MLO | Mortgage & Real Estate Podcast

401k / Retirement Should We Drain Our Account? Mark Meek & Addy Nett

April 13, 2020 Addy Nett Season 1 Episode 6
MLO | Mortgage & Real Estate Podcast
401k / Retirement Should We Drain Our Account? Mark Meek & Addy Nett
Show Notes Transcript

Financial Advisor, Mark Meek pulls back the curtain on investment opportunities during unique market conditions. How to plan and react financially.  This episode surfaces excellent information for all individuals regarding their Finances during COVID-19 pandemic. Even if you are struggling with Debt or in a position to invest there are steps to take Action and prepare.

Addy Nett:   0:00
before we get started. I wanted to make a quick note that we're recording all of these episodes from home and certainly doing our best to find any quiet corner where the kids can't be heard or the lawns being mowed next door. So thank you, everyone for bearing with us today we have a really special guest mark meet Financial advisor Mark Dives into is tapping into that for a one. A good idea. What type of steps and strategies can we take to really a line? So today's episode isn't necessarily for, say, your $200,000 liquid investor. It's also for the person trying to figure out How do I get started? My name is Addy. Net. This is MLO, enjoy the show.

Addy Nett:   0:54
And today we have a special guest in a very important person in the industry right now, Mr Mark Meek. How you doing today, Mark?

Mark Meek:   1:04
Great. And how are you? Thanks for having me on the show.

Addy Nett:   1:06
Thanks, man. I really appreciate you taking the time and one reason why I really wanted Marcus. Mark is a financial advisor, and right now, and our hearts go out to everybody that is affected by the Cove in 19 virus and not only the physical implications of the virus, but also the financial side. And I personally trust Mark with my own finances. So bringing him on is a huge testimony. And Mark, I just wanted to hear like, would you mind explaining to everybody like, What is the last 4 to 6 weeks been like for you, man? Like what type of calls you get in and just give us some insight?

Mark Meek:   1:46
Yeah. No, that's Ah, really good question. I'd say it's really been a mixed bag, you know, as you mentioned before a lot of stuff happening right now. Then no one could ever anticipate. That's completely out of everyone's control. And a really big segment of the clients that I work with are closely held business owners, um, specifically in the our restaurant scene and local, uh, downtown Portland here. So it's been pretty tough. Honestly, that's ah lot of calls where there's really nothing we could do or anyone to do besides just prepare for the best embrace. Um, so that's been kind of a challenge, but I'd say for the most part, um, a lot of kind of our normal 9 to 5 or, you know, people like yourself in a professional space. Um, a lot of the calls have been favorable for the most part, um, you know, being in this industry since 2012 have to say it's it's been pretty easy, you know, I could have ah, you know, pretty much told most of my clients to invest in almost anything that's market based and have a positive and favorable rate of return. So I think, really, where a lot of our clients are finding peace of mind and just reassurance that what they're doing is the right thing right now is the fact that we've been having what's called lifeboat drills. Ah, kind of leading up to this, right? Yeah, because you know, the way they look at it is when we're having our annual review meetings were looking at favorable returns for the most part. Obviously, there's little Blip Q four of 2018 with the Brexit situation and everything else going on. But usually I would say, Hey, you know, number one. We need to make sure that what are we gonna talk about when these returns are negative? You know, what are the thoughts. They're gonna be happening in our heads. What are our feelings and our emotions going to tell us? And Ah, just kind of like jumping on the lifeboat. Right? What are we gonna do when that happens? Yeah, a lot of my clients, especially towards the retirement space. 50 mile Plus, that's really paid off. You know, it's kind of annoying, like Okay, Mark? Yeah. You know what's gonna happen next time the market crashes, but, you know, we've been in such a long bull market. Yeah, it was inevitable to happen. Just kind of came out of nowhere. So

Addy Nett:   3:57
so are you seeing like, I'm mostly curious. Like, I'm sure a lot of people, you know, the minute the stock market started dipping their six weeks ago, we're checking their accounts. And like, is that when your phone blows up and they're just screaming Or like, I want to hear what people who are seeing, like, dramatic 20 to 40% decreases in their accounts is Wait. What? What are those conversations like?

