264 | The Least Fun (and Most Necessary) Part of Building Wealth (7 Steps to Wealth, Step 7: Protect)

Hilary Hendershott: Well, hello, Money Lover! Welcome to my 7 Steps to Wealth podcast series. If you’ve already heard this introduction to the series and you don’t wish to hear it again, please just fast forward about two minutes. If you haven’t heard it yet or want to hear it again, here we go.

Hilary Hendershott: Many years ago, as I was digging myself out of financial oblivion and creating healthy money habits for myself for the first time, I realized that if I could master this thing called money, I would have something very valuable to share with the world. I mean after all, there is plenty of information about money out there in the world, yet most people still struggle with it. So obviously something is missing in the zeitgeist about money.

Hilary Hendershott: And there came a time in my financial life where I started to look more financially healthy than damaged. There came a time when my bank accounts started to contain 6- and 7-figure balances. There came a time when I could set big, really abundant goals for my business, work toward them, and reliably achieve them.

Hilary Hendershott: The way I would say that now is, I got into right relationship with money. I stepped into having power and influence with money. So as part of sharing the lessons I learned with money, I looked back on what I had accomplished–from where I was now, with a high credit score, a multi-million dollar home that my husband and I own, and a multiple 7-figure net worth–and I asked myself, “What are the exact steps I took to get here?”, “What specifically did I do differently to change my financial reality?”, and “How exactly did my money mindset and financial beliefs change?”

Hilary Hendershott: And I created a framework called the 7 Steps to Wealth. I’ve published that framework many times, in many formats. Episode 208 of this podcast contains the entire framework in one episode; it’s a great audio resource. There’s an interactive, multimedia eBook you can download if you go to the show notes for today’s episode. And I would love for you to do that. We talk about the 7 Steps in my Money Love Notes newsletter, which you can also subscribe to in the show notes.

Hilary Hendershott: But what I’m doing now is an entire episode on each of the 7 Steps. The 7 Steps in order are: Decide, Plan, Speak, Ask, Earn, Invest and Protect. I’ll publish this series with the steps in order, but not necessarily every week. So the point is to do a deep dive on each individual step because knowing the steps makes no difference. You have to actually put them to work in your life. So if you’re looking for a different step than the one I’m talking about today, and that step comes BEFORE today’s step, just look around in the recent episodes I’ve published. If you’re listening to these as they air, and you’re specifically interested in a future step, it’s coming.

Hilary Hendershott: Well, hey, Money Lover, we–meaning you–have made it to the final step in the 7 Steps to Wealth framework.

Hilary Hendershott: At this point you’ve decided to be rich. In fact, you’ve got a plan in place for it. You’ve become more confident speaking about money, asking for money, you’re earning more money, you’re investing your hard earned money. And now it’s time to make sure you’re protecting everything you’ve built so far, and what you’ll continue to build in the future. We’re going to build a moat around it.

Hilary Hendershott: That’s what Step 7, our final step, is all about. It is Protect.

Hilary Hendershott: This is the step in building wealth that ensures that everything you’ve worked so hard to build can’t be lost due to unforeseen or even semi-predictable circumstances. It’s really easy to ignore this step. Implementing it is never fun.

Hilary Hendershott: Believe me, I get it. It’s a ton more fun to earn money and invest it, than it is to buy insurance or work with lawyers.

Hilary Hendershott: And I cannot tell you how devastating it is when people sit in my office with tears and tissues after they find that they’ve lost what they built.

Hilary Hendershott: Believe me, I’ve seen and heard it all.

Hilary Hendershott: Today, we are story forward, Money Lover. I’m gonna tell you some stories. These stories are gonna upset you. They’re gonna concern you. I do my best to be very optimistic on this show. I am fundamentally an evidence-based optimist. But honestly, the best way to get you to protect your wealth is to tell you stories of people who haven’t done it.

