Market Opportunities for Millionaires & The Middle Class

by Mike Lester

Aug 16, 2022

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

Kristen (00:30):

If you feel the need to make changes to your investment accounts, but are concerned about taking a tax hit, Mike is going to share some ideas for efficiency and something I’m really excited to discuss.

Mike Lester (00:43):

Oh, here it comes.

Kristen (00:44):

What Rock and Roll Hall of Famers have sold over 150 million albums, but have made the majority of their money from a video game. You are not going to believe. It’s blew my mind, the business part of this [inaudible 00:00:58].

Mike Lester (00:57):

I have missed out. I’m just not a video games person, so there’s all these industries where it blows my mind how much money people make doing things that I’m not personally interested in. It’s hard for me to wrap my brain around it.

Kristen (01:09):

Well, your kids may know about it, Mike. That could be…

Mike Lester (01:12):

Well, my daughter wants to be a video game designer.

Kristen (01:15):

That’s right. She’s in school for that, isn’t she?

Mike Lester (01:17):

She is. She’s doing well with it. Got accepted into the program, and so it’s awesome but when she said, I don’t know, five, six years ago, “That’s what I want to do for a living, Dad,” I immediately went into dad mode. I was like, “Well, sweetie, maybe…

Kristen (01:31):

How are you really going to make money, though?

Mike Lester (01:33):

Yeah. I mean, seriously, I ain’t really going to make… Turns out she’s probably going to make a lot of money doing something that I didn’t take very seriously at the time, but yeah.

Kristen (01:40):

I mean, you can be an influencer on YouTube and make a really good living, granted that is not you, Mike. That’s not me. That’s not our listeners.

Mike Lester (01:48):

Don’t get me started on influencers.

Kristen (01:50):

Yeah. I know Katie, but that’s a profession now.

Mike Lester (01:51):

My wife, Katie, not my daughter Katie, is into an influencer that pushes makeup products. I think my wife, Katie, is officially her best client because there’s stuff coming in. Katie do something called a lip mask the other day?

Kristen (02:06):

Did she think it helped?

Mike Lester (02:09):

I have no idea. I went to kiss her goodnight and she goes, “No, no, no.” I’m like, “What?” She goes, “I put the lip mask on.” What is a lip mask? Anyway…

Kristen (02:22):

See, somebody’s making a living by promoting a lip mask. That is insane, but if it works, Hey good for them and good for Katie.

Mike Lester (02:29):

It’s whole nother industry apparently I’m going to miss out on because I don’t understand.

Kristen (02:32):

Well, if her lips are nice and soft, you’re not missing out, my friend. Think about it.

Mike Lester (02:36):

We’ll see [inaudible 00:02:38].

Kristen (02:38):

It’s obvious, at least to me, that our economy is in a very weird and uncomfortable place with inflation now just over 9%, the highest rate in nearly 40 years. Mike, the talking heads don’t seem to be all on the same page about what trajectory our economy is heading in, but Chris Harvey of Wells Fargo Securities shared with Market Watch why he believes investors should prepare for a possible recession.

Chris Harvey (03:08):

The consumer’s balance sheet, about 25% of it are close to a quarter of it is in equities and with equities down 20% or roughly down 20% in the first six months of the year, what we’re going to see is that weigh on consumer sentiment, which is going to weigh on discretionary spending and ultimately, the economy. The one thing we say is the equity beta for the economy has never been higher in the last few years, and so we’re very worried that we are going to have a hard landing or recession and it’s going to be driven by the consumer.

Kristen (03:39):

Now, you’ve talked about discretionary spending being an issue in the past. Is this something you agree with?

Mike Lester (03:45):

100% and I… Kristen, we’ve been talking about recession and markets pulling back, really since the end of last year, beginning of this year and we’ve been making changes to client portfolios. We got real conservative in the beginning of the year. Back in March, went ahead and moved retirement accounts, things like IRAs and Roth IRAs so it’s not a taxable transaction. We went ahead and moved to cash just to protect money. Frankly, I was asked the other day because I think our listeners probably agree with this based on the phone calls that we’re getting, I don’t think most financial advisors and most firms actually moved clients to cash. I think the message that people are hearing for the most part is, “Hey, just hang in there. It’s going to get better.” The fact that we made changes I guess is pretty unique.

