Did a five-minute questionnaire decide how your life savings are invested?
For most people, the answer is yes. A few thoughts about market swings become a label like conservative or aggressive, and that label shapes the entire portfolio. But the one question that rarely gets asked is when the money will be used.
Today’s guest is Gary Preisser, co-founder of Stonebriar Wealth Advisors, who built his planning approach around that missing question. His framework, the Cash Flow Clock, sorts every dollar by when it will be needed and lets that timeline guide both investment and tax decisions.
Listen in as Gary explains how to match your money to the timeline it serves, as well as how that one change can lower your lifetime taxes and make spending in retirement feel less stressful.
What You’ll Learn:
Why risk labels can put the wrong money in the wrong investments.
How the lazy, safe, and volatility zones of the Cash Flow Clock work.
When market volatility turns into real risk.
How the account you hold an investment in affects the taxes you pay.
Why two 70-year-olds with the same risk label may need very different plans.
Why a market drop can be a good time for a Roth conversion.
Why owning many mutual funds doesn’t always mean you’re diversified.
Ideas Worth Sharing:
"Volatility’s a tool. That’s movement in the market. It becomes risk when it collides with cash flow need.” - Gary Preisser
“Assets are tools. They’re not trophies. It’s not like show off, look at what I have. Their only value is in how they function.” - Gary Preisser
“A lot of my clients admire the ants from Aesop’s fable that saved food for the winter, but what they forget about the fable is that at the end, the ants ate the food.” - Gary Preisser
Resources:
About Our Guest:
Gary Preisser is the co-founder of Stonebriar Wealth Advisors, an independent registered investment advisory firm. With a background in mathematics, accounting, and small business consulting, Gary brings a system-based approach to financial planning rooted in clarity, timing, and stewardship. He developed the Cash Flow Clock, a framework that organizes a client’s financial life around when each dollar will be used, and coordinates investment, tax, and legacy decisions around that purpose. Gary is also the author of three free e-books: The Cash Flow Clock, The Differentiators of Wealth, and The Essence of Wealth.
Connect with Us:
If you're ready to stop avoiding your finances and start building the future you deserve, schedule a free call with me at pelicanfinancialplanning.com and let’s create your personalized financial plan together.
And if you want ongoing guidance, clarity, and confidence as you grow your wealth, subscribe to our newsletter for financial insights delivered right to your inbox.
Share the Love:
If you like The Wealth Development Studio...
Never miss an episode by subscribing via Apple Podcasts, Spotify, Amazon Music, or by RSS!
Read the Transcript:
Gary Preisser: The best day ever to do a Roth conversion was March 23rd of 2020. The market had just dropped 35%, and if we're only looking at our plan as an investment plan, then it's a terrible day. It's scary. People are wearing masks. Who knows what the future's gonna hold?
Welcome to The Wealth Development Studio. I'm your host, Genevieve George, Senior Financial Advisor and Founder of Pelican Financial Planning & Wealth. Our goal for this episode is to provide clarity about today's financial topic, inspire you to be brave with your questions, and gain confidence in your financial future. So take a deep breath, grab your favorite cup of coffee, and step into the studio. Your dose of financial empowerment begins now.
Genevieve George: Most of us were taught to think about our money using labels: conservative, moderate, aggressive. But what if the more useful question isn't about how much risk you can stomach, it's about when you'll actually use each dollar? Today, we're talking about a framework called the “cash flow clock.” It's a way of organizing your financial life around time itself.
Instead of starting with investments, it starts with a simple question: When will the money be used? From there, every dollar finds its place, whether that's in the next five years, the next 10, or decades down the road. We'll go through why a 40-year-old and a 70-year-old shouldn't necessarily be treated the same just because they're both long-term investors, how taxes shift across a lifetime, and why patience with your long-term money might be one of the most underrated strategies in personal finance.
Joining me today is Gary Preisser, co-founder of Stonebriar Wealth Advisors, an independent registered investment advisory firm. With a background in mathematics, accounting, and small business consulting, Gary brings a system-based approach to financial planning rooted in clarity, timing, and stewardship.
Thank you so much for being here, Gary. I'm excited to talk about the cash flow clock.
Gary Preisser: Thanks so much for having me.
Genevieve George: Yeah. With your background, what led you to focus your practice on that timing component, not just the allocation itself?
Gary Preisser: Like you said, I started with accounting and small business consulting, and that's where I first saw that there's a big disconnect between how your money actually works and how we think it works. When I saw people that, that would get excited about a $10,000 tax refund, "This is a great deal." No, it's not. You loan money to the government for over a year interest-free. That's not how it usually works.
Genevieve George: That they paid you no interest on.
Gary Preisser: So I saw that disconnect. And then with small business consulting, I realized every single decision, and obviously this expands not just to small businesses, but to individuals and households as well, every single decision we make from a financial standpoint—where we live, where we work, where we vacation, even what we eat, where our kids go to school—everything comes down to our cash flow.
And yet, when I got into personal finance, financial planning, and wealth management, we get this risk questionnaire slid across the table with questions that nobody understands, that then assigns a label—conservative, moderate, aggressive, as you mentioned—and every decision from there is based on feelings.