Hilary Hendershott: So, story number one. There’s someone specifically I know from the town I grew up in. I went to high school with him. His uncle was on track to retire when he was 55 years old, so he was ahead of the game.

Hilary Hendershott: But he got really scared of what was happening in the stock market in 2008 and 2009, during the financial crisis. I mean, it was terrifying, right? It was unprecedented. We had never seen the liquidity markets dry up like that. I get it. I’m not immune to it.

Hilary Hendershott: His accounts were down by 50% peak to trough, right? Again, not saying that’s not scary. It’s not pleasant to open up your investment accounts and see those balances. But selling out and locking in losses is the worst thing you can do when the market is down. This is the quintessential financial mistake.

Hilary Hendershott: But he did, he sold. And not only that, he let the experience completely sour his relationship to stock market investing, so he refused to reinvest any of that money or any of the savings he’s done since then. So it’s sitting in cash. Okay? Maybe it’s like in a high yield savings account. So rather than retire at 55, he’s now 65, and still working, with no hope of stopping any time soon.

Hilary Hendershott: Believe me, I get it. It can be emotionally tough to stay invested. If your account’s down 50%, it’s hard to look at. But when you go to cash, you are now missing out on the inevitable opportunity of the up days in the market where you start making up for those losses.

Hilary Hendershott: So let’s talk about what could have happened with his money if he had stayed invested.

Hilary Hendershott: The best way for us to assess what could have happened to my friend’s uncle’s account is to look at markets globally and see what they did over that time frame.

Hilary Hendershott: I like to use a global mutual fund to approximate stock market levels around the world. This particular global mutual fund has the five-letter ticker, DGEIX. The DGEIX mutual fund is a fund of funds, and it’s a great approximator of the performance of global markets.

Hilary Hendershott: We’ll use that to go over the returns it provided in the time my friend’s uncle was out of the market to give you an idea of how it made it through the tough time of the financial crisis and the kinds of regrowth that my friend’s uncle did not enjoy because he sold out to cash.

Hilary Hendershott: If you owned that fund on July 9th 2007, its price was $16.62.

Hilary Hendershott: Okay, 16.62. But between that date, in ‘07, and March 9th of ‘09, it went all the way down to $6.34. So from $16.62 to $6.34. That’s terrifying. I imagine that was really disconcerting to watch. So let’s just say that’s where my friend’s uncle sold out and locked in his losses.

Hilary Hendershott: Well, what do you think the price of that fund is today? As I record this, in September of 2024, specifically after market close on Friday, September 13th, the value of that stock, one share of that fund, was $34.43.

Hilary Hendershott: My friend’s uncle would have lost out on almost 500% growth.

Hilary Hendershott: And he’s just one guy, but not even close to the exception to the rule. So many people have had the same reaction to scary market or economic events. I’ve personally heard well into the hundreds of stories of people whose emotions led them astray when it came to stock market investing

Hilary Hendershott: My clients who had an evergreen investment philosophy have all fully recovered from the financial crisis and then some. My retired clients–well, all my clients, actually–definitely saw a temporary dip in account values. But nobody who is depending on that income failed to pay their bills or had to go get a job. We’ve recovered.

Hilary Hendershott: That is my most important job. When someone hires me as their personal Chief Financial Officer, I have to make sure they have cash flow to pay their bills.

Hilary Hendershott: And it takes really embodying this protect step.

Hilary Hendershott: So Protect, it comes down to something really simple: Just don’t do dumb stuff with your money. Once it’s yours, take it off the proverbial table.

Hilary Hendershott: Protecting your money comes down in many cases to handling legal details that most people have zero interest in handling. It requires addressing your own mortality and making plans for after you’re not here anymore.

Hilary Hendershott: And I know almost no one wants to do that.

Hilary Hendershott: Let’s take my former coworker, Susan.

Hilary Hendershott: Susan is a powerhouse. We worked together in a large multinational corporation, briefly, in my twenties. So we worked together in a former life.

