Consumer Confidence is Down. But How’s Your Retirement Confidence?

Audio (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 (00:30):

The Conference Board, Mike, their index of consumer confidence was released for July. As expected, Americans’ attitudes towards jobs and the economy decline again. Are you shocked?

Mike Lester (00:44):

No.

Kristen (00:45):

I’m going to say.

Mike Lester (00:46):

Not a bit. I mean, like shocker alert. All you got to do is go outside, Kristen. I mean, drive down the street, go to the store, and go to your favorite restaurant. Travel a little bit. It just doesn’t feel good out there. I’ve talked about this in recent shows and I talk about it to people who come into the office. Markets, they’re sort of back and forth a little bit right now, but overall down. When it comes to confidence, one of the biggest questions we’ll get, Kristen, is where do you think the market is going to go from here?

Kristen (01:14):

I had Fox Business on the other day. Charles Payne was doing like a town hall. That was the same question over and over phrased differently.

Mike Lester (01:21):

Of course. It makes sense that’s what everyone’s concern would be. Well, here’s what we do for a living. We manage money for individuals that are retired or close to it, so obviously that’s going to be their concern as well. What I would say is, although we don’t have a crystal ball, one of the big things we look at is confidence. It could be consumer confidence. It could be home builder confidence.

Kristen (01:41):

Oh, that’s going down too.

Mike Lester (01:41):

They’re all going down.

Kristen (01:41):

I’m not trying to be Debbie Downer.

Mike Lester (01:47):

No. People aren’t confident. Okay, that makes sense, but we have to put it into a context. You’d say, “Well, all right, people aren’t confident. What does that really mean?: I think the best barometers that we could use now without having a crystal ball, but what would be to say, look at where the market is now, because people are sitting there looking at portfolios if they’ve been hanging in there. We hate the hang in there approach. But if they’ve been hanging in there, they’re looking at their portfolio going, “Well, do I continue to hang in there and just hope it gets better, because I’ll feel better about my account if I decide to make changes after it goes back to where it was, or is it possibly going lower and should I get out now?”

Mike Lester (02:26):

I’m having a lot of those conversations lately. I would say there are a lot of people that are hurting right now and have a reluctancy to make a decision based on markets being off hoping they go higher. Going back to sort of confidence, I would want all of our listeners to take a look at or consider your feelings back in February of 2020. I know that’s a long time ago, but this is pre-COVID. This is I know maybe sort of post-election. Politically, if you’re more conservative, maybe you weren’t super optimistic about the administration, but this is additional spending. This is pre-COVID. Most people had a more positive outlook.

Mike Lester (03:06):

If you looked at consumer confidence back in February of 2020, it was pretty high. Well, let’s put this in terms of actually your assets and your investments. Well, the S&P 500, if we’ll just use that particular index, was 20% lower than it is currently, right? It depends on the day, but it is currently. It was 20% lower in February of 2020 than it is right now. If you look at how did we get from where we were in February 2020 to where we are here recently in the S&P, it was all the government spending.

Mike Lester (03:39):

When you’re looking at your portfolio wondering, “Will it bounce up from where it is right now, or is it going to go down from where it is right now,” when we look at consumer confidence, my feeling and the way we’re handling management of portfolios is I don’t think it would be a stretch for markets to pull back another 20% back to sort of a February 2020 level, because people were overall feeling pretty good then about the market. They were feeling pretty good then about how high their portfolios were. Then we got this additional increase based on all this government spending.

Mike Lester (04:14):

If you’re looking at your portfolio right now and you’re not feeling very confident, but you’re wondering where it might go and you feel like you have this hang in there approach, there are things you can do to benefit from markets pulling back another 20%. You don’t have to just hang in there. There’s a way to make money when markets are going down. If you’ve got a lot of gains in your portfolio and you just want to preserve them, there are ways to preserve those gains. You don’t have to just hang in there. But Kristen, with us, as fee only fiduciary advisors, we make money and we do well when our clients do well.

Mike Lester (04:45):

If our clients are doing poorly, we’re doing poorly. We have a vested interest in our clients doing well. I just feel like there’s a lot of people out there that are… They’re worried and they’re confused. Obviously they’re not confident based on the confidence numbers, but a lot of times a conversation can help with that. What I’ve found by talking to our listeners as they come into the office, a lot of times we’re uncovering investment options they didn’t realize exist. A lot of times we’re helping them protect portfolios they didn’t know they could protect, but it all starts with that conversation.

Kristen (05:14):

I’m a DJ by trade, but I’ve always been told that a recession means, and I did pay a little bit of attention in economics class, back to back quarters of negative economic growth. However, a blog post from the White House Council of Economic Advisers on the 21st of July said that two consecutive quarters of falling GDP does not, I repeat, does not necessarily mean the country is in a recession. Then the following day, a reporter asked the White House press secretary if they’re trying to change the definition of a recession ahead of the GDP numbers that were about to be released on the 28th of July.

