares. The amount of shares differ Based on what the share price is. And why this is a benefit is because when we were, when it was trading at $10 a share and you bought 10 shares right, and price goes back up again because it will you have that many more shares that are going up that much more. So dollar cost averaging can be very powerful Versus just dumping all of your money in at one time. When markets are up, you're buying less shares, so by spreading it out, you're capturing different share prices each time.

0:10:57 - Speaker 2
So basically, like when you're just contributing while working into something like your 401k or whatever, you're basically doing that correct exactly, exactly.

0:11:05 - Speaker 3
So when I it, when you were contributing to your 401k or 403b in 2008, for example, or March of 2020 or the beginning of this year, your Dollars were going a lot further and buying a lot more shares, and although it's, you know, disheartening to sometimes see your account go down right away after you were to purchase, I get it, but just think of you're buying that many more shares and when the prices go back up because they will You're gonna feel that growth and it's gonna be so much more powerful because you bought at such a lower price.

0:11:41 - Speaker 2
And that's where we come back to the age old thing of fighting ourselves about when the market dips. We can start to panic because we don't like to see our accounts go down, but the upside is, depending on your time horizon and your strategy is, yeah, you are now getting some things at a discount, you know. So that's just. It's the proverbial buy low and sell high. You know, kind of thing investing is the only thing.

0:12:01 - Speaker 3
I feel like that when, when it's on sale, people run away.

0:12:05 - Speaker 2
We do the opposite, yeah it's the exact opposite.

0:12:07 - Speaker 3
If, going to your you know your grocery store, your apple example, yeah, if someone said buy apples, buy to get one free, we're we're gonna buy two and get one free, or buy four and get two free, right. But when it stocks are, buy one, get one free, or buy two, get one free, we run away from it. We don't think it's a good deal, we think something's wrong with that.

0:12:27 - Speaker 2
Yeah, there's something wrong with it. That stock's broken. Yeah, it's effective or whatever.

Yeah, we are silly that way because it's I think it's well, partly because of what we're talking about today is because sometimes the terminology, the language, the industry, the lingo, just it's just scares people, especially when you don't deal with it every day. So understandable, but that's why it's good to learn as much as we can. And, and speaking of that and you mentioned mutual funds, so this one is kind of a big one, so I'm gonna break it. I actually have a couple things here, but I want you to kind of just, we'll just do each one individually. We'll keep it kind of high level, as I mentioned before, but let's talk about the differences between some of the vehicles. Okay, so an ETF, a mutual fund, an index fund, a target date fund these are all terms people have probably heard, so let's break them down real quick. What's an ETF?

0:13:10 - Speaker 3
An ETF is an exchange traded fund, and the way I explain this is when you're watching the news and you see S&P 500 is green, it's up, or Dow Jones is green, it's up, and you call me and say, hey, shari, buy me that S&P 500 because it's going up right, because we want to keep investing on what's going up. As human nature, I cannot buy you the S&P 500 because it's an index, so it tracks 500 companies right. That's what the S&P 500 does, so it's a barometer for how organizations are performing right now. So I can't buy you that. But ETFs were created about 30, 40 years ago to essentially mimic those indexes that we see. So an ETF was originally created to mimic the S&P 500, to track that index, to track the Dow Jones, to track the bond indices. So that's how ETFs were originally created to follow that index.

And then over time, etfs evolved and now there's an ETF for pretty much anything you can think of. There's technology ETFs, there's healthcare ETFs, there's an ETF where there's a female that holds companies where females are the CEOs. So kind of like the old saying when iPhones came out, there's an app for that. Now there's an ETF for that. The reason why I like ETFs versus stocks is because, let's say, you own Johnson Johnson stock, you're essentially living and dying and your investment experience is solely based off of Johnson Johnson, where, if you had an healthcare ETF, you're doing what the healthcare industry is doing. So Johnson Johnson, moderna, name any healthcare organization they're going to be in that ETF, so the volatility could be lessened due to the fact that you're not having all of your eggs in one company's basket.

