Rob West: Be smarter to weigh consequences rather than chase probabilities. Hi, I'm Rob West. Whether you're building a portfolio or mulling over a new job prospect, checking the odds of success matters. But what if even a low odds failure could wipe you out? Today Mark Biller joins us to talk about how to guard against the kind of events that can ruin a financial plan and more. And then it's on to your calls at 800-525-7000. That's 800-525-7000. This is Faith and Finance on American Family Radio, biblical wisdom for your financial journey.
Well, our guest today is Mark Biller. He's executive editor at Sound Mind Investing and underwriter of this program. He's a regular contributor and our go-to guy on the markets and the economy, building portfolios. So today, as he sticks around to answer your questions, it's a great time for you to call 800-525-7000. Perhaps you've got questions about your portfolio, maybe you're thinking about your own risk-taking and portfolio construction, perhaps you're on the cusp of retirement, maybe you've been sitting out this market concerned about all the geopolitical events, watching new highs almost weekly, and you're just wondering, how do I approach my portfolio? Those questions and more today at 800-525-7000. We'll get to them in the next segment, but now's the time to call. Mark, great to have you back.
Mark Biller: Rob, thanks for having me.
Rob West: Mark, you've got a terrific editorial called "Focus on Consequences, Not Probabilities" in the latest issue of Sound Mind Investing. Let's dig into that. Why does that idea matter so much?
Mark Biller: Yeah, well, risk-taking is inevitable in investing as well as in life. But the key here, Rob, is you never want to take a risk that you don't have to take. Probabilities deal with how likely something is to happen, but consequences deal with how bad it might be if something does happen. And that's a really important difference. You know, if someone tells you there's a 99% chance you'll be successful at something, well, that's the probability, and in this case, obviously, it's very high. But what if that 1% chance of failure is so dramatic like you're dead? Well, a 1% chance of ruin is still ruin. And so even if the probability is really low, if the consequence is severe enough, then we really have to weigh that more heavily in our decision-making than even the high percent chance of success.
Rob West: Yeah, let's take that one step further and help people understand what we're talking about. You have this great example about crossing a busy street. Walk us through that.
Mark Biller: Yeah, I think it's something that we can all relate to, right? You know, it's the perfect example of low probability, but high consequence. So, the probability of getting hit by a truck crossing the street is low, but we all still look both ways before we cross because the consequence of getting run over by a truck is catastrophic. And so, in the same way, we're just encouraging investors not to ignore the small probability of a wipeout event just because it might be statistically unlikely.
Rob West: Yeah, that's well said. Give us an example of this, Mark, from the investing world.
Mark Biller: Sure. Well, one of the most famous examples was the failure of Long-Term Capital Management, which was a really famous hedge fund back in 1998. And the reason this one really stands out, Rob, is that the brain trust behind this particular fund was just full of investing legends. In fact, there was a famous book about this whole episode that came out after, and they titled it When Genius Failed. So, the short version of the story is, these were the smartest investing guys in the room. They built these amazing models that would have worked almost all the time, but they got hit by the age-old combination of leverage and just the wrong sequence of circumstances, and it ended up wiping them out, wiping out the whole hedge fund. And depending on who you believe, it almost took down the whole financial system with them. So, this was a classic example of most of the time this would have worked. It was low probability of failure, but very high consequence when it did fail. And, you know, if we're honest, looking through financial history, there are so many examples like this that it really should make us humble about how low the probability of these types of failures actually is.
Rob West: Yeah, no doubt about it. Well, we're going to continue to unpack this. We're also going to be taking your questions today. Perhaps this relates to your portfolio, and you'd like to talk to Mark about your investments, your retirement plans. We'll talk about something called sequence of returns risk, which is a big deal for retirees. What is it? Well, we'll explain just around the corner. Check out this article when you go to soundmindinvesting.org, and then come back. We'll be right after this break. Stay with us.
David Wollen: For your walk with Jesus, I'm David Wollen with Haven Today, inviting you to anchor your day in God's word. In Galatians 5:22, the fruit of the Spirit, it says, is love, joy, peace, patience, kindness, goodness, faithfulness, gentleness, self-control. Against such things, there is no law. And for many of us, that last one, self-control, is a challenge. Self-control not to eat the whole box of cookies, not to run up the credit card, and to hold your tongue. Yet for all of these fruits to be real and ripen and endure, becoming a part of your godly character, this must be a work of the Spirit. So if you're not there today, take heart. Fruit comes from the vine, not the branches. So today, drink deeply of Christ. Get more daily encouragement for your walk with Jesus at haventoday.org.
Announcer: We are grateful for support from Movement Mortgage, who provides residential home loans and reverse mortgage options in all 50 states. Guided by a mission to love and value people, Movement seeks to help individuals and families make informed financial decisions, from buying a home to planning for retirement. More information is available at faithfi.com/movement. Movement Mortgage LLC supports equal housing opportunity. NMLS number 39179. For licensing information, visit nmlsconsumeraccess.org.
Announcer: John MacArthur called it the Mount Everest of the Old Testament. Surely a description like that would set your expectations pretty high. Yet what is the focus of this lofty passage of Scripture? Hatred, betrayal, and death. John MacArthur unveils a stunning view of Christ's sacrifice for sinners as he continues his series called "The Gospel According to God" on Grace to You.
Announcer: We are grateful for support from GuideStone, whose diversified suite of investment solutions align with Christian values to create positive change in the world. More information is available at faithfi.com/guidestone. Investing involves risk, including potential loss of principal. Carefully consider the investment objectives, risks, charges, and expenses of GuideStone Funds before investing. They are distributed by Foreside Funds Distributors LLC, which is not an advisor affiliate, a registered investment advisor, nor do they provide investment advice.
Announcer: Rising health insurance rates are pricing millions out of the market, and Christian Healthcare Ministries is here to help. CHM is affordable assurance, allowing believers to share the burden of medical bills together. You get simple, low-cost pricing, regardless of health history or location. Plus, you can enroll at any time with no contracts. Break free from the huge costs and hidden fees of traditional health insurance. Learn more at faithfi.com/chm.
Rob West: Great to have you with us today on Faith and Finance here on American Family Radio. Mark Biller's here today. He's our go-to guy on the markets and the economy. He's executive editor at Sound Mind Investing. He's got a great article in the latest SMI newsletter called "Focus on Consequences, Not Probabilities." You'll want to check it out when you visit soundmindinvesting.org. For more than 30 years, do-it-yourself investors have relied on SMI for proven strategies and trustworthy guidance. They also have the private client group if you want to delegate that to a team that will make those decisions for you, but all of that available when you head to soundmindinvesting.org. Now, we've been talking about consequences, not probabilities, and the article that I just referenced, Mark, that you wrote leans on the late Peter Bernstein's work. Tell us what his key insight was.
Mark Biller: Yeah, Bernstein wrote maybe the definitive book on the history of financial risk, and his key insight was that the consequences of being wrong are more important than the probabilities of being right. So Bernstein was urging his readers, and by extension investors, to ask: if something goes wrong, how wrong can it go, and how much will it matter? And so that single question really reframes the whole issue of risk from a math question to a survival question.
Rob West: Yeah, that's well said. By the way, Mark is here today to take your questions. We'll be diving into those here in just a moment. Lines are open if you have a question on the markets, your portfolio, call right now, 800-525-7000. Mark, taking this then from the theoretical to the practical, let's talk about margin of safety. How can an individual investor build a margin of safety into their portfolio?
Mark Biller: Yeah, well, thankfully, Rob, this is where we can start to lean on these timeless biblical principles to help keep us safe. So we start with the foundation, that core financial foundation that you and I often discuss, and we build that by getting out of debt and establishing an emergency savings reserve ideally before we start putting large sums of money at risk in the markets. Now, once we get to that investing stage, then we diversify across asset classes to manage risk. We avoid concentrated bets, and especially leverage, which can permanently impair our capital. And so maintaining a margin of safety is really at its core having the humility to acknowledge that we are fallible and we're leaving room for error instead of running every scenario at full throttle.
Rob West: Yeah, that's helpful. We'll continue to unpack this. We'll also talk about something called sequence of returns risk in just a moment. But let's head to Washington. David, you'll be our first caller. Go ahead, sir.
David: And my wife is 62. We are looking moving from the stock market to an annuity. The company I mentioned does—I don't know if I can say it on the air—does not have a cap or participation rates. We don't need the funds to live on and have our other assets we could liquidate if absolutely needed. Each year we can pull about 10% if needed and are aware of the tax ramifications of that. They also offer a 24% bonus that is immediately added to your balance. Please advise—I'm asking for advice, pros and cons of this program. And thank you, and God bless.
Rob West: Well, thank you, David. That's very well said, great background. Mark, how would you encourage somebody to evaluate a product like this?
