“3 Questions for Your Financial Advisor” – Video Transcript

CHRIS HILL:

Hi, everyone, I'm Chris Hill. Thanks so much for watching today. I'm joined by Bryan Hinmon, lead portfolio manager at Motley Fool Wealth Management, and Ross Anderson, certified financial planner. Guys, thanks so much for being here.

BRYAN HINMON:

Great to be here.

ROSS ANDERSON:

Thank you.

CHRIS HILL:

A quick disclaimer before we get to the proceedings today. The views expressed here are those of the speaker and do not necessarily reflect the views of Motley Fool Wealth Management or any of its affiliates. These comments may not be relied upon as recommendations, personalized investment or financial planning advice, or an indication of trading intent.

Guys, with that out of the way, I guess let's start with what's been going on in the market. We've had a last few months of the market hitting new highs. Every once in a while the Volatility Index spikes up making headlines, so if you're just even a casual investor, Ross, you can't avoid the headlines of what's happening with the market.

And I'm curious. For people who are at or near retirement that you're talking with… Because you and the other planners at Motley Fool Wealth Management, you all are on the front lines. You're talking to clients every day. What are you hearing from folks at or near retirement?

ROSS ANDERSON:

Well, the positioning for somebody that's at or near retirement is absolutely critical, and it comes down to two components: protecting what you need in the short term and growing what you need over the long term. And if you're not both in protect and growth mode at the same time with the same portfolio, you're generally missing the boat.

And so that's really going to come down to your asset allocation — how you're positioned — and making sure that what you need over the next three to five years is positioned in a way that it's not being affected every time the market has a hiccup. Because we know that that's going to happen, but we also know that inflation and everything else is going to erode at your purchasing power if you're not growing the rest of those dollars. So I think it's really important to take a step back and take that two-prong look at your portfolio.

CHRIS HILL:

Bryan, anytime the market hits new highs in a sustained way that it has really for the last couple of years, I think it is both natural and tempting for investors to, as they say, take a little money off the table.

BRYAN HINMON:

Sure.

CHRIS HILL:

I'm curious how you and the team that you work with are evaluating opportunities to sell stocks.

BRYAN HINMON:

Sure. Well, Ross mentioned the importance of protection, and we think a critical piece of any investment program is discipline. And we tend to look through the lens… When we're looking at the individual businesses that populate the portfolios that make up people's asset allocation, we tend to look through the lens of quality businesses that have growth ahead of them that are trading at reasonable prices.

And so when we're looking at an individual business, if it has violated one of those three tenets, we have the discussion about whether or not to sell.

CHRIS HILL:

So what is something that you and the team have sold recently?

BRYAN HINMON:

Sure, I'd be happy to talk about that, Chris. We recently sold a company called Nordson based out of Westlake, Ohio. You know how I love boring businesses. Nordson fits the bill, but it's a boring high-quality business. They make adhesive dispensing systems, so basically they make high-tech machines that are used in industrial manufacturing end markets that squirt out liquids in very precise measurements.

So from, on the one side, something like diapers, diaper adhesives, to something high-tech like making silicon wafers and printed circuit boards, they make the machines that make those products doable. So we look through that lens of quality, reasonable price, and growth, and when we ran Nordson through that very high-quality business, that quality was not deteriorating over time.

The problem was the price. Nordson, as a supplier to industry, is a cyclical business, and the market was treating it as though the cycle was going to continue forever and bid the price up just too far. Too dear. We couldn't justify the price anymore. So even though it's a high-quality business that we think over time can grow, the valuation had just gotten too far ahead of itself, so to stay true to our discipline, we let shares go and reinvested the capital elsewhere.

CHRIS HILL:

Bryan, you're the lead portfolio manager, but you also manage the dividend strategy. What should investors, at or near retirement, be considering when it comes to dividends?

BRYAN HINMON:

Sure. The dividend, itself, is not the be all, end all and I think that's something many retirees or dividend investors, at least, probably don't hold dearly enough. Just because a company pays a dividend doesn't mean it's a good business. It doesn't mean it's going to offer an attractive return. So it's very important to dig beneath the surface and make sure that the company that does pay a dividend is still really a high-quality business, is trading at a reasonable valuation, and is going to make sense in the context of your entire portfolio.