How do you feel about volatility? How do you feel about the market? Instead of asking, "What is the purpose of the money? What are you gonna use the money for?" The purpose determines the timing. Once we know the timing of the money, then it becomes so much easier to design a plan that actually functions for each individual.
Genevieve George: I love that. And then you take that and you, instead of having, let's say, a 60/40 portfolio that's across the board, you're applying that to the different timing buckets, which we'll get into more. But you're saying these ones are longer term; those could be more aggressive, while these are shorter term.
And so you're looking at not the overall allocation, but really the timing and then of how those dollars are gonna be used, the purpose, and then how should those dollars be invested with that purpose in mind. Is that correct?
Gary Preisser: Yeah. That's exactly right. It allows us to be much more specific and more customized to each client.
Too many times with those, with only three risk classifications, maybe five if you throw in moderately conservative and moderately aggressive, you're talking about 150 million investors all tied into those five different categories. There's no way it can be specific for each client, and it can't scale like that.
But if we start with the right question—what is the money for—that determines the timing, and timing really should determine everything. If you tell me you need $25,000 in 6 months, that tells me immediately I should not put it in Bitcoin.
Genevieve George: Don't invest those dollars.
Gary Preisser: I should not put it in SpaceX.
I should not put it in the market. Yeah. But it also tells me, and this is an important clarification, that I shouldn't put it in a 7-month CD. Those first three have volatility, and we associate volatility with risk, but really we shouldn't. Volatility's a tool. That's movement in the market. It becomes risk when it collides with cash flow need.
The last one, that 7-month CD, there's no volatility, but it doesn't function for that client because it doesn't meet their time horizon. And so I noticed that we see these pie charts that are circular, and that's what gave me kind of the visual concept of a clock is also circular. But what I like about a clock is instead of just having a pie that's segmented based on your feelings and based on your risk labels, now we have an actual living plan that is moving through time.
Money that you're gonna spend or want to utilize in the next five years, we can't expose that to volatility. We wanna make sure liquidity is the first priority. I don't care even if I lose to inflation a little bit because inflation's not gonna have much of an effect over five years.
What's gonna have a much bigger effect is if we don't have liquidity.
Genevieve George: And what does that look like in a real client example? Let's pick on somebody in their 40s. They are maybe saving for something specific, let's say a new house, college, something. Yeah. You, you decide.
Gary Preisser: Perfect. New house. And what I love about that is you said where they're saving for something specific. They're not saving because they're 40.
Genevieve George: Yeah.
Gary Preisser: They're saving because their family has a need, whether that's a new house, it's a new car, it's an education for their kids, they're putting away for a, a wedding coming up in five... Whatever that is, they're saving for something specific. Then we can tie that timeline to the actual investment.
If that is in the next year, quite frankly, a money market or a high-yield savings account is the only thing that provides the liquidity that they need. They're gonna lose to inflation, but over a year, that's not gonna make much of a difference compared to…
Genevieve George: But it's earning something, not nothing sitting in your savings account. But it’s…
Gary Preisser: That's right. Please don't put it in a Wells Fargo savings account making 0.1%, please.
Genevieve George: Yes. But it's not…
Gary Preisser: And who knows what's going to be achieved, but liquidity is the first priority.
Genevieve George: But it's not exposed to the market either. You're just saying, we're just taking that. We're saying those are short term, like really short term dollars.
Gary Preisser: Really short.
Genevieve George: We are putting them to maximize what we can earn, which is not that much, but maximize what we can earn in high-yield savings or money market, but minimize any kind of volatility and make it liquid.
Gary Preisser: Eliminate volatility. That we can, and this is one of the issues that I see is we talk about conservative portfolios, and you often end up in a bond fund. A bond fund was not very conservative in 2022 when the bond index lost 13%. That does not work for money you need in a very short amount of time.
And I think it also changes the expectations, 'cause no one expects to earn 100% in six months, especially for something that's in a high-yield savings account. I think it allows us to have better conversations about the money and about the expectations because it's tied to purpose and timing.
Genevieve George: Now, still picking on our 40-year-old client, longer-term goals for that person might be like an eventual retirement.
So to me that's more than 10 years out when you're in your 40s depending upon the financial situation. Talk to me about how that applies to that person.
Gary Preisser: And this is really key. Five years, even 10 years out, we cannot afford to take on volatility because if the market corrects—nice euphemism—if the market drops 30%, it's gonna take 10 years just to get back to where we started.
But once we're really looking at a timeline beyond 10 years, then we have plenty of time. Our best opportunity for growth is typically in the market. Now, just because we say the market, that doesn't mean you can choose any mutual fund that's out there. We still want to perform up to the benchmark or actually exceed the benchmark, positive alpha, not underperform.
But we can afford to take on volatility. At that point in time, with that timing, volatility becomes an asset. It becomes an opportunity. It becomes a tool as opposed to a threat. And so one of the things I struggle with is that 40-year-old, because of the rule of 100, they may have 40% of their assets in bonds.
Even though that's money that they're not gonna use for 10 years, they can really take on more pure volatility and get better growth if they recognize that the purpose of this money is 10, 20 years down the road.
