How the American Economy And Unemployment Can Affect Your Retirement Portfolio

Mike Lester

by Mike Lester

Oct 12, 2020

Transcript

Kristen (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 (00:37):

Today we’ll find out if it’s time to go to gold, what Charlie Brown’s shirt has to do with our economic recovery, and why retirement might be a little more expensive than you think. That and more coming up with Mike Lester here on the show.

Mike Lester (00:53):

All I know is it don’t come easy, Kristen.

Kristen (00:55):

It don’t come easy, Ringo Starr said it best. Mike, something I appreciate about you is that you’re always keeping in mind the regular person. You’re a financial advisor. You deal with regular people every single day.

Mike Lester (01:06):

I am a regular person.

Kristen (01:07):

That too, but you’re on the radio, you’re a financial advisor, so people might think that you’re in a different category in life, I guess is what I’m trying to say.

Mike Lester (01:15):

I hope not, but thank you.

Kristen (01:16):

But at the lake house, you recently had some work done to some trees because a buddy of yours owns the company number one. Number two, it needed to be done and you had put it off, and number three, you know that companies like that right now are hurting because people are holding on to their money.

Mike Lester (01:35):

Well, we were talking about it prior to the show, Kristen, because we are still, to some degree, working from home, so here we are doing some radio from home and on the weekend and a good college buddy of mine, family-owned business. They’ve had a tree service for years. I needed some work done and … I guess I could have held off, but-

Kristen (01:53):

But, you also know that people aren’t calling him as much because everybody’s so anxious I think is what I’m getting at here and some of it’s not necessary, some of it is necessary depending upon your situation I guess.

Mike Lester (02:04):

I think so. So, Kristen, I’ve been very blessed. I guess I’ve worked hard, but been blessed in my life and I think a lot of people feel the same way. They’ve been blessed, but there are a lot of businesses, with everything that’s going on, that are going to have a tougher time in the near-term at a minimum and things like my buddy John’s business, chances are something like getting your trees done is the kind of thing you can get put off for a while.

Kristen (02:27):

Yep, my parents are putting it off right now in South Carolina.

Mike Lester (02:29):

[crosstalk 00:02:29] putting things off, and so it’s not that I specifically … I didn’t wake up and say, “Hey, who could I help out today?”

Kristen (02:36):

Right.

Mike Lester (02:36):

I needed to get it done, and I wanted to go ahead and get it done and just keep things rolling. And, Kristen, there are examples of people doing that all over the country. Obviously, I’m not the only one here helping people. We’re all helping and we meet a lot of people that ideally they might not want takeout from the local restaurant because by the time you get it home it’s cold.

Kristen (02:53):

Cold. I’m running into that a lot.

Mike Lester (02:55):

But, we’re doing it anyway. As they say, we’re in this together, so we just want to keep it rolling.

Kristen (03:02):

Keep it rolling and for me this evening, I’m planning on ordering some wings from my favorite bar and grill and picking them up-

Mike Lester (03:08):

Well, they’ll be cold, but you can put them in the oven.

Kristen (03:10):

I know, but still, I love those folks and I want them to be okay.

Mike Lester (03:13):

I know, I’ve had a lot of cold wings, cold pizza, cold pretty much everything, but it’s all right.

Kristen (03:20):

It is all right because we need to make sure that we keep each other afloat. That’s part of what makes this country great is, okay, you are hungry, you want some wings, yes, you could make them at home, but you know what, your favorite bar and grill down the street, they need the income just as much as anybody and less people are going in, so to make sure they’re there later on, you get that to-go order and heat them up at home. Little things like that go a long way in this day and age.

Kristen (03:44):

We’re going to talk about more ways that you can make sure you’re being efficient with your money and what’s really happening with this financial crisis coming up. Speaking of the economy, Fed chair Jerome Powell warns that it could be a while before we’re back to normal again, but he told 60 Minutes recently he is optimistic.

Jerome Powell (04:02):

I would just say this, in the long run, and even in the medium run, you wouldn’t want to bet against the American economy. This economy will recover. It may take a while, it may take a period of time, it could stretch through the end of next year. We really don’t know.

Kristen (04:17):

What are your thoughts on that, Mike?

Mike Lester (04:18):

I agree with him 100% as far as you don’t want to bet against the American economy and he’s in a position where he needs to be really, really careful with his words. It affects markets around the world just based on what he says. I would, personally, be a little more, I think, aggressive with it in my opinion. I would say, “Hey, listen, I agree, you don’t want to bet against the American economy, but also it’s turning out that things aren’t quite as bad as they had predicted.”

Kristen (04:46):

Thank goodness.

Mike Lester (04:46):

Thank goodness, what a blessing. Now, were they right in shutting everything down, were they wrong in shutting everything down? At this point it doesn’t matter, they shut it down and now things are-

Kristen (04:56):

It is what it is.

