Best In Wealth Podcast Scott Wellens

The mutual fund landscape is complex, with thousands of choices. In fact, at the end of 2023, there were 4,722 US-domiciled funds that we could choose from. Of those, 2,043 were from US equities, 1,124 were international funds domiciled in the US, and over 1,500 were bond funds.

If you add all the money from these funds, it totals 10.6 trillion dollars. $5.4 trillion is in US equity funds, $2.1 trillion is in international equities, and $3 trillion is in bond funds. Whew.

If you decide to buy an ETF or mutual fund, you’re spreading out your risk (as opposed to buying individual stocks). But how do you choose between the thousands of options? Should you choose between the thousands of options?

My goal is to help you understand the landscape of mutual funds so you can make informed decisions in this episode of Best in Wealth!

[bctt tweet="In this episode of Best in Wealth, I dive into the mutual fund landscape and how it works. Give it a listen! #wealth #investing #FinancialPlanning #WealthManagement" username=""]
Outline of This Episode

[1:08] Did you fill out an NCAA bracket?
[3:32] The mutual fund landscape
[6:21] What is an active mutual fund versus an index fund?
[11:28] Actively managed funds aren’t performing well
[16:48] Are you an active or passive investor?
[18:02] Is there a better way?


What is an index fund?
An index fund is your first option for investing in a mutual fund. An index fund tracks indexes, such as the S&P 500 or Russell 3,000. You’re buying “the market.” You will receive the return of that market (minus expenses and tracking error). If you want to do better than an index fund and do better than the average of the stock market, you hire someone to manage it for you (i.e. buy into an actively traded fund).

[bctt tweet="What is an index fund? I cover the basics of mutual funds (and how many there are to choose from) in this episode of Best in Wealth! #wealth #investing #FinancialPlanning #WealthManagement" username=""]
What is an active mutual fund?
An active fund is your second option for investing in a mutual fund. You have the option to buy that fund through your brokerage account or 401k. Active funds have a mutual fund manager and a team of people making decisions on the fund’s behalf. The manager is the “expert.”

They look at all of the publicly traded companies and choose the ones that will be in the fund. That manager and his/her team might decide to sell some of those companies. You’re hiring this manager to do well, to beat the market. But how do you know if they’re doing well?

The University of Chicago’s Center for Research and Security Prices is a great place to start. They looked at every single publicly traded company and created indexes to see how the market was doing. They’re how we learned that the US stock market averaged a 9% return per year.

But this throws a wrench in things: It’s not looking good for the actively traded funds.
Actively managed funds aren’t performing well
On 12/31/13, there were 3,022 funds available to choose from. As of 12/31/23, only 67% of those funds still exist. Why? Those 33% weren’t performing well. When we look at winners, looking back 10 years, only 25% of the experts beat the market. You only have a 25% chance of selecting an actively managed fund that will beat the market.

15 years ago, there were 3,241 funds and only 51% of them survived and only 21% of them had beaten their benchmark. Only 45% of the funds that existed 20 years ago survived. Of the 2,860 funds available 20 years ago, only 18% have beaten the market.

What does this tell me? Actively managed funds aren’t doing any better than index funds. Chances are, whether you buy into an index fund or an active fund, it’s not always the best...

The #1 issue most people face when it comes to retirement is running out of money. Secondly, most people want to live the best retirement that they can. If there is anything left, they will gladly give it to their children—but it does not need to be millions of dollars.

Too many people are dying with too much money and never got to live out the retirement of their dreams. You have been saving your entire life. You should not be scared to spend the money and fear it running out. So how do we make sure that does not happen? I will share some of the common solutions—and our strategy at Fortress Planning Group—in this episode of Best in Wealth.

[bctt tweet="The #1 issue most people face when it comes to retirement is running out of money. How do we solve for that at Fortress Planning Group? Learn more in episode #242 of Best in Wealth! #retirement #RetirementPlanning #WealthManagement" username=""]
Outline of This Episode

[1:07] Spending money in your retirement
[2:49] The two central issues with retirement income
[4:38] Solution #1: Purchase an annuity
[5:50] Solution #2: Live off your dividends
[8:00] Solution #3: The 4% rule
[10:04] Solution #4: Guyton and Klinger’s Guardrails
[15:30] Utilizing risk-based guardrails


Solution #1: Purchase an annuity
An annuity has the potential to give you steady income until you die. Let’s say you give $1 million to an insurance company in exchange for monthly payments. It might be $4,000-$6,000 per month. But when you pass away, the insurance company keeps your money.