Genevieve George: Yeah, in those long-term dollars, which specifically to somebody in their 30s and 40s, and when I'm talking to them, that's more than likely in retirement accounts. And I'm already calling those tomorrow dollars. You can't even touch them.
Gary Preisser: You can't even touch them even if you wanted to, without a big penalty. Yeah.
Genevieve George: So we have time. Lots of time.
Gary Preisser: So why are we hedging our risk there instead of hedging our risk in those non-qualified accounts that we are actually using for short-term needs.
Genevieve George: And then that goes a lot into… I'm so pleased that you use this term in your e-book because I use it a lot myself, but ‘buckets.’ It goes into the types of accounts that you have, too. So we're talking about the timing, but we're also talking about the nature of the accounts. Is it a taxable account, tax-deferred, or tax-free?
And that comes into play when you're having that conversation and deciding what are those risk buckets? Because that 40-year-old that's saving for the house, those dollars are not retirement dollars. Those are taxable dollars that we're just putting into that bucket. But then their retirement dollars, like if they're simultaneously saving for retirement in their, maybe their 401(k) or some other vehicle those could be invested completely different than those dollars that we're saving for the house that is the taxable bucket.
Because even if it's not a house, maybe it's a home improvement, like that's the place that we're going to for those dollars first. So that speaks very highly to your focus on the timing.
Gary Preisser: The timing drives everything, and it drives the investment choice. It also changes the taxes. When we pay tax determines how much tax we pay.
If we have a million dollars of taxable income and we have that all in one year, we're gonna pay a lot higher taxes than if we spread it out over 10 years. And if we can do long-term capital gains, then it's gonna be even less taxes. So the timing is really critical. And to your point, if investments are being taxed differently, they should be invested differently to match up with those taxes.
And this is the concept of asset location, not allocation, but location considering the taxes, even if the purpose is the same. If the purpose is long-term dollars for retirement, but if you have some money in a traditional 401(k) or traditional IRA, and some money in a Roth IRA or Roth 401(k), these should still be invested differently because the Roth grows tax-free for the rest of your life, plus an additional 10 years potentially.
The IRA, as it grows, the traditional IRA rather, as it grows, it's creating a tax liability down the road.
And that's probably appropriate, especially if you're in your 40s, you're probably in a higher tax bracket maybe, maybe not, but if we can grow assets tax-free I want to assign as much volatility into that Roth account as I possibly can.
Again, I'm not saying you should put it in Bitcoin. But if you are in Bitcoin, I would rather that be in tax-free because you are expecting... You have higher volatility, you expect higher growth, you want that growth to be tax-free.
Whereas if you do have bonds or even lower volatility investments, we want that in the traditional IRA.
I want both to grow, but if one's gonna grow 5% and one's gonna grow 10%, I'd rather the 10% be a tax-free and the 5% be a taxable.
Genevieve George: Yeah. And that falls into so many... I think it's a concept that people don't always see. I literally, when I'm explaining allocation versus location, I have to show it on a piece of paper to say, "Okay, we care that in total we're getting to this allocation."
Gary Preisser: Yes.
Genevieve George: But location matters. Location matters for the timing that you're talking about, as well as the tax efficiency of where you're invested and what. So you often hear people, "I'm in a 60/40 portfolio," and then you look, and it's literally clearly in the model by every single account.
But really, do we care about the total, what is happening in total, and then have we addressed the timing and location of those assets?
Gary Preisser: And I'm so glad to talk to someone like you, Genevieve, who talks about this with your clients because, in my experience, and I'm sure it's yours as well, so few people are talking about asset location.
So few people are talking about taxes at all.
Genevieve George: It’s hard not to when you got CPA behind your name, but…
Gary Preisser: That's right.
Genevieve George: But I can't turn it off. But not just the location, but when you're talking about the timing and the location together, and then you're, like, pulling that all back into the overall plan and talking about the purpose of all those assets.
It's really like a full package deal, and when you talk to somebody, and they're like, "Oh, I'm 60/40 over here, 60/40 over here," it's just okay I... it seems like they're not looking at it all together because if you're in a 60/40 portfolio in your taxable portfolio, and those are where you're gonna have to pull your short-term dollars from, you're gonna be addressing capital gains.
If it's coming from retirement accounts, ordinary income, like all these things that you're talking about. So it just creates chaos, right? And we want to help people avoid chaos.
Gary Preisser: It's not only chaos, but it's also default chaos and it's reactive chaos. Yeah. Life is never predictable, right?
I joke that at our firm we create perfect financial plans if we know when our clients are gonna die and everything that's gonna happen to them between now and then, and everything that's gonna happen in the tax code, and everything that's gonna happen in the market. That's never the case.
But what we need to do is really be as proactive as possible to that purpose.
What do they want to accomplish with their money? And I think this is important, and you've mentioned it in previous podcasts: assets are tools. They're not trophies. It's not show off, look at what I have. Their only value is in how they function. And so we have to start with purpose, timing, and function before we can then say anything.
And then those options become so much more clear. If we know that this money's gonna be used in six months, now we've whittled down the options for appropriate or the most efficient investments drastically. If we know it's not gonna be used for 40 years, now those are completely different investments.