Mark Meek:   4:26
No, that that zombie. Yeah. And honestly, because we've been doing a lot of those lifeboat drills and

Addy Nett:   4:32
just kind of

Mark Meek:   4:32
preparing, you know, I'm a huge fan of having ah, fair amount of liquidity on hand at all times for these scenarios. So even a lot of Michael clients that are investing a fair amount of money with me I want to make sure at all times through various instruments that we have cash or some kind of cash equivalent on the sideline to be ableto happen to immediately that dry powder and take advantage of some of these sales that are going on right now. Right market. So I'd say a lot of theirs to question two different types of phone calls. Yeah, I tried to preempt it, so there were a couple of Monday's there arises like, hey, clear my afternoon like I'm just gonna be calling you and just touching base and trying to be proactive. I think a lot of people just want to know that we care. Um, and the good people in our profession, just like yours, really do care about the people we work with very rare. So that helped a lot from some of those kind of fear based phone calls like Mark, What's going on? But really ah, the majority of the calls that I was getting was Hey, Mark, when we can invest, you even talk to me about this. For four or five years, I've been giving you crap for not investing my money and keeping it safe. Rayo um you know, obviously, to some extent, Ah, that's the tough part is when things were going well, it's It's the fear and greed cycle. Things were going really, really well. People get greedy and want to jump in while things are hot. And when things aren't going too hot, kind of human nature pops in, and then we turn from greed to fear, and we want to get out there. And it's the exact opposite of what the logical thing should be, which is jumping in when things are low and potentially selling or holding. When things are going very, very well,

Addy Nett:   6:09
I think that's a really good point right there. And I'm sorry to cut you off from only mostly for a recap in the sense that like, hey, you know the money is made in the right timing. So if you can get in on a lower market and this is this extends even to real estate outside of just stocks that's when you're really making your money. So it's great to hear, you know, Aye. Before this all happened, you had a plan in place. So the position you're well positioned and toe also, I really you know, the headliner of the interview to is maybe this doesn't speak to your client specifically, but I'm sure a lot of people out there who are struggling or wondering Mark like, should I tap into my investment accounts if I maybe wasn't prepared and didn't have 6 to 12 months and overhead reserves, Um, and now I'm strapped like I've lost my job. Mark, I'm 30 to 45 days out, but I've got, you know, maybe that small for a one k. What would you say would be a good move or ah, good strategy. If you were considering tapping into those accounts,

Mark Meek:   7:17
that's a really good question, and especially with some of my business owner clients that are really feeling it right now, we

Addy Nett:   7:22
have a lot

Mark Meek:   7:23
of these discussions, so I'd say two things, right? Obviously, at the end of the day, it's your money that you've saved for an Ideally, we wouldn't tap into it. Number one early So we're hitting that 10% penalty. Um, or just in general, uh, this stage. So we're not having to pay taxes while the market is low. So it's kind of a triple whammy from that standpoint, but the end of the day, if it's it's your money, if you need it and there's no other options, you know, there's no shame in taking that money and recovering, right?

Addy Nett:   7:56
Do you think a lot of people will be waving those 10% fees on their four? 01 if they do tap into that, or would that be a case by case company by company thing.

Mark Meek:   8:08
Yeah. And as of right now, um, then you beat me to the punch there. So that's another advantage of doing it is right now, the government, the federal government is waving that 10% early distribution penalty. Okay, though I need to make sure to disclose that I'm not sure as of April 13th 2020 that that's the case based on some of the literature that was distributed a couple weeks ago with the Cares Act. Um, not something that was really top of mind.

Addy Nett:   8:35
Okay. Okay. So really important. Guys like get with your financial advisor or get with your account rap. If you are going to access those funds to try toe float for a bit and read the fine print and really understand what you're getting into because you know, Mark, I'm sure you could agree with this. There's so much media out there, whether it's the Internet or the news. And like, I think everybody's situation is so unique to like who their mortgage servicer is, who, where their funds air sitting to that company. So I don't think we can stress enough to read the fine print and check with your company. And don't just assume because you see a headline that that it applies to you.

