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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):
Mike, before we dive into the market news, this is something, after I read, I started being a little bit more careful with my thermostat. According to the National Energy-
Mike Lester (00:42):
All right.
Kristen (00:42):
…Assistant Director’s Association, electricity prices are up 12% on the year, according to the latest inflation figures, and are likely to continue rising. So that’s going to push up the power bill for average American households by $90 to $540 between now and August.
Mike Lester (01:02):
That’s a big spread, 90 to 540. Okay.
Kristen (01:04):
Yeah. Somewhere in between.
Mike Lester (01:05):
Depends on where you live, I guess. All right.
Kristen (01:06):
It’s making me run the fan a little bit more and the AC just a tiny bit less at times. But energy prices are sky high. I know that’s part of what you look at when you’re keeping an eye on what’s happening with the market.
Mike Lester (01:19):
Well, it sure is. And when you take a look at… So why would your electric bill be higher? Well, energy prices are higher. It’s interesting, this idea that we should go to green energy, which I think we could agree, we don’t want to pollute environment, I agree with that 100%. However, if you don’t have a replacement for it, and you’re going to say, “Well, let’s get fuel prices as high as possible.” Well, in order to charge your electric vehicle or anything else, that still has to come from somewhere. And most of these, you still have coal burning power generation, you still have natural gas, it’s just more expensive now, and so those prices are going to be more and more expensive. And everybody’s hurting when it comes to these energy prices. And I suspect we’re going to see a big slowdown in the economy because of it.
Mike Lester (02:06):
There are several reasons, but a big one’s going to be these fuel prices. I was driving by a private airport, for example, Kristen, just yesterday, and that airport typically has lots of private aircraft. Some of them are jets and some of them are prop planes, but there were almost none there. And it was just odd to see. And what that tells me is that people’s willingness, even wealthier people that fly private jets or have their own private aircraft, are less willing to travel that way. And it’s most likely because of the expense.
Kristen (02:40):
According to the Bureau of Labor, Americans are spending on average $341 more per month compared to last year. Along with that stress, we’re dealing with the rockiness on Wall Street. The crypto situation is out of control and the fed announced a 0.75 percentage point rate increase in mid-June, the largest interest rate hike since 1994.
Jerome Powell (03:04):
Our objective really is to bring inflation down to 2% while the labor market remains strong. What’s becoming more clear is that many factors that we don’t control are going to play a very significant role in deciding whether that’s possible or not. And there I’m thinking, of course, of commodity prices, the war in Ukraine, supply chain, things like that, where we really can’t… The monetary policy stance doesn’t affect those things.
Mike Lester (03:29):
Oh, there we go. Kristen, blaming everyone else for the problems.
Kristen (03:33):
Yeah. No control over it. Can’t do anything about that.
Mike Lester (03:35):
No. I have no control. Well, you control interest rates, how about that? And could have done something about probably Ukraine, but chose not to. And supply chain, they could have done something about that as well, but chose not to. But go ahead. Yeah.
Kristen (03:51):
Federal reserve chairman Jerome Powell also said there are clearly still some unknowns.
Jerome Powell (03:55):
Will we go back to a world that looks a little more like the old world, or are we really going to be in a world where major supply shocks go on and on? The history is you see these waves of supply shocks, as you did in the ’70s, and then they go away, and there’s a new normal and things settle down. But honestly, we don’t know what that’s going to be. In the meantime, we have to find price stability in this new world.
Kristen (04:21):
When he’s referencing things like what we saw in the ’70s, I think that’s what gets people’s attention, Mike, and causes a lot of concerns.
Mike Lester (04:30):
Well, it does. And we’ve talked about on the show before, I even got a few emails, at this point it seems almost intentional. You have to try for it to get as bad as it is, and everybody’s hurting now. And it’s hard for me to believe that this just happened. There are so many things that they could have done. And we’re talking to people that are retired, or very close to it, every single week. And they’re worried about obviously inflation, and I agree inflation will come down, but this whole thing like, “Oh, well our goal’s 2%.” It’s going to be a while before we get to 2%.
Mike Lester (05:04):
Honestly, I think they’ve completely lost control. I don’t think they can do anything to remedy what’s going to happen in the stock market, what’s going to happen in the real estate market, what’s going to happen in the economy. Companies are already cutting back, starting to lay off people, because things are just too expensive. And so right now what we’re doing for clients, and again, individuals that are retired or close to it, is let’s take a look at where you are right now. Let’s make sure that we come up with a plan to at least help people navigate what’s going on, hang in there. And by the way, Kristin, some of the top companies that manage money out there, or some of the biggest banks that have clients, I’m hearing week after week that those advisors are telling people to hang in there. I guess it’s easier to manage money if you don’t actually do anything, just…
Kristen (05:58):
Well, there’s that.