If the insurance company goes out of business, you lose those monthly payments. Many people still use annuities to fund their retirement. The biggest drawback is that most people do not think about inflation. That money will not go as far in 20 years.
Solution #2: Live off your dividends
Let’s say you have $1 million and you decide to buy a company that is paying a nice dividend. Let’s just say you are receiving a 5% dividend or $50,000 a year to live off of. But most people do not know that dividends can go down. Secondly, when the stock price fluctuates, your $1 million could lose value. Someone who invested in Wachovia Bank lost everything when they filed bankruptcy. The investment became worthless.

[bctt tweet="Can you fund your retirement by living off your dividends? I share why this isn’t the wisest decision (and what we do instead) in this episode of Best in Wealth! #retirement #RetirementPlanning #WealthManagement" username=""]
Solution #3: Follow the 4% rule
Stocks can gain value over their lifetime. The 4% rule means that if you have $1 million, you could live off of a 4% withdrawal from your portfolio the first year. Every year, you take an inflation adjusted raise. If inflation is 10%, you withdraw $44,000. If you do that, your purchasing power stays the same. Bengen looked at every 30-year period in history and 93% of the time, the 4% rule works. What about the other 7% of the time? What doesn’t the 4% rule solve for?
Solution #4: Guyton and Klinger’s Guardrails
Guyton and Klinger’s Guardrails try to solve for both running out of money and dying with too much money. They propose that a 4% withdrawal can be too small of an amount. They usually start with withdrawals of 4.5–5%. How is their process different?

If you start with $1 million and the portfolio goes to $1.2 million, you give yourself a raise as well as an adjustment for inflation. And if your portfolio goes down to $800,000, you have to be willing to take a pay cut until the portfolio gets back above your lower guardrail.

When you take raises when your portfolio is doing well, it solves the issue of dying with too much money left. You rely on your guardrails to dictate what you do.

But we do not entirely use this strategy—or any of these strategies—at Fortress Planning...

What is a Roth conversion? Should you do a Roth conversion? When is the best time to do a Roth conversion? If questions like these have been circulating in your mind, this is the episode for you. I will break down when doing a Roth conversion might make sense for you (and why your CPA might not like it) in this episode of Best in Wealth.

[bctt tweet="What is a Roth conversion? Should you do a Roth conversion? I share my expert opinion in this episode of Best in Wealth! #wealth #retirement #investing #PersonalFinance #FinancialPlanning #RetirementPlanning #WealthManagement" username=""]
Outline of This Episode

[1:03] There are some great CPAs out there
[3:56] What is a Roth 401K or IRA?
[7:41] Should you do a Roth conversion?
[9:37] When to do a Roth conversion
[13:37] Why you should work with a financial advisor


Understanding Roth conversions
Your money is either taxable, tax-deferred, or tax-free. Taxable money might be held in a savings account or brokerage account. You may collect interest and dividends. Taxes are due in the year those things happen.

Tax-deferred accounts are traditional IRAs, traditional 401Ks, and other retirement plans. You’re contributing money to get a tax break. The money grows and you have to pay taxes on the earnings you make.

A tax-free account—like a Roth IRA or 401K—means you contribute after-tax money. You also do not pay taxes on the distributions (because you already paid the taxes).

You can convert some of a traditional IRA or 401K and convert it into a Roth account. But all of those dollars are taxable. If you make $100,000, a Roth conversion might land you in the 22% tax bracket (and likely the next one or two brackets above that).

It may not be wise to do a large Roth conversion when you make a good amount of money. So when should you?
Should you do a Roth conversion?
If you have deferred money in a Roth IRA, you can do a conversion. But should you? When would you consider it? There’s no easy answer and it will be different for everyone. But there are some circumstances in which it might be better.

For example, if you lost your job, took a sabbatical, or did not earn as much money and you are in a low tax bracket because of it, it might be a great time to do a Roth conversion. If your income level is lower, you can convert some over at a lower tax rate than when you made the contribution.

[bctt tweet="Should you do a Roth conversion? I break down why it’s not a one-size-fits-all answer in this episode of Best in Wealth! #wealth #retirement #investing #PersonalFinance #FinancialPlanning #RetirementPlanning #WealthManagement" username=""]
Roth conversions cannot be undone
Before doing a Roth conversion, consult with a CPA or Financial Advisor. Why? Because it cannot be undone. Let’s say you are taking a sabbatical or recently got laid off. So you decided to convert $50,000 of your traditional IRA.

But two months later you are offered a job you cannot refuse. You get a sign-on bonus of $100,000. Suddenly you are making $300,000 a year. That $50,000 that was going to be taxed at 10% is now in the 32% tax bracket. Ouch. In the old days, you could move it back—you cannot do that anymore.

