Life Hacks and Financial Strategies – Mastering Market Noise

Last week, the market went up 5%, yet the headlines in our inboxes were still creating stomach-churning anxiety about how the market was on the verge of collapsing. It remains as crucial as ever to ignore the noise when making decisions regarding your financial portfolio.

In this week’s episode of Retire in Texas, Darryl Lyons, CEO of PAX Financial Group, navigates the complexities of market volatility, introduces the art of ‘hacking’ life and finances, and delves into the strategic realm of ‘hedging’ by exploring the unique role of annuities as a powerful tool in wealth management.

Show highlights include:

*The importance of choosing a specific strategy to navigate market noise.

*A breakdown of hacking and hedging, and why these are strategies that you should be discussing with your financial advisor.

*Why annuities are a viable strategy for those who are looking to hedge the market.


Hey, this is Darryl Lyons, CEO and Co-Founder of PAX Financial Group. Thanks for tuning in to Retire in Texas. This information is general in nature only. It’s not intended to provide specific investment, tax, or legal advice. Visit PAXfinancialgroup.com for more information. And then you can go to the website.

We got plenty of ebooks. We also have a link where if you want to meet with an advisor who has a heart of a teacher, just click on that link and one of them will connect with you. You can look at all of their pretty faces online and see which advisor may be the right fit for you and get a 15 minute conversation with that person.

Really non-threatening conversation just to see if we’re a good fit. So today I really want to talk about whether we should be hacking or hedging, and I’ll explain this in just a second. But the stock market is, as you know, just an uncomfortable environment and I just really, really recognize and I recognize that we all have different stomachs for this stuff.

I mean, just we’re just we’re wired differently, you know? We try to do all these little scientific tests, which the industry is inundated with me personally with tests to really understand somebody’s stomach for volatility, but I don’t know it until it happens. Some people just get queasy going up and down the Texas hill country roads, like 46.

Some people can’t even handle those little hill country roads. Some people, they can handle the hill country roads, but they can’t handle a roller coaster. They just don’t ride roller coasters. That makes me sick. Okay? And then some people can handle that. But if you put them on, like one of those gravitrons that spin you around at the carnivals, you know, the one disgusting thing that you would actually do when you’re younger, that makes no sense.

But the gravity on that, just the gravity pushes you against the wall and you spin and spin. Some people can handle that. but we all have different stomachs and, you don’t know those stomachs until we’re in this environment of noise. And so we have to think about what strategy we’re going to deploy to weather this craziness.

And it’s really the noise. Like it’s, it’s the noise. It’s not the market. It’s the noise. Like, for example, at the end of the month of October and the first part of November to November 7th, most people don’t know. But the S&P 500, the 500 largest companies in the United States, were up over 5%. So we had in one week a 5% move in the market very, very attractive.

Like if we get 5% in a week, that’s amazing. But when I looked in my inbox, I get a lot of emails, as you would imagine. I looked at my inbox. Here’s some of the headlines during that week. Just a handful of them. Not even all of them. These are the headlines I got during the week that the market went up.

Here’s the first one. Bombshell confession from Gates. Next one, Will this eliminate the US dollar? Next one, Biden AI now controls your money. Next one, the U.S. General has terrible news. Two more. What has Elon Musk so terrified? And the last one? Fed’s next move, Disaster for savers. Those are just one week and I’ve been getting these for years.

I used to read all of them because I know you open them or you hear them. It’s hard for me to digest all of them, but I get them. But I just caught the interesting bifurcation of information when on one hand the market is going up 5% in a week and on the other hand these headlines are creating this anxiety and our stomachs are just churning.

And I guess my job is to try to get the butterflies all moving in the right direction here. And so do we hack or do we hedge? What does hack mean, life hacks? James Clear wrote a book called Atomic Habits. What I find in my life is discipline is certainly a challenge to be disciplined, to do something.

Sometimes it’s just easier to create hacks. An example of a hack would be to, you know, you want to work out in the morning, but you have a hard time getting up. So you put your gym clothes or your workout clothes right next to the bed. So those are like little hacks that you can do. There’s all kinds of hacks and the shelves at Barnes and Nobles are filled with books that teach you how to hack life, that disciplines too challenging.

So create some hacks. There are hacks in the financial business too, and they’re overly simplistic, but they’re actually real. Don’t look at it. I know that. Gosh, I mean, I. I actually posted about this once and I had financial advisors just really trash me because they’re like, so a financial advisor saying, don’t look at your statements. I’m just saying the research has supported that over the years.

I talk about this in 18 to 80. I have referenced Prudential’s research that says that the people that look at their statements more often and statements can actually be at your app or your online virtual activity. Those that look at it more often, it’s hard to avoid making changes at the wrong time and actually have had worse returns than those people that don’t look at it.

