Nikki:

Two retirees can have the exact same portfolio, earn the exact same average return, and still experience dramatically different outcomes.

Why?

Because successful retirement investing isn’t just about how much you earn.

It’s about when you earn those returns, how much you’re withdrawing, and whether your investment strategy is designed to provide sustainable retirement income.

Welcome to Paladin Financial Talk.

Joining me today is Financial Advisor Ellie Robinson from the Paladin Financial team.

Ellie, welcome!

Ellie:

Hi, Nikki! I’m so happy to be here.

Nikki:

I’m excited to have you on the show.

You just returned from a great trip where you had the opportunity to relax a little, but you also spent time with some of our industry’s leading distribution partners and financial professionals.

Whenever you attend conferences like that, I’m always curious…

What’s the big theme everyone is talking about right now?

What should our listeners know about what’s happening in the financial services industry?

Ellie:

One of the biggest themes—really over the last couple of years—has been artificial intelligence and technology.

Our largest distribution partners are investing heavily in technology that helps advisors become more efficient behind the scenes.

The goal isn’t to replace advisors.

It’s to reduce the administrative work that takes up so much of our day.

If technology can help automate routine tasks, that gives us more time to spend where it matters most—with our clients.

Ultimately, that’s a better experience for everyone.

Nikki:

I completely agree.

I know I feel overwhelmed when too much of my day is spent on administrative tasks instead of connecting with clients.

At the end of the day, what we really want is to spend our time helping people, answering questions, and making sure we’re providing the very best advice possible.

It’s exciting to see technology being used in ways that support our team while also creating a better experience for our clients.

Nikki:

Before we dive into today’s topic, I want our listeners to get to know you a little better.

First of all…

Happy work anniversary!

Today marks four years with Paladin Financial.

Congratulations!

Ellie:

Thank you!

It’s hard to believe it’s already been four years.

Nikki:

You actually joined Paladin after spending several years in a completely different profession.

Many people don’t know this, but before financial planning, you worked as a graphic designer.

You started here working alongside Jeff Foley, learning the planning process and the philosophy behind the firm.

Since then you’ve earned your Series 6, Series 63, and Series 65 licenses, and you’re currently studying for the CFP® designation—which is no small undertaking.

But here’s what fascinates me…

How has your background in design influenced the way you approach financial planning?

Ellie:

Honestly, I still think of myself as a designer.

When I was working in graphic design, digital design, user experience, and even some interior design, my job wasn’t really about making things look nice.

It was about solving problems.

As a designer, you’re constantly asking questions like:

What problem are we trying to solve?

Who’s going to be using this?

What’s the clearest and most effective solution?

Today, instead of working with colors and layouts, I’m working with numbers and financial plans.

But the mindset is exactly the same.

Every client has a unique situation, and my job is to create a solution that’s functional, understandable, and designed specifically for them.

Nikki:

I love that perspective.

Every advisor brings something unique to the table.

We all have different backgrounds, different personalities, and different ways of thinking.

Those experiences naturally shape how we work with clients.

Your design background makes complete sense when I watch you explain financial planning.

You’re always thinking about organization, clarity, and helping people visualize what can otherwise feel like a very complicated process.

Nikki:

Today you’re our third guest in this series on investment strategies and retirement withdrawal planning.

At first glance, those topics can sound a little intimidating.

People hear words like investment philosophy, withdrawal strategy, or asset allocation and think,

“Do I really need to understand all of this?”

The answer is…

At least at a high level, yes.

You don’t necessarily need to become an investment expert.

But understanding the principles behind good financial planning helps people appreciate why certain recommendations are made.

Over the past two episodes, Jeff Foley and Jack Ekholm introduced the foundations of investment planning and retirement withdrawals.

Today we’re going to build on those conversations by discussing the approach we use here at Paladin Financial.

We’ll compare it to some of the broader investment philosophies throughout the industry while explaining why those concepts matter to retirees.

Does that sound like a good place to start?

Ellie:

Absolutely.