Kristen (04:33):

Oh, by the way, our team let me know that we got some calls last week of people saying that, “Hey, I’ve got an advisor and they’re charging me a fee, but nothing has changed in two years.” Basically, they’re being forced to hang in there.

Mike Lester (04:49):

I mean, that’s the industry as a whole. If you break it down, what would be the easiest way to run an investment advisory company? The easiest way would be to bring clients in, convince them that they need to be diversified, which I agree is important and then convince them that when markets are down, just hang in there, eventually it’ll come back because eventually they do. But that’s the least amount of work for the financial advisor and the firm and obviously, the most headaches and issues for the client, but eventually it does come back. That has been really the way the financial industry has worked for a very, very long time. Just think about things like 401ks. It’s literally a hang in there approach. Here are your investment options. You can either be aggressive or conservative, but ultimately no matter where you are, you’re not going to get investment advice and you’re going to be hanging in there.

Mike Lester (05:34):

We’ve been doing this radio program for a long time and we want to make sure that we practice what we preach, which is we believe in active management of portfolios. I don’t want to use just the hang in there approach. I don’t think our clients, individuals that are retired or very close to it are going to benefit from that as much long term as they would active management because again, it’s their nest egg. They can’t afford to take big losses. Our clients are more willing to get a public portion of gains than they are to take those big losses.

Mike Lester (06:03):

Again, we’ve been making changes in anticipation of things getting bad. Like I was saying, I got a question just the other day. I was talking to a large firm and they wanted to know basically, “Mike, why did you move accounts out of the stock market and why did you get real conservative back in January? Why did you then go to cash back in March?” It was interesting from an industry standpoint because they were like, “What were your signals? Who were you talking to? What’s going on?” Everybody wants to know, “Hey, what’s the secret sauce?”

Mike Lester (06:36):

To me, the reality of the financial service industry is there really is no secret sauce. Nobody has a crystal ball. If there was a secret sauce or a crystal ball, somebody would just take that, find a way to manipulate it, then the markets would change. The idea of wall street disease is it’s a zero sum game, meaning for someone to make money, somebody has to lose money so it’s constantly evolving. In the most basic way, I answered that question and I said, “Well…” Again, it’s not that we don’t have triggers or indicators, but I just said, “Listen, if you took a look back in December of 2021 at everything that was going on in the economy, and this is obviously Russia, Ukraine and everything else.

Mike Lester (07:19):

If you took a look at what was happening in the economy, the stock market and real estate, if you didn’t come to the conclusion that this wasn’t sustainable and that eventually we were going to have an issue and that, by the way, you can’t print all this money and just give it to people and not have inflation issues and not eventually have this. I mean, it all eventually ends badly.” Again, I oversimplified it, but I said, “So we just decided that the potential for markets going higher was outweighed by the potential for markets going lower, giving everything that was going on and our clients are retired or close to it so we want to make sure that we help them protect and grow their assets.” It’s really that simple.

Mike Lester (07:59):

Now, that’s turned out so far to be a good move, but moving forward, we still have to find a way to help our clients protect and grow their money. What I do like about this market, although it’s, I think, going to be very bad here through the end of the year is that I do feel it’s predictable. There are ways to make money in this market and I would just encourage our listeners, don’t hang in there. Don’t take that advice. At least get a second opinion. Give us a call. Find out have we been doing better than you’re doing? If we have been doing better than how you’ve been doing, then maybe you want to find out how is it going about that? Maybe what we would recommend to you. My fear is that a lot of people are right now are out there frustrated with this current market. They’re going to bury their head in the sand and say, “I’m just going to wait for it to come back.” I’m afraid it’s going to take a while, and there are opportunities in this market and we would love to share them with you.

Kristen (08:47):

A recession would impact Americans in every tax bracket. I found CNBC’s recent Millionaire Survey. Very interesting, Mike. They spoke with people that have at least a million dollars in investible assets, possibly some of the clients of Talent Wealth. Who knows, Mike? But so far, that group isn’t panicking or selling. Most are raising more cash and moving more money into short term, fixed income investments because of rising interest rates. Is that a good strategy for those of us that may not quite have seven figures of investible assets?