Speaker 1 (05:55):

Let me say this, the strength of our labor market, along with the other economic factors is what we generally see in a recession or even a pre… Is not what we generally see in a recession or even a pre-recession because we’re seeing the strength of the economy and the labor market. That’s really important to note there because those are key elements as we talk about that, as folks keep asking us about that.

Kristen (06:22):

We cannot change the definition of words just because things don’t look good. I mean, this is our livelihood. This is our family.

Mike Lester (06:31):

By the way, economics have been around. You know this. I know this. Everyone knows for a very long time. There’s a reason the definition of a recession is based on two consecutive quarters of GDP being negative, because historically that holds true. And then most of the time we don’t realize we were in a recession until after it already happened. The numbers showed it after we were already in it. Now, you know from our show, Kristen, we talk all the time and our listeners, if you listen to us a lot, you know, our belief here on the Guarding Your Nest Egg and at Talon Wealth Management is we’re currently in a recession and the numbers have shown it.

Mike Lester (07:08):

I mean, I think it’s pretty straightforward. They can do this play on numbers or on words, and I guess and numbers, they’re going to start moving around all the time, we aren’t working with people that are 20 or 30 or 40, right? I’m concerned for those individuals. I think they’re going to have a tough time. I think they have concerns like paying off mortgages, putting kids through college, eventually retiring someday. It’s going to be a really bumpy road for them. But we’re working with people that are either they’re currently retired or very close to it and they’re taking a look at all of this. Unfortunately, I just don’t feel like there’s a lot of great advice out there.

Mike Lester (07:46):

People keep telling me when they come into the office and people that come to visit us, Kristen, and I don’t want to put anybody in just a category, but I’ll say typically it would be someone who is not yet retired, but they’re coming up on retirement. They’ve had a retirement plan through their employer and they’re looking to make a transition into retirement. They’ve never really experienced active management of a portfolio. They hear us talk about it and it sounds great. Well, why wouldn’t I want my portfolio actively managed if it can show me higher rates of return and less risk? It all sounds good.

Mike Lester (08:18):

They just want to come in and find out more about how that works. Frankly, more recently, because we’ve had volatility in markets, we’re getting a lot of calls from individuals that have been working with another firm or another financial advisor. What they keep hearing is just hang in there. When an advisor or a firm is telling you to hang in there, what they’ll do is they’ll put a bunch of math in front of you and they’ll put charts in front of you. It’s interesting, Kristen, because every firm does basically the same thing. I won’t go through all the names. We know what they are.

Mike Lester (08:50):

But basically when things get tough, what a firm will do to you or for you is say, “Listen, you just need to hang in there, because history shows that if you pull out right now and you were to miss these highs, then your average rate of return is going to be lower.” I know I’ve got listeners out there right now going, “Holy crap! My advisor just told me that.” Because, Kristen, last week in the office, I had this conversation three times with people who said, “Well, yeah, I called them up.” Usually the problem is they’re calling the company. The company isn’t calling them, right? They’re reaching out and going, “Hey, haven’t heard from you. My portfolio is down. What are you doing about it?”

Mike Lester (09:31):

And then the representative of the company’s going, “Well, hey, just hang in there, because hey, look at this 30 year chart of the S&P 500. If you had missed the five highs over that period of time, your average rate of return wouldn’t be 8% per year. It’d be at five.” It’s somewhere around there. I don’t have the exact numbers in front of me, Kristen. You know what they never show people is what if you had missed the five lows over that 30 year period of time? What would your average then have been? The reality is nobody has a crystal ball, but active management of a portfolio, the idea is, well, we might miss the highs.

Mike Lester (10:04):

But if we also miss the lows over that period of time, what history shows, and I can show this to anybody who comes in and visits with us, what it shows is a higher average rate of return net of fees with less risk to get that return. If I look at who our typical client would be, it would be somebody who wants the highest rate of return they can get with the least amount of volatility to get that return. I think it’s a good fit. I don’t think we’re a good fit for somebody who’s 20 or 30 or 40 and they’re just putting money into an account, hoping to retire someday. But I think we’re a great fit for anyone out there that’s looking to rely on their portfolio for income.

Mike Lester (10:41):

They need to make sure they can maintain their standard of living throughout retirement, adjusted for inflation and taxes, and they don’t want to just hang in there. The problem is there’s this sort of trust value there with, well, how can you not just hang in there? Do you have a crystal ball? Do you not have a crystal ball? How does it work? Come in. Let us show you how it works.

Kristen (10:58):

If you heard this report from Yahoo! Finance the other day.

Speaker 2 (11:01):

The International Monetary Fund painting a grim picture for 2022, as it again slashes its forecast from its previous projections. And the big reason, global inflation.

Kristen (11:11):

And what’s most jarring is that among major economies, the United States saw the sharpest downward revision. They lowered our growth estimates to 2.3% from 3.7%. I’m not a negative person, but it’s starting to feel a little gloomy on the financial forecast front.

Audio (11:29):

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. 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 in to today’s show and we’ll see you next time on the Retirement Wealth Podcast.

Audio (12:03):

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