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Automated (00:02):
Welcome to the Retirement Wealth podcast. Our goal is to help those retired or soon-to-be retired investors make more informed financial decisions and live an enjoyable retirement. Our host, Mike Lester, is the founder and CEO of Talon Wealth Management. Mike is an investment advisor representative of Retirement Wealth Advisors, Inc, an SEC registered investment advisor. Thanks for joining us today, and let’s get started.
Kristen (00:31):
Mike, I love football season. I’m the president of the tailgate. We’ve talked about this before.
Mike Lester (00:36):
I don’t think I realized that you were the president of the tailgate.
Kristen (00:39):
Oh, yes.
Mike Lester (00:39):
Okay. Do you wear a badge or do you have… How does this work? Do you have a hat?
Kristen (00:42):
I just get to tell everybody what we’re eating, what we’re drinking, and what time to show up. It’s kind of a really, really big… I’m just kidding. It’s not that big a deal.
Mike Lester (00:50):
You are like a… the whole power thing you’ve got going on there.
Kristen (00:52):
Well, we did a pre-season happy hour the other day, and one of my dear friends, Bernadette, her and her husband were there. I said, “Hey, how’s retirement going?”
Mike Lester (01:02):
So she’s retired.
Kristen (01:03):
Yeah, she’s recently retired.
Mike Lester (01:05):
Bernadette’s retired, okay.
Kristen (01:06):
Very cool thing that she’s spending her time doing. She is an extra for television shows and movies. This is something that I think I would love in retirement. She is an extra with Righteous Gemstones. It’s an HBO Max television show. It’s kind of a bit much, but it gets great reviews.
Mike Lester (01:26):
Where does she live? Is she in the…
Kristen (01:28):
She’s in Charleston, South Carolina.
Mike Lester (01:29):
Charleston, okay, so this is… All right.
Kristen (01:30):
We all gather from-
Mike Lester (01:31):
For context. Got you.
Kristen (01:33):
… around different areas for said tailgate. Anyway, she’s doing so much of this to the degree that they said, listen, your face is showing up too much. You can’t be just an extra everywhere.
Mike Lester (01:45):
You like this too much. You’re going to… You know.
Kristen (01:49):
Yes. Now she’s looking into going into the Atlanta area when she has some free time, not watching grandkids and stuff and looking at movies. I think that’s a cool way to spend retirement. You’re making a couple bucks, but she got to be around John Goodman the other day. He’s a part of Righteous Gemstones. I don’t know. It sounds kind of fun.
Mike Lester (02:07):
It is kind of neat. Did I ever tell you a story when I was an extra on a TV show?
Kristen (02:11):
I did not know this.
Mike Lester (02:13):
I was, but I didn’t know a lot about being an extra on a TV show. Katie and I were on a vacation to New Orleans. Long story short, a TV show, a series that we really, really enjoyed at the time was filming right there in the French Quarter of downtown, maybe even… I think it was even on Bourbon Street, but kind of away from the main area. I’m walking by, and I start seeing these actors that we recognize. I’m like, oh, my gosh, that’s the show that we’ve been watching. I kind of made my way into the crowd, and I slid into the extras’ area. A lot of times in life, if you act like-
Kristen (02:52):
You know what you’re doing and you’re-
Mike Lester (02:53):
… until you make it. You act like you know what you’re… You’re like, hey, well, yeah, whatever. You just look around like, hey, what’s going on-
Kristen (02:57):
I’ve gotten backstage at many a concert that way.
Mike Lester (02:58):
They’re going, oh, last time I did this… By the way, I’ve never done it, but just talking to me. Then Katie sees me doing it. Then, of course, it’s like, aw, geez, now I’ve got to get her in. Now I’ve got to try to negotiate this and get into the extra. Then they’re orchestrating getting all the extras through. Do you want to know how to really upset extras?
Kristen (03:16):
How?
Mike Lester (03:16):
Be a fake extra.
Kristen (03:17):
Really?
Mike Lester (03:17):
They take so much offense to that. They looked at me like you weren’t here in the meeting before. You scoundrel. You just snuck off the street. Now you’re going to be… They were so upset that I had finagled my way into being an extra. Anyway, I thought it was great. Then we wound up on TV. We actually watched the episode later. There we were.