Mike Lester (09:22):

First of all, what I pull from that is somebody might ask why would somebody move into short term, fixed income investments because of raising interest rates? The technical reason for that is if you go to long term fixed investments, the yield curve… Not to get too technical, the longer the yield curve or the longer the investment, the more of an impact that raising interest rates would have on you. You could actually be negative, so it’s safer to go with short term investments. Personally, I believe we’re not using lots of those investments, so whether it’s a millionaire or it’s not a millionaire, whether that’s their portfolio or not. I think we’re talking about an industry standard where many, many people and the majority out there are getting advice, things like hang in there or, well, hey, just move to… If you’re afraid of the market, we’ll move you to, again, short term, fixed income investments. That’s just another version to me of burying your head in the sand.

Mike Lester (10:17):

First of all, if I was going to do that, I would’ve wanted to do it back in January because otherwise, I would’ve gotten really beaten up in this market up until this summer. Second, if I do it now, I’m a little late to the game because the market’s already down quite a bit and those investments may not do that well. Third, we’re not looking at all of the investment options that are available to everyone that’s out there. If we look at our investments in terms of, well, my options are cash, short term fixed investment options like bonds or stocks. Well, that’s three options and I get it. Right now, maybe I wish I wasn’t in stocks and I just want to go to cash for short term investment options. If you actually take a step back and take a look at all of the options that are available, there’s a lot more out there, Kristen and we want to share that with people because I think this market is creating lots of opportunities to make money.

Kristen (11:09):

Now, a little something different on our podcast about one of my, and probably your favorite rock bands of all time. Yes, Aerosmith. They have sold over 150 million albums in their career and each member has an estimated fortune of well over $100 million each, but according to PC Magazine, yes, I did some nerding out the other day, the majority of their money came from licensing 29 of their songs to Guitar Hero the video game. Now, this isn’t really a new trend for musicians these days. I mean, they’re getting less money from album and download sales. More and more are making money from things like endorsements, concerts and even video games. That’s their bread and butter.

Mike Lester (11:59):

Have you ever played Guitar Hero?

Kristen (12:01):

Yes, I have.

Mike Lester (12:03):

It’s been a long time.

Kristen (12:04):

Long time ago. Yes.

Mike Lester (12:05):

It was fun. I haven’t done it, but…

Kristen (12:07):

Oh, my gosh, we should do that with the entire Talent team. I mean, it’s a lot of people, number one, but some of us.

Mike Lester (12:13):

This was a long time ago, but you get the guitar, multiple guitars, a drum set, the whole thing.

Kristen (12:18):

That little tiny guitar.

Mike Lester (12:22):

It makes me feel old even talking about Guitar Here. I don’t know if they sell it anymore.

Kristen (12:25):

I was going to say I don’t know if it’s even popular anymore. Since your daughter is going to school to make video games, will you please check in and find out if we were out of touch because we probably are?

Mike Lester (12:35):

Unfortunately, I don’t think Guitar Hero was her thing, but she’s not as much of a Aerosmith fan as we are.

Kristen (12:40):

Understandably so.

Mike Lester (12:40):

I tried really hard when she was young. I only played classic rock in the car growing up, but we’ll see how that turns out.

Kristen (12:49):

You’re a dad. You’re a husband. You’re a son. You’re all these things, but you’re also a fee only fiduciary financial advisor that happens to like rock and roll. But the rock and roll part aside, Mike, what is your advice to people listening this weekend that may feel the need to make some changes to their investment accounts because of the environment we’re in, but are worried about taking a hit from Uncle Sam? I mean, a hit from uncle Sam is a thought process in a lot of things we do, but especially investing,

Mike Lester (13:21):

It’s obviously a more complicated thought process because taxes, they change and you try to figure out how else am I going to be taxed? We would be addressing individuals that have accounts outside of things like an IRA or a 401k or a 403B or TSP account. Money falls into different categories. You’ve got money that’s tax-deferred. That would be, again, IRAs, 401ks, TSP. Your retirement accounts you probably set up with an employer or that you’ve been making contributions to over time, you had the ability to make a contribution without paying tax on it. That money can continue to grow what’s referred to as tax deferred. Just means you’re not paying taxes on the gains even if you trade the account until you actually take distributions or take money out of that account and then it gets taxed as ordinary income. This wouldn’t apply to anyone there as far as Uncle Sam until they actually pull money out, but for individuals that have things like joint accounts, so maybe husband and wife, or spouses or individual accounts or trust accounts, all of these accounts are taxable when you make the transaction.