Mike Lester (04:56):

It is what it is, and so I’m a very glasses half full, forward looking kind of person, and so with our clients in the business we do it the exact same way and the idea is, okay, it’s not about where we are right now. Where are we likely to be six months from now, a year from now, two years from now, that kind of a thing, and in the near-term we’re seeing it all over the place. Businesses are opening up and things are going better than expected. Again, depending on the number. Unemployment’s awful, obviously, but I believe that most people that are unemployed right now will be back to work, and when I say most, I saw a number statistic, I don’t know, a couple of weeks ago, that three-fourths of the people that have been furloughed or laid off would be back to work when we get back up and running.

Mike Lester (05:40):

I think that’s pretty accurate. I don’t have a crystal ball, but if you get three-fourths of the workforce back, unemployment is still going to be there, higher than it was, but that’s pretty powerful. People are out spending money. We just had here recently, and it was actually pretty close to Jerome Powell making that statement, some very positive results on a vaccine. A company called Moderna and gee whiz, you probably wished you owned their stock.

Kristen (06:06):

Right.

Mike Lester (06:08):

The week before last week when they made that announcement, but I think as an investor, you just have to ask yourself, where do you want to be when things turn around? And, I think most people would say, “Well, I want to be in the market because it had sold off so much.” So, I realize there are people trying to scare individuals out there. You really, really have to almost put your blinders on when it comes to the media. Don’t forget, their job is to sell advertising and the way they sell advertising is creating drama and keeping eyes glued to the TV.

Mike Lester (06:38):

So, if there’s somebody on the television scaring you to death about what’s probably going to happen when the economy doesn’t open and everything’s going to crash and everything else. Then, they have the other person saying, “Hey, listen, everything’s going to be great.” Realize that both of those people are probably wrong. The truth is somewhere in between.

Kristen (06:57):

True.

Mike Lester (06:58):

And, where do you want to be? So again, going back to Jerome Powell, I agree. You don’t want to bet against the American economy. I don’t know how you dump all this money on this economy and not have it take off. It turns out corona’s pretty bad, but it’s not as bad as we thought, all right, and the numbers are starting to show that. Maybe it’s because they shut things down, maybe it wouldn’t have mattered one way or the other, that’s not important right now. We are where we are and things are starting to open back up and as you see the economy open back up and states open back up and businesses open back up, I don’t care where you live, Kristen, the markets are likely to benefit from that and I would want to be invested at this point in time.

Mike Lester (07:39):

Now, there’s a caveat to that. I don’t want to be invested in just anything. I want to be very, very careful with the investments that I choose. I don’t want to try to cherry pick a restaurant or something like that because they’re so beat up. But, Kristen, there are going to be, unfortunately, tons of small businesses, a lot of them in the restaurant industry that are going to go out of business because they just couldn’t survive.

Kristen (08:00):

Right.

Mike Lester (08:00):

There are going to be chains going out of business.

Kristen (08:04):

It’s going to be a different world in some ways.

Mike Lester (08:05):

JCPenney has declared bankruptcy. That’s not a shock. They weren’t doing well prior to this, but some other companies are declaring bankruptcy too. It’s going to be very, very different, and so what we want to encourage people to do is just understand your portfolio, understand your investments, take a close look. Now here’s the thing, a lot of people, Kristen, they just don’t have the technology available to them that we have to take that close look to really dig into the individual stocks that they own or maybe they own mutual funds, ETS, exchange rate of funds, that sort of a thing.

Mike Lester (08:35):

We want to dig into it, understand what we own, and then try to figure out the best solution, the best portfolio for us moving forward at least the next six to 12 months because things are going to be very, very different. And so, what I would do is invite people to understand more about their portfolio. We can do that through an analysis and a conversation.

Kristen (08:55):

The financial networks are always trying to tell us what’s going to be happening next with the economy, but no one predicted the virus pandemic that’s led us to where we are today and at the recent shareholder meeting for Berkshire Hathaway, someone asked Warren Buffett for advice, good guy to ask, on how to prepare ourselves for unusual times like this.

Warren Buffett (09:14):

We don’t prepare ourselves for a single problem, we prepare ourselves for problems that sometimes create their own momentum. 2008 and ’09, you didn’t see all the problems the first day. There are things that trip other things and we take a very much a worst case scenario into mind that probably is a considerably worst case than most people do.

Kristen (09:38):

And, Mike, you have something in common with Warren Buffett here. Not that you eat McDonald’s all the time, but that you pretty much do the same thing for folks when you stress test their portfolio.

Mike Lester (09:48):

Absolutely, he just mentioned a couple of things. One of them, these situations create their own momentum and I think that’s a big fear when it comes to … And, I’m so sick of talking about coronavirus, but it is affecting markets and that’s what we talk about. So, we’re afraid of the momentum, what’s the momentum, and what is the worst case scenario with markets and I think markets have … We’re seeing those numbers. We can see the light at the end of the tunnel.