0:15:13 - Speaker 2
Yeah, and so you've got a smattering of those kinds of companies versus just the one. So if one's down but one's up, you're kind of balancing out and you're spreading that out a little bit more. And I was going to say, and they work like, or they work like a stock as far as, like, you can get in and out of them at, you know, 11 o'clock, if you wanted to, in the afternoon or in the morning, also at 3, you don't have to wait till the end of the day, unlike a mutual fund, which we'll go to next, that's. One difference in a mutual fund is that you have to wait till the end of the day. So tell us a little bit about those.

0:15:42 - Speaker 3
Yeah, so mutual funds, they have different purposes. So you could have a growth fund, a growth and income fund, just income alone, and they again hold stocks and bonds for the fund's objective. But the difference between an ETF and a mutual fund is that a mutual fund has trading going on inside of the mutual fund. So they're managers that are managing the mutual fund and they're picking and choosing what's inside of that mutual fund where the ETF is pretty stagnant. Once you establish a healthcare ETF, there's no trading going on inside of it. It's set where the mutual fund is not.

The managers are bringing companies in and selling and buying to fit the objective of the fund. So there's a lot of trading going on inside of mutual funds. Unlike ETFs, mutual funds also, as you mentioned earlier, you cannot trade them throughout the day. You have to wait till the end of the day to trade them. So even if the fund was up in the beginning of the day and you place that trade order, it's not going to be executed until after the market closes and you're at the mercy of whatever the price is when it closes.

0:17:00 - Speaker 2
Yeah, you can look at it and be like woohoo, only jump out now. But unfortunately if it changes in the two or three hours till the end of the day or whatever, that's kind of how that works, all right. So you mentioned index funds a little bit whenever you first were talking about the SMP as an index and the Dow. So what is an index fund?

0:17:16 - Speaker 3
So an index fund is basically it's like a mutual fund for an index, so index funds can be bought and sold only at the end of the day. So it's like a mutual fund for an index Kind of like an ETF.

0:17:33 - Speaker 2
They mirror them right yeah.

0:17:35 - Speaker 3
Yeah, exactly, so an ETF and a mutual fund came together.

0:17:39 - Speaker 2
Okay and so yeah, and there's so many more indexes than people realize too, we tend to. We hear about the Dow, and we hear about the NASDAQ, and we hear about the S&P, but there's a whole bunch of other ones as well. So yeah.

You can run a fund that runs alongside of whatever you know different kind of index you might like to pick. So there's a lot of I guess a smattering of things to choose from there. And then the final one is target date funds. Now, most people are probably familiar with this share, especially if you're working or you had recently, over the last couple of years, went to a new company or whatever, and you have to pick the stuff you want to do whenever you get set up for your 401k. And many times we wind up just picking the target date fund because it just seems easy. It says, oh, 2030, and that's when I'm going to retire, that's when I'm going to be of age. I'll just take that one.

0:18:26 - Speaker 3
Correct. That's generally how you'll see target date funds inside of your employer-sponsored plan, your 401k, your 403b and, yes, most people pick them because, well, I am retiring in 2045. So, the funds call 2045, perfect.

0:18:43 - Speaker 2
Yeah, exactly.

0:18:44 - Speaker 3
And the way they're managed is that one. They assume everyone that's in the 2045 fund is retiring in 2045 or whatever respective year you're choosing, and then they are making the portfolio more conservative over time in preparation for that retirement date.

0:19:05 - Speaker 2
For that 2045. And that's the interesting misnomer with that, though, right, sherry? Because I think we hear that and we think generally that, oh okay, so if I pick the 2045, to use your example, by the time it gets to there I'm going to not be at risk, I'm going to be, it's going to just have me in safety or whatever. And that's the misnomer with these when they're going to be a little bit dangerous, because they typically don't go down that far, they reduce risk as over time, yes, but not down to zero, for example.