And what I see in our industry, I'm sure you see it as well, is we see a lot of just throw it all against the wall. I see potential clients come into my office with 8,000 different holdings in their mutual funds. That's not risk management. That's not diversification. That's just more.
And it doesn't have that purpose.
It doesn't have that plan. And one of my frustrations is you have these “financial advisors” that are only investment advisors, truly. And either their stocks and bonds or their annuities and life insurance, rarely both. Most families need both in some way, shape, or form, but you ask them about taxes, and they put in the disclaimer very clearly, "Don't ask me about taxes. I'm not responsible for taxes." And yet every recommendation that they make…
Genevieve George: Has a tax impact
Gary Preisser: … affects taxes in some way, shape, or form. And then you have tax advisors that are really tax preparers who are only looking back at last year, and we're not coordinating these decisions. We're not aligning them to purpose and function, and it's so critical that those things happen.
For high net worth clients, those things are happening because they are coordinating with a team. Even those with less than 10 million. Most of them, if they call up Merrill Lynch or Fidelity or Morgan Stanley, whoever it is, they're gonna get a 26-year-old kid in a cubicle who's gonna put them in a generic portfolio based on their risk questionnaire.
But they need more than that. The industry needs to provide more than that. I'm so glad that's what you're doing, 'cause it’s…
Genevieve George: Yeah. And it's very like a planning-based approach, so I really try... And I think it resonates really a lot with what you're saying too is I try to lead with the planning piece.
Because if I look at only the investments, that's only one piece of the puzzle, right? Like but I need to understand how is everything working together, what are the purpose of those dollars, and all the inflows and outflows. Really understand the full financial picture as best I can, which, I think you'll appreciate this too, but that requires a lot of trust between your client and your advisor.
So if you're in a position where you don't feel like you can turn over all of that information or share what's really going on in your financial life, you maybe don't have the person that makes you feel like you can share all of that.
Gary Preisser: Completely agree, and I'm sure you've seen this as well, especially I get potential clients that like to give me a little carrot, right?
If I gave you $50,000 to manage, or sometimes it's $5 million to manage, what would you do with it?
Genevieve George: Yeah.
Gary Preisser: And early in my career, I would make the mistake of trying to answer that question. There's this, there's that. We talk about products, right? That does not work. The only way to answer that question is with a question.
What is the money for? What is your purpose?
The purpose determines the timing. Once I know the timing, then I can find the best product, but it requires so much due diligence, so much work on the front end to understand this is a small piece of the puzzle. How does it fit with the entire puzzle?
How can we make recommendations without knowing that? Yeah. It drives me crazy. It's like going to a doctor and saying, "I'm tired," and they give you a pill without asking any other questions. It's ridiculous.
Genevieve George: Or, "I'm not sleeping," and they give you a pill for that. But anyways, no, I love that that is your approach too, and that we're trying to lead with planning, and then let that drive.
That information will help us drive how the investments should be invested and where, and that asset allocation and the location component should really be driven. I'm curious, like, when I'm describing that to somebody where this is a new relationship where maybe they just had an investment advisor, they didn't really have a planner, I'm saying, "I'm trying to come alongside you and all of your professional team, but I'm acting as the quarterback trying to coordinate all of those pieces." Are you using a different term than quarterback?
Gary Preisser: I like quarterback. I'm originally from Florida. I know you're in Florida. My dad was a football coach in Florida, and so a quarterback is usually a great analogy that we use, but it really is about coordination, and it's about alignment.
And this is one of the I rarely see alignment. Whenever people come in, and we're doing an analysis of their plan, not only is it underperforming, which is a problem, but it's also is not aligned to their purpose. And what I love about starting with purpose and focusing on alignment is not only does it allow us to create a plan to begin with- But it also allows us to hold that plan accountable and make adjustments to alignment, not to percentages.
As one of the big problems that I have with a 60/40 stock-bond portfolio is, great, the client needs income. Let's say they're 70 years old; they're pulling income from the bond portion of their portfolio, but as soon as they pull that $3,000 out or whatever it is, what happens to that portfolio?
It rebalances. So it's selling out of large-cap growth to replenish the bonds. Now, if the market is up 10%, it may make sense to harvest some of those gains and shift. If the market's down 30%, that's the worst thing they could possibly do.
But it happens automatically because we are dealing with portfolios and we're a lot, we're rebalancing to percentages so that we are compliant, so it's defensible, so we don't get sued because it matches that a conservative or moderately conservative, whatever it is, instead of realigning to purpose.
And one of the things we're doing right now is our portfolios have done really well this year, which we're really happy about, but it's not even about growth; it's about function. It's about the money being able to work when we need it to. And so we are going through all of our clients in our quarterly reviews, our focus is how has this growth changed your plan?
You have more growth than we expected. Now, we're not going to realign or rebalance just so that your percentages are right. What we're gonna do is say, "Okay, what does this allow you to do?"
You had 20% more growth this this year than you expected. Does that mean you wanna go on another cruise this week, this month?
Or do you want to remodel more in your house? Do you wanna give more to charity or to your kids? When we start with those questions, now we are realigning the plan and constantly making those adjustments so that at any point in time, the purpose is always gonna be fulfilled.
