June 24


You’re Making This Too Complicated

Life is complicated, but retiring smart doesn’t have to be.

In order to join the Retirement Revolution, you need to understand the basic lingo of the financial world. Even once you realize the awesome fact that you may be able to spend more money earlier in your retired years, it is very easy to get derailed. If you don’t understand the financial instruments you utilize to fund your retirement lifestyle, all it takes is one scary article on the internet to set you off course.

Below is my attempt to help you better understand financial terms you may hear quite often.

If you need the “Too Long; Didn’t Read” version, it’s this: Don’t make this more complicated than it is.

Blue Chip Stocks

You might hear folks refer to “blue chip stocks.” Blue chips are companies that have a long history of good earnings, good balance sheets, and even regularly increasing dividends. These are solid companies that may not be exciting, but they are likely to provide reasonable returns over time. Examples: Johnson & Johnson, Apple, Bank of America, Intel, and Caterpillar.


When you own a bond, you are loaning a company or government entity money. In exchange for your money, they agree to pay you an interest rate for a number of years. Just like a bank would make interest on money they loan to the public, you are now the “bank.” You make money by allowing other people to use your money for a specified amount of time.

Let’s say Disney issues a five-year $10,000 bond at 4%. You would receive $400 a year in interest from the bond, and then at the end of the five years Disney would return your original investment.

Bonds are generally more conservative than stock investments. You will not see as much volatility, but in exchange you will generally make less money over time.

Bond Yield

A bond yield is another way of expressing how much interest a particular bond pays. Currently, If you purchase a ten-year treasury bill from the federal government, it yields around 2%. It is no different that saying, “This bond is paying a 2% interest rate.”

Real Estate Investment Trust (REIT)

A REIT is an investment in real estate. Generally a REIT will purchase millions or even billions of dollars worth of properties: hotels, office buildings, skyscrapers, apartment buildings, residential homes, hospitals, and more.

A REIT makes money in two ways. Most properties have tenants. Those tenants pay rent. By law, a REIT must pay out 90% of rent proceeds to the shareholders. The second way REIT’s make money is simply through price appreciation of the properties.

REITs generally pay high dividends (rent proceeds) but the share price can experience significant volatility.

Mutual Funds

Instead of buying individual stocks, you can utilize mutual funds which put hundreds or thousands of stocks into a single fund. When you purchase a mutual fund, you get instant diversification in your portfolio. You can have bond mutual funds. You can have stock mutual funds. You can even have mutual funds that own both stocks and bonds.

Generally, there is a fund manager who determines what stocks the fund owns. The manager will also change the portfolio as they see fit to maximize the return. Numerous academic studies have found that mutual fund managers generally do not add extra return to portfolios.

Index Funds

An index fund is the same as a mutual fund in many ways. Within one fund you will find hundreds or thousands of stocks and/or bonds. The only difference between mutual funds and index funds is the portfolio management. Index funds do not have managers choosing and changing holdings within the funds.

An index fund simply tracks a particular index. For example, the S&P 500 is an index that contains the 500 largest companies in the U.S. If you buy an S&P 500 index fund you instantly own shares in all of the 500 largest companies.

ETFs (Exchange Traded Funds)

As ETFs become more and more popular, I hear the term thrown around quite a bit. These are actually very simple instruments. They generally function like an index fund. They track a particular index. If you invest in an S&P 500 ETF you would gain access to the largest 500 stocks in the U.S.

The ONLY main difference between an index fund and exchange traded funds is liquidity.

An exchange traded fund can be traded at any time during the day, while a mutual fund or index fund can only be bought or sold at the end of the day. There are basically no other differences. My own portfolio design involves several ETFs.

Hedge Fund

Fancy and exclusive-sounding financial instruments, these funds generally take riskier and more speculative investing bets. There is almost no evidence that these fancy managers can make you more money than a good ol’ fashioned diversified portfolio of stocks and bonds. After studying the ins and outs of these kinds of vehicles, I give them a big “thumbs down.”

Stock Dividend

A dividend is the portion of profits a company makes that they have elected to pay out to shareholders. If a stock is paying a 4% dividend, you will receive 4% in dividend payments throughout the year. Dividends are not guaranteed and can fluctuate up or down.

Fiduciary Duty

In the U.S. legal system, a fiduciary duty is the highest duty owed to another person. It requires the fiduciary to put the interest of the client above its own. I operate as a fiduciary.

You are now one step closer to joining the Retirement Revolution and joining fellow Baby Boomers everywhere in decrying, “I’m not going to die with a bunch of money. I can’t take it with me, so I’m going to make it work for me to live the life I want during retirement! Instead of living fearfully, I’m going to put together a plan, and spend the perfect amount of my savings each month — not too much and not too little.”

It’s that simple. And shouldn’t more things in life be simple?

Be Blessed,


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