Mike Lester (10:11):

We already know unemployment’s going to be awful, but I personally believe that’s going to be temporary. But, going back to the assumptions that you make when you do financial planning, we do make assumptions, for lack of a better word, these are what if scenarios, and so a big component of financial planning is to say something like, well, what if moving forward there’s a huge catastrophe or what if the worst case scenario happens? What if markets are always worse moving forward than they ever have been historically?

Mike Lester (10:38):

How would your current portfolio behave under that situation? It’s a good thing to know. Kristen, markets can’t always be worse than they have been historically, but I would want to know what my worst case scenario is. The opposite of that is I want to know what my best case scenario is. What if markets are always better? What if coronavirus and all this stuff that’s going on turns out to just be nothing and the economy goes back to normal tomorrow? What if that happens? It’s not going to happen, ever, but what if it did, because once you understand your best case scenario and your worst case scenario and you realize that although neither one of those can happen, something in between will, that’s one component of financial planning.

Mike Lester (11:17):

Building portfolios that are responsible for your current situation and meet your goals, regardless of whether things are always better or always worse, which we know isn’t going to happen, that’s one component and it starts with understanding your portfolio. So, if you want to know what your worst case scenario is in your current portfolio, give us a call and we can define that for you.

Kristen (11:35):

Stay with us to find out if you should be increasing your retirement contributions and what Charlie Brown’s shirt has to do with your money. Next, with Mike Lester.

Kristen (11:59):

In May of 1964, The Animals were in the studio recording that one, House of the Rising Sun. It was the first time in two years that any British group hit number one with a song that was not written by The Beatles. A little fun fact to help you at trivia night, if you go from time to time or play trivia online. I love trivia because I love things that are pop culture.

Kristen (12:21):

For instance, Charlie Brown, Snoopy, figuring out everything that was going on with him, always a lot of fun, and sometimes economists try to give us a visual of how a market recovery might look. For example, when they talk about the V-shaped recovery, I picture the letter V, it goes straight down-

Mike Lester (12:39):

As you should.

Kristen (12:40):

It hits the bottom line and then bounces straight back up again.

Mike Lester (12:44):

Sharply down and sharply up as opposed to a U, yes.

Kristen (12:46):

Yes, short and sweet, very easy to understand. But, investment strategist Sam Stovall believes that this recovery might be more like the zig-zagging line on Charlie Brown’s shirt, a visual I very much understand. Now, if Sam is right, I guess that means we’re in for more ups and downs before the market finally settles down, huh?

Mike Lester (13:07):

One thing you would just need to identify, why would he say something like that? So, by the way, he’s not the only one that’s calling for this, and some very smart people think that instead of seeing a V-shape, like I say, sharply down, then sharply back up and that would be back up higher to a point than where we left off. So, we were way over 29,000 on the Dow. We went all the way down to about 18,500, somewhere around there, and now we’re back up bouncing around. So, V-shape would say that we’d go on back up past 29,000 maybe even over 30,000.

Mike Lester (13:39):

Kristen, that would be great, but the what if mentality is, well, what if in the fall when virus season comes back again, what if this thing spikes? What are markets going to do? What are governments going to do? What are states going to do? There’s politics involved and we’ve got an election coming up in November and I was listening to some commentary this week and they were suggesting that wearing a mask has become a political statement.

Kristen (14:06):

Oh my gosh.

Mike Lester (14:10):

All right-

Kristen (14:11):

No, it hasn’t.

Mike Lester (14:11):

Listen, I don’t know, but that’s what they were suggesting is that … And so, the argument is that the more Democratic-leaning states and cities are trying to stay closed for political reasons.

Kristen (14:22):

I see.

Mike Lester (14:22):

And, the more Conservative, more Republican-leaning states and cities are trying to open up and it’s all based on the economy and looking good in election season. Kristen, regardless of what happens, this idea of a zig-zag, I would call it more of a W, not a zig-zag, so we defined a V-shaped recovery. What is a W-shaped recovery? Well, it’s what it sounds like. So, we’re sharply down and then we’re sharply up right before we’re sharply down again and then up again.

Mike Lester (14:49):

So, why would we be sharply down again? Why wouldn’t it just be a V-shaped recovery? Well, it’s going to depend a lot on how the economy does moving forward. So, we’ve bounced off of the lows of close to 18,500. What would it take for it to go back down again? Well, certainly if the economy doesn’t open up as expected, if we don’t get a vaccine, if economies, local governments, federal government, if everything doesn’t get running again, if corona just goes crazy and we have a huge outbreak and decide to shut it down again, that would be 2.0 of this problem and that could cause this W.