Mark Biller: Yeah, well, you know, I guess big picture, you know, annuities are very attractive because they take some of the risks of investing off the table. You know, usually with most annuities, you either have no downside risk or you know exactly what your downside risk is, and that's very appealing to people to be able to to have that knowledge of what that worst case is. On the downside of annuities is they are typically expensive, so they're a more expensive way to invest than than some other ways. And and so, and they can be very complicated and hard to get out of, too. So that it tends to lock your money up in ways that other investments don't. So you have kind of a—that's the general pro/con framework for annuities. Then I would say, you know, within that, every annuity's different, which is part of the the difficulty in evaluating them. So you got to be really careful about exactly what your specific annuity says. So like in this case, just listening to David's description, you know, one thing that jumps out to me, Rob, is if they're offering a 24% bonus at sign-up, well, why? Why are they offering that? And what is in this annuity that justifies it from the insurance company, the annuity provider's point of view, that it's worth providing this bonus to get the person to sign up? So those are the types of things that I would look at. Generally speaking, if if a person wants that security and wants an annuity, I would generally encourage them to consider maybe annuitizing a portion of their nest egg, but maybe not the whole thing. It doesn't have to be an all-or-nothing type of decision. So that's generally my approach to annuities, Rob.
Rob West: Yeah, I love that, David. I'm confident that gives you a framework to think about this. And just for the benefit of our listeners here, when somebody says, an annuity company says they're giving you a bonus, it sounds like a 24% in this case investment return. It's not. Basically what's happening here is, you know, they're allowing you to have an income benefit bonus. So that 24% may be credited only to the income base that's used to calculate future guaranteed income. That benefit base generally isn't cash value, and may only become cash value over time. There's probably some vesting schedule there, but David, hope that helps. Thanks for your call today. We appreciate you being on the program. Mark Biller's here today. We'll talk about consequences, not probabilities, and your questions after this.
Announcer: The God Who Speaks is a powerful message on the authority of scripture in the voices of some of the most respected theologians of our day. The most historic formula for the Christian Church has been this: When the scripture speaks, God speaks. The God Who Speaks is a 90-minute documentary which can empower Christians to share our faith and defend the authenticity of the Bible. Available at thegodwhospeaks.org or visit stream.afa.net.
Announcer: Faith and Finance is grateful for support from Eventide Investments. A faith-based asset manager pursuing investing that makes the world rejoice. Eventide invests from a biblical worldview, helping values-aligned investors pursue integrity, impact, and performance through their portfolios. More information is available about how you can align your faith with your investments at faithfi.com/eventide. That's faithfi.com/eventide.
Announcer: I'm Dr. Ray Rooney. The mission of American Family Association is to inform, equip, and activate individuals and families to strengthen the moral foundations of American culture and give aid to the church here and abroad in its task of fulfilling the Great Commission. AFA aims to evangelize the lost and disciple the believer. Thank you for standing with the American Family Association as we seek to stop the erosion of godly values.
Announcer: We are grateful for support from Timothy Plan. Since 1994, Timothy Plan has shared good news with investors and advisors by offering faith-honoring mutual funds and exchange-traded funds. More information is at timothyplan.com. The investment objectives, risks, charges, and expenses are contained in the prospectus and summary prospectus available at timothyplan.com. Mutual funds distributed by Timothy Partners Limited and ETFs distributed by Foreside Fund Services LLC. Investing involves risks, including possible loss of principal.
Announcer: A few of the benefits of a charitable gift annuity are a fixed percentage for the rest of your life paid to you, a partial tax deduction, as well as partial tax-free income, and then upon your passing, any remaining funds are then gifted to the American Family Association. So give us a call today at 1-800-326-4543, extension 345. We look forward to speaking with you soon.
Announcer: Faith and Finance is grateful for support from Sound Mind Investing. If you have money in an investment account, you know sometimes the stock market can seem like a roller coaster. But it's possible to enjoy both profit and peace of mind as a do-it-yourself investor, no matter what's happening in the market. A short video webinar about that is available at soundmindinvesting.org. Financial wisdom for living well: soundmindinvesting.org.
Rob West: Great to have you with us today on Faith and Finance here on American Family Radio. Mark Biller's here today. We're talking about a recent editorial he wrote called "Focus on Consequences, Not Probabilities." You know, consequences outweigh probabilities, and we're talking about how that applies to your investment portfolio. You can check out that article when you head to soundmindinvesting.org. We will talk more about his article in a moment, but we're taking your calls as well. If you have an investing-related question, call right now, 800-525-7000. Your questions for Mark Biller today, 800-525-7000. Uh to Montana, Greg, how can we help?
Greg: Uh, just a quick question. I wanted to get the name of that book again and the author. I'd like to read that book.
Rob West: Ah, very good. Mark?
Mark Biller: That Peter Bernstein book is titled Against the Gods. And uh, it's a great look at the history of financial risk.
Greg: Uh-huh, okay. Okay, that's all I wanted.
Rob West: All right, Greg. Thanks for listening today. Lord bless you, sir. Uh down to Arkansas. Hi, Sherry. Go ahead.
Sherry: Hi.
Rob West: How can we help?
Sherry: I um, I wanted to ask a question. I'm helping someone with their um, oh, finances. And so he is um, on disability Social Security, but he also has a part-time job of doing yard work. So he does have some income. He also has a little bit of money coming from a supplemental um, income source with the company that he was working for when he was disabled. So about $2,000 a month. But what I'm asking is he is contributing to a Capital Group American Funds. And he's got about $28,000 in it, and he—it says it's earning about 9% annually. This is through Primerica, and he is contributing $100 a month to that. It's a traditional IRA. So I guess my question—it says he can continue—he can add like, I think he can contribute $7,500 to it.
Rob West: Yes.
Sherry: So, I guess my question is, is his yard work considered income? How can he continue to contribute to this when he is unemployed?
Rob West: Yeah, good question. Yes, so at the end of the day, if he's doing yard work for other people and getting paid for it, that's earned income. It's self-employment income, which is earned income, which is important for the IRA. For IRA purposes, the IRS considers net earnings from self-employment to be compensation. So if he operates the yard work as a small self-employed business, his net profit after legitimate business expenses can support an IRA contribution. So for example, if he gets $6,000 from yard work during the year, he's got $1,000 of legitimate business expenses, he might have roughly $5,000 of net self-employment income. His IRA contribution will be limited by his eligible compensation and the applicable annual IRA limit, which, as you pointed out, is $7,500 for 2026 if you're under the age of 50. Um, so he would be able to do that.
Sherry: Okay. So then, so even, so he should continue to contribute as much as he can to that.
Rob West: Yeah, I mean assuming he's got uh, you know, an emergency fund, he doesn't have any high-interest debt, I like him putting something away for the future. I mean, the other issue is, because he's on disability Social Security, he needs to make sure he's reporting the yard work activity and earnings to Social Security. Uh, SSA specifically requires people receiving disability benefits to report earnings from work, including self-employment, and changes in work activity. And if his self-employment earnings are $400 or more, then he's going to have to uh, use a Schedule SE for self-employment, you know, filing requirements.
Sherry: Schedule SE, okay. So $400 or more per year or per per...
Rob West: Yeah, so if you have total earnings of, yeah, he would definitely be over that, of of at least $400, then he's got to do the self-employment tax filing. Um, and then, you know, the the supplemental income from the company he worked for when he was disabled, if that's disability income or uh another benefit, it doesn't count as IRS compensation—IRA compensation. Uh, so a pension or annuity income or deferred comp isn't IRA comp- compensation, but the uh the self-employment clearly is.
Sherry: Okay, so there's a difference in traditional and Roth IRA.
Rob West: Yes, ma'am. Yeah, so they both have the earned income requirement that's the same, and they have the same contribution limit for the year. Uh, the difference is in the tax treatment. So with the traditional, you get the deduction as the money goes in in the year of the contribution, and then it grows tax-deferred, so you invest it, in this case in American Funds or wherever he's got it, and the taxes do not affect the investments as it's growing. But then when he takes it out in retirement after 59 and a half, he pays taxes on it as income as it comes out. With the Roth, you put it in after-tax dollars, so you get the compensation, you pay the tax, you put it in the Roth, you don't get a deduction, and it grows tax-free, and then when you take it out in retirement, all the gains are tax-free, which makes it very attractive.
Sherry: Okay, so is there a way to move from a traditional to an IR- to a Roth?
Rob West: There is. It's called a Roth conversion, but you have to recognize the conversion as income in the year of the conversion, so you have to have the the ability to pay the tax. And I would recommend you have to have the ability to pay the tax with non-IRA funds, so I would want to make sure he has that money available in savings or checking, you know, to cover that tax bill and not, A, get caught by surprise, but, B, not have to pull the money out of the IRA to cover it.
Sherry: Very good. Okay.
Rob West: All right?
Sherry: Appreciate you.
Rob West: Absolutely. Thanks for your call today. 800-525-7000 is the number to call. We're talking to uh Mark Biller today, and uh when we come back, we're going to talk about something called the sequence of returns risk for retirees, how folks should handle that as you're approaching retirement, uh what does that mean, and um how you can test whether a particular risk is excess- uh acceptable for you and your portfolio. We'll also continue taking your investing questions. The number: 800-525-7000. Call right now. Mark Biller's here, and we've got more coming after this.
Announcer: Feeling burdened by credit card debt? As faithful stewards, we are called to manage our finances wisely. Christian credit counselors can help with a debt management program that allows you to pay off debt up to 80% faster while honoring your commitments with integrity. Don't let debt hold you back from the life God has planned for you. Take the first step toward peace and financial freedom today. Visit faithfi.com/ccc or call 800-557-1985.