Mike Lester (14:29):

What we find, and particularly now since we’re coming off of the longest bull market in history, so markets have essentially been going up, not straight up, but up since March of 2009. There’s a lot of gains in there over that period of time. Depending on when you invested, you could have very, very significant capital gains. You take a look at your portfolio and this is where a lot of advisors will say, “Hey, just hang in there. Don’t worry about it unless you go higher.” Because if you do start making trades, then those trades may be taxable and you have to make a decision. Well, do I just go ahead and pay the tax on it to avoid further losses in the account, or do I just hang in there with a belief it’ll go higher?

Mike Lester (15:12):

I give you an example of conversations we’re having in the office about this. I’m going to do an analysis on the current portfolio and find out exactly what those capital gains are. In some cases, people rode the market up because now markets are down. Maybe they don’t really have much in the way of capital gains. Maybe they’re making the assumption that they’re going to have to pay taxes if they make changes, but the reality is that they really wouldn’t have to pay tax or maybe they would actually get a tax credit because they have a loss, or maybe the gains are less than what they thought they would be. That’s where the analysis comes in. I mean, I know we talk a lot on the program about, well, hey, come in. Let’s do an analysis on your current portfolio where we’re going to find out not only how efficient the portfolio is, what returns are likely to be, what are you paying in fees and then how much risk are you taking to get those returns?

Mike Lester (15:59):

With the market down right now, taking a closer look at it and saying, well, what are your capital gains really? Because if there isn’t a significant taxable event to making changes to your portfolio, I think you should consider it because we’re taking a look at markets that we think are going to be significantly lower by the end of the year. If there’s no tax consequence, why would you ride that down? The problem is a lot of people don’t understand whether there’s a tax consequence or there’s not a tax consequence.

Kristen (16:25):

Very true.

Mike Lester (16:27):

Then even for the individuals where there is a tax consequence, well, do I have a crystal ball? Do I know the stock market’s going to be significantly lower later? No, I mean something could happen, I guess just right now I can’t imagine a world where it’s not. I think we are currently in a recession and the numbers are going to prove that here. The reality is find a way to make a decision about what to do with your money, even if you do have capital gains. If somebody’s telling you to hang in there, okay, but have you looked at all of the other options that are available? Because there are ways, Kristen, to take a look at a portfolio. Well, maybe you have some positions that are down. Maybe we could sell those positions, use that to buy other positions to offset losses that you may be taking moving forward. There’s a lot that can be done.

Mike Lester (17:07):

I think one of the biggest issues is as our industry, and what I mean by that is the financial service industry, as a whole for the most part isn’t set up to help people actively manage portfolios or be tactical in the management of it. It’s really set up to just collect assets and convince people to hang in there and don’t worry about it. Eventually it’ll get better. We talked about it earlier in the program. That’s a much easier business model for large corporations that are having to manage multiple branch offices across the country, hundreds of advisors across the country. Trying to get all of that to work seamlessly through active management is very difficult. Typically, they just opt for hang in there and unfortunately, clients suffer.

Mike Lester (17:53):

Kristen, we would be referred to as a successful, but boutique private management firm.

Kristen (17:58):

Oh, I like boutiques.

Mike Lester (18:00):

Sounds cute. Right? But we are structured to help clients actively manage portfolios and if we can provide value in doing that, then it makes sense for people to work with us. I would define value as well, if we can show you how to get a higher average rate of return, net of any fee you would pay us, then it might make sense. If we can also show you how to take less risks to get those returns, it probably makes more sense, but starts with an analysis. We do that for our listeners complimentary.

Speaker 1 (18:26):

If you would like to have a comprehensive financial plan and an analysis of your current portfolio, go ahead and visit our website at 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 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 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.


Mike Lester

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Market Opportunities for Millionaires & The Middle Class