Mark Meek:   9:15
Oh, absolutely. Oh, and, um, you know, even if you're tapping in early, you're still gonna have to pay those taxes. But, um, yeah, number one, do your research and make sure you have, ah, 100% conclusive evidence that that's gonna be the case for your situation. But, um, yeah, I would say No. No, ah, Harmon that if there's literally no other option. But one of the things that I've been talking about my clients about is with As you know, and you've talked about on previous episodes with there are extremely low interest rate environment. The cost of borrowing money is extremely low right, though, whether or not it's going talking to your bank, taking advantage of some of these loan options the PPP loan the SP a disaster loan if you're an entrepreneur, some kind of soul proprietor contractor, but even checking in with your banker if you can get a personal loan getting a consumer credit card that has, like a 0% for 12 months financing anything to get your hands on liquidity, right for the time being in using it intelligently and not blowing it but using it for that safety net. That's a huge, huge advantage, and even another thing that's kind of unconventional, but I've been working with my clients on is you have some relationships with people, whether parents, mentors, business leaders, then you are sitting on liquidity right now are in good shape. And if you think about their ability to get a return on investment in a safe kind of bond like environment today, yeah, with interest rates being so low, a lot of our clients are doing these private lending agreements with their friends, family and co workers parents to say, Hey, you know what 3% interest, 4% interest. That's a win more their client and as long as our excuse me for their friend, a cz well as them for getting that money borrowed. And it's a good way, just kind of help people out. And at the same time, take advantage of this situation of being a low interest rate environment is that it's cheap to borrow. But even for the investors, it's hard to get a solid rate of return right now. So a lot of people are kind of blending that spirit of giving and lending a hand with also, you know, capitalizing as a win win. That makes sense.

Addy Nett:   11:28
Yeah, definitely. Well, on another point to Mark, I wanted to set up. And this is one thing why I really enjoy you as a financial advisor is you aren't just all about investing in stocks, you Oh, no. Super advising on diversifying our portfolio, and you've been a really advocate in our market toward investing in real estate. So, on the basis of liquidity investment opportunities are you hearing from your book of business in your network of people that are are preparing to get into real estate and maybe make a move in the next quarter or two on some deals out there?

Mark Meek:   12:05
Yes, absolutely. And as you know, um, I want to make sure people, if they have any inkling, within the next 3 to 12 to 18 months that they want to purchase the property in some form or fashion, whether it's for flipping, whether it's for potential rental income, you gotta be prequalified. Like I was saying before, you gotta have that dry powder ready. When opportunity strikes, you're ready to take advantage of it. No strings attached and everyone in your corner is ready to move forward. Yeah, so? So that's That's kind of one aspect of things just to be prepared. And frankly, you and I were just talking about this before we even went live. So another plug on that front. But I would say right now it's kind of interesting because we haven't really seen after talking to three or four of my buddies. Include my father that's in real estate, have really seen a lot of dips and property value or people seeking the price point down. So I don't necessarily think right now is the time to say, Hey, let's get everything ready and pull the triggers Probably in a wait and see type of environment Um, with that being said, you never wanted essentially quote unquote time the market, um, you know, if the right opportunities there take it, but typically because it's been so apparent that the equity market, the stocks, mutual funds, e t f. They're taking that hit. That's primarily for my clients that have the money on the sideline. Even some people that had it parked for real estate sometimes would deviate and move to equities just to take advantage of that huge dip. But that being said, this is, ah, huge point kind of overall for why I think real estate is huge for my clients that were in their fifties plus 55 60. You know, the number one concern that they're telling me when we're talking about their retirement distribution plan, which is a whole different ballgame from investing? Yep, is their number One fear is that they're gonna run out of money, and no matter how much you save, no matter how great of a position you are. We don't know when we're gonna pass away. We don't know where you live to 110 or you hit by a bus tomorrow, right? And we also have zero control. And it's really clear right now over the economy and tax rates, interest rates, pandemics. So, one of the most crucial components of a retirement distribution plan for me, actually, Number one is to make sure our clients, in one way or another outside of Social Security, have some kind of guaranteed base income that, for the most part, is gonna be hitting their mailbox every single month for the rest of their life. In one of my favorite avenues, to get there is through rental properties, right? Not only some of the tax advantages and equity building opportunity from an accumulation standpoint, but once that mortgage is paid off, you're gonna be cash flowing that rents. And even if you need to give your tenants a break for a couple months, if you know they lose their jobs, I mean, that's up to the individual. It's still going to create a income stream that is almost impossible to replicate. if we're just taking kind of the old school 4% distribution from their accounts in the stock market, though, not to go off on too much of a tangent there.