Mike Lester (05:58):
There’s that. Oh, don’t worry. Hang in there. They’re sending out emails on, “Well, hey, listen, look at markets over time. If you just hang in there, eventually be okay.” I know from over 20 years of doing this, that is not what people want to hear when they’re retired or close to it. They’re looking for solutions, and the solution isn’t necessarily going to be exactly right all the time, but don’t pay somebody to tell you to hang in there. If they’re telling you to hang in there, don’t pay them for it. Just go to a great company. Vanguard’s a great company, low cost, great diversification. You’re going to hang in there, but at least you’re not paying much for that. That’s my attitude. If you get into, all right, you want to work with a financial advisor, work with a fiduciary, sometimes they’re they say they’re a fiduciary then they still tell you to hang in there, but that’s just not what we’re doing.
Mike Lester (06:51):
All of our clients with retirement accounts, we moved them into cash back in March. And it wasn’t because we have this crystal ball and we know that markets are going to go down. It’s because we felt the probability of success did not outweigh the risk of loss. And it was just pretty simple. We thought, “Well, I’ve taken too much risk to try to make money in this market. Let’s move out,” and we did. So our clients have benefited from that. But now also, as markets are going down, there are great investment options to help people do very, very well in these markets. And so, as we’re moving clients back into investments, these are investments that are designed to do well if markets go down. They’re designed to do well sometimes whether markets go up or go down. Too many investors aren’t getting information on all of the investment options that are available to them, and it’s almost impossible to make a good decision if somebody isn’t sharing with you, the options.
Kristen (07:51):
The closer we get to retirement, the more we naturally seek ways to try and feel safer, if possible, about our investments. While still growing our portfolio and minimizing some risk, investors that are fearful about their financial future seem to be gravitating towards cash. I’m seeing the talking heads talk more about this too, Mike, but that’s a move you made for most of the Talon Wealth clients back in March, am I right?
Mike Lester (08:18):
Yes. We did, and I think it’s interesting. We were talking about this in March in the sense that the talking heads and everybody on TV… I don’t get it. It doesn’t matter. But the problem is a lot of people are getting their information from television a lot. I’m not saying that they’re necessarily bad information, it’s just sitting around, going to the gas pump, going to the grocery store, looking at the gas line at Sam’s, inflation, just all of these things that were going on since… For quite a while now, but it’s been bad from an inflation standpoint since January when the numbers started coming out and it’s still bad. But to see anybody on TV or on the radio saying, “Ah, well listen, this is a strong economy and things are going to be okay.” I just don’t know how it’s going to be okay.
Mike Lester (09:02):
Common sense dictates it’s not going to be okay. And you don’t have to be a rocket scientist, just consumer sentiment or investor sentiment, having conversations with real people. Just ask them, “How do you feel about current situation?” Optimism is not a word that comes out of people’s mouth. And when the general population is not optimistic, and when the general population is frustrated, it’s not great for the stock market. And so we focus on helping clients protect and grow their nest eggs. And the reason we went to cash on the retirement accounts that we manage, back in March, is because it just didn’t make sense that things would be good. And then we were also talking in March about a recession, and how we think that there’s going to be a recession soon, and then after the numbers come out here for the second quarter, we’ll wind up in a, in a bad spot. Well, I still think that’s going to be the case.
Kristen (09:59):
You’re looking more and more right every day.
Mike Lester (10:01):
And if that’s not the case, I would be shocked. Are we in a recession? I think we’re already in it. Are things bad out there? Yes. Do I think the stock market’s going to get worse from now? Absolutely. It’s going to continue to get worse. Yeah.
Kristen (10:13):
I’m going to interrupt you there, because we talked about what you did for most of your clients at Talon Wealth. And of course, every situation is different, but back in March, you put a lot of positions in cash because you were being proactive and using tactical management, AKA doing your job. But for our listeners that do not work with Talon Wealth, do you think it’s too late to seek shelter by going to cash now in this environment?
Mike Lester (10:40):
No, I don’t. That’s a short answer. Absolutely not. I don’t think it’s too late to do that, but I-
Kristen (10:46):
But it’s not necessarily right for everybody, too, I’m sure.
Mike Lester (10:48):
Here’s the thing. So there’s a tendency, and to all of our listeners who aren’t working with us on your retirement accounts, there’s a tendency that people have that after markets are down, it stinks. It feels bad. It’s like a gut punch. I hate it, I’m down. Don’t want to look at my statement. I’m just going to wait for it to go back up and then I’ll do something. Well, by the way, that’s the hang-in-there approach that we’re trying to help people avoid. I’m just going to hang in there until it gets better. That could be a very long time, first of all. By the way, it took us 10 years to get past the last market crash. It took a very, very long time to get beyond that if you take a look at just how money works.
Mike Lester (11:30):
But right now I’d say to someone in that situation, “Well, okay. So let’s say you’re down 20% in your portfolio. Would you like to ride it down maybe another 20%?” Or would you rather just go ahead and say, ‘All right, that didn’t go well, I’d like to make some changes that are designed to not only help me not lose more money if the markets go down another 20%,’ because I do think they could. The bad news hasn’t really even come out yet. I think there’s some really bad news headed our way. And when that hits, the majority of the money out there is in retirement accounts. And if you don’t think people that are close to retirement aren’t just going to yank that money out of equities and move it into whatever money market position is available in their 401k when panic really sets in, I think you’re underestimating people’s fear of a repeat of a, for example, 2008, and they’re now almost 14 years closer to retirement. That’s a big deal.