I think that’s the perfect place to begin.

Nikki:

Let’s jump right in.

One thing we often say is that investing is only one part of an overall financial plan.

When someone asks you about your investment philosophy or investment strategy…

How do you explain that relationship?

Ellie:

I love this question because investment philosophy and investment strategy are actually two different things.

They’re related, but they aren’t the same.

An investment philosophy is the underlying belief system that guides decision-making.

There are many different philosophies used throughout the financial industry.

For example…

One of the best-known is Modern Portfolio Theory, which emphasizes diversification as a way to reduce investment risk.

Another common philosophy is the Efficient Market Hypothesis, which suggests it’s very difficult to consistently outperform the market, making costs and taxes especially important over the long term.

Other advisors may lean toward behavioral finance…

Tactical asset allocation…

Buy-and-hold investing…

Or several other philosophies.

Each one provides a different lens through which investment decisions are made.

At Paladin, however, our primary focus isn’t simply selecting investments.

Our focus is creating a retirement income strategy.

That strategy incorporates several of these investment philosophies, but it’s built around one central objective:

Helping clients create sustainable retirement income while managing market volatility throughout retirement.

Nikki:

I really like the distinction you made between philosophy and strategy.

Sometimes those words get used interchangeably, but they really aren’t the same thing.

One thing I also heard you say is that while there are many investment philosophies available, the strategy we use here at Paladin is designed specifically around two primary objectives:

Managing market volatility and creating sustainable retirement income.

Those are really the two things we’re trying to solve for.

One point I’d like to make, because we’ve talked about this before, is that retirement planning doesn’t begin when you’re sixty years old.

It starts the very first time you contribute to a 401(k), an IRA, or another retirement account.

The strategies evolve over time, but retirement planning really begins the moment you start saving.

Ellie:

Exactly.

Retirement planning isn’t a single event that happens near retirement.

It’s a process that develops throughout your working years.

As your goals, income, and assets change, your financial plan changes as well.

Nikki:

One strategy we frequently discuss with clients is the bucket strategy.

Can you walk us through what that actually means?

How does it work, and why do we believe it’s such an effective approach?

Ellie:

Absolutely.

Instead of viewing your retirement savings as one large investment account, the bucket strategy separates your assets into different groups based on when you’ll need to use the money.

Each bucket serves a different purpose.

The first is your short-term bucket.

This bucket is designed to cover spending needs over roughly the next couple of years.

Because that money may be needed soon, it’s invested conservatively.

The focus isn’t maximizing returns.

The focus is preserving principal and maintaining liquidity.

We don’t want someone needing income six months from now and being forced to sell investments during a market decline.

This bucket provides stability while also helping clients avoid selling long-term investments at unfavorable times.

Nikki:

Would you say that’s similar to the concept of an emergency fund?

Ellie:

Absolutely.

Emergency savings are a perfect example of money that belongs in a short-term bucket.

The priorities are liquidity, accessibility, and minimizing risk.

Nikki:

That makes perfect sense.

So after the short-term bucket comes the intermediate bucket.

Tell us about that one.

Ellie:

The intermediate bucket generally represents money that may be needed within approximately three to seven years.

Different advisors may define those timeframes a little differently.

Some might say eight years.

Others might use ten.

The exact number isn’t nearly as important as understanding its purpose.

These assets are typically invested more conservatively than long-term growth investments, but they’re still expected to generate modest returns.

One of the biggest objectives of this bucket is simply keeping pace with inflation.

We’ve all experienced higher inflation over the past several years.

If money simply sits in cash for too long, purchasing power gradually declines.

This bucket allows those dollars to continue working while remaining available within a reasonable time horizon.

Over time, it also helps replenish the short-term bucket as retirement spending continues.

Nikki:

Now let’s move into the long-term bucket.

Ellie:

The long-term bucket is what many people think of as their growth portfolio.

These are assets that generally won’t be needed for eight years or more.

One reason I personally like using an eight-year time horizon is because of history.