Genevieve George: Yeah. Yeah. I love that. And we talked a little bit about your typical 40-year-old maybe saving for something specific.
Compare that to somebody, like an example in your mind, to somebody in their 70s. Like, how do these concepts relate to that person, and what's different?
Gary Preisser: And a lot of 40-year-olds are similar because most of them are working and they are saving for a house, they may have a family. There are obviously variables.
But when we're talking about 70-year-olds, the range becomes much wider because, again, the problem with the industry is they don't look at it from that perspective. Look at two 70-year-olds that are both conservative. They're gonna be invested the same way, but one... let's say both of them have $3,000 a month of Social Security income, both are spending $5,000 a month.
Great. But one is still working and has $4,000 a month of income, and when he retires, when they retire, they're gonna have a $5,000 a month pension or whatever the case may be. They have more income than they need on a monthly basis.
Genevieve George: Yeah.
Gary Preisser: The other one only has Social Security. So this one with plenty of income, they really could invest like that 40-year-old because they don't need the money.
I want them to use their money, let me be clear. I encourage them to utilize it. Yeah. But this other household, they are relying on that money every single month.
Genevieve George: It becomes shorter term.
Gary Preisser: Shorter term.
Genevieve George: They don't want the volatility because they need it.
Gary Preisser: The purpose is changing, the time is shorter, the volatility has to be reduced dramatically, really eliminated for those first 10 years.
And yet, because they both are conservative, they're gonna be in that same 60/40 stock bond split. And there's no reason for it. It doesn't make any sense. We should look at them completely differently because they are completely different, and what really determines that is the cashflow which is determined by their purpose
Genevieve George: I love that, and I love that you used two different 70-year-olds, because that is a little bit, not a little bit, that is a huge part of why I love what we do. Because two people can walk in with the same amount of money.
Gary Preisser: Yes.
Genevieve George: And their goals for those dollars are completely different. And so it keeps it fresh for us, that the purpose from one to the next is not the same. And so it's so wonderful to get into the nitty-gritty details on what does that plan really look like for that person?
Gary Preisser: It allows us to geek out, right? And not everybody wants to do that. This is why we're in this job.
Genevieve George: I know.
Gary Preisser: This is why we do things the way that we do it.
But it's fascinating to me. It would be terrible for me to just be putting those two clients in the same portfolio. It would be boring. It would drive me crazy. I wouldn't get any fulfillment out of it. But for us, every client is unique. Every client is their own puzzle, and the chance to put that together to support their life is so fulfilling.
And it's crazy to me that our industry as a whole starts with allocations, and basically, based on a Monte Carlo simulation or some type of projection, they say, "This is what you can do based on your assets." Instead of asking, "What do you want to do? What do you want your retirement to look like? What do you want your dollars to do for you?"
Now let's create an allocation that supports that and allows you to do it, instead of limiting what you can do. And I find for most of my clients, you're probably in the same boat, I have to encourage them to actually use their assets, 'cause they're so used to saving for the future, they don't realize that they're there.
Genevieve George: Yeah, I have a few that are early retirement where I'm like, "Hey, by the way we did it. You did it.” They did all the work, right? We helped you plan it and understand it, but you did it. You do not have to take this part-time work if you don't want to. It's one of my favorite things just to say like…
Gary Preisser: Now, if it's adding value to their lives, great, but they don't have to do it.
Genevieve George: Yes. Yeah. It's when work becomes optional, right? It's amazing.
Gary Preisser: And I think that's what true financial freedom is having the option to do what you wanna do. But even at that point, when you realize, okay, you're not gonna run out of money, there's still so much fear because of lack of education.
I know you focus a lot on that, and I could not agree more. I really appreciate that, 'cause it all starts with education, but also understanding the purpose of the money. Like I said, assets are not trophies. Too many of, well, a lot of my clients admire the ants from Aesop's fable that saved food for the winter, but what they forget about the fable is that at the end, the ants ate the food.
They didn't just look at it. They didn't admire it. They didn’t post it on Instagram. The only value in that food was when it was being utilized, and I think there's too many people too many retirees especially, that are depriving themselves and reducing the benefit of their assets, the benefit of their life's work, by just setting it aside and thinking or assuming that the purpose is accumulation.
It's not. It's utilization.
Genevieve George: Yeah.
Gary Preisser: And so we've gotta look at it from a different perspective that allows us to create plans that are functional and that add value to lives as opposed to just increasing on a balance sheet.
Genevieve George: Yeah, and that's a part of that relationship with the clients too, is understanding the purpose and what is that lifestyle that they want to live, and then in some cases, like you're saying, pushing them to actually do those things.
"Hey, this was the plan. If you wanna go buy the new car, you're set up for that."
Gary Preisser: What are you waiting for? I was just having a conversation with my aunt, and she was talking about, "I really want a new car." She's a widow, unfortunately, and her husband took care of the car, and I get it.
That's great. If you wanna buy a car, buy a used car and maintain it, that could be the best value. But if that's not something that you are interested in doing, it can be way more costly to deal with a clunker or a lemon than just having a lease that you know you're getting an up-to-date car with the safety features and everything that you need.