Hilary Hendershott: She is an Ivy League graduate, and she’s just an incredible human being to spend time with. She just seems like everything she touches turns to gold. She founded her own business, and she sold it for several million dollars. I think Susan’s overconfidence is probably justified. I get it. Lots of things have come really easy to her, but she never felt like she wanted to do financial or estate planning. Things were just going great for her. She and her husband work out six days a week, and they eat their vegetables, and she just never did anything about planning for undesirable outcomes.

Hilary Hendershott: So, unfortunately, a few years ago, her husband left the house to go to work one day. And some of his coworkers found him unresponsive in the parking lot outside the office. So they call an ambulance, and Susan received that dreaded call, letting her know that Alex was in the ICU, and things were not good.

Hilary Hendershott: It turns out Alex had a stroke. Fast forward a few years. Alex is alive today, but Alex isn’t Alex anymore. Alex can’t take care of himself, can’t perform his activities of daily living. He can’t work. He really can’t say more than 10 or 20 words. He’s not the same guy, and he needs round the clock care.

Hilary Hendershott: And because Alex had just left a job, their medical insurance ran out. They didn’t have healthcare directives or any kind of estate planning documentation that would have given Susan the ability to protect her assets from the inevitable drain of the costs of in-home care.

Hilary Hendershott: There was no disability insurance, so there will be no financial safety net for Susan and her kids. She’s quickly having to spend down what she thought was her long term, kind of bulletproof nest egg while she grapples with her grief over losing Alex, and attempts to fill the role of both mother and father for her adolescent children.

Hilary Hendershott: She can’t take her children out of the country without Alex’s signature. She’s having to go to court to get the power to register them for school or get them vaccines without Alex, because again, he’s not dead, right? So there are things that people expect him to sign, and she doesn’t have legal power of attorney. It’s devastating.

Hilary Hendershott: It’s devastating. And the financial and legal aspects of this incredibly sad situation Susan finds herself in are preventable with proper estate planning, including having revocable living trusts in place, health and legal directives, and long-term care and disability insurance.

Hilary Hendershott: Which is a good place to segue to talking about insurance.

Hilary Hendershott: Let me be clear. I don’t sell it.

Hilary Hendershott: In fact, I don’t sell anything. As a fiduciary, I do advise you how to best protect your assets. And that means, if you have kids, you should have term life insurance and an estate plan. If you drive, you should have auto insurance. If you have a body, you should have health insurance. If you rent, you need renters insurance. If you own your home, you need homeowners insurance.

Hilary Hendershott: If you own real estate or have significant investment balances, especially after tax assets, you should have an estate plan that includes a will and a revocable living trust.

Hilary Hendershott: There are going to be nuances to that recommendation based on the state that you live in. But for most people that is an accurate piece of advice. And again, I know this isn’t the fun stuff. And yes, I’m recommending things I don’t sell, because as a fiduciary advisor, it’s my job to help you make the best decisions for your long term wealth.

Hilary Hendershott: And the majority of heartbreak stories I can share come down to people not wanting to pay for insurance, not following their advisors’ advice, or not paying attention to the details. I mean the simple act of buying a house or piece of real estate with someone you’re not married to exposes you to a massive amount of risk based on what could happen to your relationship; to the health of that person; to their job, or earnings capacity. I mean, it just can be a nightmare.

Hilary Hendershott: The gist of Protect, again, is simple. Once you’ve built wealth, you have to protect it. Protecting your wealth can seem like an unnecessary, un-urgent headache, but I promise you it is the kindest, most loving thing you can do for yourself, your family, and your loved ones.

Hilary Hendershott: Other things that are great to have, and that we do for our clients if we’re working for them: a properly structured investment philosophy that’s appropriately diversified. And the diversification piece is really the Protect aspect of that, because you do not want your financial future to ebb and flow based on one or two or three companies, right? So we need appropriate diversification in your investment philosophy. Refer back to Step 6 for that. Another thing I haven’t mentioned yet in today’s episode is the idea of disability insurance. I mentioned that my friend didn’t have it.