0:19:32 - Speaker 3
No, no, and listen to the vast majority of our previous podcasts and we'll talk about why we don't want that to happen. Anyway, we do the risk that you face in retirement. We don't want everything conservative, want the day you hit retirement anyway, Right, so correct. So the target date funds will get more conservative over time, but they're not going to go down to no risk. One thing I caution against target date funds is that they're painting everyone who's in the target 2045 fund, for example, with the same brush.

0:20:07 - Speaker 1
Right.

0:20:08 - Speaker 3
So they're assuming everyone has the same appetite for risk, everyone's investing the same amount of money. So if you have the ability to speak with an advisor on some other options inside of your 401Ks, I would explore it because you may be able to get something a little bit more specific to you and fits your risk appetite and fits into your overall household investments.

0:20:33 - Speaker 2
Yeah, a lot of times these are what these types of funds too. They're going to drop down to maybe typically the standard 6040 by the time they get to. Whatever the case is, whatever the number is and often you know you move to bonds. That's the traditional way of doing it. Of course, right now, bonds are super iffy because of the rate issues, right? So if the Fed is starting to tick things up, as I mentioned earlier, and you've bought a bond at this rate and then now you could buy another, somebody else could buy a new bond at a higher rate, a higher yield. You're stuck with this kind of discounted bond. So there's lots of different ways to think about some of this stuff.

0:21:07 - Speaker 3
Yeah, to your previous point about inflation and letting things kind of shake out. I always prefer versus the Fed intervening because for that exact reason. So they're trying to raise interest rates right now to try to temper inflation. But what that does is when interest rates rise, bond prices go down.

So if you're holding a bond right now, it's worth less because the share price is going down due to interest rates going up. So that doesn't. We don't hold bonds with the thinking that they're going to go down, because we want them to be conservative. They're supposed to be our steady eddies in our portfolios, so that's not the best feeling to have a bond right now in an rising interest rate environment.

0:21:54 - Speaker 2
So you can see, folks, there's a lot of stuff that goes with the different terminology, as we all really kind of know, and we have most of us, I think have a broad understanding of some of these terms, but obviously can get kind of into the weeds here and there and, like I said earlier, we weren't gonna go super far down into that. So hopefully that made sense. But, as always, if you've got some questions, definitely talk with your advisor or your professional about hey, how am I set, how am I doing to combat inflation? Or you can even ask the question when we started with fiduciary. It's okay to talk to a person that you're working with and say are you a fiduciary? Or if you're sitting down to meet with somebody for the first time and you've never worked with them and you're wondering how they get paid, these are all questions that are totally acceptable for you to ask clearly. So definitely reach out. If you have any questions, contact Sherry, let her know and she'll be happy to talk with you through some of this stuff. And you can find her online again at GreenwayWealthAdvisorycom. That's GreenwayWealthAdvisorycom, and there's lots of good tools, tips and resources and things you can do there at the website.

You can subscribe to the podcast as well, which is Money, chic, women and Retirement. You can find those links to the major platforms Apple, google, spotify or, if you just are on the app itself, like the Apple Podcast app, just type in Money, chic, women and Retirement and you can find it that way as well. So, sherry, thanks for hanging out, thanks for explaining some of these terms. I appreciate it so much and I hope you have a great week. Thank you, we'll catch you next time here on the show and don't forget, hit that subscribe button. We'll be back with more a little bit later here in April, on Money, chic, women and Retirement with Sherry Rash.

0:23:30 - Speaker 1
Discussions in this show should not be construed as specific recommendations or investment advice. Always consult with your investment professional for making important investment decisions. Securities offered through registered representatives of Cambridge Investment Research Inc. A broker-dealer member, FINRA, SIPC Advisory Services through Cambridge Investment Research Advisors Inc. A registered investment advisor, Cambridge and Greenway Wealth Advisory are not affiliated.