For her, the best value was to utilize her assets to have a car that she could rely on and not worry about.
And I know everybody's different. Some people love getting old cars and fixing them up, but this is why it's so important, to your point, to understand the needs for each client because it is so different.
And I think our industry has made up this idea that we cannot scale financial services to that level of specificity, but we can if we ask the right questions. If we don't start with those feelings about the market and volatility, and instead talk about purpose, then the plan becomes so much easier to create.
We can put that puzzle together a lot more efficiently.
Genevieve George: From a business standpoint, one of my favorite things to hear from prospective clients is, "Nobody's ever asked me that before." Yes. I'm like, “Okay, well.”
Gary Preisser: I ask them, "What are you gonna do with the money?" And they get this glazed-over look, like they've never even considered it.
And it's so unfortunate, and I get it, right? They've spent their entire career accumulation, accumulation, save, save, save for the future. And I give my client Frank a hard time because every time I see him he's like, "Oh, I saved $200 last month." You're 94 years old.
Genevieve George: Yeah. Yeah, what are you gonna do with it?
Gary Preisser: What are you saving for?
Yeah. If his purpose is to leave that money to his beneficiaries, then fine. It's okay. But let's be intentional about it. Let's not just default to accumulation because that's what you've always done. And that's the thing that drives me crazy, right?
I have clients that are not utilizing their assets. They want to pass them to their beneficiaries, and yet they have most of their assets in bonds.
Because they're 70, because they’re conservative.
Genevieve George: Right. And that’s a different conversation. I’ve had this conversation a number of times.
If your purpose is if you're really never gonna touch those dollars and they're for the next generation, then they should be invested in the style that works for that next generation but it's so difficult because…
Gary Preisser: Exactly right. And that seems so obvious, but nobody does it.
Genevieve George: Yeah, I mean, because the industry has trained you to believe, "Okay, now I'm older, so I should be conservative."
But the reality is knowing the purpose of those dollars, if you're never gonna touch those dollars, like if that Roth IRA that you're never ever gonna touch is beneficiary designated to the grandchildren…
Gary Preisser: Yes.
Genevieve George: …aggressive.
Gary Preisser: As aggressive as you can get.
Genevieve George: No reason not to be. You're never gonna touch it. And your grandkids are 12. Come on.
Gary Preisser: And what an opportunity to really add value.
What that by not taking on as much volatility as they could or should, they're reducing the value of their legacy.
And I know you talk a lot about estate planning, and its legacy is so important.
Most retirees are, they're afraid to start to build that now while they're alive because they're worried about themselves first, which I get that. We gotta get that under control and make sure they're educated enough to know whether they're gonna be okay or not. But if you're looking at that legacy, the investments need to support the legacy.
It doesn't just happen by default, and we wanna make sure we are as efficient as possible. And understanding the timing drives everything. It determines everything.
Genevieve George: Yeah. Yeah, I love that. Now I wanna circle back to the visual that you talked about. And it is a recap of what we've already discussed, but you talk very much, you use the visual of a clock, but then you break it down into the gears as time zones.
So maybe break that down for us to just really drive it all home on the timing.
Gary Preisser: So for the timing, we start with lazy zone, as we call it. So lazy money assets: high-yield savings accounts, CDs, multi-year guaranteed annuities in some case. No volatility. We wanna get as much growth as we can, but the focus is liquidity.
When we get out to year six through 10, we call this the safe zone. Now, the difference between safe and lazy, both of them have no volatility, but we wanna get a little bit higher rates of return in the safe zone to at least keep up with inflation so we're maintaining the value. We're not losing to inflation, but liquidity is still the priority.
Then we look beyond 10 years with the volatility zone, and in the volatility zone, there can be lots of investments. This is where we have that volatility exposure, and yes, bonds are in the volatility zone because they can lose value. So anything that can lose value is in the volatility.
Real estate's in there, precious metals, Bitcoin, stocks, bonds, everything that can be in there. There's lots of different options. Once we're in the volatility zone, one of the keys is asset location. The Roth should have the highest volatility of the portfolio, 'cause that's the last money that we should spend.
We want to get the highest tax value that we can possibly get, tax benefit we can get. We wanna get the highest growth there. We may wanna have some dividend funds. One of the issues that I have, this goes back to the asset location, is when I have clients with non-qualified accounts that they're not using for themselves because they're pulling from their IRAs because they have to because of required minimum distributions, and yet their non-qualifieds are still in dividend funds that are generating income that they're paying taxes on, but not utilizing.
For our non-qualified, if the purpose is legacy, we wanna take advantage of the step-up in cost basis: low-dividend, high-growth stocks. Get it as tax-efficient as possible. Whereas the IRA, I'm happy to have dividend funds because that's money you want to spend first. Either spend it or convert it to Roth, and then get it into higher volatility.
But the cash flow clock allows us to see that. We have the zones, but then we also have the gears and the tax buckets—the non-qualified, the tax-deferred, and the tax-free—and they all have to coordinate together tied to the purpose and function.