Addy Nett:   15:21
No, that's what this is the right

Mark Meek:   15:22
time for my clients right now that own rental properties that are huge for their retirement distribution plan. They're not nervous at all compared to my clients that don't have those base income streams and that air really relying on the market to perform, get their retirement income.

Addy Nett:   15:41
So there's there's what's the uh, maybe you could help me out with this, but just trying to compare, say, rental income to investment portfolio income. Like, say, I was making $1000 net cash flow on a couple of properties, right per month, $1000 Reynold Positive Rental Income. Sharon. What type of stock portfolio in a relatively even market, like say, 5 to 7% returns? Okay, what size of account? What? I need to make $1000 per month, like just you probably

Mark Meek:   16:21
need about 250,000 liquid. Yeah, well of it portfolio that you draw off of your earnings instead of just, you know, tapping in your principal. It's kind of the old school. 4% is the safe withdrawal rate of your portfolio. So, you know, if you think about it, if you have a $1,000,000 in an account Ah, and you take 4% that's about 40 K per year, right? And you know, so just kind of reverse enduring the numbers. You know, 222 50 is probably the safe, um, portfolio size to assume. But the problem right is the volatility associated with that account is like right now for the last 12 years, maybe getting $1000 a month from your portfolios. No problem. But if you're looking to get 5 to 7% you have to take relatively substantial amount of risk to get that. Which means that your exposed on right now you may have lost 2025% your portfolio, depending on how it's allocated. Which means that your pill 4% withdrawal rate is now close to maybe $700 a month, maybe 6 50 on. So it's not that it's a bad thing, but with rental income, it's pretty stable, and it's not necessarily gonna be company default risk it's going to be a king you're in. Your renters pay their mortgage, and if they can't, it's okay, work something out with them. But, um, for the most part, 9.5 times out of 10 if you ask any of our clients if they'd rather take, uh, income from their portfolio or income from a rental property, they're going to choose the rental property bar. None. Not just because of the safety, but also the equity that's carried in that If they really want to get out of it, they can then turn it into a lump sum of cash,

Addy Nett:   18:07
right, Right. That's just that's a really good point. So trying to bring this to kind of some final innings in the game in the show here, I think if we bring this back Thio a little more of just the basics. So what about all of our people listening in the audience in real estate agents, Homebuyers, home sellers, maybe who have never worked with a financial advisor like they might be a renter right now, there might be a Homebuyer. Maybe they've got, you know, a 41 account. What were some first couple steps you suggest Maybe they could do from home just to think about. Or how do people start working with a financial advisor and being more strategic? We've got a lot of time at home, so we could definitely get organized right now. And if you're going to choose, like, hey, I'm gonna get my finances in order for my self help project. Could you speak on that Just a little bit? Someone who hasn't worked with anyone. Where would you start that? That wouldn't be intimidating, you know?

Mark Meek:   19:06
Yeah. And, um, you know, for me, that is because I've talked about, really. There's three segments of clients that I work with fairly closely. No one is closely held business owners, as I mentioned, the other is, uh, individuals, families that are about 55 plus five years or so or less away from retirement, where we're creating a distribution plan to essentially make sure they never run out of money, but also can leave a little bit of a legacy for their family. Probably my favorite segment and again in just full transparency. I feel like that's like a superpower nowadays. Yeah, um, when you're working with a financial advisor out of the gates, and it's your first time investing. You are not necessarily gonna be a paycheck for that advisor on. And I think it's really fair. Thio just kind of throw that out there. Yeah. Is that a lot of people think? Okay, what's in it for me? You know what am I gonna sell that person? What are they gonna buy or what? Stock. And at the end of the day, a good financial advisor. Certified financial planner types, fiduciaries, people that aren't necessarily looking for suitable investments for people, But what's actually in their best interests? Yeah. There's gonna be a lot of work up front where we don't get compensated. It's very similar to what? Real estate agents? D'oh. Almost very similar to what you do out. He just different that before doing anything, you have to be willing to spend a couple hours over a couple of different meetings just really trying to figure out what's important. What do those goals are? Where do they see themselves personally, Professionally, financially in the next 3 to 5 years, you know, where is the current snapshot of their balance sheet? Ah, Do they have good cash? flow management and in their budget in order is their savings and order. Right? Just a lot of the basics that aren't necessarily going to say, Hey, give me your money. We're gonna invest it. But the way that I look it my business, our business in general. And just if we wantto truly be a good advocate for those in the community, Yeah, you have to start those relationships for long term potential, right? Not only just to help them get in a better place. You know, one of my missions is essentially the end of the day. Anyone I talked to, I want to make sure that when we're done having that conversation, they have a better relationship with money. Know whether it's just educational, notional, just kind of feel better about having a resource. So first steps, those typical first steps that we talk about our cash flow management, budgeting, debt elimination and even risk management. Yeah, you know, that's one thing that a lot of people think about with financial planning is that it's all based on investments and, you know, long term savings. We also need to make sure that we're prepared for when things don't go well. So helping people build out their emergency fund And what are the right tactics and strategies to build it? Um, you know, auditing your basic insurance is right. If you are homeowner or if you have a spouse or kids, you need to make sure you're checking off your life insurance and your long term disability insurance. Just make sure you're fully aware of how it works, because then nothing else would ever matter in your investment plan if you're not gonna be around to pay the bills for your family