Kristen (03:40):
What show was it?
Mike Lester (03:41):
It was a show called True Blood on HBO.
Kristen (03:45):
Oh, I remember that. Just a little show called True Blood on HBO. Come on. That’s a big deal. Very cool.
Mike Lester (03:49):
I’m still waiting for… What’s the association you get into?
Kristen (03:53):
It’s SAG, Screen Actors Guild.
Mike Lester (03:54):
I’m still waiting for… Yeah, I’m still waiting for my card from them.
Kristen (03:57):
Well, it’s a union, so you may not want to sign up for that.
Mike Lester (04:00):
All right. We’ll see.
Kristen (04:01):
That’s interesting. Fun fact about Mike Lester, even though he is not that big a deal, I can promise you. Ask his wife. But what you are really good at is, I guess, accidentally being an extra and figuring out this whole financial conundrum that we all feel we are in. The financial news, it’s a lot, and the financial pundits have been referring to someone called Dr. Copper lately. Who exactly is this doctor? Well, S&P Global’s Dan Yergin tells CNBC…
Dan Yergin (04:32):
Well, copper is known as Dr. Copper because of all the commodities, it has a reputation for this uncanny ability to predict economic downturns, and that’s certainly what it’s doing right now.
Kristen (04:43):
Now, Mike, you’ve been talking about copper being an economic indicator for quite some time here on the show. Now Reuters says that the price of that red metal logged its biggest quarterly drop since 2011 in the second quarter of this year.
Mike Lester (04:59):
Well, we’ve been talking about recession since January. We’re talking about it because everything that has been happening up until this year, in my mind, at least, it’s just not sustainable. You can’t print as much money as they’ve been printing. You can’t just keep pumping into the economy. I know they try to blame it on Ukraine, and they try to blame it on Russia, and they try to blame it on supply chain issues and all of these things. The reality is if you pump tons of money into an economy, you’ve got too many dollars chasing too few goods. When you get that, you get inflation.
Mike Lester (05:30):
Here we are with this horrific inflation situation. We just hit 9.1% on the consumer side. If you look at the industry side, it’s even higher than that. I think it’s over 11%. It’s way too high, and, again, not sustainable. When we take a look at all of the investment options that are available out there, and if we take a look at investment advisors or firms that are trying to convince people, hey, listen, don’t look over there at all the bad stuff. Look over here. It’s the shell game, where people are trying to convince investors to, hey, just hang in there. Just don’t worry about it. I would say, well, let’s listen to Dr. Copper, right.
Mike Lester (06:09):
I mean, we all know what copper is. We see it all the time. It seems kind of simple. But the reality is copper, it is used in industry around the world. If you see the price of copper dropping, which we have been… By the way, just looking at copper today, copper’s price, and, again, it’s bouncing around, but, right now, it’s somewhere around where it was in 2017.
Kristen (06:33):
Okay.
Mike Lester (06:33):
All right. If you think of 2017, we’re in this big growth economy, things are going up and up and up and up. Well, the price of copper today is somewhere close to where it was in December of 2017. That’s not good. That means things were growing, growing, growing, and if you looked at a chart of copper, which I am right now, it is absolutely tanked. It peaked somewhere around, oh, gosh, March of this year, and it’s done nothing but drop since, nothing but drop. I’m exaggerating, but it’s been bouncing around, but it’s dropped. That’s a problem.
Mike Lester (07:04):
The reason it’s a problem is it means the demand for copper is going down, and if the demand for copper is going down, then people who need to use copper in their manufacturing, right, whatever goods that they’re producing, the demand for those goods is going down. Otherwise, they’d be ordering more copper, and you can bet… The reason it’s called Dr. Copper is it’s a predictor of demand in the future for consumer goods because of the amount of copper that’s used in consumer goods. If we take two steps back from this market, and we take a look at, well, what is likely to happen three months from now, six months from now, a year from now?