So if you are on a sabbatical or lost your job, wait until later in the year before doing a Roth conversion.
When should you do a Roth conversion?
Retirees who have a long runway before receiving social security or taking required minimum distributions and those with large traditional accounts can consider it. If you can live on your taxable account and there is no other taxable income coming in, you can do conversions over years at a lower tax rate. Once you start collecting social security, it can be more difficult to do conversions because it may increase your tax rate. That is why you need to work with a financial advisor.

David Booth—the Executive Chairman and Co-Founder of Dimensional Fund Advisors—recently wrote an article entitled “Uncertainty is Underrated.” In this episode of Best in Wealth, I will read this intriguing article and share why I agree that—while it sounds scary—uncertainty has a positive impact on our lives.

[bctt tweet="Uncertainty is underrated. I share why the impact of uncertainty is positive in this episode of Best in Wealth. #wealth #investing #WealthManagement" username=""]
Outline of This Episode

[1:23] The blue cruise function on my F150
[3:11] David Booth’s article on uncertainty
[10:36] Life is one cost-benefit analysis after another
[13:22] How to manage risk: What to do (and not do)
[19:31] Why you need to know the basics about uncertainty


Uncertainty is why we see stock market returns
Without uncertainty, there would be no 10% annualized return on the stock market. How?

According to David, “If there was no uncertainty, returns would be predictable and there would be no difference between putting your money in a savings account or investing it in the stock market.” Risk makes potential rewards possible.

When you have money in your savings account and it is earning interest, it is certain that you will receive interest payments. The stock market is different. It is a roller-coaster. The S&P 500 was down 18.5% in 2022 and up 26% in 2023 (which is not abnormal).

Uncertainty simply means that we do not know—from day-to-day, week-to-week, or month-to-month—what those returns will look like. Everyone is guessing.

Over time, the stock market has delivered a 10% return. The reason we see a higher rate of return in the stock market is only because of the uncertainty.

[bctt tweet="Without uncertainty, there’d be no 10% annualized return on the stock market. How? I share the reasons in episode #240 of the Best in Wealth podcast! #wealth #investing #WealthManagement" username=""]
Life is one cost-benefit analysis after another
What is loss aversion? It is the premise that a loss can feel twice as painful as a gain of an equal amount. It might be one reason why uncertainty is underrated. An 18% drop in the stock market feels twice as bad as when the stock market goes up 18%.

David points out that “Because of uncertainty, life is one cost-benefit analysis after another, and we have no choice but to manage risk.” We cannot ignore it or eliminate it entirely, nor would we want to. But what we must do is prepare for it.

And humanity is no stranger to uncertainty. We have to make choices every day and those choices are how we manage risk. David points out that we cannot control the weather. But if it looks like it is going to rain, we might carry an umbrella around. The cost is the weight of the umbrella but the benefit of that cost is staying dry.

He shares that “When it comes to investing, you cannot manage stock market returns, but you can manage the risk you take.”
How to manage risk: What to do (and not do)
So how do we get better at managing risk?

What not to do: Do not try to predict the unpredictable by trying to time the market or pick winning stocks. Many of us struggle with the desire to time the market. But we cannot time it. When we try, it is a loser’s game. You will likely leave a lot of money on the table.
What to do: Diversify your portfolio to reduce risk and capture return. Secondly, figure out the amount of risk that you are comfortable with. You should invest and be prepared for a range of outcomes.


When you have a plan that you can depend on—and experience uncertainty—the more likely you are to succeed long-term.

We have all been managing risks and rewards our entire lives. Some years are better than others. But we stick around to see what...

If you opened up and looked at your 401k statement, chances are that some of your investments are international. You are investing in companies outside of the United States. If you are invested in a target date fund, it is almost certain. It may be in mutual funds or ETFs. It may be in developed or emerging markets through reliable stock exchanges.

But should you own companies outside of the US? Emerging markets in developing countries have not moved much in the last 10 years. The US has had quite a run. Why would you invest internationally? These are all good questions to ask. I will do my best to answer them in this episode of Best in Wealth.

[bctt tweet="Should your retirement portfolio be diversified internationally? I cover why the answer is “YES” in this episode of Best in Wealth! #Investing #Retirement #RetirementPlanning #WealthManagement" username=""]
Outline of This Episode

[2:21] Should I be internationally diversified in my retirement portfolio?
[4:58] You are likely investing internationally already
[7:05] Investing internationally creates a diversified portfolio
[8:44] How the US ranks compared to other countries
[16:25] Other asset classes performed well
[17:59] Another reason to be internationally diversified


You are likely investing internationally already
What kind of car do you drive? If you drive a GM, a Ford, or a Tesla, they are domestic-based companies. You are likely invested in them, too. Many car manufacturers are based internationally. BMW, Mercedes, Volkswagen, Porsche, etc. are owned by a German company. Chrysler, Jeep, and Dodge companies are owned by companies in Italy. The list goes on.