Following the financial crisis in 2008—the second-largest stock market decline in U.S. history behind the Great Depression—it took roughly six to seven years for the market to fully recover.

Historically, most bear markets recover much more quickly.

The average recovery period has often been closer to eighteen months.

But planning for a longer recovery period provides an additional margin of safety.

The purpose of this bucket is long-term growth.

These investments are intended to outpace inflation and provide income many years into retirement.

Someone retiring today may still need this money twenty or thirty years from now.

That’s why this bucket is designed to focus on long-term appreciation rather than short-term stability.

Nikki:

One thing I’d like to point out is that people may hear different names for this concept.

Some advisors refer to it as a bucket strategy.

Others call it time segmentation.

The terminology may vary, but the underlying principle is really the same.

You’re organizing investments based on when they’ll be needed.

Ellie:

Exactly.

The labels aren’t what’s important.

The concept is.

Nikki:

Now I’m going to put you on the spot a little bit.

One of my favorite things you do when meeting with clients is drawing this out on a whiteboard.

You’re a very visual teacher.

Even though listeners can’t see it today, can you describe what you’re drawing and how it helps clients understand the strategy?

Ellie:

I’ll do my best.

Imagine drawing a horizontal timeline across a whiteboard.

The left side represents today.

As you move toward the right, you’re moving farther into the future.

Along that timeline, we divide the investment buckets into short-term, intermediate, and long-term sections.

Then we add another layer.

Taxes.

Down the left side of the page, we identify three different tax categories:

Taxable.

Tax-deferred.

Tax-free.

When you combine those tax categories with the three investment time horizons, you create a simple grid.

That grid contains nine possible investment buckets.

Not every client will have money in every bucket.

That’s okay.

The goal isn’t filling every box.

The goal is creating enough diversification that, during retirement, we have flexibility.

We can choose the most appropriate account, invested in the most appropriate way, at the most appropriate time.

That flexibility often creates better tax outcomes while also helping clients navigate changing market conditions.

Nikki:

I think that’s one of the biggest takeaways.

When we first meet someone, they may have accumulated a significant amount of savings, but everything is concentrated in only one or two buckets.

Visually seeing those imbalances often helps people understand why diversification involves much more than simply owning different investments.

It’s also about where those investments are located, how they’re taxed, and when they’ll be used.

Ellie:

Exactly.

That’s where the bucket strategy becomes such a powerful educational tool.

It helps clients see their retirement plan rather than simply hear about it.

Nikki:

One thing I really appreciate about the bucket strategy is that it’s easy for people to visualize.

When someone sees their retirement assets organized by time horizon and tax treatment, they begin to understand that financial planning isn’t just about choosing investments.

It’s about creating a coordinated strategy.

Beyond the bucket strategy, though, there are other important pieces of retirement planning.

We’ve already touched on taxes, but are there any other foundational concepts you think people should understand as they’re building wealth and eventually preparing to create retirement income?

Ellie:

Absolutely.

The bucket strategy is just one component of a much larger financial plan.

At Paladin, every client receives what we call their Paladin Plan, and that’s really the framework that guides everything we do.

Investments and taxes are two important pillars that we’ve already talked about today.

But we also spend a great deal of time focusing on healthcare planning and estate planning.

Those four areas—investments, taxes, health, and estate planning—work together.

They’re interconnected.

The conversations may look different depending on where someone is in life.

If someone is thirty years old, we’re talking about those topics differently than we would with someone who’s preparing to retire next year.

But they’re all part of the same comprehensive plan.

Nikki:

Exactly.

Those conversations evolve as life changes.

That’s one reason we encourage people not to think of retirement planning as something that starts five years before retirement.

It really begins the moment you start saving.

Ellie:

Absolutely.

The earlier someone begins thinking strategically, the more opportunities they have available later.

Nikki:

We’ve spent quite a bit of time talking about investment strategies.

Now I’d like to shift into another topic that I think affects every investor, regardless of age.

And that’s emotions.