Announcer: Life can be hard, but we have to keep our eyes focused on Jesus. I'm Christy Graham, host of On the Ground with Samaritan's Purse, and I want to encourage you in your walk with God. Listen each week as we go behind the scenes of our work around the world. You'll be challenged and encouraged in your own faith as you hear how God is actively changing lives. Join us for On the Ground with Samaritan's Purse, Sundays at 8:30 AM Central right here on American Family Radio.
Announcer: Are you a financial professional looking to grow your practice while offering advice that aligns with your Christian values? By becoming a certified Kingdom Advisor, you'll gain the biblical wisdom and professional credibility to serve clients who are seeking faith-based financial guidance. Each year, more than 75,000 people search for a certified Kingdom Advisor. Join our community and share your expertise with clients looking for someone who shares their faith and values. Start your journey today by going to kingdomadvisors.com/getcertified.
Announcer: How much money is enough? It's a question almost all of us wrestle with, but few of us know how to answer. What if God has already given us a better way to think about enough—one that leads to contentment, freedom, and greater generosity? Our FaithFi field guide, How Much Money Is Enough?, will help you explore this important question through Scripture and practical exercises. Get your copy today at faithfi.com/shop. That's faithfi.com/shop.
Announcer: When you hear this... This is American Family News. You know what follows is the truth—your news from a Christian perspective. Hundreds of teachers are going to have to walk into that school building and are forced to swallow political ideology that in many cases violates their very faith and conscience. If you miss it at the top of the hour, American Family News podcasts are available at afn.net, and sign up for our daily news brief at afn.net.
Announcer: Every day, thousands of women face an unexpected pregnancy, scared, alone, and unsure where to turn. FaithFi is partnering with Preborn and you to bring the hope of Jesus to these mothers through free ultrasounds at pregnancy centers across America. When a mother sees her baby's heartbeat, everything changes. Your gift of just $28 saves a life and shares the love of Christ. Give today at faithfi.com/preborn. That's faithfi.com/preborn.
Announcer: This is American Family Radio, a listener-supported ministry of the American Family Association.
Rob West: Thanks for joining us today on Faith & Finance here on American Family Radio. Yeah, whether you're building your portfolio or mulling over a new job prospect, checking the odds of success matters. But what if even a low-odds failure could wipe you out? That has massive implications, no matter what decision you're considering, but that certainly includes your investment portfolio. And that's what we're talking about today with Mark Biller. His article on this topic is available at soundmindinvesting.org. Just look for Focus on Consequences, Not Probabilities. Again, that website is soundmindinvesting.org. Mark, as we've talked about, there's something that is significant for retirees, and it's a term called sequence of returns risk. Share that with our listeners today.
Mark Biller: Yeah, well, Rob, that's a fancy term for a very real potential problem that retirees face, and that is that losses early in a person's retirement can deplete a portfolio so quickly that even strong returns later can't necessarily make up for it. This turns into a little bit of a math problem where, if you weren't taking withdrawals from a portfolio and you just had, say, 10 years of returns, it wouldn't matter what order those gains and losses came in, okay? You'd get to the same result whether you had the losses early or the losses late. But because people are taking money out of their portfolio, if you combine a big early loss with withdrawals from the portfolio, that can make it really hard for the portfolio to recover and supply enough money through the whole retirement. So because of that, planners and advisors know that this is a real risk. You have to watch out for the possibility of big losses early in a retirement. And so, there are different ways that advisors and planners deal with that, and one of those is just simple diversification. You want to be well diversified so your whole portfolio isn't exposed to too much stock market risk early on. And then there are some other strategies that can help with that, too, such as holding a few years' worth of spending in very low-risk cash or bond-type accounts, specifically so that if you run into one of these really bad markets early on, you can just use that cash balance for your withdrawals, and you don't actually have to take money out of your stock market investments when the market is down substantially. So these are just a few strategies to get through that early stage of retirement so that bad returns don't sabotage the whole long-term plan.
Rob West: Yeah, that makes a lot of sense. Let's make this even more practical, Mark. So how can our listeners today test whether a risk is acceptable for them?
Mark Biller: Yeah, I think the biggest thing, Rob, is to focus on that worst-case scenario first. And that doesn't mean that you go through life as the pessimist looking behind every rock for, you know, the horrible thing that could happen. But you do weigh your situations and the decisions you're making by asking, what is the worst-case thing that could happen here? And if the loss is significant enough that it would derail your goals or cause you sleepless nights, then that's probably a risk that you can't afford, and you need to make an adjustment. And that's true even if your probability of success seems good. Now, on the other hand, if you go through that process and you weigh it and say, what is the worst-case scenario, and that downside seems reasonable, well, then at that point you can go back to the probabilities and say, okay, how likely is it that this downside risk that I could handle if it did materialize, well, what is my probability of that happening? So the probability and the consequence work together. The problem is that a lot of people will look at a high probability and just discount the terrible consequence. And we see that a lot right now in the investing world as things like heavy leveraged products are becoming more and more popular. And some of that is people maybe not understanding what the downside risks are, but I think a lot of it is also just ignoring those downside risks and saying, "Well, the probability seems pretty good that this is going to work," and so they never go to that next step of, "But what if it doesn't? What's the implication of that?"
Rob West: Yeah, that's really important. Your questions for Mark Biller today: 800-525-7000. We've got just a few lines open. Let's go to Dallas. Lou, thanks for calling. Go ahead.
Lou: Uh, yes. Um, I am 88 years old, and I work a part-time job to supplement my Social Security. Um, I've been widowed for about 20 years. I have an IRA, uh, about $50,000 in it, and I'll have to use that when I retire from my part-time job. And my question is, is it—is there any way that I can avoid paying taxes when I take it out for the supplement?
Rob West: Mm. Yeah. Mark?
Mark Biller: Well, I think a lot of that, Lou, will come down to how much money you have to withdraw from that. And if you're needing all of that income for your living expenses, um, if not, and if some of that, like for example, was being given to your church, there are some things that can allow you to bypass your tax return with some of those withdrawals from the IRA. There's something called a qualified charitable distribution that can help with that. But if you're needing all of the distribution for your income, then it becomes really just a math problem of what, uh, your standard deduction is and the amount of income that you have, um, and whether that's going to be enough that any of that distribution is taxed. Um, I mean, it technically is taxed, but because of the way the tax system is set up, you get a certain amount of buffer room before those taxes really kick in. So, uh, those are my thoughts. Rob, do you have anything about how that would impact the Social Security specifically?
Rob West: Mm, yeah. Yeah, it's a—it's a great question. And, I mean, you would have the same thing that you have going on with your part-time income now, is that as that adjusted gross income increases, more of your Social Security becomes taxable. But it doesn't sound like you'd be taking more. Perhaps you'd be taking less total—or have less total overall income, um, you know, when you get to that season you're no longer working. So you're probably going to have the same or less in terms of taxation. There really is no way to get that money out of the IRA without it being taxable. But to Mark's point, um, you know, you—for 2026, the regular standard deduction, um, is $16,100 for single filers, $32,200 for married filing jointly, and then you get an additional senior deduction of up to $6,000 per person 65 and older through 2028. So, um, you know, you've got some options there, I think. The key will just be making sure you really regulate those withdrawals so you don't deplete that IRA too quickly. But Lou, I hope that helps. Thanks for calling today. We appreciate you being on the program. Let's go to Ohio. Minnie, how can we help?
Minnie: Hi. Hi. Um, I have a brother that's invested over $15,000 in Iraqi dinars. He tried to give—um, there's four of us, so he's trying to give, um, $1,500 to each of us to invest in Iraqi dinars, and I said, "Why don't you just invest in silver and gold? They hold their value." He got mad at me. And so later he came over and he gave me $1,000, which I invested in my car because I had to get it fixed, but, um, is he investing in wooden nickels, which what I think he's doing? He's really thinking he's going to get wealthy on this. He's spent over $15,000 on this already.
Rob West: Wow. All right, well, we're up against a break, so we're going to let you go. But keep listening, because I'll get Mark's take on the Iraqi dinar as an investment in the final segment. We'll be right back.
Announcer: When God allows something difficult in your life, you could look at it as His gift to you. Here's Nancy DeMoss Wolgemuth. If our way is perverse before God, what a mercy it is when God sets out to oppose us in that way! God's way of getting your attention. On the next Revive Our Hearts with Nancy DeMoss Wolgemuth.
Announcer: While we rejoice that Roe is overturned, the pro-choicers are very energized. They are winning the arguments and elections. We need to win them back. The people who bring you Wretched Radio have produced a powerful, persuasive, and proactive 13-lesson video series to help. You don't need a PhD to tell you that human life is more valuable than the life of an ant. Order Life Is Best at shop.wretched.org and listen to Wretched Radio Saturday nights at 10:00 Central on American Family Radio.
Announcer: We are grateful for support from Movement Mortgage, who provides residential home loans and reverse mortgage options in all 50 states. Guided by a mission to love and value people, Movement seeks to help individuals and families make informed financial decisions from buying a home to planning for retirement. More information is available at faithfi.com/movement. Movement Mortgage LLC supports Equal Housing Opportunity. NMLS number 39179. For licensing information, visit nmlsconsumeraccess.org.
Announcer: Wondering who Faith & Finance recommends as a banking partner that aligns with Christian values? It's AdelFi Christian Banking, the trusted team you've known as Christian Community Credit Union. With high-yield checking, savings, Visa cashback cards, and a competitive money market account, your everyday banking helps advance the Gospel. Visit faithfi.com/banking and use the code FAITHFI. Membership eligibility required. Accounts are privately insured up to $250,000. This institution is not federally insured.