I am not suggesting that you never look at it. I suggest that it’s probably healthy to look at it once a year. Sit down with your advisor, see if you need a reset given the market conditions. But looking at it too much, I’ve been dead to doing this long enough, knowing that people will pull out right before the market goes back up.

So that’s the hack. That’s the hack piece is just don’t look at it. Don’t mess with it. Of course, with the caveat of you’ve got to sit down at least once a year to just check it out, you have to do that. But the hack is really simple. It’s just these headlines, delete these headlines, unsubscribe whatever’s causing this anxiety about the markets that’s creating these butterflies in your stomach, the hack of life is just simply just to ignore the noise and focus on what you can control.

And that’s typically related to your family. And look, I’m a cerebral guy. I’m not telling you to do something that’s intellectually dishonest. This is actually research that supports this and over the years I’ve seen it to be very effective, just not over looking at this stuff. But it’s hard. Like even if you go somewhere like you’re sitting in a doctor’s office and they put the headlines, whatever news station it is, and it’s all red arrows, I mean, that gets your stomach all twisted and turned up to so.

But hacking works. I’m not going to discount the hack. Now. There’s other ways to do it. If you feel like you’re on a gravitron, you can hedge. Now, hedging is business. This is a business strategy that’s done all the time. I do it in PAX Financial Group. We look at tail risk is what we call it.

The book Black Swan talks a lot about tail risk and business is tail risk. I’m not. I really want to talk about tail risk. I can’t do it today. So maybe another podcast and it’s hard to do it without drawing. So maybe that will be a white board conversation, but tail risk basically means the low probability scenarios that could occur that you want to eliminate or reduce in some capacity, the catastrophic events.

And if you look at some probability analysis, it looks like, okay, these events are not possible. They’re not probable, Right? They’re not probable, but they are possible. So how do I hedge my retirement, my future and my money so that if those events take place, I am not risking my entire life. And there’s actually some incredible ways at PAX that we hedge.

Like, I’m really proud of our ability to do that. But the two that are most commonplace in the marketplace that you hear all of the time are gold and annuities. So those are the two I’m going to kind of hone in on. At PAX, we do more than just those two, but gold you hear all the time, these are typically national sponsors of radios there.

You hear them on all of them from Glenn Beck to everyone. So gold’s huge. I don’t care if somebody owns gold, you know, you typically only go to one, five, 10% in gold. I know people that have, you know, 5% of their net worth in gold and 5% of their net worth in ammo. That’s fine. That’s really not a big deal.

I think when you over invest in gold, it can be problematic and people don’t typically do that. The people are typically rational about their gold holdings. I mean, you got to insure it, you gotta store it. And you know, there’s transaction costs. And of course, in an apocalyptic scenario, it’s not exactly a good resource.

I’d rather have liquor and ammo, but you’d probably be able to sell whiskey a lot more than gold in an apocalypse. But, you know, people having gold is now no issue with any of us. Us financial advisors. Just keep the allocation, you know, within reason. Annuities, on the other hand, are a little bit more challenging because people put a big chunk of their money, sometimes all of it in annuities.

And what’s cool about us, what we’ve done is we’re one of the few, maybe the only advisory firms that have structured our annuity offering in such a way that we’ve reduced conflicts of interest. Now, you can’t completely eliminate conflicts of interest and even biases for that matter. So I don’t I don’t shoot for this pollyannic idealistic scenario, but I try to get as close as I can to it.

And so one of the problems with annuities over the years that I’ve seen is the compensation that’s paid to advisors to sell them, if they can get up to I’ve seen 10% of commissions paid to these annuity salespersons on the radio. So somebody puts in $100,000 that annuity salesperson gets ten grand right away. Well, this creates a real, real problem, and it’s just a human nature problem.

You want to buy a car or you have kids waiting to pay for and you’re a  financial advisor and you’re selling annuities and getting paid like that. You’re going to I mean, you’re going to it’s just human nature. You’re going to do the wrong thing. So what we did is we constructed the annuity compensation to where and we were able to do this because we don’t have any middlemen.

I don’t have to work with like an Edward Jones or Merrill Lynch telling us what to do. I just have to adhere to the SEC and the other regulatory bodies’ rules. But we constructed the compensation to mirror advice. The other investment solutions we use, the mutual funds, the ETFs, the stocks. So the annuities do not create a conflict for our advisors.

And by constructing it that way, when the advisor makes the recommendation for annuity, they’re making it out of what’s in the best interest of the client, if anything. Sometimes they have reservations because there’s a little bit more regulatory paperwork, but in reality we’ve uniquely constructed annuities to not create this heavy conflict of interest that exists in the marketplace so that we can use them appropriately because they have their place.

So let’s talk about this, the place that they have, and I’m actually going to link in to a really interesting research report. I say research report. It’s an illustration piece that has research. I’m going to link this to the show notes. You might want to check it out. It’s a little nerdy, but it’s regarding annuities. Annuities are really cool because again, within context, you want to be careful how you use them, but they can protect your money like you can really put in.