Because no matter how well a financial plan is built…

Real life happens.

Markets fluctuate.

Families need things.

Unexpected expenses arise.

Even the best strategy has to exist in the real world.

How do you help clients manage the emotional side of investing?

Ellie:

I think that’s one of the most important parts of our job.

There have been numerous studies showing that investor behavior often has a greater impact on long-term results than the investments themselves.

People naturally react emotionally.

That’s normal.

Some investors chase whatever has performed well recently.

Others become overly cautious after periods of uncertainty.

Still others take on significantly more risk during strong bull markets because everything feels optimistic.

We see all of those behaviors.

Nikki:

SpaceX is probably a perfect example of that right now.

Ellie:

Exactly.

When the recent discussion around the SpaceX IPO started making headlines, Jeff and I both had clients asking,

“How can I invest in that?”

Our response wasn’t necessarily that it was a bad investment.

It was,

“Let’s make sure this fits your overall plan.”

If someone has identified themselves as a conservative investor, suddenly chasing a high-profile investment simply because it’s in the news may not align with their long-term goals.

That’s where emotions can begin influencing decisions.

Nikki:

And that’s something we see quite often.

Markets are doing well.

Everyone feels optimistic.

People naturally become more comfortable taking risk.

Then the market declines…

Suddenly those same investments don’t feel nearly as comfortable.

Ellie:

Exactly.

Risk tolerance often changes when markets change.

But your financial goals usually haven’t changed.

That’s why having a written investment strategy is so valuable.

It gives you something objective to come back to when emotions are running high.

Nikki:

What are some of the other behavioral mistakes you commonly see?

Ellie:

One is holding too much cash after periods of uncertainty.

People become nervous.

They move money out of investments.

Then they struggle deciding when to reinvest.

Another common mistake is selling investments during market declines.

Historically, that’s often when people lock in losses rather than allowing investments time to recover.

One example I see fairly often involves clients who come in with a substantial amount of cash.

Sometimes they’ve accumulated it over many years.

Sometimes it’s the result of an inheritance.

Sometimes it’s simply because they’ve always been conservative savers.

They’re understandably hesitant to invest that money.

Through education and ongoing conversations, we gradually help them become more comfortable understanding why a portion of those assets belongs in a long-term growth strategy.

Ultimately, we’re trying to help their money outpace inflation over time.

Nikki:

That’s a conversation I have frequently as well.

When we’re discussing risk tolerance, many people immediately ask,

“Are we talking about all of my money?”

And the answer is almost always no.

That’s one of the benefits of the bucket strategy.

Not every dollar has the same job.

Some money needs stability.

Other money needs growth.

It’s not an all-or-nothing decision.

Ellie:

Exactly.

That’s one of the biggest misconceptions people have.

When we’re talking about long-term investments, we’re not suggesting someone invest their entire portfolio aggressively.

Every bucket has a purpose.

The short-term bucket is designed differently than the long-term bucket.

There’s intentionality behind each decision.

And there’s a lot of coaching involved.

Clients need to understand not only what we’re recommending, but why we’re recommending it.

Nikki:

And that’s where having an advisor becomes so valuable.

Life happens.

Families grow.

Kids become involved in sports and activities.

Unexpected opportunities and expenses arise.

All of those things influence financial decisions.

Having someone help keep the plan on track during those moments can make a tremendous difference.

Ellie:

Absolutely.

Financial planning isn’t just about investments.

It’s about helping people stay focused on their long-term goals when short-term emotions naturally enter the picture.

Nikki:

We’ve talked about how having a strategy can help keep emotions in check.

It gives people something to come back to when the headlines become overwhelming or when markets aren’t cooperating.

Now I’d like to transition into another concept that’s incredibly important for retirees to understand.

It’s called Sequence of Returns Risk.

This is one of those topics that can sound technical, but once you understand it, you realize just how significant it can be.

Can you explain what Sequence of Returns Risk is and why it matters so much during retirement?

Ellie:

Absolutely.