Genevieve George: Yeah. And that is an e-book, correct? That we can link that in the episode so that people can access the e-book and dive in a little deeper if they're interested in doing that. One of the things that you touched on that I just wanna circle back to was the mutual funds with all the different positions and how people believe that they are diversified because they have all of this exposure, right?
Maybe break that down for me a little bit further.
Gary Preisser: This is another one of the big problems that we have, and another e-book that will be available on our website free of charge as well is ‘The Differentiators of Wealth.’ Some things that most advisors don't talk about, Genevieve, is the great exception here.
'Cause we're talking about time, we're talking about location, we're talking about the, the timing of taxes, we're talking about alpha and beta out-performance, how much volatility we actually have, but one of the other ones is true diversification. Because too often we think, you can't be in one stock.
We get that because that's too much volatility.
Genevieve George: Concentration risk, yep.
Gary Preisser: Concentration risk. And then so we get into a mutual fund that has multiple stocks. We can't be in one mutual fund because there's too much concentration risk, and so we're in multiple mutual funds. And what happens is we have more and more, but we end up with duplication.
We end up holding Nvidia in 12 different stocks. I've seen portfolios. They have the same stocks in multiple mutual funds. One of my questions is, what if that stock is going in the wrong direction and you want to sell out of it?
Genevieve George: And now you own it in 12 different places.
Gary Preisser: The only way you can do that is by selling every mutual fund that holds it, and every other holding that is in those mutual funds.
You're selling out of your entire portfolio to get away from one.
Now, I think there is a benefit, a practical benefit to having... I really don't like mutual funds, but at least ETFs tied to the indices, so it gives you that diversification, that functional diversification, especially when you have a small amount of assets or you're just getting started.
But when we're talking about people even with $50,000 of assets, much less hundreds or millions of dollars, why are we holding Nvidia in 12 different places in 12 different mutual funds when we can be specific? If you want to hold Nvidia—if, I'm not saying you should, I'm just saying if you want to hold it—then hold it as an individual stock.
You don't have individ- you don't have internal fees, and if you want, when or if you want to change that stock, you can change that stock and not blow up your entire plan.
Genevieve George: So does that lead you to utilizing more direct indexing in that component?
Gary Preisser: We have our own models, but it's essentially direct indexing.
We are choosing individual stocks within the index, really the top of the S&P 500. That's our universe that we choose from, and it makes such a difference. We saw last year, for example, the tariffs brought the market down. As the market's rebounding, the S&P was doing well. There are individual investments were doing well.
We're happy. But one specific investment was dropping. When everything else was rebounding, this one was dropping. It had dropped 10%, and once it did that, based on our models, we said, "We're gonna get out of it." Not because we knew what the future was gonna hold, not because we knew the CEO or anything like that it's because it was going in the wrong direction.
We didn't have to be in it.
Genevieve George: That's your strategy, that you have…
Gary Preisser: That's my strategy.
Genevieve George: …an investment policy that says if this happens, we do this. If this happens, we do that.
Gary Preisser: That's correct. It's not on gut feel; it is based on a strategy. Absolutely right. And fortunately in this case, that was UnitedHealthcare, which ended up dropping 55%, I guess, so we avoided 45% of the loss. We didn't predict it, we didn't get out at the top, we didn't get in at the bottom, but we don't have to just take on all of the investments in the S&P just because. Again, there's a place for that if you're just starting out. But as you build a more sophisticated portfolio and, really, a more sophisticated plan, if your purpose is 10 years down the road, and the timing is 10 years down the road, we can afford to take on or target specific stocks and not just dump everything together for the sake of diversification.
Genevieve George: And going back to our tax discussion gives you opportunities for tax loss harvesting if there are losses. So more easily accomplished when you're not in a low number of mutual funds or ETFs that have seen a ton of growth, right? Absolutely. So we get a non-qualified, which is what we're running into, is like there aren't a lot of opportunities to tax loss harvest because we've seen really positive returns, which is great.
Gary Preisser: We like positive returns.
Genevieve George: But it makes a lot of things not as tax efficient.
Gary Preisser: Too often I have a client with a non-qualified account that's in these mutual funds, and if I do the analysis, they have a negative three alpha. They've been underperforming the benchmark by 3% every year, and yet just because the rising tide floats all the boats, they still have unrealized capital gains that we really don't want to incur if we don't have to.
And so the choice now becomes the lesser of two evils. Do you wanna pay taxes now, in some cases it's worth it, or do you wanna continue to underperform for the foreseeable future? And it becomes more difficult, whereas if we have individual stocks, that tax loss harvesting becomes so much more efficient, where we're able to really highlight, or spotlight, the ones that are outperforming and get rid of the ones that are dragging the entire portfolio down.
And the other thing I want to touch on just before I forget about asset location, and this is very critical as well, and this goes back to the taxes, right? We focus a lot on Roth conversions, not because everyone should do a Roth conversion, but because when we pay tax determines how much tax we pay. I see way too many retirees that are in the 12% tax bracket, or sometimes even in the zero or negative tax bracket, which does not give them credit, that are not utilizing and filling up those brackets to get more of their assets from traditional 401(k) or IRA into Roth 401(k) and IRA.
So we love Roth conversions.