You can really construct an annuity to where you don’t lose money. Some of them will still apply their annual operating fee. So I guess you could go down just a little bit, but not you won’t go down with if the market crashes. So they’re insurance products to protect you from a market downturn and they work. I’ve used them for 20 years.

One of the times people think that when you give the money to the insurance company, you no longer have access to it. You can only play by specific rules, maybe get a check each month. Those annuities exist. We typically don’t prefer those because I think having control and still having access to your money is really important.

So when somebody hedges and they’re using an annuity hedge, you don’t lose your money, you still have access to it. Now, there may be some rules on how you access it, but you still get your money and then you actually get some options on how you invest it. So you’re not investing in the annuity itself. You’re investing in what would be similar to mutual funds inside of the annuity.

Now they’re called sub accounts, but it’s pretty much similar to mutual funds. Now you don’t get the thing about it that’s kind of confusing in the marketplace. And I don’t even think these insurance salespeople know those that are doing these radio shows. But you do not get the entire stock market rate of return. That’s just economically impossible to manufacture.

But you get a portion of the stock market return. So you do get some upside. Historically, I’ve seen and this is simply anecdotal, that it’s, you know, somewhere between 4 and 6%. So I think if you align your expectations over a maybe five year period, you’re going to get about 4 to 6% and you’re going to hedge out any of those really, really material downside risk.

I think that’s reasonable in your expectation, but where it really gets really sweet for the annuities is longevity risk. So in other words, I think you just have to take inventory of your family history and even modern medicine. It’s just we’re living so much longer today and the threat of outliving your money is a legitimate concern when you go into that probability of events that are occurring, the probability of a market crash is not that high.

I mean, I guess it exists. Come on. We’ve got to be real. It exists. What that percentage is, I think, is certainly subject to debate. But another risk that you have to consider, whether you hack or hedge, is the risk of living too long and outliving your money. The annuities hit a home run there. I mean, that’s exactly what they’re built for.

And where we get really kind of interesting is when you do historical research on withdrawal rates from investments, typically somebody who has a bucket of money and I was just saying this, $1,000,000 can typically take out 4% of that million dollars a year very comfortably. So that’s 40,000. Maybe you get 50,000 and that’s very comfortable. You can live off that, have some inflation adjustments.

But annuities are totally different. You can get like 7 or 8%. And again, I’m going to link to this research report so you can see the nuances of it in the show notes. So be sure to check that out for all the disclosures of this. But you can get a much higher withdrawal rate that you’ll never outlive with some potential inflation adjustments, maybe even in a joint account with you and your spouse.

Very unique features and increase that amount of income you’re getting from, you know, in a traditional portfolio of 4% to, you know, getting from 40,000 upwards to, you know, 70 or 80,000 a year. Like I keep navigating this in such a way that I’m telling you there’s some nuances, but generally speaking, I’m not going to be far off in the way they’re constructed.

You can increase, you can get in a lot of times a much higher payout, a much higher income on your money that you will not outlive using an annuity. They work. And what I’m really interested in is, as we’ve seen interest rates go up, we’ve seen these numbers, the payout rates on annuities, they’ve increased substantially. They’re extremely attractive in this economic environment.2

So in terms of those that can’t hack and they want to hedge, we have several of them. So there’s several different ways to hedge. But annuities, I think they’ve got to be strongly considered. For those that are concerned about outliving their money, I think they have to have a legitimate place for your money, the amount that you should put in an annuity.

I’m going to tell you this very clearly. The advisor’s really good about using discretion of how much because, you know, there’s some liquidity features and there’s some upside, you know, limitations. So what do you put in 100% of your money? Do you put in 5% of your money? That is really a good conversation that’s personalized between you and your advisor.

And I think that one has to be, you know, has to factor all things. But the annuity is a way to hedge if you are not willing to hack, if you can hack your life and not listen, not worry about it anymore, but if you’re at the point where you feel like you’re on gravitron and you’re about to throw up, then yeah, then then you go to hedging.

And like I said, the advisors at PAX, they’re excellent at finding different tools to hedge and annuities are one of them. So a lot of content today. I hope that’s helpful. You guys have been giving me incredible feedback. One of the best things I’ve heard lately is Darryl, your communication skills are excellent and that means a lot to me because I’ve worked on that over the years.

Sometimes on the highway between my brain and my Boca, my mouth sometimes gets in a traffic jam. So to just get those nice comments that this is really serving you guys well and I’m communicating clearly means a lot to me so thank you for continuing to tune in and continue to share this with people because I am finding that a lot of people need to hear this content.

It’s just a breath of fresh air in a lot of ways and some insight that people need. So please share. And as always, I want to remind you, you know this already. You think different when you think long term. Have a great day.

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