Rob West: Thanks for joining us today on Faith & Finance here on American Family Radio. Mark Biller's here today. We're talking about focusing on consequences more than probabilities, and Mark's got a great article on this topic. If you're interested, check out "Focus on Consequences, Not Probabilities" when you head to soundmindinvesting.org.
We're going to continue our conversation here in just a moment, but first, before the break, we were talking to Minnie. Her brother is investing a lot of his money in coins from Iraq—Iraqi dinar. We haven't heard this very much lately. This was a hot topic years ago. She feels like he's throwing money away and is skeptical. He's pushing pretty hard. I would agree with Minnie. Minnie, I think you're right on here in terms of why you would want to be cautious. You know, typically the pitch is that this is a good investment because it's supposedly going to be revalued and then make holders really wealthy. And the challenge is, first of all, currency is not the same as a normal investment. Mean, you don't get ownership in a business, it doesn't pay dividends, it doesn't produce income; you're just betting that the currency will appreciate substantially against the US dollar. And a low price doesn't mean it's undervalued. You know, the fact that it takes many dinars to equal $1 US doesn't mean it's destined to become worth $1 or more, and these—this idea of revaluation promises have been warned about extensively by the US regulators. You know, and so these investment pitches that claim that currencies like the Iraqi dinar will dramatically increase in value, regulators have said stay away. And not only that, but buying and selling it can be expensive because the dealers charge substantial spreads as they buy and sell these. So I would stay away. You don't need to prove it's a scam to say no. You just need to say, "Listen, I don't understand the investment, and I don't invest in things that I don't understand," and move on. And hopefully you can keep the peace there despite his urging otherwise. Thanks for your call today, Minnie, we appreciate it.
Mark, you know, as we continue to talk about this topic here, I love this mention you have in your article about something called Pascal's Wager, and I'd love for you to give us the quick version of that story and then show how it applies to investing.
Mark Biller: Yeah. Well, Pascal's Wager was a 17th-century thought experiment from a French mathematician, philosopher, theologian, Blaise Pascal. Blaise was a Christian himself. He was a devout believer, but he was making this appeal on strictly logical grounds to unbelievers through the argument that he said, which was since none of us can be certain whether God exists, the safer bet is to live as though He does. That way, if you're right, the gain is infinite—you gain eternal life. And if you're wrong and there is no God, the cost is minimal. So, in other words, Pascal, all these centuries ago, was giving us an example here that when outcomes are uncertain, we should be weighing the potential consequences, not just the odds. And so by giving more weight to what could go wrong, we leave ourselves plenty of margin to stay on track even if we end up being surprised.
Rob West: Hmm. Yeah, interesting. So how can someone then gauge their personal risk tolerance through the lens of consequences?
Mark Biller: I think again here, Rob, we need to start with the idea of: what if this doesn't turn out the way that I expected it to? What is the impact going to be if it doesn't turn out well? So, you know, that's another way of framing this question of: if it goes wrong, how wrong could it go, and how much will that matter? And so as we apply that to our investments, you know, there are lots of different applications. You know, that could be a reason that we continue to own some bond allocation even if, for example, you don't really love bonds right now. You know, it could also be a reason why we're not going to get too conservative in our investments early in retirement. You know, what if the probability of living a long life and inflation being high kicks in? It may not be a high probability that we're going to have that high inflation scenario, but it's certainly not zero either. So we need to keep part of the portfolio growing to keep up with inflation. You know, you and I could probably trade, you know, examples like this all day long, but the main point is we just need to consider what things may be unlikely, but still possible, and then weigh the consequence of those scenarios. That's a good way to determine whether various risks are acceptable or not.
Rob West: Yeah, that's really helpful. Mark, as we continue to think about this, obviously you mentioned bonds, and, you know, that just—I'm sure for a lot of listeners out there who are in this retirement season, maybe they've got that typical 60/40 portfolio with 60% in bonds. What would you say to those folks just in terms of what they might expect moving forward?
Mark Biller: Yeah. Well, bonds have not been a very good returning investment the last several years—last five or six years really specifically—and that is largely due to the increase in interest rates from very low levels back around the COVID lows in 2020. As interest rates go up, bond prices fall, so total bond returns have not been good as interest rates have been going up. And so the question for every investor is if this is likely to continue, and of course there are arguments for that and arguments against that. But generally speaking, we don't want to get too far over our skis making a bet in either direction. We don't want our investment returns shouldn't be entirely dependent on our ability to predict things like this that are very, very difficult to predict. And so what we do instead is we build diversified portfolios. You know, at SMI, we have brought our bond allocations down a little bit, but we haven't gotten rid of them entirely. And so that's kind of this idea of considering a range of possibilities, considering what we think is likely, which in this case has been that interest rates have been going up, and so we've been bringing our bond allocations down a bit. But again, we're not making a permanent adjustment there; this is more of a tactical adjustment. And so we want to stick fairly closely to what has worked well historically, which is, you know, maybe we're not going from 60/40 to 100/0, but maybe we drop that 40 a little bit, and we've talked about how at SMI we have brought in other portfolio diversifiers like gold, like commodities, some things that can play a similar diversifying role to bonds without putting quite as much weight on a bond turnaround in interest rates and, you know, a change in the way bonds have been behaving.
Rob West: Really helpful. Want to sneak in one final caller. Brian, I know you have a question related to a home that you're looking to sell. Go right ahead with your question there in Virginia.
Brian: My question was, we own outright a home, and we just bought a new home in another county. My question is, would it make more sense to sell the home that we own and put the money toward the new home, or to keep the home that we own and rent it out?
Rob West: Yeah. You know, this is a classic question, and, you know, because there's no mortgage, obviously the rental could potentially generate meaningful monthly cash flow. You'd of course still have property taxes and insurance and maintenance and possible vacancies and, you know, maybe property management fees. The rental income is taxable, although many expenses could be deducted. I think the key would be, you know, do you want to be a landlord? And, you know, this is not a passive investment; this is an active investment. And is this the season of life where you want to take this on? If so, owning real estate can be a wonderful investment opportunity, but you just need to know what you're getting into, and I think at what cost. Obviously, if you didn't take the equity out of this, you'd have to take on a mortgage for that new property. Is that right?
Brian: Yes, I do have a mortgage on the new property.
Rob West: Okay. Yeah, and so obviously with interest rates higher, you know, that doesn't make that as attractive. When rates were down at 3%, you know, that was still fairly attractive. So you're going to have to really look at how much, you know, net do you have after you cover the interest that you wouldn't have on your current home, you know, when you consider the rental income on the other property. But on top of the rental income, you also have the appreciation over time for both properties. So I think at the end of the day, there's not a right or wrong decision here. It's ultimately going to come down to, you know, looking at the numbers, deciding whether or not, you know, you want money tied up in an illiquid asset, whether you want to become a landlord, and just given kind of your proximity to retirement, you want to look at your entire retirement picture before deciding. And, you know, if you're behind on retirement savings, selling and investing, you know, could strengthen that retirement. You know, if you're already well-fueled, you like the idea of rental income, then keeping a mortgage-free rental could be a nice diversification strategy. So hopefully that gives you a few things to think about. We appreciate you being on the program today.
Well, Mark, so thankful for you, my friend. I've got 30 seconds here. Just tie a bow on our conversation for today.
Mark Biller: Yeah, consequences are more important than probabilities. So build a margin of safety into your planning and follow those biblical principles. That's a durable foundation no matter what the market serves up next.
Rob West: I love it. Folks, visit soundmindinvesting.org to find this article, "Focus on Consequences, Not Probabilities." While you're there, check out the private client group if you'd like to delegate to Mark and his team for investment management, or become an SMI subscriber. The Sound Mind Investing newsletter for more than 30 years has helped do-it-yourself investors have a reliable, proven strategy and trustworthy guidance, all of that available at soundmindinvesting.org. Mark, thanks for your time, sir.
Mark Biller: Always a pleasure, Rob.
Rob West: All right, that's Mark Biller. I'm Rob West. Big thanks to my team today: Jim, Devin, Patty, and everybody here at FaithFi that makes this possible. If you want to support our work, go to faithfi.com/give and then come back and join us tomorrow. We'll see you then. Bye-bye.
Announcer: The views and opinions expressed in this broadcast may not necessarily reflect those of the American Family Association or American Family Radio.
Rob West: Be smarter to weigh consequences rather than chase probabilities. Hi, I'm Rob West. Whether you're building a portfolio or mulling over a new job prospect, checking the odds of success matters. But what if even a low odds failure could wipe you out? Today Mark Biller joins us to talk about how to guard against the kind of events that can ruin a financial plan and more. And then it's on to your calls at 800-525-7000. That's 800-525-7000. This is Faith and Finance on American Family Radio, biblical wisdom for your financial journey.
Well, our guest today is Mark Biller. He's executive editor at Sound Mind Investing and underwriter of this program. He's a regular contributor and our go-to guy on the markets and the economy, building portfolios. So today, as he sticks around to answer your questions, it's a great time for you to call 800-525-7000. Perhaps you've got questions about your portfolio, maybe you're thinking about your own risk-taking and portfolio construction, perhaps you're on the cusp of retirement, maybe you've been sitting out this market concerned about all the geopolitical events, watching new highs almost weekly, and you're just wondering, how do I approach my portfolio? Those questions and more today at 800-525-7000. We'll get to them in the next segment, but now's the time to call. Mark, great to have you back.