We know these cars. Most of the cars we buy and drive every single day are sold by companies that exist outside of the United States. There are many outstanding companies located outside of the US. And if you are invested in them, you’re investing internationally.
Investing internationally creates a diversified portfolio
You know that we do not try to time companies, sectors, countries, international vs. US—we do not time anything. Instead, we diversify your portfolio at a risk level you are comfortable with. We make sure it fits within your retirement plan. A well-diversified portfolio sets you up for a greater chance of success, without big swings. The more asset classes we can add—including international investments—the smoother the “ride” will be.

[bctt tweet="Reason #1 you should invest internationally: Investing internationally creates a diversified portfolio. Why else should you diversify? Find out in episode #239 of Best in Wealth! #Investing #Retirement #RetirementPlanning #WealthManagement" username=""]
How the US ranks compared to other countries
It may surprise you that the US is not the only big “player” in the stock market. There are what we consider 45 “reliable” stock exchanges globally. Where did the US rank out of the 45 international stock exchanges in the 4th quarter of 2023? We were not #1. Poland actually produced the best returns. The US ranked #20, about the middle of the pack. Let’s look at some more numbers:

What about the full calendar year? Hungary, Poland, and Greece were up over 50% in 2023. The S&P 500 was up 26%. The US ranked 13th. Thailand and Hong Kong stock exchanges ranked last.
From 2010–2020, the US did really well. But during that decade, the #1 country was New Zealand. The US was ranked #2.
What about 2000–2009? This was a rough time in the US. We started the decade with the Doc-Com bubble. We ended it with the Great Recession. The top two countries were Brazil and the Czech Republic. Greece, Finland, Japan, and the United States ranked at the bottom.


If you started the 2000–2009 decade with $1 million, you ended it with about $900,000. Not good. But if you had

How often should you look at your investments? Some of my clients look at their investments every day. Some look weekly, monthly, quarterly, annually—and some never look at them. So what is my answer? It depends. After listening to this episode of Best in Wealth, you will know how often you should check on your investments (based on you).

[bctt tweet="How often should you look at your investments? Some of my clients look at their investments every day. Daily, monthly, weekly, quarterly, or annually? I share my surprising answer in this episode of Best in Wealth! #Investing #Invest #RetirementPlanning" username=""]
Outline of This Episode

[2:18] Whole30: The importance of consistency and discipline
[6:51] The third-best tennis player in the world
[9:52] The track record of the S&P 500
[17:51] What looking at the S&P 500 tells us
[20:55] How many times should you look at your portfolio?


The third-best tennis player in the world
Let’s talk about tennis for a minute. Roger Federer was one of the top three tennis players of all time. He is elite. Of the millions of tennis players who grew up playing, got scholarships, and played the best they possibly could at the pro level, Roger was one of the best.

Roger won 20 Grand Slam Men’s Single titles, the 3rd most of all time.
He is the only player to win five consecutive US Open titles.
He won 40 consecutive matches at the US Open.
He is the second male player to reach the French Open and Wimbledon finals in the same year for four consecutive years.
He is the only male player to appear in at least one Grand Slam Semi-Final for 18 consecutive years.
He won eight Wimbledon titles.


He is one of the best to ever play the game. But what does any of this have to do with investing?

[bctt tweet="What does the third-best tennis player in the world have to do with #investing? Find out in this episode of Best in Wealth! #Investing #Invest #RetirementPlanning" username=""]
The track record of the S&P 500
Let’s switch gears and talk about the S&P 500 (which you can not invest in but it is a benchmark). The S&P 500 has had an amazing track record. The average return is a little over 10% per year. But what does that mean? What does a 10% return look like?

Let’s compare the S&P 500 to a high-yield savings account. A 10% return means that every seven years, your money will double. If you have $1 million in investments—and actually earn 10%—it will be $2 million in seven years.

The rule of 72 says that if you divide 72 by your interest rate, that is the number of years it will take to double. So if you put your money in a high-yield savings account—likely earning around 4.5% right now—it will take 16 years to double. That is why we need to invest in some things that will grow faster—even faster than a high-yield savings account.

What does any of this have to do with Roger? In tennis, each time someone serves the ball, you are playing for a point. When you get enough points, you win the set. When you win enough sets, you win the match.

He is one of the best players ever—but he only won a point 54% of the time. Roger won 75% of his sets. And Roger won 81% of his matches. You are probably thinking, “Scott—how does this have anything to do with how often you should look at your investments?” Stick with me.

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What looking at the S&P 500 tells us
The S&P 500 plays a game every time the stock market is open. How often is the S&P 500 positive or negative? Let’s call a positive result a “win” and a negative return a “loss.”...