Mike Lester (07:40):
Well, the reality that manufacturers are using less copper means they’re getting less orders, which means eventually that trickles into the numbers on the profits of these companies that sell these goods, and it’s potentially bad for the stock market. When I go back and I take a look at the S&P or I look at the Dow, and I start doing the math on where are we right now? It’s overpriced. It’s over bought. Even though we’ve had a huge pullback up to this point, meaning 20 plus percent, we are still higher in markets than we were prior to COVID.
Mike Lester (08:14):
Then ask yourself, well, how do you feel about the economy right now compared to how you felt about the economy when COVID first hit. How do you feel about the government right now compared to how you felt about the government before COVID hit?
Kristen (08:25):
Yes.
Mike Lester (08:26):
If you actually take the time to think about all of that… I’m not trying to scare people, Kristen, but if you take the time to think about it, and you go… This is just me talking here, but I think a lot of people feel the same way. I don’t feel better today than I did in January of 2020 before COVID. I don’t feel better.
Kristen (08:44):
I don’t think anyone does.
Mike Lester (08:45):
It feels worse. I don’t feel better about the economy. I don’t feel better about the government. I know the market is down quite a bit, but we aren’t seeing good economic indicators right now. Confidence is down with corporations. Confidence is down with consumers. Confidence is down with home builders, all of the leading indicators. Again, they’re not always right, Kristen, but we work with people that are retired or close to it, so it’s my job to help people protect and grow their money.
Mike Lester (09:11):
In this market, we’re very negative. I do think we’re in a recession. I do think when we see the numbers, I’m guessing we’re going to find out, hey, we’ve been in a recession. That’s not good economically moving forward. It’s not good for your portfolio moving forward. Even if you’re down right now, we should be having a conversation about investments that will do well in a recession, that will do well in a bad economy. We shouldn’t be talking about hanging in there.
Mike Lester (09:36):
Kristen, the number one call we get week after week is my advisor or my firm has been telling me to hang in there, and that strategy has now lost me 20 plus percent in the market. I want to have a conversation with you guys and find out what you’ve been doing because all we’re saying is, hey, listen, come take a look. See how we’ve been doing compared to how you’ve been doing. If we can provide value in your situation, you might want to talk to us.
Kristen (10:02):
Wall Street, obviously, has set some records in the first half of the year. Unfortunately, none of them are positive. But so far for 2022, investors have experienced the worst starting six months to a year for the S&P 500 since 1970, and bonds are usually seen as an option for lower, but more stable returns in times like this. But from what I understand, they aren’t looking great either. I’ve heard of short-term bonds, long-term bonds, treasury bonds, high-yield bonds, even municipal bonds. A bond’s not a bond, so which bond is the best option for those seeking safety right now?
Mike Lester (10:43):
Kristen, that’s a tough one. I mean bonds, historically, right… A lot of people are being told to hang in there, particularly if they’re on their 401k plan or other retirement plan at work, they’re looking at conservative options, and one of those options are bonds. Interest rates affect bonds directly. Now you may have a short-term bond, long-term bond. Kristin, the reality is most people who are investing in bonds, and, again, mostly through retirement plans, they aren’t looking into the details, whether or not it’s a short-term bond or at long-term bond. They just have the perception, which most people would, because, again, they don’t manage money professionally, that, well, stocks are risky, bonds are safe. Well, we’re in an environment right now where stocks are risky, bonds are risky.
Mike Lester (11:26):
I think that’s counterintuitive to a lot of people based on what they’ve heard. Then also looking at the retirement plan at work, or even listening to a financial advisor or a firm who tells you don’t worry, hang in there, you’re diversified. Diversification, right now, on a sort of typical diversified plan, could mean you have a certain percentage in stocks for growth and you have a certain percentage in bonds.
Kristen (11:48):
Like a 60/40.
Mike Lester (11:49):
Like a 60/40.
Kristen (11:50):
Okay.
Mike Lester (11:51):
Guess what. Both of them right now, technically, have been bad in the past six months. Being proactive in management of portfolios, helping clients… We make money when our clients make money. I know a lot of people say that, Kristen, but, then, half the time they say we make money when you make money, but then they don’t make any changes when things get really, really rough. We’ve been in a situation where bonds are down, stocks are down. The past going on eight months now in the market haven’t been good for most people that were committed to the market or committed to a so-called diversified plan, and people are being told to hang in there.