Mark Biller: Rob, thanks for having me.
Rob West: Mark, you've got a terrific editorial called "Focus on Consequences, Not Probabilities" in the latest issue of Sound Mind Investing. Let's dig into that. Why does that idea matter so much?
Mark Biller: Yeah, well, risk-taking is inevitable in investing as well as in life. But the key here, Rob, is you never want to take a risk that you don't have to take. Probabilities deal with how likely something is to happen, but consequences deal with how bad it might be if something does happen. And that's a really important difference. You know, if someone tells you there's a 99% chance you'll be successful at something, well, that's the probability, and in this case, obviously, it's very high. But what if that 1% chance of failure is so dramatic like you're dead? Well, a 1% chance of ruin is still ruin. And so even if the probability is really low, if the consequence is severe enough, then we really have to weigh that more heavily in our decision-making than even the high percent chance of success.
Rob West: Yeah, let's take that one step further and help people understand what we're talking about. You have this great example about crossing a busy street. Walk us through that.
Mark Biller: Yeah, I think it's something that we can all relate to, right? You know, it's the perfect example of low probability, but high consequence. So, the probability of getting hit by a truck crossing the street is low, but we all still look both ways before we cross because the consequence of getting run over by a truck is catastrophic. And so, in the same way, we're just encouraging investors not to ignore the small probability of a wipeout event just because it might be statistically unlikely.
Rob West: Yeah, that's well said. Give us an example of this, Mark, from the investing world.
Mark Biller: Sure. Well, one of the most famous examples was the failure of Long-Term Capital Management, which was a really famous hedge fund back in 1998. And the reason this one really stands out, Rob, is that the brain trust behind this particular fund was just full of investing legends. In fact, there was a famous book about this whole episode that came out after, and they titled it When Genius Failed. So, the short version of the story is, these were the smartest investing guys in the room. They built these amazing models that would have worked almost all the time, but they got hit by the age-old combination of leverage and just the wrong sequence of circumstances, and it ended up wiping them out, wiping out the whole hedge fund. And depending on who you believe, it almost took down the whole financial system with them. So, this was a classic example of most of the time this would have worked. It was low probability of failure, but very high consequence when it did fail. And, you know, if we're honest, looking through financial history, there are so many examples like this that it really should make us humble about how low the probability of these types of failures actually is.
Rob West: Yeah, no doubt about it. Well, we're going to continue to unpack this. We're also going to be taking your questions today. Perhaps this relates to your portfolio, and you'd like to talk to Mark about your investments, your retirement plans. We'll talk about something called sequence of returns risk, which is a big deal for retirees. What is it? Well, we'll explain just around the corner. Check out this article when you go to soundmindinvesting.org, and then come back. We'll be right after this break. Stay with us.
David Wollen: For your walk with Jesus, I'm David Wollen with Haven Today, inviting you to anchor your day in God's word. In Galatians 5:22, the fruit of the Spirit, it says, is love, joy, peace, patience, kindness, goodness, faithfulness, gentleness, self-control. Against such things, there is no law. And for many of us, that last one, self-control, is a challenge. Self-control not to eat the whole box of cookies, not to run up the credit card, and to hold your tongue. Yet for all of these fruits to be real and ripen and endure, becoming a part of your godly character, this must be a work of the Spirit. So if you're not there today, take heart. Fruit comes from the vine, not the branches. So today, drink deeply of Christ. Get more daily encouragement for your walk with Jesus at haventoday.org.
Announcer: We are grateful for support from Movement Mortgage, who provides residential home loans and reverse mortgage options in all 50 states. Guided by a mission to love and value people, Movement seeks to help individuals and families make informed financial decisions, from buying a home to planning for retirement. More information is available at faithfi.com/movement. Movement Mortgage LLC supports equal housing opportunity. NMLS number 39179. For licensing information, visit nmlsconsumeraccess.org.
Announcer: John MacArthur called it the Mount Everest of the Old Testament. Surely a description like that would set your expectations pretty high. Yet what is the focus of this lofty passage of Scripture? Hatred, betrayal, and death. John MacArthur unveils a stunning view of Christ's sacrifice for sinners as he continues his series called "The Gospel According to God" on Grace to You.
Announcer: We are grateful for support from GuideStone, whose diversified suite of investment solutions align with Christian values to create positive change in the world. More information is available at faithfi.com/guidestone. Investing involves risk, including potential loss of principal. Carefully consider the investment objectives, risks, charges, and expenses of GuideStone Funds before investing. They are distributed by Foreside Funds Distributors LLC, which is not an advisor affiliate, a registered investment advisor, nor do they provide investment advice.
Announcer: Rising health insurance rates are pricing millions out of the market, and Christian Healthcare Ministries is here to help. CHM is affordable assurance, allowing believers to share the burden of medical bills together. You get simple, low-cost pricing, regardless of health history or location. Plus, you can enroll at any time with no contracts. Break free from the huge costs and hidden fees of traditional health insurance. Learn more at faithfi.com/chm.
Rob West: Great to have you with us today on Faith and Finance here on American Family Radio. Mark Biller's here today. He's our go-to guy on the markets and the economy. He's executive editor at Sound Mind Investing. He's got a great article in the latest SMI newsletter called "Focus on Consequences, Not Probabilities." You'll want to check it out when you visit soundmindinvesting.org. For more than 30 years, do-it-yourself investors have relied on SMI for proven strategies and trustworthy guidance. They also have the private client group if you want to delegate that to a team that will make those decisions for you, but all of that available when you head to soundmindinvesting.org. Now, we've been talking about consequences, not probabilities, and the article that I just referenced, Mark, that you wrote leans on the late Peter Bernstein's work. Tell us what his key insight was.
Mark Biller: Yeah, Bernstein wrote maybe the definitive book on the history of financial risk, and his key insight was that the consequences of being wrong are more important than the probabilities of being right. So Bernstein was urging his readers, and by extension investors, to ask: if something goes wrong, how wrong can it go, and how much will it matter? And so that single question really reframes the whole issue of risk from a math question to a survival question.
Rob West: Yeah, that's well said. By the way, Mark is here today to take your questions. We'll be diving into those here in just a moment. Lines are open if you have a question on the markets, your portfolio, call right now, 800-525-7000. Mark, taking this then from the theoretical to the practical, let's talk about margin of safety. How can an individual investor build a margin of safety into their portfolio?
Mark Biller: Yeah, well, thankfully, Rob, this is where we can start to lean on these timeless biblical principles to help keep us safe. So we start with the foundation, that core financial foundation that you and I often discuss, and we build that by getting out of debt and establishing an emergency savings reserve ideally before we start putting large sums of money at risk in the markets. Now, once we get to that investing stage, then we diversify across asset classes to manage risk. We avoid concentrated bets, and especially leverage, which can permanently impair our capital. And so maintaining a margin of safety is really at its core having the humility to acknowledge that we are fallible and we're leaving room for error instead of running every scenario at full throttle.
Rob West: Yeah, that's helpful. We'll continue to unpack this. We'll also talk about something called sequence of returns risk in just a moment. But let's head to Washington. David, you'll be our first caller. Go ahead, sir.
David: And my wife is 62. We are looking moving from the stock market to an annuity. The company I mentioned does—I don't know if I can say it on the air—does not have a cap or participation rates. We don't need the funds to live on and have our other assets we could liquidate if absolutely needed. Each year we can pull about 10% if needed and are aware of the tax ramifications of that. They also offer a 24% bonus that is immediately added to your balance. Please advise—I'm asking for advice, pros and cons of this program. And thank you, and God bless.
Rob West: Well, thank you, David. That's very well said, great background. Mark, how would you encourage somebody to evaluate a product like this?
Mark Biller: Yeah, well, you know, I guess big picture, you know, annuities are very attractive because they take some of the risks of investing off the table. You know, usually with most annuities, you either have no downside risk or you know exactly what your downside risk is, and that's very appealing to people to be able to to have that knowledge of what that worst case is. On the downside of annuities is they are typically expensive, so they're a more expensive way to invest than than some other ways. And and so, and they can be very complicated and hard to get out of, too. So that it tends to lock your money up in ways that other investments don't. So you have kind of a—that's the general pro/con framework for annuities. Then I would say, you know, within that, every annuity's different, which is part of the the difficulty in evaluating them. So you got to be really careful about exactly what your specific annuity says. So like in this case, just listening to David's description, you know, one thing that jumps out to me, Rob, is if they're offering a 24% bonus at sign-up, well, why? Why are they offering that? And what is in this annuity that justifies it from the insurance company, the annuity provider's point of view, that it's worth providing this bonus to get the person to sign up? So those are the types of things that I would look at. Generally speaking, if if a person wants that security and wants an annuity, I would generally encourage them to consider maybe annuitizing a portion of their nest egg, but maybe not the whole thing. It doesn't have to be an all-or-nothing type of decision. So that's generally my approach to annuities, Rob.