Mike Lester (15:26):

So, we went way, way up because things were looking good. Then, went way down again because things were looking bad, then back up. So, this is why we need a plan, Kristen. A lot of people were blindsided, obviously, by corona. Governments were, economies were, financial advisors were, Kristen. Nobody’s ever seen this. The writing wasn’t on the wall that if X, Y, Z happens this is how you react to it, but now it is. So, moving forward I look at it this way. I do believe that things are looking very good again.

Mike Lester (15:55):

We’ve got good news from the Fed. They’ve got plenty of ammunition to throw at this. Jerome Powell is out there saying, “I wouldn’t bet against the US economy,” which I would not either. We’ve got companies with very promising results for vaccines, we’ve got individuals, so business owners and people that are frankly just very, very frustrated with shutdowns with staying home, with not working. There’s all kinds of talk about whether or not the government even has the right to force you to stay home.

Kristen (16:25):

Lots of discussions about that.

Mike Lester (16:25):

Lots of discussions about that. This is all very problematic for a government moving forward to try to shut down the country twice. That’s going to be very, very hard to do in my opinion. So that being said, we just need a plan moving forward. If the V-shaped recovery, great, I want to be involved in that. If it’s a W-shaped recovery, I still want to be involved right now. I just want to have a partnership with a financial advisor who’s going to let me know when I should get out because if it goes back down again, that’s not the worst thing unless you’re going back down with it.

Mike Lester (16:54):

So, I want to be very active in the management of the portfolio and if you give me one opportunity in a V-shaped recovery to make great money in 2020, great. If you give me two opportunities in a W-recovery, I want to take advantage of that too. So, let’s try to find the silver lining and just make sure that we’re not utilizing just this hang in there approach where we just settle for whatever we get. I believe being more active in the management of your portfolio and working with a financial advisor that has a vested interest in you doing well is in most people’s best interest.

Kristen (17:24):

It’s hard to stay calm when the market crashes and you see your retirement account balances getting smaller. It’s funny, Mike, I was visiting with my parents recently and asking my dad, “Hey, so we always talk about how the kids should know what’s going on in case of the what if, how much is in this, how much is in that.” And he goes, “Well, it was blankety-blank, and I haven’t looked at it since.” Because the first quarter of this year some customers were freaking out, not logging in, and other customers were even increasing the amount of their contributions. That’s according to Fidelity, so with all the craziness on Wall Street, is it still a good idea for those of us who are on the verge of retirement to keep contributing to those accounts?

Mike Lester (18:09):

Well, Kristen, I’m optimistic about markets at this point in time. I realize there’s going to be volatility, but I’ve said it before, I don’t know how we dump as much money on the economy as we’re talking about dumping trillions of dollars. We’ve already got about three trillion, there’s another proposal for another three trillion, which isn’t going to go through the way it’s currently written.

Kristen (18:29):

Oh, totally.

Mike Lester (18:30):

But, it’ll get rewritten and I’m not even going to go down the road of politics.

Kristen (18:35):

Please don’t, we’ve heard everybody else talk-

Mike Lester (18:36):

We’re not going to do it. Yes, I’m angry too. Mixing politics into trying to help real people out should never be done. I’ll leave it at that, but eventually we will have more money. It’ll go back in and we’re just dumping more and more on. So, because I’m optimistic, if we are making contributions to our retirement plans, 401(k)’s, and 403(b)’s, and TSP accounts, essentially that’s a dollar cost averaging method to getting in markets and making a monthly contribution. I can’t control what markets do, but sometimes I’m going to buy high, sometimes I’m going to buy low. It’s going to average out to, hopefully, something pretty good in between there.

Mike Lester (19:12):

So, I can understand why people would be continuing to make contributions close to retirement. I want to get that money working for me, at least in this environment, and I can also understand why people would be increasing those contributions. All of that makes sense. Now, Kristen, but you have to look at your timeframe. So, how long is it between when I make that contribution and when I want to retire? Now, if you’re pretty close to retirement, I like the idea of continuing to contribute at these levels, but you also need to have a really, really good understanding of the underlying investments in the portfolio.

Mike Lester (19:45):

So, if you’re over 59 and a half and you plan to work for a couple of more years, five more years, what have you, take a really close look at that retirement account because the options are probably very limited and you’re limited by things like target date funds, and mutual funds, and you have very little control over what those target date funds are buying or selling or those mutual funds are buying or selling.

Kristen (20:06):

Find out if it’s time to go for the gold when it comes to your money, and why retirement might be more expensive than you realize with Mike Lester coming up next.

Kristen (20:28):

One of my favorite artists for many, many years because he went to the high school I went to back home in South Carolina, Darius Rucker, Alright. Darius Rucker recently turned 54, stays busy recording new music and helping out his favorite causes, and of course plans to be back on the road when we’re all back to normal as well and a while back I had a chance to sit down with Darius and ask him if he’s given much thought to the big R-word, his eventual own retirement.