Addy Nett:   22:14
in a love I love that you brought that up, man. But with the going back to the transparency piece, where it's like you gotta work with somebody that it has has your back one of the good gals or guys that are out there because that is super important. Um, and the transparency pieces so, so cute. And I think you know not only with loan officers, mortgage advisers, financial advisors There's a lot of, you know, stigma or bad reputation from someone that got burned, Um, so

Mark Meek:   22:45
it's usually warranted to, because there's some bad things that happened with our with our professions. Unfortunately,

Addy Nett:   22:49
Yeah, super, unfortunately. And I think that was a really good thing to bring up. I'm staring down at my notes right here. Um, awesome to bring that open working with quality people in connecting with a group like M L O. To get a solid referral to someone that's trusted within the community. Secondly, I want to note the budget peace when you're going through some of these introduction conversations and meetings, whether its web conferencing or a phone call. Ah, lot of advisors, they're gonna walk through just some basic budgeting that has nothing to do with, like, sign here, invest here. And I really cannot stress the importance of taking that consult right off the bat because you're gonna learn a lot. And we've got a lot of time at home, everyone. So it's like, Hey, if you're gonna invest 30 to 60 minutes into your Tiger King, let's take a second. And maybe we could, you know, work a spreadsheet template and prioritize what we have debts owed. What we're gonna pay, maybe adjusting some savings goals. And just because you're not in a position today, say you're unemployed, say you're living office savings. It does not mean that you can't work on this stuff. So if you take an educational approach today, who knows? In a year from now, like you might be rolling in it and it's steaming and the economy has got a lot of opportunities. And because you took this time at home toe, educate to network, you're now in a position to make a move, which wouldn't have happened if you just press next episode and put it on the back burner. So

Mark Meek:   24:28
exactly. And honestly, I'm glad you mentioned that, because sometimes people think it's little bit too slow and boring, but I'd rather measure twice and cut once.

Addy Nett:   24:37
So you are

Mark Meek:   24:38
a lot of my clients. We don't actually move forward with a recommendation that I implement on their behalf for typically like 8 to 12 months. You know, a lot of times it's working within what they already have. It work, making sure they're fully taking advantage of their employer benefit if it's making sure they're cleaning up some accounts from the past. Um, just getting their budget in order and just kind of educating people on what's actually possible, and then what are the capabilities that they have based on their budget, their hash to their cash flow in their income and really down the road once all those foundations are set, that's what I'm typically comfortable making recommendations like, Okay, now is a good time to open up a Roth Ira or Hey, you know what? Let's open up that brokerage account. Let's get some money invested in the market. And but it has to all be within the appropriate balance of financial planning, right? So that's why we operate off of the Board of Certified Financial Planners curriculum. And, um, it is kind of a pain in the ass, sometimes toe have to jump through all the hoops. Ah, from a client standpoint. But at the end of the day, I'd rather have them feel comfortable, know that what they're doing is truly the right thing. Instead of just having the first phone call and say, Hey, you gotta buy Apple. You know, that's just unsuitable. And that's what the old school stockbrokers air for. Yeah, that's a wolf of Wall Street's for you need me