Rob West: Yeah, I love that, David. I'm confident that gives you a framework to think about this. And just for the benefit of our listeners here, when somebody says, an annuity company says they're giving you a bonus, it sounds like a 24% in this case investment return. It's not. Basically what's happening here is, you know, they're allowing you to have an income benefit bonus. So that 24% may be credited only to the income base that's used to calculate future guaranteed income. That benefit base generally isn't cash value, and may only become cash value over time. There's probably some vesting schedule there, but David, hope that helps. Thanks for your call today. We appreciate you being on the program. Mark Biller's here today. We'll talk about consequences, not probabilities, and your questions after this.
Announcer: The God Who Speaks is a powerful message on the authority of scripture in the voices of some of the most respected theologians of our day. The most historic formula for the Christian Church has been this: When the scripture speaks, God speaks. The God Who Speaks is a 90-minute documentary which can empower Christians to share our faith and defend the authenticity of the Bible. Available at thegodwhospeaks.org or visit stream.afa.net.
Announcer: Faith and Finance is grateful for support from Eventide Investments. A faith-based asset manager pursuing investing that makes the world rejoice. Eventide invests from a biblical worldview, helping values-aligned investors pursue integrity, impact, and performance through their portfolios. More information is available about how you can align your faith with your investments at faithfi.com/eventide. That's faithfi.com/eventide.
Announcer: I'm Dr. Ray Rooney. The mission of American Family Association is to inform, equip, and activate individuals and families to strengthen the moral foundations of American culture and give aid to the church here and abroad in its task of fulfilling the Great Commission. AFA aims to evangelize the lost and disciple the believer. Thank you for standing with the American Family Association as we seek to stop the erosion of godly values.
Announcer: We are grateful for support from Timothy Plan. Since 1994, Timothy Plan has shared good news with investors and advisors by offering faith-honoring mutual funds and exchange-traded funds. More information is at timothyplan.com. The investment objectives, risks, charges, and expenses are contained in the prospectus and summary prospectus available at timothyplan.com. Mutual funds distributed by Timothy Partners Limited and ETFs distributed by Foreside Fund Services LLC. Investing involves risks, including possible loss of principal.
Announcer: A few of the benefits of a charitable gift annuity are a fixed percentage for the rest of your life paid to you, a partial tax deduction, as well as partial tax-free income, and then upon your passing, any remaining funds are then gifted to the American Family Association. So give us a call today at 1-800-326-4543, extension 345. We look forward to speaking with you soon.
Announcer: Faith and Finance is grateful for support from Sound Mind Investing. If you have money in an investment account, you know sometimes the stock market can seem like a roller coaster. But it's possible to enjoy both profit and peace of mind as a do-it-yourself investor, no matter what's happening in the market. A short video webinar about that is available at soundmindinvesting.org. Financial wisdom for living well: soundmindinvesting.org.
Rob West: Great to have you with us today on Faith and Finance here on American Family Radio. Mark Biller's here today. We're talking about a recent editorial he wrote called "Focus on Consequences, Not Probabilities." You know, consequences outweigh probabilities, and we're talking about how that applies to your investment portfolio. You can check out that article when you head to soundmindinvesting.org. We will talk more about his article in a moment, but we're taking your calls as well. If you have an investing-related question, call right now, 800-525-7000. Your questions for Mark Biller today, 800-525-7000. Uh to Montana, Greg, how can we help?
Greg: Uh, just a quick question. I wanted to get the name of that book again and the author. I'd like to read that book.
Rob West: Ah, very good. Mark?
Mark Biller: That Peter Bernstein book is titled Against the Gods. And uh, it's a great look at the history of financial risk.
Greg: Uh-huh, okay. Okay, that's all I wanted.
Rob West: All right, Greg. Thanks for listening today. Lord bless you, sir. Uh down to Arkansas. Hi, Sherry. Go ahead.
Sherry: Hi.
Rob West: How can we help?
Sherry: I um, I wanted to ask a question. I'm helping someone with their um, oh, finances. And so he is um, on disability Social Security, but he also has a part-time job of doing yard work. So he does have some income. He also has a little bit of money coming from a supplemental um, income source with the company that he was working for when he was disabled. So about $2,000 a month. But what I'm asking is he is contributing to a Capital Group American Funds. And he's got about $28,000 in it, and he—it says it's earning about 9% annually. This is through Primerica, and he is contributing $100 a month to that. It's a traditional IRA. So I guess my question—it says he can continue—he can add like, I think he can contribute $7,500 to it.
Rob West: Yes.
Sherry: So, I guess my question is, is his yard work considered income? How can he continue to contribute to this when he is unemployed?
Rob West: Yeah, good question. Yes, so at the end of the day, if he's doing yard work for other people and getting paid for it, that's earned income. It's self-employment income, which is earned income, which is important for the IRA. For IRA purposes, the IRS considers net earnings from self-employment to be compensation. So if he operates the yard work as a small self-employed business, his net profit after legitimate business expenses can support an IRA contribution. So for example, if he gets $6,000 from yard work during the year, he's got $1,000 of legitimate business expenses, he might have roughly $5,000 of net self-employment income. His IRA contribution will be limited by his eligible compensation and the applicable annual IRA limit, which, as you pointed out, is $7,500 for 2026 if you're under the age of 50. Um, so he would be able to do that.
Sherry: Okay. So then, so even, so he should continue to contribute as much as he can to that.
Rob West: Yeah, I mean assuming he's got uh, you know, an emergency fund, he doesn't have any high-interest debt, I like him putting something away for the future. I mean, the other issue is, because he's on disability Social Security, he needs to make sure he's reporting the yard work activity and earnings to Social Security. Uh, SSA specifically requires people receiving disability benefits to report earnings from work, including self-employment, and changes in work activity. And if his self-employment earnings are $400 or more, then he's going to have to uh, use a Schedule SE for self-employment, you know, filing requirements.
Sherry: Schedule SE, okay. So $400 or more per year or per per...
Rob West: Yeah, so if you have total earnings of, yeah, he would definitely be over that, of of at least $400, then he's got to do the self-employment tax filing. Um, and then, you know, the the supplemental income from the company he worked for when he was disabled, if that's disability income or uh another benefit, it doesn't count as IRS compensation—IRA compensation. Uh, so a pension or annuity income or deferred comp isn't IRA comp- compensation, but the uh the self-employment clearly is.
Sherry: Okay, so there's a difference in traditional and Roth IRA.
Rob West: Yes, ma'am. Yeah, so they both have the earned income requirement that's the same, and they have the same contribution limit for the year. Uh, the difference is in the tax treatment. So with the traditional, you get the deduction as the money goes in in the year of the contribution, and then it grows tax-deferred, so you invest it, in this case in American Funds or wherever he's got it, and the taxes do not affect the investments as it's growing. But then when he takes it out in retirement after 59 and a half, he pays taxes on it as income as it comes out. With the Roth, you put it in after-tax dollars, so you get the compensation, you pay the tax, you put it in the Roth, you don't get a deduction, and it grows tax-free, and then when you take it out in retirement, all the gains are tax-free, which makes it very attractive.
Sherry: Okay, so is there a way to move from a traditional to an IR- to a Roth?
Rob West: There is. It's called a Roth conversion, but you have to recognize the conversion as income in the year of the conversion, so you have to have the the ability to pay the tax. And I would recommend you have to have the ability to pay the tax with non-IRA funds, so I would want to make sure he has that money available in savings or checking, you know, to cover that tax bill and not, A, get caught by surprise, but, B, not have to pull the money out of the IRA to cover it.
Sherry: Very good. Okay.
Rob West: All right?
Sherry: Appreciate you.
Rob West: Absolutely. Thanks for your call today. 800-525-7000 is the number to call. We're talking to uh Mark Biller today, and uh when we come back, we're going to talk about something called the sequence of returns risk for retirees, how folks should handle that as you're approaching retirement, uh what does that mean, and um how you can test whether a particular risk is excess- uh acceptable for you and your portfolio. We'll also continue taking your investing questions. The number: 800-525-7000. Call right now. Mark Biller's here, and we've got more coming after this.
Announcer: Feeling burdened by credit card debt? As faithful stewards, we are called to manage our finances wisely. Christian credit counselors can help with a debt management program that allows you to pay off debt up to 80% faster while honoring your commitments with integrity. Don't let debt hold you back from the life God has planned for you. Take the first step toward peace and financial freedom today. Visit faithfi.com/ccc or call 800-557-1985.
Announcer: Life can be hard, but we have to keep our eyes focused on Jesus. I'm Christy Graham, host of On the Ground with Samaritan's Purse, and I want to encourage you in your walk with God. Listen each week as we go behind the scenes of our work around the world. You'll be challenged and encouraged in your own faith as you hear how God is actively changing lives. Join us for On the Ground with Samaritan's Purse, Sundays at 8:30 AM Central right here on American Family Radio.
Announcer: Are you a financial professional looking to grow your practice while offering advice that aligns with your Christian values? By becoming a certified Kingdom Advisor, you'll gain the biblical wisdom and professional credibility to serve clients who are seeking faith-based financial guidance. Each year, more than 75,000 people search for a certified Kingdom Advisor. Join our community and share your expertise with clients looking for someone who shares their faith and values. Start your journey today by going to kingdomadvisors.com/getcertified.