Darius Rucker (20:54):

I don’t think I’ll be playing in the mid-60s. I love to play music, but at some point, if you can afford it, I’ll just call it quits. I look at it down the road as no time soon. It’s definitely no time soon, but someday I think I could just walk away.

Kristen (21:05):

I know where he lives in Charleston. With all this guy’s Grammy’s, he can afford to just walk away. That’s for sure, but the rest of us are wondering how much money we think we’ll be spending each year of our retirement. Guess what, whatever number you came up with independently, it’s probably not enough. A third of retirees surveyed by the Employee Benefit Research Institute admit that they’re spending more than they’d expected. So, Mike, how do we make sure that the real cost of retirement doesn’t sneak up on us before it’s too late?

Mike Lester (21:35):

I think we have to be really, really careful not to use some of the normals that we’ve seen in the past or what people told us or advisors told us were normals, which were things like base your portfolio on your age. They call it Rule of 100. So, just subtract your age from 100 and that should dictate the percentage of your portfolio that should be in stocks versus fixed investments. The idea being the older you get, the more conservative you should get.

Kristen (22:00):

Right.

Mike Lester (22:00):

Or, this other rule of the 4% rule saying that, well, whatever you’ve saved for retirement, you could just withdraw 4% from it per year and you’ll never run out of money. Again, that was based on assumptions that just don’t hold true anymore and, Kristen, this is what advisors used to use as their excuse for the hang in there approach. It was very easy for them to say something like, “Hey, listen, you came to me. I’m going to charge you a fee, we build you a diversified portfolio, we’ll do an annual review once a year, and then when you come in for that annual review, we’re just going to tell you to hang in there again.” And, you’re getting billed for that.

Mike Lester (22:36):

And, this is what a lot of our listeners have experienced in the past. They might even be experiencing it right now. If they’re currently in retirement plans 401(k)’s, 403(b)’s, TSP accounts or depending on how you’re employed, some people are going out and having conversations with financial advisors and those financial advisors are basically telling them that for the first time. Well, hey, I’m going to build a diversified portfolio for you. They probably aren’t telling you that it’s going to just be a hang in there approach and then on every annual review they’re going to tell you to hang in there and not make changes.

Kristen (23:05):

Right.

Mike Lester (23:06):

But, there are businesses out there, some of them very large businesses, some of them big banks and everything else that that’s their business model. Okay, fine, but the interesting thing about numbers is when you’re doing financial planning, you’re trying to give somebody an excuse for why they should do something. A manipulation of numbers, unfortunately, happens and things like, hey, listen, you have to just hang in there because if you had missed the top 20 highs over the past 100 years in the market, your average rate of return would be horrible, so you just need to hang in there.

Mike Lester (23:36):

That doesn’t tell the whole story, so what we need to do is take a look at everything. So, one thing that I do know from this radio program, one thing that resonates is most people in retirement or close to it, they don’t want to just hang in there, but they are curious about what active management looks like, particularly if they’ve never had that before. So, I can give you an idea of just a couple of components, but one of the most important things about active management is realizing that hang in there isn’t likely to work moving forward because A, it’s a much different market.

Mike Lester (24:06):

We don’t have all these baby boomers making contributions. They’re doing the opposite, they’re retiring and pulling money out of the market. That’s not good more markets moving forward. We’ve got more volatility. We’ve got electronic trading and things are done differently. We’ve got inflation, we’ve got all kinds of things going on here, Kristen, but one of the big things is losses in your portfolio hurt more than missing out on gains.

Kristen (24:28):

Oh, for sure, especially when you’re near retirement or done working.

Mike Lester (24:31):

Right, when you’re done working. How are you going to make that back? Your income comes from the portfolio, but even if we just use math and unfortunately, we don’t always think about things this way. So, if the market’s up 50% one year and down 50% the next year, the average return on the market is zero, and the way our brains tend to work is we feel like, “Well, zero is zero, so I’d just be flat in my portfolio.” That’s not how portfolios work. It’s your money working for you, and so if I had $1 million and I’ve lost 50% the first year, I would be down to $500,000. If the next year I went up 50%, I would be making 50% on $500,000, not my original million, so I’d be up to $750,000.

Mike Lester (25:14):

A 0% average return equates to a 25% loss in that scenario and, Kristen, that’s why we have to be very, very careful to protect against big losses in portfolios. It’s not that there won’t be volatility, but protection against big losses, active management of portfolios, realizing that we don’t have to capture all the gains in order to get a higher average rate of return as long as we’re not capturing all the losses, all this makes a lot of sense to people that are serious about their portfolios and being successful in retirement.