Sequence of Returns Risk describes the risk of experiencing poor investment returns early in retirement while simultaneously withdrawing money from your portfolio.

That’s really the key.

It’s not simply that the market declines.

It’s that you’re taking withdrawals during that decline.

Even if two investors earn the exact same average return over the course of retirement, the order in which those returns occur can produce dramatically different outcomes.

Nikki:

So it’s really a timing issue.

Ellie:

Exactly.

Let’s imagine two retirees.

Both begin retirement with the exact same portfolio.

Both earn the exact same average investment return over the next twenty-five or thirty years.

On paper, it would seem like they should finish with very similar results.

But that’s not always what happens.

Suppose the first retiree experiences a significant market decline during the first year of retirement.

At the same time, they’re taking withdrawals to pay their living expenses.

They’re selling investments while prices are depressed.

Those assets are no longer available to participate in the eventual recovery.

Now imagine a second retiree.

Instead of beginning retirement during a market decline, they retire during a period of strong market performance.

Their portfolio has an opportunity to grow before larger withdrawals begin.

Over time, those two investors may experience the exact same average return.

Yet the second investor often ends retirement with substantially more money simply because the timing of those returns was different.

Nikki:

I remember Jeff describing this by saying,

“We like to take our winnings off the table.”

That visual has always stuck with me.

When markets have performed well, we’re harvesting gains.

We’re not selling investments after they’ve already declined.

Ellie:

Exactly.

I use that phrase all the time now.

When markets are strong, we’re able to take gains from assets that have appreciated.

The remaining investments continue working for us.

But if someone is forced to sell investments after they’ve declined significantly, they’re reducing the number of shares available to recover when markets eventually rebound.

That’s really the heart of Sequence of Returns Risk.

Nikki:

So two people can make all the same investment decisions…

Earn the same average rate of return…

And still have completely different retirement outcomes.

Ellie:

Exactly.

That’s why retirement investing isn’t simply about maximizing returns.

It’s about managing withdrawals.

Timing matters.

Structure matters.

That’s also why the bucket strategy plays such an important role.

When short-term spending needs are already covered through conservative assets, retirees are less likely to be forced into selling long-term investments during market downturns.

Nikki:

That’s such an important connection.

The bucket strategy and Sequence of Returns Risk really complement one another.

One helps explain why we organize assets into different buckets.

The other explains what we’re trying to protect against.

Ellie:

Exactly.

Everything works together.

The investment strategy…

The withdrawal strategy…

The tax strategy…

They’re all designed to help clients navigate retirement through different market environments.

Nikki:

One thing that really stands out to me is that we’re not trying to eliminate market risk.

That’s impossible.

Instead, we’re building a strategy that’s designed to withstand market volatility over time.

Ellie:

That’s exactly right.

Markets will always fluctuate.

There will always be periods of uncertainty.

Our goal isn’t to predict those periods perfectly.

Our goal is to prepare clients so those inevitable market cycles don’t derail their retirement plans.

Nikki:

I think that’s such an important distinction.

Financial planning isn’t about predicting the future.

It’s about preparing for it.

Ellie:

Absolutely.

Preparation creates confidence.

When clients understand how their retirement income is structured—and why it’s structured that way—they’re much more comfortable staying disciplined during difficult markets.

Instead of reacting emotionally to headlines, they understand the purpose behind each bucket and each investment decision.

That confidence often becomes one of the greatest values of having a written retirement plan.

Nikki:

And ultimately, that’s what we’re trying to accomplish.

Not just helping people accumulate assets…

But helping them feel confident enough to actually enjoy retirement.

Ellie:

Exactly.

That’s the goal.

Nikki:

We’ve covered some fairly technical concepts today.

We’ve talked about investment philosophy, the bucket strategy, market volatility, behavioral investing, and Sequence of Returns Risk.

Hopefully we’ve made those topics a little easier to understand.

Before we wrap up, I’d like to leave our listeners with a few resources if they’d like to continue learning.