Genevieve George: Yeah, so really maximizing the conversion opportunities when they existed.
Gary Preisser: I'm just saying I want my clients to pay as much tax as possible at 12% or lower.
Genevieve George: Yeah.
Gary Preisser: And avoid taxes at 22 or 24, or it may be paying tax at 22 and 24 and avoiding 32 or 35 down the road.
Genevieve George: Yeah.
Gary Preisser: So the tax conversation must be had, and not about last year's taxes, about what do taxes look like in the future. Are you in a higher bracket now than you will be, or are you gonna be in the same? Everybody's different.
Genevieve George: And what I tell people is that you have to l- and it might be different this year than next year, right?
It's really dependent upon what you have going on. If you have some other thing creating more income next year, we're not doing a Roth next year, but maybe we do it this year. We're maximizing our conversion this year, take a year off, and then revisit it. But I think people think it's like all at once, you gotta do it all at once, or it's all or nothing, or but it's an annual decision.
Gary Preisser: It's looking for little opportunities.
Yeah. Looking for little opportunities. And once you know that you wanna do a Roth conversion, the next step of this, and this is why it goes back to understanding the taxes and investments, how they work together. We did a lot of conversions this year when the market was at 6,200. We did a lot of conversions last year, not at the end of the year, but when the market was down to 4,900.
The best day ever to do a Roth conversion was March 23rd of 2020. The market had just dropped 35%, and if we're only looking at our plan as an investment plan, then it's a terrible day, it's scary, people are wearing masks, who knows what the future's gonna hold. If we look at it from a holistic standpoint, hey, a bad day in the market is an opportunity for taxes.
If we did a Roth conversion after the market just dropped 35%, we not only save 35% on our tax bill, but now all of that rebound becomes tax-free. And it's not about me telling you what you should've done six years ago; it's about looking for those opportunities because, believe it or not, the market will correct again.
I'm not sure exactly how or when, but if we are being proactive and intentional in our planning, and holistic as well, then we're able to take advantage of those opportunities instead of just complaining about them.
Genevieve George: And I think that drives me back to making sure, whether it's Gary or myself or somebody else, whoever, but making sure that you have somebody on your team that is thinking through those things, right?
And that is looking for those opportunities. We can't market time exactly, but…
Gary Preisser: No, we cannot.
Genevieve George: …we have to be able to identify opportunities when they arise and maximize our use of those when we can. I don't have a crystal ball either. I'm thinking…
Gary Preisser: I honestly couldn't have said it better myself, Genevieve. Yeah. You're absolutely right.
Genevieve George: Yeah, I don't have a crystal ball. I'm not sure you do either, but we have to just do the best we can with the information that we have.
I wanna just wrap up with anything else that you want the listeners to come out of this with, like- closing advice for your listeners?
Gary Preisser: I think the closing advice that I would leave is: it's your money. Don't just rely on someone else. Whether you're working with a consummate professional like Genevieve or if you're stuck at some other firm that I won't name, you can't just blame it on them.
I think our industry too often says, "Trust us with your money. Don't pay attention to what we're doing behind the curtain because this is too complicated for you to understand," which I don't believe is true. And when the market's up, I see too many advisors that try to take credit for it, "Look what I did for you," even though they underperformed by 3%. And when the market's down, what'd you expect? “The market's down."
It is not that simple. It is nuanced. I like to use nuanced as opposed to complicated. The principles are simple, though. There are three tax buckets. There are three different time zones in the cash flow clock. Three main different types of investments. The key is how do we apply those investments, those options, those buckets to your situation, and the only way that can be done effectively is for you to be involved.
I'm not saying you have to be an expert. I'm not saying that you have to start trying to look for opportunities, when to do Roth conversions. That's what we are here for. But you cannot just abdicate responsibility and say, “I’m just gonna go with whatever happens." You've worked so hard for these assets.
They are not trophies. They are tools that should and can be utilized to add value to your lives and the lives around you. It's one of the most important things that we can do in this life, and I hope we all look to educate ourselves better so that we can do it more efficiently.
Genevieve George: Now, I couldn't have said it better myself. Now how can people find you?
Gary Preisser: My website is stonebriarwealthadvisors.com. As you mentioned, we've got ‘The Cash Flow Clock.’ We have ‘The Differentiators of Wealth,’ two e-books. The third one is ‘The Essence of Wealth.’ A lot of our clients when they started working with us, they would say, "I wish I'd met you 20 years ago," or they would say, "I wish you could teach my kids these concepts so they don't make the same mistakes I made."
That's what ‘The Essence of Wealth’ is basically for. Those are free of charge. We just wanna get that information out there. And please connect with me on LinkedIn, Gary Preisser, P-R-E-I-S-S-E-R. Doesn't look like Preisser, but that's how it's pronounced. I'm happy to help. Love working with advisors like you, Genevieve, that are trying to make a difference in this industry because it is so important and so critical.
Genevieve George: I love that. Thank you so much for being here.
That's it for today's episode of The Wealth Development Studio. Remember, financial clarity is powerful. Do you need help with your financial plan? Go to pelicanfinancialplanning.com to schedule a call with me. Until next time.