Kristen (25:44):

Mike, you mentioned a few minutes ago the government spending, how there are other stimulus packages being talked about, what’s really going to happen with that we don’t know, but all this government stimulus spending has a lot of experts very worried about a rise in inflation. It’s something that people don’t focus on really enough when it comes to their finances, but Barron’s says that that’s why we should put some of our money in gold. Now, I’m thinking about the commercials with the TV stars of the 60s and 70s.

Mike Lester (26:14):

I was going to say the same thing.

Kristen (26:15):

Saying buy gold. Is that really how we should guard our nest egg against inflation?

Mike Lester (26:20):

So, gold is interesting, and again, you pointed out these commercials, it always seems to have the world capital in it or something else, but it sounds really, really official. Gold is very, very interesting. Now, it’s viewed as a safe haven, but historically that’s not always the case, and so what people need to understand about gold is you can lose an awful lot of money in golds. Currently golds is pretty high in valuation, so I think particularly in a day when markets are doing extremely well, gold is probably down some.

Mike Lester (26:56):

In a day where markets are extremely down, gold is probably up some, but overall, gold is pretty highly priced right now, at least historically, and just because there seems to be a correlation between markets being up and gold being down, or markets being down and gold being up does not mean that historically that’s what typically happens. We’ve had recessions, we’ve had problems in markets, we’ve had problems in economies where gold has done horribly in that situation.

Mike Lester (27:26):

And so, some of these claims that we see and I’m glad you pointed out television, Kristen. These claims we see on television or sometimes we hear them on radio about, hey, historically gold’s done this or gold’s never done this, or never done that, that type of advertising … For example, nothing that you or I could ever do on the radio because we’re licensed and the government has regulation on our industry and every time we do a radio program or any type of an advertisement, the statements that we make have to be approved and that’s why you never hear us talking about returns on the radio.

Mike Lester (27:58):

I’m sure people would love to know what our returns on our portfolios are. We can tell you all about them at the office, we’re just not allowed to talk about it on the radio. It’s not something that we can do and that’s not my rule, that’s the government’s rule, but when it comes to gold, but in particular physical gold in these commercials, if you’ll notice, they’re always selling some kind of a coin.

Kristen (28:17):

Yes.

Mike Lester (28:17):

It’s never, I’m going to ship you a bar of gold or just raw gold or anything like that or a necklace. It’s always currency. So, there are laws around currency that were put in place a long, long time ago to make sure that it couldn’t become something that was regulated and it was meant to protect currency in the way that currency is traded. These gold companies are taking advantage of that in their advertising and I personally feel that it’s extremely misleading.

Mike Lester (28:47):

If you watch these commercials, you would be made to feel like, well, gee whiz, I should just stock up on these gold coins and try to find some place to put them. Well, guess what, if you call that company, you’re going to pay more than gold’s actually worth to buy it. Then, you’re going to pay a storage fee because where are you going to put it, and then when you go to sell it, who are you going to sell it to? Back to that same company.

Kristen (29:07):

Exactly.

Mike Lester (29:08):

And, they’re also going to charge you a fee to sell it. So, is it really that great? I don’t think so. So, let’s talk about gold in a portfolio, there’s nothing wrong with having gold as an investment in your portfolio to offset volatility. Do I want to have too much of it? No, because it could be just as risky as a lot of other things, but I personally don’t want to own physical gold because I can trade it on the exchanges. Now, I don’t have to pay storage fees. I actually get the actual price of gold and it makes way, way more sense.

Mike Lester (29:37):

So, it all comes down still, Kristen, just to financial planning and understanding how things are likely to work in your portfolio. We get this question about gold a lot. Any financial advisor … People come in all shapes in sizes, so we’ve got clients who we hear from very, very rarely and then I’ve got a couple of clients that I’ll get an email from once a week, “Hey, Mike. What do you think about this? Hey, Mike. What do you think about that. What if I did silver? What if I did gold?”

Mike Lester (30:05):

I don’t mind the email at all and I’m always replying. I think they’re probably a little bored with the response because it’s the same every time. Which is, “Well, for a portion of it …” It’s a very boring response when it comes to that, but we just need to understand our portfolios, how they work, and what they’re likely to do moving forward and that’s why I sound like a broken record every single week when it comes to financial planning.

Mike Lester (30:27):

Understanding where you’re at, what’s likely to happen moving forward in your existing portfolio and then being willing to make changes along the way. Hang in there just doesn’t cut it anymore in my opinion and there are so many people that their advisor either tells them to hang in there or they’ve told them they’re not going to tell them to hang in there, but they still tell them to hang in there, or they’re hanging in there in their retirement plan, things like target date funds in their 401(k), mutual funds in their 401(k), no real helper assistance with advantage from those accounts.