Mike Lester (12:32):
So yeah, I think even though you’re down, it would be a very good time to take a close look at your investments, what’s likely to happen moving forward, if markets continue to go down. Personally, I think they’re going to go down quite a bit more. And there are investments, by the way, that will do well if markets go down. So I would say, “Well, maybe I’m down 20. I’ll go ahead and get out. Let me go look for some of those investments that’ll do well as markets go down.” And then also after markets are close to what we feel is the bottom, then move back the other way. But please don’t just bury your head in the sand and say, “Hey, I’ll worry about this later.” I think it’s going to get pretty ugly.
Kristen (13:10):
And know that what Mike’s talking about is not an annuity when he is talking about other solutions. So get the details and find out what’s going on with your numbers. Catch up guardingyournestegg.com.
Kristen (13:23):
In July of 1969, the world was glued to their televisions watching what many thought was an impossible feat: landing and walking on the moon.
Neil Armstrong (13:33):
Houston, Tranquility base here. The Eagle has landed.
Kristen (13:39):
For many retiring this year and having that Eagle land just right, seems like an impossible feat because of the plunge in the stock market, what’s happening with bonds, what’s going on with Russia, surging inflation. I could keep going here, but the bottom line is people are scared.
Mike Lester (13:56):
You’ll sound like Biden if you keep going.
Kristen (13:59):
Well, no, I’m not blaming everything else on somebody else. So I don’t agree with that.
Mike Lester (14:02):
Okay. There you go.
Kristen (14:03):
But seriously, people are just overwhelmed, don’t know what to do, and starting to be paralyzed by that fear. So as a fee-only fiduciary financial advisor, Mike, what would be your advice to those who are near retirement and feeling overwhelmed because a comfortable retirement seems unattainable now?
Mike Lester (14:22):
So first of all, comfortable is a relative term. So we talk a lot about how, when we do financial planning for individuals, the numbers are black and white. The financial plan, as far as the investments, how to be invested, the returns, the amount of risk of that return, all of that is very, very black and white. The gray area is the personal part. So for people that feel it’s unattainable because of things that are current situations with markets, or the economy, or inflation, or just the cost of goods and services, that’s the gray area. And that’s where mapping things out with a written financial plan makes the most sense. So what I would tell people that are feeling overwhelmed is, first of all, it’s easy to feel overwhelmed. And obviously lots of people are feeling the exact same way. I’d say, “Don’t feel weird if you’re feeling overwhelmed or if you’re panicked or any of this,” there’s just a lot going on.
Mike Lester (15:15):
And the anxiety around this is a big deal. I think there’s a lot of people that are considering working longer because at least there’s a defined amount. They’re familiar with that. They know what they’re going to get paid if they work. They know where their health insurance is coming from if they continue to work. Probably disappointed that they’re having to make that decision, but there’s a lot of that out there. So I’d say whether you’re going to continue working or whether you’re looking to make that transition to retirement, you’re just not quite sure how it’s going to work under current circumstances and everything that’s going on, that’s really where the analysis and financial planning comes in. Understanding how your money can work for you, understanding investment options in this market, not settling for hang in there. Don’t settle for losses. Again, don’t bury your head in the sand.
Mike Lester (16:09):
I think markets are going to go lower from even where they are now. I think there’s a lot of bad news out there that has not come out yet. We already know things aren’t great. I think we’re going to start finding out things are worse than has been reported. And I don’t think you want to be sitting on whatever fund that goes up if markets go up and goes down if markets go down. I don’t think you want to be sitting on that fund here. Maybe you’re down. Do you want to be down more? I don’t think so.
Mike Lester (16:39):
So there are plenty of ways. First thing would be, well, sure you could move to cash and not worry about all the volatility. That’s one option. We moved clients to cash back in March, because we felt there was going to be volatility. But at the same time, there are investments that go up when markets are going down. There are investments that can provide some stability. We talk on the program, Kristen, about lately, we’ve been working with clients on some investments called structured notes. So structured notes are issued by banks and people would know these, just huge bank names, and that’s where they come from. So we go out and we negotiate terms on investments.
Mike Lester (17:19):
And I can’t get into all the details on the radio, and if anybody’s interested, we would send you a prospectus, and there’s risk involved and stuff like that, but we can go price notes for you. I don’t know what the terms are going to be, but happy to explain it to you in person. But I just want our listeners to realize that there are investment options, not annuities, investment options that I think can be very, very helpful in this market. Whether you’re looking for growth or income, it’s our job as fiduciaries to provide solutions. And I just feel like there’s so many advisors out there that just aren’t. It’s either the market or cash, and that’s not going to help you if you’re trying to live off your money.
Kristen (17:57):
Right.
Mike Lester (17:59):
And then also hang in there’s not going to help you, whether you’re retired or close to it, because right now you’re losing money. So there are options. If you’d like to have that conversation with us, just give us a call.
Speaker 1 (18:12):
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.
Speaker 1 (18:28):
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.
Speaker 1 (18:45):
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.
