Financially Forecasting 2021

Transcript

Speaker 1 (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, and SEC registered investment advisor. Thanks for joining us today and let’s get started

Kristen (00:31):

On behalf of me and Alexa here in the studio.

Alexa (00:35):

Happy New Year.

Mike (00:37):

Here we are. 2021 kicking off the show just after the holiday, I guess.

Kristen (00:42):

I’m fat and happy. I will say that.

Mike (00:45):

Fat and happy. No headaches today, few days after?

Kristen (00:50):

No. Feeling good, feeling fine, feeling wonderful. You know what? I sent you this earlier before today’s show, I should have gotten in on this because I’ve been using Pedialyte for New Year’s Eve since I don’t even know when. People always thought I was crazy.

Mike (01:07):

You don’t even have kids, Kristen.

Kristen (01:07):

Exactly.

Mike (01:07):

And you know all about Pedialyte.

Kristen (01:08):

College taught me the way. I mean, it was just a common sense thing. Oh, that’s for dehydration.

Mike (01:12):

That’s not what the kids do now. They do IVs. You just call somebody.

Kristen (01:16):

Oh my gosh, are you serious?

Mike (01:17):

Yeah. I am serious. You can pay somebody, it’s not cheap, and full disclaimer. I’ve never done this, but you can pay someone to show up and hook up an IV and 45 minutes later, they say, good as gold.

Kristen (01:30):

I’ve seen that on the Real Housewives of something. So that’s why I don’t relate to it.

Mike (01:34):

The key is not to get into a situation where you need Pedialyte or an IV.

Kristen (01:39):

No don’t about it. I feel dehydrated enough having the heat on and things like that. Things we’re dealing with in the winter time. So maybe the Pedialyte just for that.

Mike (01:48):

By the way, welcome back, Kristen.

Kristen (01:49):

Oh, thank you.

Mike (01:50):

We had some listeners that were a little concerned, said, “Hey, what happened to Kristen? What’s been going on?” I said, “Don’t worry. She had some family stuff going on.”

Kristen (01:58):

Happy to share.

Mike (01:59):

You needed to take a little time off, so we did a few shows with different co-hosts. At least I know a few listeners going to be happy to hear you back on the radio with me.

Kristen (02:05):

Well, who filled in, she is a dear friend of mine. Love her so much and appreciate that. But yeah, family is first and I had a couple things come up. And plus it’s the holidays, just needed to take some time to step back and just reanalyze things. And Mike, I think a lot of people are doing that in their personal life with all that everyone’s been through. I don’t even want to talk about this past year and what has gone on, but one thing-

Mike (02:28):

That’s why it’s so nice it’s 2021. Hopefully we can just hit the reset button and move on.

Kristen (02:34):

Well, the massive sell off we had in February and March of last year broadened into the longest bull market in history. When the pandemic started impacting us here in the good old US of A. According to ABC’s David Muir, in late November, we hit a major Wall Street milestone, about 125 years in the mail.

David Muir (02:53):

The DOw topping 30,000 for the first time in history. The President came before the cameras to celebrate the Dow after repeatedly saying the market would crash if Joe Biden was elected. Wall Street analysts saying the transition now underway helped fuel it. Here’s what the President said.

Donald Trump (03:08):

That’s a sacred number, 30,000. Nobody thought they’d ever see it. And I just want to congratulate all the people within the administration that worked so hard. And most importantly, I want to congratulate the people of our country.

Kristen (03:20):

Despite this good news, a lot of people listening today, Mike, that are near retirement, already there, they’re at least age 50. They’re concerned that Wall Street and Main Street aren’t really on the same page. And I’m not quite 50, but I even feel the same way. I mean, is it time to make adjustments to our portfolio?

Mike (03:37):

Well, adjustments, it’s going to depend on where you are right now. So we can go through a few things and it’s nice to be correct. Fortunately, when we look at markets, and we’ve had people calling us back on radio and wondering about, “Hey, listen, what’s going to happen with this virus and everything.” We essentially encouraged people to get invested in the market if they weren’t already, because we saw it as an opportunity. And we felt that we were going to see Dow 30,000 before we saw Dow 20,000 at the time. I’m thrilled that that worked out, but how we got into that opinion was we just ran the numbers, we just did the math, and it just didn’t make sense at the time that something like a virus, and obviously it’s terrible, but given everything that was going on and then the government stepping in with stimulus, and then the low interest rate environment that we have, and knowing that eventually there’d be a vaccine.

Mike (04:30):

We could do the math on that and realize, “Okay, it’s probably long-term not going to be a really big deal.” And at this point it hasn’t been. But moving forward here in 2021, we really need to take a very, very close look at our portfolio and how it’s built. Because just because the market’s doing well, that doesn’t necessarily translate into your portfolio doing well. There are a lot of people out there that are watching markets doing well, and they keep hearing about how great things are going. And they’re taking a look at their portfolio and going-

Kristen (04:57):

They log in online and go, “Whoa, where am I at in this? Why am I not matching?”