Mike Lester (12:26):
I would just want to encourage anybody who just feels… because I know this is out there because we’re getting these phone calls. They feel like they’re down. They just want to wait it out. If they’re sitting in cash, they just want to wait it out. I can tell you there are investment options out there that we should probably be talking about. If you’re in cash and you’re waiting it out, or if you’re worried about inflation, the issue that I think a lot of people are dealing with is, well, I’m in cash. I mean, maybe you did a good job there, but now inflation’s 9.1%. How are you going to make money in this market?
Kristen (13:00):
There’s so many different bonds out there, Mike, though, what bond is the best option for investors in this environment?
Mike Lester (13:06):
Kristen, in this environment, I’m not a big fan of bonds. I just would not move there. Bonds are based on interest rates and what the Fed is likely to do moving forward. If they raise interest rates, it’s bad for bonds. If they lower interest rates, it’s good for bonds. There are alternatives. Technically, there are bond alternatives, structured notes. We love structured notes right now because we have more control. I don’t like the lack of control in the bond environment right now. I would much rather have a conversation with somebody about here’s what we can do. Let’s get more creative and help people know all of their options.
Kristen (13:45):
Based on data from executives at some of the world’s biggest chocolate companies, consumers in both the United States and Europe are cutting back on chocolate because of rising prices. Now this is probably the higher end chocolate, not like an Andes Mints or a Twix. Either way, it’s just another thing showing that nothing is immune to inflation, right. I mean, chocolate… Everything.
Mike Lester (14:07):
Chocolate’s not immune to inflation.
Kristen (14:09):
Gosh, we can’t even splurge on something like that. But all joking aside, consumer prices, we know, are up 9.1% from last year. In fact, the average American family… Now this is average… is spending an additional $493 a month more than this time last year. That’s according to Moody’s Analytics.
Kristen (14:28):
But, Mike, the folks that you help at Talon Wealth as a fee only, fiduciary financial advisor are soon to be our current retirees. With inflation over 9%, I’m wondering if those folks have changed their spending behavior or at least talked to you as their advisor about that.
Mike Lester (14:45):
Yeah, certainly. So go back to our process. Somebody reaches out to us, and they’re either at or near retirement or maybe they’re five, 10 years to retirement, but they have their nest egg. They want to make sure that they’re not just hanging in there on it, or they want to find out more about active management, and we get the phone call. Let’s say that we sit down, and we do a complete analysis of where they’re at. We provide them with a complete financial plan, and we give them this roadmap to retirement. That roadmap to retirement is based on certain assumptions, right, because nobody has a crystal ball on exactly what the market’s going to do. We work very hard to do active management on the portfolios, and if you look at some assumptions from, let’s just say, five years ago that you’re making in portfolios.
Mike Lester (15:29):
Well, the average annual returns, I mean they pretty much are in line. But the one thing that’s really throwing people is the inflation part. They’ll come back to me and go, Mike, I know that you had inflation as a part of the portfolio and as part of the management in there, but did you calculate 9% inflation? The answer’s no. I mean, wasn’t a reason to do it at that time. I’m thinking back to a conversation I was having with a client the other day… It’s a common conversation, but to this point, what he was asking me was I know we put together a plan, and I know we were successful in retirement based on those assumptions. But the assumptions were a certain average rate of return in the market, a certain amount of risk in the market, and then inflation. What I was able to tell him was… I said, “Listen, we’re more than on track.”
Mike Lester (16:13):
I realize that inflation is much higher than we calculated. But, also, we’re way ahead of the curve if you want to call it that when it comes to returns because most people who are invested, and there’s nothing wrong with this, but most people are hanging in there in this market. Most people have a 401k without advice. Most people are working with a financial advisor or a big firm or a big bank or what have you that’s just telling you to hang in there. Those people in that situation… Not all. Right, I’m going to be a little more vague here. Not everybody’s down a lot-
Kristen (16:48):
Of course.
Mike Lester (16:48):
… but we’re talking to people that are down a lot in their portfolio, and he’s not because we took action this year, right. We moved our clients that have retirement accounts with us into our most conservative investments back in January, feeling it was going to be a bad market. Then interest rates started ticking up, and we wanted to get away from those most conservative investments because a lot of times conservative investments are bonds. When interest rates go up, it hurts bonds, so we went ahead and moved to cash. We’ve made several moves this year.