Mike Lester (30:56):

That’s why we always want to remind people, if you’re 59 and a half or older and you’re sitting in a retirement account at work, even if you plan to work several more years, most people have the ability to have that retirement account privately managed. You don’t have that opportunity after the age of 59 and a half, but for most companies, they’ll allow private management of the 401(k), which gives you active management, also gives you more investment options and it makes a lot of sense to at least look at what your options are I think at that point in time and reach out to a company that could do that for you.

Mike Lester (31:32):

So, for anybody who’s listening, if you’d like us to explain more to you about your portfolio, talk to you if you’re 59 and a half or older, just put together some financial planning. As long as you’re retired or close to it, we can do that for you complimentary.

Kristen (31:46):

Recently, more than half of folks surveyed before the crisis began said they felt anxious about their money. Well, if they were anxious then, I can only imagine how they must feel now. We’ll address that next along with taxes too with Mike Lester of Talon Wealth Management.

Speaker 6 (32:05):

Many comments regarding safe and secure investments and guaranteed income streams refer only to fixed insurance products. They do not refer in any way to securities or investment advisory products. Fixed insurance and annuity product guarantees are subject to the claims paying ability of the issuing company and are not offered by Retirement Wealth Advisors.

Kristen (32:27):

36 years ago, Bruce Springsteen released his Born in the U.S.A. album featuring the iconic cover photo of his backside that all of us young ladies at the time … Actually, didn’t have to be young. It didn’t matter, that poster was very important. The cover to the album, yes, be it on cassette or on record, however you had it, we were all checking that out. Remember he had the handkerchief out one back pocket. Do you remember that? Of course, you weren’t looking at his butt as much as I was, Mike, I’m sorry.

Mike Lester (32:54):

It didn’t have as much of an impact on me, Kristen, as it had on you. I recall that-

Kristen (33:00):

The album, the music.

Mike Lester (33:02):

I didn’t have a poster, but-

Kristen (33:04):

All right, it’s just me.

Mike Lester (33:05):

Not that there’s anything wrong with that, Kristen.

Kristen (33:07):

No, you all are always looking at all kind of stuff. It’s my turn sometimes, right?

Mike Lester (33:10):

There you go.

Kristen (33:12):

One of the biggest threats to our retirement security is taxes and Jim Millstein, the co-chairman of Guggenheim Securities tells Bloomberg TV that it’s a threat that’s being made even worse by the growing federal budget deficit.

Jim Millstein (33:26):

One thing that investors need to take into account is that the era of tax cuts is over. There are going to be corporate and personal income tax increases on the other side of this just to bring that budget somewhat closer to bell.

Kristen (33:40):

So, I’m guessing it’s probably a good time to talk about some long-term tax strategies because of what he’s saying there. Do you agree?

Mike Lester (33:47):

Well, I do agree. Yes, we should talk long-term tax strategies. The problem is it’s hard to talk strategy when you don’t know long-term what taxes are going to look like, so a lot of times-

Kristen (33:58):

They’ve got to go up. We had the Trump tax cuts, but all the money we’re spending with stimulus and all these other things.

Mike Lester (34:03):

I agree, but again, we’re making an assumption, but being responsible when it comes to planning and we talk about this, Kristen, with people who call us and come sit down for the first time and also our clients at every review. It’s about financial planning, it’s about income planning, it’s about tax planning, it’s about estate planning, and you have to be doing all of those things at the same time. Otherwise, you’re probably missing out on something, either you’re taking too much risk or not getting enough return in your portfolio. You’re taking more income than you can afford to or less income than you should, or you’re paying more in taxes than you really have to, or your estate’s going to suffer.

Mike Lester (34:38):

So, that’s the obvious reason of why all of these things are really, really important, but yes, my concern right now with everything that’s going on is the media and individuals and government are so focused on this economy and corona and shutdowns and what is it going to look like in the future and throwing money at the problem, which I’m glad they are. I’m glad they are because it’s going to help markets and that helps our clients, but I am also responsible for our clients’ money and long-term security and being involved in active management of their portfolios. So, I have to consider, well, what is the end result to all this stimulus? Well, inflation, taxes. So again, we’re talking about dumping all this money on the economy and everything that the government’s going to do first to help us out. I haven’t heard anybody talking about how we’re going to pay for it.

Kristen (35:36):

That’s not really at the top of the agenda for some reason.

Mike Lester (35:38):

It’s not, it hasn’t been on the agenda and I think largely because that would not be a very popular thing to talk about. It would be considered insensitive. Hey, all these people are sick, and a lot of people are dying, and you’re talking about how to pay for it. I get it, it’s not a popular topic, but, Kristen, it’s my job to dig into that and say, “Well, how is this likely to affect our clients down the road moving forward?” Well, it’s likely to raise taxes, so we’re going to take that into consideration. We likely have inflation, we have to take that into consideration. Meaning, obviously things are going to cost more in the future.