Addy Nett:   25:55
for that? No, I made that and I think to the gun around this out mark and come to a conclusion is like, I really felt a string there when we go back to like, even if you're not in the best financial position right now in your life, which not a lot of people are. It's a very small amount of people who could make 1/2 a $1,000,000 liquid investment Right now, Um, if you're looking at the population of the world, yeah, it's never too way to start because huge changes in your life, especially financial changes, take a long time. And they don't even start accumulating until you start on the effort side. So, like the marathon, it's a marathon. And even if you're at home right now and say you're on furlough, you only have a couple of $1000 in your checking account. Doesn't mean that you can't take that couple $1000 very seriously and be like, Hey, Mark, you know I want to buy a house in two years. Okay, great. What's the steps here? Because you're gonna be back to work and you're gonna be thriving. Here are so all

Mark Meek:   27:01
you got to call it my guy Audi.

Addy Nett:   27:04
Well, whoever it is, I'm just more speaking to the point of like, Hey, it's never true. Yeah, it's never too late to plan. It's never too late to, like, build out that spreadsheet of where you're spending your money. Maybe you've got a credit card right now that you're paying 30% interest on that's completely stopping you from saving a few $100 a month. So I think I just want to conclude it to the end is like it's a relationship, It's a marathon, and it's You just got to start at one point and, you know, great advisors like Mark. And, um, there's a lot of other good guys out there are gonna help you through that and look at it as a decade over a decade investment. So anything else to add to that there, Mark?

Mark Meek:   27:47
No, I would just say, um, last last thing right now that it comes across the table a lot when I'm working with clients, they're kind of that mid range where they have money, but they don't have a ton. They still have a little bit of debt. Maybe they're a couple of years out of school, especially my client center in the dental physician space. You know, medical field you have to think of today. Everything is all kind of an interest rate game, and you have to think about like Addie was saying, Hey, if you got a credit card spitting off 25% interest every month, let's put every single dollar humanly possible to get that thing taken care of.

Addy Nett:   28:23
Stop. The bleeding

Mark Meek:   28:24
is, you know, a lot of times people come to me and with these giant credit card balances saying, Hey, my dad said, Now is the best time to get in the market. And at the end of the day, yeah, it probably is. Maybe you could split it a little bit and put some money in the market, but pay down debt. But you have to think about the opportunity cost of not paying that 25% bearing car down. You have to get 25% on the offense in your investment portfolio to even break even with that. And

Addy Nett:   28:51
let's loop that right back, because that is a huge point mark. So see, you're like, say, you're you're getting drained $500 a month on interest payments. For a credit card, you would need roughly about $125,000 liquid. Based on the math we did earlier to supplement that loss off of interests $125,000 liquid to pay off where you're being hemorrhaged on a credit card debt. So you gotta look at your debt as being just as important as your investments. And I'm not trying to turn this into, like, a credit counseling thing, but like I think I'm going back to.

Mark Meek:   29:31
My initial meetings are, though out with with clients is It's not about the investing. It's about getting their financial security in a better position with emergency funds debt overall balance sheet ratios, etcetera So that that way they can purchase property and they can save for retirement without having to worry about Hey and MasterCard 25 years after their balance,

Addy Nett:   29:53
And now MasterCard will never be a sponsor. The show now things, But what was that old? I'm not a quote guy but was a penny saved is a penny earned? Was that Abraham Lincoln?

Mark Meek:   30:07
I don't know. He's on the pennies.

Addy Nett:   30:08
I think it is. I think it is. Well, Hey, Mark, You know we're hitting about 30 minutes here. I'm in. I really hope that many people got great takeaways here. And not only the investor, but also someone looking to make some changes financially and start a plan today. So Mark a thanks for being one of the good guys and gals out there leading the industry with transparency, honesty and some morals and leading us all through. So thank you. So, Mark so much. Mark, I truly appreciate it.

Mark Meek:   30:43
Absolutely. Thank you so much for trusting me and have me on the show here and hope at least one person could take some of that implemented because now is a really good time to Create some opportunity for the long term.

Addy Nett:   30:54
We appreciate it. Be safe out there.

Mark Meek:   30:56
Absolutely Thanks, everyone.