Mike (05:01):

Yes. And there are specific reasons for that. So when they say the Dow is doing extremely well, that means 30 large cap companies are doing very well. When they say the S&P is doing well. Well, yeah, it’s S&P 500, 500 companies, but it’s still weighted towards large cap companies. When they say the NASDAQ is doing well. Well, we’re talking about mostly technology companies. So you have to understand your portfolio and what’s likely to do well. And I’ll tell you what hasn’t been doing well, Kristen, it’s bonds. Bonds haven’t been doing well, the rates are super low. I’d say most people, the closer they get to retirement, they’re not 100% invested in stocks. It doesn’t make sense to them at that point. If you’re in your mid to late 50s, 60s, even 70s you’re going, “Hey, I don’t want all my money in stocks because that’s too aggressive for where I am in life. I need to make sure I don’t lose too much money.”

Mike (05:52):

The problem is a diversified portfolio, or a more traditional diversified portfolio, this may be more moderate. It might have 50% stocks in it, and then 50% bonds in it. And then people are taking a look at their portfolio saying, “Well, how come this just doesn’t look as good as I want it to look?” It’s well because the stocks may have done well, those bonds are dragging you down. If I take the information that we have today, and I apply it to, I think at least the first six months of 2021, this is at least my feeling now looking at the data, I think that we want to do an analysis of a portfolio. We want to find out how much you have in bonds, or other fixed investments that may not do well in an environment where stocks are doing very well.

Mike (06:33):

Because I do think for the first six months stocks are likely to do well. We’ve got vaccines now, we’ve got government stimulus, we’ve got very, very low interest rates. And frankly, we’ve got a lot of pent up frustration from all the people who haven’t been able to go out and spend money. And now they’re going to have money in their pocket to go spend. So all of that looks really, really good. And we want to take advantage of that, but as stocks are going up, realize people are selling fixed investments like bonds to go buy stocks. And that puts downward pressure on that. So if somebody came to our office next week, or the week after, we’d take a really, really close look at their portfolio. We would want to find, or help them find, equity or stock positions that were likely to do well in this recovery with all the stimulus and low interest rates.

Mike (07:17):

And then we would want to help them forecast what those fixed positions are because with bonds, because interest rates are so low, because bond yields are so low, they’re probably not going to be very attractive. You have to understand what the alternative options are for you on bonds. We can have that conversation, but at the end of the day, we’ll be more than happy to sit down with you, do an analysis of your current portfolio if you’re retired or close to it, you’ll have the analysis. And again, I think a good plan for at least the first six months of 2021. I don’t want to forecast it beyond that because I’m a little afraid of what all the stimulus means later when the bill comes due.

Kristen (07:53):

We do have to wait and see on that to a certain extent.

Mike (07:55):

We have to wait and see on that. So let’s just come up with a really good plan for the next six months, help you with those fixed investments, create some diversification.

Kristen (08:03):

Small business owners really are the backbone of this great country. And after years of hard work and sacrifice, creating a successful business, one of the main concerns that small business owners have is how they’re going to retire. The hope is the value and equity of the business they’ve built is going to be most of their retirement. But Mike, is that their only option?

Mike (08:23):

I mean, the amount of money that you have set aside for retirement when you’re selling the business, usually the money is set aside in the business. And so it depends on who we’re talking to. Obviously we talked to a lot of individuals that worked for a corporation that provided a retirement plan, something like a 401k or a 403B plan. At the same time, we talked to individuals that are small business owners and the majority of the equity that they have is in that small business. And it is a conversation we have every week. Just had a conversation the other day with a gentleman that had a successful small business in his case, the small was a business supplies. So think of like-

Kristen (08:58):

A smaller version of Staples maybe?

Mike (08:58):

… an Office Depot. Yeah. A smaller version of Staples or Office Depot, but he was very, very successful in his career. He was able to make money with that business, had a lot of equity in it, but a lot of that equity in the business was in the actual real estate that he had. And then also the money that he had set aside. So you got to a point where, sold the business, held onto the real estate, and then has assets for sale of the business. Now he was accustomed to income coming from the businesses that he ran, just like any business. And he had that monthly income coming in. It was easy for him to sort of budget and know exactly how much he could spend on a monthly basis. Now he’s in a situation where he has income from some of the real estate, the buildings that he had owned that are now different businesses, but he’s got a great income there. And at the same time, our conversation was based on the assets that are being managed to provide income moving forward. Now some of that money is IRA money.