Announcer: How much money is enough? It's a question almost all of us wrestle with, but few of us know how to answer. What if God has already given us a better way to think about enough—one that leads to contentment, freedom, and greater generosity? Our FaithFi field guide, How Much Money Is Enough?, will help you explore this important question through Scripture and practical exercises. Get your copy today at faithfi.com/shop. That's faithfi.com/shop.
Announcer: When you hear this... This is American Family News. You know what follows is the truth—your news from a Christian perspective. Hundreds of teachers are going to have to walk into that school building and are forced to swallow political ideology that in many cases violates their very faith and conscience. If you miss it at the top of the hour, American Family News podcasts are available at afn.net, and sign up for our daily news brief at afn.net.
Announcer: Every day, thousands of women face an unexpected pregnancy, scared, alone, and unsure where to turn. FaithFi is partnering with Preborn and you to bring the hope of Jesus to these mothers through free ultrasounds at pregnancy centers across America. When a mother sees her baby's heartbeat, everything changes. Your gift of just $28 saves a life and shares the love of Christ. Give today at faithfi.com/preborn. That's faithfi.com/preborn.
Announcer: This is American Family Radio, a listener-supported ministry of the American Family Association.
Rob West: Thanks for joining us today on Faith & Finance here on American Family Radio. Yeah, whether you're building your portfolio or mulling over a new job prospect, checking the odds of success matters. But what if even a low-odds failure could wipe you out? That has massive implications, no matter what decision you're considering, but that certainly includes your investment portfolio. And that's what we're talking about today with Mark Biller. His article on this topic is available at soundmindinvesting.org. Just look for Focus on Consequences, Not Probabilities. Again, that website is soundmindinvesting.org. Mark, as we've talked about, there's something that is significant for retirees, and it's a term called sequence of returns risk. Share that with our listeners today.
Mark Biller: Yeah, well, Rob, that's a fancy term for a very real potential problem that retirees face, and that is that losses early in a person's retirement can deplete a portfolio so quickly that even strong returns later can't necessarily make up for it. This turns into a little bit of a math problem where, if you weren't taking withdrawals from a portfolio and you just had, say, 10 years of returns, it wouldn't matter what order those gains and losses came in, okay? You'd get to the same result whether you had the losses early or the losses late. But because people are taking money out of their portfolio, if you combine a big early loss with withdrawals from the portfolio, that can make it really hard for the portfolio to recover and supply enough money through the whole retirement. So because of that, planners and advisors know that this is a real risk. You have to watch out for the possibility of big losses early in a retirement. And so, there are different ways that advisors and planners deal with that, and one of those is just simple diversification. You want to be well diversified so your whole portfolio isn't exposed to too much stock market risk early on. And then there are some other strategies that can help with that, too, such as holding a few years' worth of spending in very low-risk cash or bond-type accounts, specifically so that if you run into one of these really bad markets early on, you can just use that cash balance for your withdrawals, and you don't actually have to take money out of your stock market investments when the market is down substantially. So these are just a few strategies to get through that early stage of retirement so that bad returns don't sabotage the whole long-term plan.
Rob West: Yeah, that makes a lot of sense. Let's make this even more practical, Mark. So how can our listeners today test whether a risk is acceptable for them?
Mark Biller: Yeah, I think the biggest thing, Rob, is to focus on that worst-case scenario first. And that doesn't mean that you go through life as the pessimist looking behind every rock for, you know, the horrible thing that could happen. But you do weigh your situations and the decisions you're making by asking, what is the worst-case thing that could happen here? And if the loss is significant enough that it would derail your goals or cause you sleepless nights, then that's probably a risk that you can't afford, and you need to make an adjustment. And that's true even if your probability of success seems good. Now, on the other hand, if you go through that process and you weigh it and say, what is the worst-case scenario, and that downside seems reasonable, well, then at that point you can go back to the probabilities and say, okay, how likely is it that this downside risk that I could handle if it did materialize, well, what is my probability of that happening? So the probability and the consequence work together. The problem is that a lot of people will look at a high probability and just discount the terrible consequence. And we see that a lot right now in the investing world as things like heavy leveraged products are becoming more and more popular. And some of that is people maybe not understanding what the downside risks are, but I think a lot of it is also just ignoring those downside risks and saying, "Well, the probability seems pretty good that this is going to work," and so they never go to that next step of, "But what if it doesn't? What's the implication of that?"
Rob West: Yeah, that's really important. Your questions for Mark Biller today: 800-525-7000. We've got just a few lines open. Let's go to Dallas. Lou, thanks for calling. Go ahead.
Lou: Uh, yes. Um, I am 88 years old, and I work a part-time job to supplement my Social Security. Um, I've been widowed for about 20 years. I have an IRA, uh, about $50,000 in it, and I'll have to use that when I retire from my part-time job. And my question is, is it—is there any way that I can avoid paying taxes when I take it out for the supplement?
Rob West: Mm. Yeah. Mark?
Mark Biller: Well, I think a lot of that, Lou, will come down to how much money you have to withdraw from that. And if you're needing all of that income for your living expenses, um, if not, and if some of that, like for example, was being given to your church, there are some things that can allow you to bypass your tax return with some of those withdrawals from the IRA. There's something called a qualified charitable distribution that can help with that. But if you're needing all of the distribution for your income, then it becomes really just a math problem of what, uh, your standard deduction is and the amount of income that you have, um, and whether that's going to be enough that any of that distribution is taxed. Um, I mean, it technically is taxed, but because of the way the tax system is set up, you get a certain amount of buffer room before those taxes really kick in. So, uh, those are my thoughts. Rob, do you have anything about how that would impact the Social Security specifically?
Rob West: Mm, yeah. Yeah, it's a—it's a great question. And, I mean, you would have the same thing that you have going on with your part-time income now, is that as that adjusted gross income increases, more of your Social Security becomes taxable. But it doesn't sound like you'd be taking more. Perhaps you'd be taking less total—or have less total overall income, um, you know, when you get to that season you're no longer working. So you're probably going to have the same or less in terms of taxation. There really is no way to get that money out of the IRA without it being taxable. But to Mark's point, um, you know, you—for 2026, the regular standard deduction, um, is $16,100 for single filers, $32,200 for married filing jointly, and then you get an additional senior deduction of up to $6,000 per person 65 and older through 2028. So, um, you know, you've got some options there, I think. The key will just be making sure you really regulate those withdrawals so you don't deplete that IRA too quickly. But Lou, I hope that helps. Thanks for calling today. We appreciate you being on the program. Let's go to Ohio. Minnie, how can we help?
Minnie: Hi. Hi. Um, I have a brother that's invested over $15,000 in Iraqi dinars. He tried to give—um, there's four of us, so he's trying to give, um, $1,500 to each of us to invest in Iraqi dinars, and I said, "Why don't you just invest in silver and gold? They hold their value." He got mad at me. And so later he came over and he gave me $1,000, which I invested in my car because I had to get it fixed, but, um, is he investing in wooden nickels, which what I think he's doing? He's really thinking he's going to get wealthy on this. He's spent over $15,000 on this already.
Rob West: Wow. All right, well, we're up against a break, so we're going to let you go. But keep listening, because I'll get Mark's take on the Iraqi dinar as an investment in the final segment. We'll be right back.
Announcer: When God allows something difficult in your life, you could look at it as His gift to you. Here's Nancy DeMoss Wolgemuth. If our way is perverse before God, what a mercy it is when God sets out to oppose us in that way! God's way of getting your attention. On the next Revive Our Hearts with Nancy DeMoss Wolgemuth.
Announcer: While we rejoice that Roe is overturned, the pro-choicers are very energized. They are winning the arguments and elections. We need to win them back. The people who bring you Wretched Radio have produced a powerful, persuasive, and proactive 13-lesson video series to help. You don't need a PhD to tell you that human life is more valuable than the life of an ant. Order Life Is Best at shop.wretched.org and listen to Wretched Radio Saturday nights at 10:00 Central on American Family Radio.
Announcer: We are grateful for support from Movement Mortgage, who provides residential home loans and reverse mortgage options in all 50 states. Guided by a mission to love and value people, Movement seeks to help individuals and families make informed financial decisions from buying a home to planning for retirement. More information is available at faithfi.com/movement. Movement Mortgage LLC supports Equal Housing Opportunity. NMLS number 39179. For licensing information, visit nmlsconsumeraccess.org.
Announcer: Wondering who Faith & Finance recommends as a banking partner that aligns with Christian values? It's AdelFi Christian Banking, the trusted team you've known as Christian Community Credit Union. With high-yield checking, savings, Visa cashback cards, and a competitive money market account, your everyday banking helps advance the Gospel. Visit faithfi.com/banking and use the code FAITHFI. Membership eligibility required. Accounts are privately insured up to $250,000. This institution is not federally insured.
Rob West: Thanks for joining us today on Faith & Finance here on American Family Radio. Mark Biller's here today. We're talking about focusing on consequences more than probabilities, and Mark's got a great article on this topic. If you're interested, check out "Focus on Consequences, Not Probabilities" when you head to soundmindinvesting.org.