You do a great job staying on top of industry trends and continuing your own education.

If someone wants to dive a little deeper into these topics, where would you recommend they start?

Ellie:

There are a couple of resources that immediately come to mind.

If someone enjoys diving into the technical side of investing and wants to better understand what’s happening in the markets, one of my favorite podcasts is Animal Spirits.

It’s produced by the team at Ritholtz Wealth Management, and it’s hosted by two Chartered Financial Analysts (CFAs) who do an excellent job discussing the economy, market trends, investing, and behavioral finance.

It’s geared toward financial professionals, but I think many consumers who enjoy learning about investing would also find it valuable.

I actually had the opportunity to meet members of the Ritholtz team at an industry conference several years ago, and they’re incredibly knowledgeable.

It’s a resource I continue coming back to.

Nikki:

I love getting recommendations like that because we all learn differently.

Some people enjoy podcasts.

Others prefer articles or visual resources.

Not everyone wants to read a technical financial textbook.

Ellie:

Exactly.

For someone looking for something that’s a little easier to digest, I’d recommend visiting Charles Schwab or Morningstar.

Both organizations have excellent educational libraries.

They’ve published great articles explaining concepts like the bucket strategy, Sequence of Returns Risk, retirement investing, and portfolio management.

The information is approachable without requiring a financial background, which makes it a great starting point for many people.

Nikki:

One thing we’ve tried to do throughout this podcast series is provide listeners with practical takeaways they can use after each episode.

For today’s conversation, we’ve created a downloadable Sequence of Returns Risk chart.

Since we’ve talked so much about visualizing these concepts, I think this resource does a fantastic job showing exactly why the timing of investment returns matters so much during retirement.

Sometimes seeing the illustration makes everything we’ve discussed today click into place.

Ellie:

I completely agree.

It’s one thing to hear someone explain Sequence of Returns Risk.

It’s another thing to actually see the impact illustrated visually.

Nikki:

We’ll make that download available on our podcast website.

We’ll also include links to some of the educational resources Ellie mentioned today, including Charles Schwab and Morningstar, so listeners can continue exploring these topics if they’d like to learn more.

Nikki:

Ellie, before we wrap up, is there anything else you’d like our listeners to remember from today’s conversation?

Ellie:

I think the biggest takeaway is that investing should always have a purpose.

Every investment should support a larger financial plan.

When you understand why your money is invested a certain way—and how that supports your future goals—it becomes much easier to stay disciplined during both good markets and difficult markets.

A written plan provides clarity.

And clarity leads to confidence.

Nikki:

I couldn’t agree more.

Well, Ellie, thank you so much for joining me today.

Congratulations again on your four-year anniversary with Paladin Financial.

It’s been exciting watching your career grow, and I know our clients appreciate the thoughtful way you approach financial planning.

Ellie:

Thank you, Nikki.

I really appreciate you having me.

This has been a lot of fun, and I can’t think of a better way to celebrate my work anniversary.

Nikki:

If you’re listening today and found yourself thinking,

“I’d like a second opinion…”

or

“I want to know whether my retirement strategy is on the right track…”

our team at Paladin Financial would be happy to help.

We offer a complimentary 15-minute, no-obligation conversation to help you gain clarity about your financial plan.

You can schedule that appointment by visiting PaladinFinancial.com or our podcast website at PaladinFinancialTalk.com.

Both websites include an easy online scheduling tool where you can learn more about our advisors and choose the team member you’d like to meet with.

Of course, you’re always welcome to call our office if you prefer speaking with someone directly.

Nikki:

We also invite you to connect with us on social media.

You can find Paladin Financial on YouTube, Facebook, Instagram, and LinkedIn, where we regularly share educational content, podcast episodes, and retirement planning insights.

Don’t forget to download today’s Sequence of Returns Risk resource and explore the additional articles from Charles Schwab and Morningstar if you’d like to continue learning.

Thank you again for listening to Paladin Financial Talk.

We’ll see you next time.

Ellie:

Thanks, Nikki.