Mike (09:50):

Some of that money is after tax money and things like individual accounts, trust accounts, that type of thing. But he still needs to derive income from those assets. It doesn’t make sense just to have them sit there stagnant, not doing anything right. He’s very interested in the idea of active management. He’s been pretty involved, actively managing it himself, but he wanted us to sit down with him just to show them what we can do and how we do things. We’re in the process of that. And what it will involve is he’s going to share information about his investments with us. We’re going to do an analysis. We’re going to take information about what his long-term goals are, what his expenses are. We’re going to take into consideration inflation and taxes, and we’re going to do a full analysis and retirement plan for him.

Mike (10:31):

I personally look forward to sharing that with them. And if it turns out we can provide value, he may decide to work with us, if we’re not providing any value, he’s not going to. But in essence, that’s our process, whether it’s a small business owner or an individual that’s been working for a corporation, we can get that done for you.

Kristen (10:47):

Alan Greenspan. Mike, he’s a guy that in your world, he’s been top of mind through many decades.

Mike (10:53):

He has.

Kristen (10:54):

When he says something regarding money, anyone over the age of, what do you think? 40? Goes, “Oh, what’s he saying. Hold on, let me just pay attention a second here.” But he was the head of the Federal Reserve, the chairman, years ago. And he says that getting the virus under control should be the number one priority for the next administration. A move he believes will help save the American economy. And of course we are on track with that. And he tells CNN that forecasting the financial impact of the pandemic is more than complicated.

Alan Greenspan (11:24):

This is a very complex forecasting procedure and system largely because the issue of the virus is a very phenomenon. Once in 100 years.

Kristen (11:38):

Again, he’s been around a long time. You can hear that. Bless his heart. But he’s a smart guy and an economist who was chair of the Federal Reserve through four presidents, says that he believes it’s difficult to project what’s to come. What does that mean for regular people? I mean, should we stay the course? Wait to see how this pans out?

Mike (11:56):

Well, one of the things that makes it so difficult to predict what’s going to happen is it’s the emotion behind the pandemic. So it’s an emotional thing that some people have, some people don’t. I mean, I travel for work, so I’ll see situations where people are kind of willy-nilly. They aren’t real aggressive with masks. And then you’ll see people who are-

Kristen (12:16):

Are in hazmat suits.

Mike (12:17):

Are hazmat suits.

Kristen (12:18):

I had a friend go to the airport the other day, for real, saw someone in a hazmat suit.

Mike (12:22):

I have seen that. Yeah, in the airport. And when I see that, I wonder maybe they’re just incredibly paranoid, or maybe they have some sort of preexisting condition.

Kristen (12:31):

Could be, yeah.

Mike (12:32):

I can imagine if I had a very, very serious pre-existing condition, I had to go do something, I’d take it a lot more seriously. Fortunately, the majority of us, and the numbers have shown, you know, 99 point something percent of people aren’t going to have a big problem with it, but it’s that-

Kristen (12:45):

It’s that’s 1%.

Mike (12:45):

… 1% or less. It’s going to have trouble. So that’s a real thing. But I think it’s hard to forecast because of the emotion behind it and how are people going to react? Now, what I’m seeing more and more of is people that were sort of in the beginning a lot more scared are now just frustrated and just want to get back out there and say, “Hey, listen, health is one thing, but closing my business down and losing revenue for the rest of my life is another.” And at some point keeping businesses open becomes more important, your livelihood. And I know that people say, and it’s true, if you don’t have your health, what do you have? But again, if there’s a 99% survival rate and the majority of people aren’t going to have a big problem, how do you forecast that moving forward? So I think we’re in a really, really good spot right now because the vaccines are here. I mean, that’s critical moving forward and we’re getting more and more companies coming out. The efficacy rate is extremely high.

Mike (13:40):

I mean, it’s considered good with a vaccine if it has a 50 or a 60, 80 would be great for an efficacy rate. I mean, the flu shot doesn’t have the efficacy rate of these vaccines for Corona. The news is very, very good. What we have to look at here moving forward as far as forecasting what’s likely to happen, is, what’s likely to happen over what period of time? And let’s just use math and science to figure that out. So we know that we’ve got the vaccines, we know that we’ve got government stimulus, we know that interest rates are extremely low, and we know that people want to get out there and put Corona virus or COVID behind us and move on. And all of that is likely very, very good for the economy and probably the stock market. And I’d say for at least the six months. I would love to say it’s the whole year, but I’m a little worried about inflation. I’m a little worried about how we’re going to pay for all of this. But if you look-

Kristen (14:33):

You worried? Every taxpayer listening is worried about that.