Hilary Hendershott: But disability insurance can pay you if you get sick or injured.

Hilary Hendershott: Another thing that gets overlooked is you really need to update all the beneficiaries on your accounts and policies. Really, too many people don’t go and update their beneficiaries. I have seen people who aren’t even really related to the deceased receive life insurance proceeds because that person didn’t update their beneficiary on their life insurance policy. So you’ve got to do this. I recommend you review them all on an annual basis. Just put it on your calendar and make sure you do it.

Hilary Hendershott: To round out today’s episode, I do have a few more–and again, I do, I hate telling you terrifying stories, but this is the best way to get people motivated to do these things that nobody really wants to do. So, a few more quick examples of–in these cases–very smart people who have failed to protect their wealth.

Hilary Hendershott: Again, these are not clients of mine, because events like this just don’t happen on my watch, but I do hear about them. So let’s talk about Cliff. Cliff is an incredibly wealthy businessman who, in 1999, was investing in a levered technology fund.

Hilary Hendershott: So levered means for every dollar the underlying fund makes, you make two. And conversely, for every dollar the underlying fund loses, you lose two. Okay? So we don’t do leverage in my firm, although when things are going up, leverage sounds like the best thing in the world.

Hilary Hendershott: So Cliff owned this levered fund, and that was in 1999, as I mentioned. So in 2000, the Silicon Valley Tech firms suffered massive losses, and Cliff, just for owning this one fund, lost 10 million dollars. That’s a real number. I did not exaggerate that number. He really lost 10 million dollars because it went to zero. Because when the fund goes down, like I said, if it goes down more than 50%, if you lose $2 for every $1 of losses, at 50%, you’re out of money.

Hilary Hendershott: Okay. Let’s talk about Pete. Pete has a PhD in finance and is a conservative millionaire next door type. Not the kind of guy you would think would take unnecessary risks.

Hilary Hendershott: Pete put a half million dollars of cash into a Triple A graded commercial paper fund. So this is like a way to invest your cash in a brokerage account. Right? So people talk about high yield savings accounts, well a brokerage like Charles Schwab, they don’t–I mean Charles Schwab actually has a bank–but let’s say they didn’t have a bank. You invest in funds right? So like a money market fund, it was basically a money market fund.

Hilary Hendershott: And he took this Triple A rated commercial paper fund, because it was paying 2% higher yields than the Federal treasuries were. So the problem is that his high yielding cash fund had underlying investments that were primarily in Lehman Brothers corporate bonds.

Hilary Hendershott: And Lehman Brothers went out of business in 2008, so Pete earned 2% higher returns for three years, and then he lost a quarter million dollars.

Hilary Hendershott: Final story. This is Andy. Andy inherited almost 5 million dollars from his parents in his thirties.

Hilary Hendershott: And Andy failed to really take the time to understand what that 5 million dollars can make possible for him. But it seemed like so much money. He felt like his wealth was endless. So he immediately quit his job, never went back to work, and instead used his inheritance to buy multiple million dollar properties and start businesses that never produced profit.

Hilary Hendershott: So Andy is now in his late fifties, with zero remaining inheritance, no earnings capacity because he hasn’t worked or really learned any skills for 20 years and no savings.

Hilary Hendershott: He does still own a house, thank goodness, so he’s not homeless. But Andy is currently confronting that he doesn’t have any way to pay his bills… for the rest of his life.

Hilary Hendershott: And Andy could have paid himself $150,000 a year or more for the rest of his life from his inheritance starting in his thirties. It was enough to set him up. It just wasn’t enough for him to live like a celebrity.

Hilary Hendershott: Okay, so let’s wrap this episode up. I really feel strongly about you successfully completing Step 7. I’ve included a checklist of all the items I talked about in the downloadable 7 Steps to Wealth Guide, which will be linked to in the resources so that you can have an accessible copy of what you should look into to protect your wealth and your family.