CHRIS HILL:

Ross, the same type of question for people at or near retirement. What are the types of questions they should be asking their financial advisors?

ROSS ANDERSON:

There's a number of things. It's such a complex time for people when they're making that transition from being an accumulator and a saver to being somebody that's living off their portfolio and their resources.

Number one, we really need to evaluate the spending plan. Do you know what your lifestyle costs and if not, that's step one. We've got to do that because that's going to determine how much portfolio stress you're putting on yourself and whether or not your lifestyle's even reasonable.

We've talked before about taxes, but taxes are such a critical component of managing where's my income going to come from, what accounts am I going to be taking distributions from and what is the tax impact of that. Is IRA money treated as ordinary income or if it's coming out of a Roth IRA and it's totally tax-free, there's a lot of different things in that set of questions.

And then finally, am I positioned properly in my portfolio? And that's something that we help people answer all the time as financial planners, here, is will this portfolio, the way it's set up today, sustain me in retirement both from an income perspective and a growth perspective.

CHRIS HILL:

And if someone doesn't have an advisor?

ROSS ANDERSON:

Certainly we'd love to chat with them. My team and I are on the front lines. We're talking to clients and prospective clients. The initial call with us — there's no cost for that. There's no obligation. We'd love to hear from anybody that's considering that Motley Fool Wealth Management might be able to help them with their investment management or financial plan.

CHRIS HILL:

That always surprises me, whenever I hear you say that, because everything I've always heard about financial advisors, among other things, is just how expensive it can be for people right off the bat.

ROSS ANDERSON:

Yeah, absolutely, and that's not the only way that we think we're unique. So the financial planning team that we have in place at Motley Fool Wealth Management is being paid on salary, so there's no financial incentive to get you to do or not do something. Whether or not the prospects invest with us or not, we're here to help you find the right solution among our platform. If it's there or if not, we're happy to tell you that.

But most of the time when we're working with clients, we find ourselves saving people sometimes thousands of dollars from a financial planning perspective and then certainly positioning their portfolio in a way that's best suited for them.

CHRIS HILL:

All right, Bryan. Before we wrap up, one more dividend stock from you and the team.

BRYAN HINMON:

Oh, I'd love to talk more about dividend stocks, but before I get to that, Chris, I need to issue another disclaimer on behalf of our lawyers. The securities identified and described do not represent all of the securities purchased, sold, or recommended in client accounts. The viewer should not assume that an investment in the securities identified was or will be profitable.

CHRIS HILL:

That absolutely sounds like it was written by a lawyer, so…

BRYAN HINMON:

But we can move on to bigger and better things, now, right?

CHRIS HILL:

Thank goodness.

BRYAN HINMON:

So one of our favorite dividend stocks that we've been purchasing for client accounts is a company called Watsco. And boring is beautiful. Watsco fits that mold, as well. Watsco is the largest in the U.S. distributor of heating, ventilation, and A/C equipment. The largest. It's four times larger…

ROSS ANDERSON:

Chris just fell asleep, right there.

BRYAN HINMON:

It's four times larger — I'm going to rein in my excitement, here — it's four times larger than the next largest competitor, and what we like about it so much is that HVAC repair is a service that is highly reliable. In other words, it's summer, basically, here in Alexandria, Virginia. If your air conditioner goes out — 95 degrees — you don't care how much it costs. You just want it fixed right away.

You call up the contractor. They come to your house. Assess the situation. Maybe it's just a part they need that needs replacing. Maybe it's an entire unit, because the life on an air conditioner is only 10 years or so. That contractor works directly with Watsco. Needs that part immediately and they have to be close by. So Watsco is a really nice business — a very reliable company — and it pays a great, near 3% dividend.

CHRIS HILL:

Boy, I mean, between HVAC and the industrial adhesive company, I mean, boring is beautiful.

BRYAN HINMON:

Boring is beautiful, Chris.

CHRIS HILL:

All right. Bryan Hinmon. Ross Anderson. Guys, thanks so much for being here today.

ROSS ANDERSON:

Thank you.

CHRIS HILL:

Hope that you've gotten some good advice from Bryan and Ross. And remember, if you want to talk to Ross or any of the certified financial planners at Motley Fool Wealth Management, they'd be happy to talk to you about your financial situation. We'll make sure you know how to schedule that free session. There's no obligation at all, so check it out.

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