Mike Lester (36:12):

It’s likely to affect markets, not in a good way, so although I do think that we do very, very well in markets because of all the stimulus and things are turning around I think faster than people thought. Ultimately, corona has become less of a problem than it was originally predicted and that’s great for everybody involved.

Kristen (36:30):

Yes.

Mike Lester (36:30):

But, it’s also going to be good for markets and I would want to participate in that. The end result though after all the stimulus when they come around and they want to pay that bill is likely terrible for the market. It’s likely not great, maybe even horrible for taxes and certainly not great for inflation. So, as an investment advisor, as our financial planning team, as a fiduciary, how do we handle that? Well, we would want our clients to take advantage of market gains while they’re happening. We would want to help them moving forward, navigate these markets, help them take advantage of good markets, but also help them avoid bad markets, and then we would also be thinking, well, gee whiz, most of our clients would like the safest thing that they could possibly get with the highest rate of return and that’s just not available right now.

Mike Lester (37:15):

CDs aren’t paying very much, Kristen, bonds aren’t paying very much. In the future, with things like inflation and taxes going up, they probably will because interest rates go up. So, we may get an opportunity now to benefit more from markets than we would fixed investments, but this could be ultimately good for retirees if interest rates go up because there would be fixed and guaranteed investments paying more than they are right now. As terrible as that would be for the economy and as terrible as that would be for young people and particularly people who are trying to finance homes and everything else, it wouldn’t be terrible for retirees. I go back to the 80s and Jimmy Carter, early 80s, late 70s or early 80s, Jimmy Carter and 18% of the bank on CD.

Kristen (37:54):

Absolutely.

Mike Lester (37:55):

I don’t know a single person close to retirement or retired who wouldn’t love that. Do I think we’re going to get to that point? No, but we could see some pretty decent rates. So again, it’s about management of the portfolio, it’s about being active in the management of the portfolio, it’s about having a written financial plan, and because things change, working with an advisor that helps you update that plan year after year, and hopefully sitting down with your advisor at a minimum once a year. I prefer every six months, and just take it from there.

Kristen (38:22):

So, Mike, there was a study done last year when the world was still, air quote, normal, which have we ever really been normal. I would venture to say no.

Mike Lester (38:29):

No.

Kristen (38:30):

But, it found that more than half of the folks surveyed at that time said they felt anxious about their finances. Well, my goodness, if they were anxious then, I could only imagine how they must feel now. Short of winning the lottery, which I don’t even play it, how can we put ourselves in a situation of where we’re not constantly having to stress about market crashes, with things that are beyond our control like a virus, or recessions, or whatever might come about?

Mike Lester (38:57):

Kristen, it goes back to my statement all the time, which is don’t settle and don’t settle means don’t just hang in there. Don’t hang in there on your 401(k), don’t hang in there because an advisor is telling you to hang in there. Get an understanding of your portfolio and how it works and just take a look around you, Kristen. Why am I optimistic about markets? Well, because I think, based on the data that I have right now, that things are going to turn out better than the naysayers are telling us. Where does all that fear come from? Where does everybody [crosstalk 00:39:29]-

Kristen (39:29):

Well, that’s what we see, hear, and read.

Mike Lester (39:31):

That’s right, you see, hear, and read things and it’s part of my job and I’m going out on a limb. Do I know things are going to be significantly better?

Kristen (39:38):

Of course not.

Mike Lester (39:38):

Absolutely not, I don’t have a crystal ball, but I have to use the information that’s available at hand. Things aren’t as bad as they said they were going to be. That’s a great thing. They’re dumping a lot of money on this and people are getting frustrated. I talk about frustration, we just saw Elon Musk just came out and says, “Hey, forget you guys. I’m opening my company back up. Everything’s coming up. We’re going to make cars again.” And basically, also insinuated that he was changing political parties in the process.

Kristen (40:06):

Yes.

Mike Lester (40:07):

Talk about a … Wow, people are frustrated, that’s frustration right there about not being able to go to work and not being able to earn a living and trying to take care your employees and I really feel that those feelings that we’re seeing it’s not just there, it’s all over the country. That’s going to spread because there are worse things than the virus, not being employed, starving, heart attacks, not being able to get your medications, and that sounds terrible. People are starting to realize that and it’s going to be a problem and I do feel it’s going to force the US to open up faster than they were saying or even they’re saying now. That’s good for markets, so that’s what all this boils down to.

Mike Lester (40:48):

We’re taking care of our clients’ money. Is this good or bad for markets? It’s good for markets. It’s going to be bad later I think, but for right now, it’s going to be good. So, understand your portfolio. All it takes is a phone call. We’ll put together that complimentary financial plan and make it very, very easy for you.

Kristen (41:04):

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 into 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 advise. 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, maybe worth more or less than originally invested.

Mike Lester

Mike Lester

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