Mike Lester (17:16):
In this particular case and this particular client, they are way ahead of what the market’s doing. When he looks at the news and he thinks, oh my goodness, look at inflation, look at markets, look at everything else, we can go back and look at his portfolio and say, listen, you’re still on track because even though inflation is 9.1%… By the way, I don’t think it’s going to stay there. Eventually it’ll come back and be more balanced… we were making assumptions about returns that included losses greater than what you’re actually taking in your portfolio, so you’re still ahead of markets moving forward.
Mike Lester (17:50):
I would just want all of our listeners to understand that, that financial advisors and planners and firms. Now there’s a lot of ways to go about managing portfolios. Not all, but the majority of firms will just try to convince you to hang in there. That’s the easiest way to manage money. It’s the least amount of work for the financial advisor. There are some statistics out there that would say that, well, hey, listen, even if your clients are losing money, once they’re down, they’re not very likely to make a change because they’re afraid that change will-
Kristen (18:20):
Cost them even more.
Mike Lester (18:21):
… cost them even more money. That’s the way the business, in general, is not all the time run, but that it’s pretty common. For listeners who are in that situation, it’s pretty common to be in that situation. But what we want to make sure that we put in front of everybody is we’re not in this sort of category of firm that says, well, we’re just going to build a diversified portfolio, and hang in there. Eventually, it will get better. We want to actually earn the fees that our clients are paying us. I don’t think you’re earning it to tell people to hang in there.
Kristen (18:51):
Kristen, you don’t need a financial advisor if the goal is to be diversified and hang in there. There are great firms out there that will charge you nothing to be diversified and hang in there. If somebody’s charging you something, and they’re telling you, hang in there, I got news for you. You can do that for free.
Kristen (19:06):
We need to earn our living. We need to earn and be valuable to people. I would say we create value, or the idea is to create value. If we can show you a higher average rate of return, net of fees, then we’re providing value. If not only higher average rate of return, we can also show you how to get those returns with less risk, we’re providing value. There really is, and, particularly, right now, this dynamic between hang in there versus active management. I think most people would prefer active management. Most people don’t have it, but also most people aren’t aware of exactly how it works. It’s literally our job to sit down with individuals. We can have that conversation with you, explain active management. We can show you our returns. We can compare those returns to your returns. You can decide for yourself whether or not you think we could provide value. If so, you might want to hire us.
Kristen (19:55):
But the reason we put ourselves out there and say we’ll do this planning and we’ll do this analysis for you complimentary is let’s just get away from this idea that we’re trying to make money writing up financial plans for individuals. We’re not. I mean, that’s not how we make a living. If you decide that we can provide value, then if you’re making money, we’re going to make money. That’s what the fiduciary relationship should look like. It shouldn’t be, well, if you make money, I make money, and I’m going to charge you fees for planning. That’s the reason we don’t do it. That plan should be updated at least on an annual basis, and an advisor shouldn’t be charging you for that.
Kristen (20:30):
To everybody out there… I know this because we’re hearing it week after week after week… My advisor’s telling me to hang in there. I want to come in and compare what you’re doing to how I’m doing. I want to know more about active management.
Automated (20:42):
If you would like to have a comprehensive financial plan and an analysis of your current portfolio, go ahead and visit our website at retirement.tips/plan, and we can do that for you complimentary.
Automated (20:59):
Thanks so much for joining us on today’s show. Be sure to subscribe to our podcast. Visit our website at retirement.tips for more free retirement planning and investment resources. Thanks for tuning into today’s show, and we’ll see you next time on the Retirement Wealth podcast.
Automated (21:17):
Exposure to ideas and financial vehicles discussed should not be considered investment advice or recommendation to buy or sell any financial vehicle. This information should not be considered tax or legal advice. Individuals should consult with professionals specializing in the fields of tax, legal, accounting, or investments regarding the applicability of this information to their situation. Past performance is not a guarantee of future results. Investments may fluctuate, and when redeemed may be worth more or less than originally invested.