Mike (14:36):

Everybody’s worried about it. So I gave you a little insight to the math. So why do we think markets are likely to do well? Well, because of the four reasons I just mentioned. Vaccines, stimulus, low interest rates and frustration. People want to get out there and spend money, but then look at what your options are. So you’ve got equities that have been doing very, very well. We could argue certainly that equities or stocks are overbought. I would agree with that. I think we could argue that we probably see some sort of a correction in January. It just means a little bit of a pullback. So some profit taking, that sort of a thing. But then after that, the numbers are, I believe, will continue to look good in the economy. Now, even though the stock market is over bought, the issue with bond yields makes it more probable that in general, the markets themselves, aren’t going to be considered bad investments, even if they’re over bought. Because where are you going to put your money?

Mike (15:28):

The fact that people aren’t going to want to put their money in bonds, because they’re yielding almost nothing, makes them more likely to invest in the stock market, even if it seems too good to be true, even if it seems like it’s gone up too much, too fast. The likelihood of people investing in the stock market because bond yields are so low, makes it acceptable that markets are overbought and that they probably continue to go up. So what I would say for anybody listening is you just want more information about your investments and how they are likely to perform here as we get started in 2021. If you’d like to know how much risk you’re taking if we were to get another crash, which again, I don’t think it’s coming anytime soon, but eventually we’ll get one. Or if at the end of the day, you’re just looking at making that transition into retirement, or you’re very close to retirement and you want to forecast what retirement is going to look like for you.

Kristen (16:17):

Michael, a while back I received some news from Sue. Now, Sue is the lady who does my taxes. I love her. And it’s news that all of us will experience sooner or later from a professional we work with. Now, she’s decided to retire and her right hand at the office is going to be taking over my taxes. Of course, I’m very happy for Sue. I mean, isn’t this the goal? Retire? Live your best life? But I’ve been working with her close to 10 years now. And I felt so comfortable with her that I had a level of trust that I would just drop things off and say, “Sue, make it so.”

Mike (16:48):

And not even wonder what it was going to cost.

Kristen (16:50):

Absolutely.

Mike (16:50):

Just it was what it was.

Kristen (16:51):

She knew my life. Any time there was a change, I just updated her and she was prepared for tax season. Now her right hand is Judy, and I’m sure Judy’s going to be great, but it made me think about the relationship that people have with their financial advisor. Would you suggest someone seeking a new advisor, ask certain questions? What would those questions be? Or should we maybe just ask a few friends and family members who they use and go that route? Or what if our financial advisor retires? I mean, it brings up a lot of questions.

Mike (17:21):

I’m sure. I mean, change is always uncomfortable. Even if you weren’t happy with your accountant right now, but finding a new accountant would still be frustrating to you. You just never really know what you’re getting into. It starts with, I’d say, don’t talk to just one other financial advisor. If you’re looking for one, or if you want to make a change, talk to a few. Find out what their business model is like. Financial advisors can be very, very different. Some of them are more like stockbrokers where they’re just transactional. So they want to make trades for you to make money. It’s not necessarily advice other than, “Hey, I think this investment is going to do well.” Others, maybe they sell products. Things like mutual funds, things like annuities. There’s a lot of product salespeople. We get a lot of that. Some of the other radio shows on stations are more sort of annuities focused or product focused, or it might be somebody more like us.

Mike (18:03):

All right. So we’re fiduciaries. We’re fee-based advisors, it’s our job to provide value. And we believe in active management of portfolios. I believe in active management of portfolios because when it comes to my money, that’s exactly what I would do. Now, I happen to be a fiduciary and an investment advisor, so I don’t go hire other people to manage my money. But if I wasn’t an investment advisor or a fiduciary, that’s what I would be looking for. That would be wanting to find someone who was legally required to put my needs out of their own. It’s okay if they make money, it’s just, they need to provide value. So find out are they a fiduciary or are they more of a product sales person. Do they believe in more active management of your portfolio or passive? Active is what we do.

Mike (18:43):

We don’t believe in hanging in there. Passive is literally hang in there. So a lot of the advisors or firms out there, they’ll say, “Hey, hang in there. Don’t worry. Eventually things will get better.” And then just find somebody who communicates with you well. At some point, whoever you hire, hopefully you like them. You don’t mind talking to them.

Kristen (18:58):

It shouldn’t be painful.

Mike (18:58):

Start with the technical stuff and then choose the one that you like, the personality you like, you get along with well, they communicate with you well, they talk on your level. A lot of advisors will try to talk over your head and sound really, really smart, and that’s just not necessary. So bottom line, I would keep it there. If you want to have that conversation with us, just see if we’re your cup of tea. We’ll do the analysis and complete financial plan for your complimentary.

Speaker 1 (19:21):

If you would like to have a comprehensive financial plan and an analysis of your current portfolio, go ahead and visit our website 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 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. 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 a professional 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 maybe worth more or less than originally invested.