Exclusive Interview: Michelle Muhammad, Director of Financial Planning at Edelman Financial Engines

How to Maintain a Long-Term Investing Outlook Despite Today’s Headwinds

Ric Edelman: I'm very happy to welcome on to the program my friend Michelle Muhammad. She's Director of Financial Planning at Edelman Financial Engines. 20 years of experience in the business. Michelle, good to see you again. How are you?

Michelle Muhammed: It's great to be here, Ric. Wonderful to see you, as always. Thanks for having me. 

Ric: You know, it's as much fun as we're having, being here together. It is not a fun year. This is the worst year for the financial markets since the 2008 credit crisis. And this has one similarity in particular to 2008. Pretty much everything everywhere is falling in price. The notion of diversification isn't paying off in 2022. The old adage, 'Diversification reduces your risk. Some assets will rise while others are falling,' and so on really hasn't been playing out terribly well. People with a so-called diversified portfolio, the classic 60/40, 60% stocks, 40% bonds, hasn't really done very well. People don't want to lose any more money. What are you telling your clients who say to you, I don't want any more losses? What are you telling people?

Michelle: Well, first I say I understand. I really get it. I completely understand how you feel after 21 years of being a financial planner and having started in 2001, which was not a great year for the market either.

Ric: Boy, talk about bad you've had bad timing since the beginning.

As a Fiduciary, Financial Advisors Tell You What’s in Your Best Interest

Michelle: Actually, I look at it, maybe I'm the eternal optimist, but I look at it the other way around. I think I'm a greater asset to my clients, having been through 2001, 2000, 2008, even 2020 and everything in between. And before 2008 came along, I used to say to folks, Hey, I started in a bad year, which means that I understood almost from day one what it's like when people are getting closer to retirement, when they're looking at their accounts going down and they're saying, What's going on? What can I do? How can I protect things? So going back to what you were saying, if someone says to me, how can I protect my portfolio, etc., I remind them that as a fiduciary, I need to tell you what's in your best interest. And therefore, oddly enough, what's in your best interest doesn't always feel the best. It doesn't always feel good. And I completely get that. I had a client recently mention to me, she said, “We followed your advice. We were putting 15% away in our 401ks - they had been doing zero.” And she said, “Michelle, it's like it evaporates. It just disappears.” And I said, “I give you kudos because that's hard to do. It's hard to stick to it and keep putting money in when it feels like it's just going away.” But here's the thing, when you look at the alternative, what would we do? Would we go to cash?

Ric: It's funny, if you put the money into cash, you're guaranteed to be losing 8% or 9%.

Michelle: Absolutely. Not only that, I mean, if you factor in the impact of inflation, it's like the 60/40 portfolio doesn't seem to be working, but in the long run it does. 

Ric: So that's the basic message you're giving is, hang in there. This too shall pass. We need to give it the time for that to occur. That's the basic message, yes?

Michelle: I would say so. And I mean, it's a boring message. I mean, you know this better than I do, Ric. You know that in 2008, the S&P 500 dropped 52% in 17 months. It just felt terrible. You know? And then speaking of when I started, if you look at March 2000 to October 2002, that was a similar loss in the S&P 500. I understand how you feel. I get it. But I've seen it happen over and over again. And then having a guide, having someone on your team, I'm here to help my clients through this.

Ric: It's hard to have a long-term outlook when you're being bombarded on a daily basis by headlines. You know your basic message, hang in there. This is long-term. We need to recognize that every declining market and economic environment of the sort we're in now eventually works itself out. That's easy to contemplate when you're in your 30s, 40s, 50s. But what do you say to people who are solidly in retirement and who are watching their account values fall 10%, 20% so far this year?

Stick with Your Financial Plan Unless Your Timeframe or Risk Tolerance Has Changed

Michelle: That's an excellent question. And the truth is, every day I have that conversation because I have quite a few clients who are in retirement. And the great thing about what I and my colleagues do here at Edelman Financial Engines is that we build a plan. If somebody is in retirement and living off of their investments to supplement Social Security, maybe a pension, whatever the case may be, very often the right answer is that we've built it into your plan. We should stick with the plan unless your timeframe has changed. Your risk tolerance has changed. There have been other financial factors that have changed. If something has changed, then we should look at things and see. And very often what I do is I pull up the plan and I remind them, Hey, we've talked about this.

Ric Edelman: And so everything you're saying makes perfect sense to those who have as good a financial advisor as you. You've set expectations. You've warned them that markets go up and down, not merely up. You have made sure that they have a plan they're going to be able to live with for a long period of time and that they're going to be able to survive during negative environments such as we're in right now. That's wonderful. And I would expect nothing less of you, Michelle, and the benefit that your clients are receiving. But what about people you meet today for the first time who haven't had the benefit of a Michelle Muhammad? Who haven't had the benefit of dealing with an advisor at Edelman Financial Engines? Who are now finding themselves shell-shocked at the number of losses that they have, who never thought that they could lose so much money so quickly, who never thought that they could lose so much money from the bond portion of their portfolio. The portion of the portfolio they thought was the safe part of the portfolio, and yet they want to retire next year. And they're wondering, am I going to be able to with all of the losses I've suffered so far this year and all of the losses everybody is projecting are going to occur through the rest of the year? Can I still retire next year? What do you say to these folks?

Michelle: Excellent question. So the first response is, if you haven't been working with a financial planner, then it makes sense to consider sitting down with one to get an evaluation of your situation and take a look at your portfolio. Is it diversified enough? Have you been rebalancing? Most people, even the smartest, most well-educated people and the savviest financially speaking people, are not necessarily as diversified as they think they are, and they're often not rebalancing because they're busy doing other things.

Ric: We're talking with Michelle Muhammad, who's Director of Financial Planning at Edelman Financial Engines. And if people want to get that plan, lay out that timetable, figure out if they're in the right direction. How can they reach you and your colleagues at Edelman Financial Engines?

Michelle: So you can visit PlanEFE.com/TAYF.

Ric: And I'm sure folks will take advantage of that opportunity. Michelle Muhammad, Director of Financial Planning at Edelman Financial Engines here on The Truth About Your Future. Again, that Web address is PlanEFE.com/TAYF.. Michelle, thanks for joining us.

Michelle Muhammed: Thanks for having me, Ric. It's always great to spend time with you.