Hilary Hendershott: It’s easier to protect your wealth when you have guidance, and another set of watchful eyes over your financial affairs. I would be remiss if I didn’t tell you that working with the right financial professional can take the guesswork out of how to sufficiently build and protect your wealth.

Hilary Hendershott: If you have any questions or comments about this step, please reach out to my team at hello@hendershottwealth.com.

Hilary Hendershott: Well, Money Lover, you made it. The 7 Steps to Wealth is the framework I’ve seen work for women and couples everywhere to truly transform their financial lives, to put them in right relationship with their money.

Hilary Hendershott: Achieving financial freedom and enjoying the fruits of your labor is a momentous experience and occasion. The day you stop working because you want to is a very important day.

Hilary Hendershott: In fact, maybe that’s the most important day in your financial life. And as a reminder, this is not a destination that you simply arrive at. You will not work your way linearly through the 7 Steps and then suddenly be done. I’m still working them myself. You still have to decide every day. You have to plan as life evolves, and your circumstances and the stock market and the economy change.

Hilary Hendershott: You will keep finding new ways to speak about money that empower your actions. You will never stop asking once you’ve seen the value in it. You will always be earning once you’ve invested, long after you stop trading your time or skills for a paycheck. And you will have to continue being the protector of your wealth.

Hilary Hendershott: I changed my financial reality, and I know you can, too.

Hilary Hendershott: As you work your way to financial independence, you might find you have questions. Or you might find you have new, rewarding complexities that you’d rather not manage alone. In either case, my team of female fiduciaries is here to help guide you.

Hilary Hendershott: At Hendershott Wealth, we believe wealth building is the final frontier of feminism for women, their families, and their partners. Our team works with clients across four time zones of the United States to bring that next wave of wealth.

Hilary Hendershott: One where clients can show up with their values, leading their decisions, one where real life isn’t ignored but acknowledged, one where dreaming bigger is celebrated and comes with a team to back you up.

Hilary Hendershott: We get to know you, your family, your goals, your preferred way of working with an advisor. Whether that’s poring over every detail or just leaving it to us. We take our job very seriously. That’s providing an extra pair of watchful eyes as we sit on your side of the table year after year.

Hilary Hendershott: Our high net worth clients come to the table with 7 figures or more in investable assets, and while that may seem out of reach for you now, believe me when I say, if you follow the 7 Steps, you’ll be there sooner than you could imagine.

Hilary Hendershott: And. In your commitment to your financial growth, I don’t want high account minimums to be a barrier to the support you deserve.

Hilary Hendershott: We want to work with you if you’re serious about doing this work. We do work with clients in the earlier stages of their financial growth. We do that in our Ignite Investing® program. That’s where investors with $100,000 in investable assets receive access to professionally constructed investment portfolios, and my team of comprehensive financial advisors and a customized wealth plan to help you achieve your goals faster.

Hilary Hendershott: If we sound like the team you’d be interested in working with, visit hendershottwealth.com/contact and book a complimentary, 20-minute initial call to get the ball rolling. If we mutually agree that we’re a good fit, we’ll figure out the best program for you.

Hilary Hendershott: Your initial call, of course, comes with zero pressure. This is just a chance for us to connect and determine your right next step. And maybe you aren’t quite ready to work with a comprehensive financial planner. But if you continue through the 7 Steps, you will be soon.

Hilary Hendershott: In the meantime, stay connected with me here. I drop a new episode of Love, your Money® every Tuesday. Subscribe and stay in touch.

Hilary Hendershott: Lastly, if you found the 7 Steps to Wealth valuable, don’t keep it a secret.

Hilary Hendershott: Share it with your friends and family members. Everyone deserves access to financial education and the ability to reach financial success. We’re a community now, united in our financial journey to build wealth. Let’s invite as many of the people as we know and love to join us.

Hilary Hendershott: Thank you for being here, and cheers to your prosperity.