We're going to continue our conversation here in just a moment, but first, before the break, we were talking to Minnie. Her brother is investing a lot of his money in coins from Iraq—Iraqi dinar. We haven't heard this very much lately. This was a hot topic years ago. She feels like he's throwing money away and is skeptical. He's pushing pretty hard. I would agree with Minnie. Minnie, I think you're right on here in terms of why you would want to be cautious. You know, typically the pitch is that this is a good investment because it's supposedly going to be revalued and then make holders really wealthy. And the challenge is, first of all, currency is not the same as a normal investment. Mean, you don't get ownership in a business, it doesn't pay dividends, it doesn't produce income; you're just betting that the currency will appreciate substantially against the US dollar. And a low price doesn't mean it's undervalued. You know, the fact that it takes many dinars to equal $1 US doesn't mean it's destined to become worth $1 or more, and these—this idea of revaluation promises have been warned about extensively by the US regulators. You know, and so these investment pitches that claim that currencies like the Iraqi dinar will dramatically increase in value, regulators have said stay away. And not only that, but buying and selling it can be expensive because the dealers charge substantial spreads as they buy and sell these. So I would stay away. You don't need to prove it's a scam to say no. You just need to say, "Listen, I don't understand the investment, and I don't invest in things that I don't understand," and move on. And hopefully you can keep the peace there despite his urging otherwise. Thanks for your call today, Minnie, we appreciate it.
Mark, you know, as we continue to talk about this topic here, I love this mention you have in your article about something called Pascal's Wager, and I'd love for you to give us the quick version of that story and then show how it applies to investing.
Mark Biller: Yeah. Well, Pascal's Wager was a 17th-century thought experiment from a French mathematician, philosopher, theologian, Blaise Pascal. Blaise was a Christian himself. He was a devout believer, but he was making this appeal on strictly logical grounds to unbelievers through the argument that he said, which was since none of us can be certain whether God exists, the safer bet is to live as though He does. That way, if you're right, the gain is infinite—you gain eternal life. And if you're wrong and there is no God, the cost is minimal. So, in other words, Pascal, all these centuries ago, was giving us an example here that when outcomes are uncertain, we should be weighing the potential consequences, not just the odds. And so by giving more weight to what could go wrong, we leave ourselves plenty of margin to stay on track even if we end up being surprised.
Rob West: Hmm. Yeah, interesting. So how can someone then gauge their personal risk tolerance through the lens of consequences?
Mark Biller: I think again here, Rob, we need to start with the idea of: what if this doesn't turn out the way that I expected it to? What is the impact going to be if it doesn't turn out well? So, you know, that's another way of framing this question of: if it goes wrong, how wrong could it go, and how much will that matter? And so as we apply that to our investments, you know, there are lots of different applications. You know, that could be a reason that we continue to own some bond allocation even if, for example, you don't really love bonds right now. You know, it could also be a reason why we're not going to get too conservative in our investments early in retirement. You know, what if the probability of living a long life and inflation being high kicks in? It may not be a high probability that we're going to have that high inflation scenario, but it's certainly not zero either. So we need to keep part of the portfolio growing to keep up with inflation. You know, you and I could probably trade, you know, examples like this all day long, but the main point is we just need to consider what things may be unlikely, but still possible, and then weigh the consequence of those scenarios. That's a good way to determine whether various risks are acceptable or not.
Rob West: Yeah, that's really helpful. Mark, as we continue to think about this, obviously you mentioned bonds, and, you know, that just—I'm sure for a lot of listeners out there who are in this retirement season, maybe they've got that typical 60/40 portfolio with 60% in bonds. What would you say to those folks just in terms of what they might expect moving forward?
Mark Biller: Yeah. Well, bonds have not been a very good returning investment the last several years—last five or six years really specifically—and that is largely due to the increase in interest rates from very low levels back around the COVID lows in 2020. As interest rates go up, bond prices fall, so total bond returns have not been good as interest rates have been going up. And so the question for every investor is if this is likely to continue, and of course there are arguments for that and arguments against that. But generally speaking, we don't want to get too far over our skis making a bet in either direction. We don't want our investment returns shouldn't be entirely dependent on our ability to predict things like this that are very, very difficult to predict. And so what we do instead is we build diversified portfolios. You know, at SMI, we have brought our bond allocations down a little bit, but we haven't gotten rid of them entirely. And so that's kind of this idea of considering a range of possibilities, considering what we think is likely, which in this case has been that interest rates have been going up, and so we've been bringing our bond allocations down a bit. But again, we're not making a permanent adjustment there; this is more of a tactical adjustment. And so we want to stick fairly closely to what has worked well historically, which is, you know, maybe we're not going from 60/40 to 100/0, but maybe we drop that 40 a little bit, and we've talked about how at SMI we have brought in other portfolio diversifiers like gold, like commodities, some things that can play a similar diversifying role to bonds without putting quite as much weight on a bond turnaround in interest rates and, you know, a change in the way bonds have been behaving.
Rob West: Really helpful. Want to sneak in one final caller. Brian, I know you have a question related to a home that you're looking to sell. Go right ahead with your question there in Virginia.
Brian: My question was, we own outright a home, and we just bought a new home in another county. My question is, would it make more sense to sell the home that we own and put the money toward the new home, or to keep the home that we own and rent it out?
Rob West: Yeah. You know, this is a classic question, and, you know, because there's no mortgage, obviously the rental could potentially generate meaningful monthly cash flow. You'd of course still have property taxes and insurance and maintenance and possible vacancies and, you know, maybe property management fees. The rental income is taxable, although many expenses could be deducted. I think the key would be, you know, do you want to be a landlord? And, you know, this is not a passive investment; this is an active investment. And is this the season of life where you want to take this on? If so, owning real estate can be a wonderful investment opportunity, but you just need to know what you're getting into, and I think at what cost. Obviously, if you didn't take the equity out of this, you'd have to take on a mortgage for that new property. Is that right?
Brian: Yes, I do have a mortgage on the new property.
Rob West: Okay. Yeah, and so obviously with interest rates higher, you know, that doesn't make that as attractive. When rates were down at 3%, you know, that was still fairly attractive. So you're going to have to really look at how much, you know, net do you have after you cover the interest that you wouldn't have on your current home, you know, when you consider the rental income on the other property. But on top of the rental income, you also have the appreciation over time for both properties. So I think at the end of the day, there's not a right or wrong decision here. It's ultimately going to come down to, you know, looking at the numbers, deciding whether or not, you know, you want money tied up in an illiquid asset, whether you want to become a landlord, and just given kind of your proximity to retirement, you want to look at your entire retirement picture before deciding. And, you know, if you're behind on retirement savings, selling and investing, you know, could strengthen that retirement. You know, if you're already well-fueled, you like the idea of rental income, then keeping a mortgage-free rental could be a nice diversification strategy. So hopefully that gives you a few things to think about. We appreciate you being on the program today.
Well, Mark, so thankful for you, my friend. I've got 30 seconds here. Just tie a bow on our conversation for today.
Mark Biller: Yeah, consequences are more important than probabilities. So build a margin of safety into your planning and follow those biblical principles. That's a durable foundation no matter what the market serves up next.
Rob West: I love it. Folks, visit soundmindinvesting.org to find this article, "Focus on Consequences, Not Probabilities." While you're there, check out the private client group if you'd like to delegate to Mark and his team for investment management, or become an SMI subscriber. The Sound Mind Investing newsletter for more than 30 years has helped do-it-yourself investors have a reliable, proven strategy and trustworthy guidance, all of that available at soundmindinvesting.org. Mark, thanks for your time, sir.
Mark Biller: Always a pleasure, Rob.
Rob West: All right, that's Mark Biller. I'm Rob West. Big thanks to my team today: Jim, Devin, Patty, and everybody here at FaithFi that makes this possible. If you want to support our work, go to faithfi.com/give and then come back and join us tomorrow. We'll see you then. Bye-bye.
Announcer: The views and opinions expressed in this broadcast may not necessarily reflect those of the American Family Association or American Family Radio.
It’s usually smarter to weigh consequences rather than chase probabilities. Whether you’re building a portfolio or mulling over a new job prospect, checking the odds of success matters. But what if even a low‑odds failure could wipe you out financially? On this Faith & Finance on AFR, Rob West and Mark Biller talk through how to guard against events that can ruin a financial plan and more. Then, it’s on to calls.
(00:00) Rob West and Mark Biller discuss focusing on consequences, not probabilities
(08:34) Rob West and Mark Biller continue their conversation
(11:48) Caller David: Pros and cons of annuities
(19:12) Caller Greg: Book referenced earlier, Against the God’s by Peter Bernstein
(19:41) Caller Sherrie: Social security disability and managing an IRA
(29:18) Mark Biller examine strategies to get through the early years of retirement
(32:10) Mark Biller explains how to test someone’s risk level of investing
(34:15) Caller Lou: Minimizing taxes on IRA withdrawals
(37:17) Caller Minnie: Investing in Iraqi Dinar
(40:36) Rob West continues his conversation with Minnie about the Iraqi Dinar
(42:27) Mark Biller talks about Pascal’s Wager
(45:37) Mark Biller gives his analysis of recent bond performance
(48:15) Caller Brian: Is moving and trying to decide whether to sell or rent current house after buying new one
(50:59) Summarizing the program, Consequences are more important than probability
Live
Did you know American Family Radio is listener-supported? Your monthly financial support will allow us to continue upholding Godly values through our numerous channels, like American Family Radio, One Million Moms, The Stand magazine, and many more.
Become a Great Commission Partner TODAY to help AFR transform culture by rebuilding the family. When you donate today, you’ll get access to:
