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. Mike, there’s a lot of SaaS info out there. No cash.
Mike Lester (00:35):
SaaS info? I don’t know. I-
But this show is filled with facts and it’s lit. Stay with us because, Mike, you’re on fire. Or Mike is fire. I can’t even-
Mike Lester (00:43):
… say it, right?
Mike Lester (00:45):
I’m not sure.
All these phrases are hard to keep up with, number one-
Mike Lester (00:48):[crosstalk 00:00:48]
… and it’s also rare to hear anyone over the age of 50 use the term woke, but it did just happen at the Institute of International Finance Conference in this virtual speech from former treasury secretary, Larry Summers.
Larry Summers (01:02):
We have a generation of central bankers who were defining themselves by their wokeness. They’re defining themselves by how socially concerned they are. They’re defining themselves by how concerned they are about the environment.
He warns that the Fed is losing control of inflation as well. Now, if they’re not doing anything about this whole inflation issue, what in the world can we possibly do as average investors and consumers?
Mike Lester (01:34):
Well, we’re just talking about losing control. The idea behind the Fed is if they think there’s going to be inflation, they start raising interest rates to restrict the money supply. Monetary easing makes money easier. If they want to slow down the economy or slow down things because of inflation, they raise interest rates. They really haven’t been raising interest rates, and of course, that would be a big concern for the stock market if they did. I think the fear for inflation is at some point if the Fed has to step in and raise interest rates to combat inflation, if you’re invested in the market right now, that’s going to be a concern. But when it comes to inflation, certainly the government’s printing plenty of money and talking about printing more, and we’re waiting to see if that actually happens. Historically, printing money can cause inflation.
But I think we have plenty of problems in the economy in and of itself to where inflation might not be a long-term issue. It’s certainly a near term issue. We’re dealing with it right now. Everything costs more, whether it’s lumber or whether it’s groceries, whether it’s beef, certainly gas If you want to fill up your car. But if you go back and look at the root cause for gasoline costing more, well, it’s a supply and demand issue. Demand is very high, Supply is very low because the current administration did some things that made it more difficult obviously to keep gas prices low. If you take a look at why are goods and not just services, but why are goods costing more? Well, just look at the news. Long Beach in California, one of the largest ports for us, where we bring things in, there are ships just sitting out there in the ocean.
Depending on what day, it could be hundreds of ships waiting to get in because people don’t want to go to work or can’t go to work. Whatever the reason is. I don’t want to pick on the people who aren’t. They’re working unloading ships. But bottom line is demand is high, they can’t get these ships unloaded. Even if they did get them unloaded, there’s a shortage of truck drivers to distributed around the country. Is that inflation or is that supply and demand? It looks like it’s more supply and demand, and that probably works its way out. That’s what economics is. It’s if demand is really high and supply is really low, that tends to get balanced out because people go back to work or companies do what they have to do to meet the demand. We have to take a look at this over time and figure out, all right, first of all, if things are going to cost me more in the near term, what am I going to do about that to offset it?
Where’s that money going to come from to pay for things that cost more? Then if inflation is going to be long-term, do I have a plan for that in my portfolio? Again, I think it’s yet to be seen whether it’s long-term or short-term. But if you’re retired or close to retirement and you’re taking a look at all of this craziness going on, and you’re worried about politics, you’re worried about taxes, you’re worried about inflation, you’re looking at your portfolio going, “Hey, listen, things are pretty good right now. I just don’t quite trust the future.” By the way, [Kristin 00:04:23], that’s the majority of the phone calls we’re getting right now from people that aren’t currently working with us. They just want to come sit down and take advantage of one of our offers.
They’re going, “You know what? You’re right. I am worried about all of these things. I am worried about how it’s going to impact me. Because I’m not sure, I want to call, I want to come sit down and have a conversation with you guys about my goals, my expenses, what I’ve set aside for retirement. If I retired right now, would I be successful?” The best thing about my job is sitting down with individuals. I was just with some clients of ours. We’ve been working with them for a while and they’re balancing out right now do I continue to work or do I just step back? We did an entire financial plan forum, and by the way, we had done one for him before or five years ago. They didn’t want to retire. Now with everything going on, they’re considering retirement, do we really want to deal with this and put together a plan?
They realize, well, they could retire. I said, “Listen, if you walked away right now, given your assets, given your expenses, given inflation, given taxes, you could retire and maintain your current standard of living for the rest of your life.” Now they have that information and they’re going, “Well, do we want to retire?” Because they don’t really want to retire. They actually enjoy what they do. It’s a family business. They’ve been doing it forever, 40 plus years.
Good for them.
Mike Lester (05:36):
But at least they can, and that’s the type of thing that I’d like to be able to do for our listeners at any given moment. If they just want to sit down and go, “Listen, if I wanted to retire right now, could I do it?” Or, “I’m thinking of retiring or I know I’m retiring, what does that look like for me? How should I position my portfolio? Where should my income come from? Is it going to last the rest of my life?”
Mike, you just mentioned a family and their business and whether they want to retire or not. That’s so relatable because whether it’s a restaurant, trucking company, retail store, manufacturing plant, or even a law firm, running a small business involves a lot of sacrifice. Then years after all that hard work creating a successful business, an entrepreneur has to figure out how they will retire. I would assume the hope is that the value and equity of the business will be most of their retirement. But what else do small business owners need to keep in mind when it comes to retiring themselves, because they don’t have that company 401(k) plan?
Mike Lester (06:34):
They don’t, and we work with a lot of small business owners. Here very recently, working with a client of ours. He had a really interesting business. He was actually … I’m sure he’s probably listening to the show right now, so I won’t mention any names, but had a really, really interesting tile business. They imported. It wasn’t a flooring tiles. It was roofing tiles. A great business, importing roofing tiles from around the world. If you’ve ever seen these clay tiles that are on roofs, imagine that there’s ever damage and you’re just trying to patch a spot of roofing tiles. Well, if they don’t match, it’s going to look really weird on your roof.
Mike Lester (07:09):
If you think about it. He had this inventory that just built up over years and years and years of these roofing tiles, and then what happened was a company came in that deals with insurance companies that basically replaces roofs for people, and at the end of the day, his business became worth quite a bit of money, which is really interesting. Obviously, that’s a very niche thing. Most people wouldn’t be in that. But now he’s in a situation, just like a lot of small business owners where, “Well, listen, I have a business. I know exactly where my income comes from. I go to work,” and his case, talks a whole bunch of different people. He’s importing, he’s shipping, he’s this, he’s that. He’s taking a look at it and going, “How do I step away from this?”
Somebody came in, pays him a lump sum of money, and now he’s got to figure out how to live off of that money for the rest of his life. There’s a disconnect there, Kristin, for most people who run small businesses because they knew exactly what to do every day when it came to having an income. Now there is stress involved, right? You didn’t-
Mike Lester (08:09):
Obviously, there’s a recession of this, but you knew what you had to do. Now you’ve got this lump sum of money and most small business owners, to your point, didn’t build 401(k)s. A lot of small business owners don’t spend a lot of time trying to invest money to figure out how to generate income off of a portfolio that’s going to last the rest of their life. They may do some investing, but the investing is more growth-oriented like I bought a stock, it went up. Buying a stock or buying a mutual fund or buying an ETF and having that go up and having gains, it’s very different from how do I come up with something that’s sustainable over 20, 30 or 40 years of retirement? How do I make sure I don’t run out of money? The biggest part of it, Kristin, is I don’t have the confidence behind whatever plan that I have that it’s going to work.
I think that’s the big thing. They understand, well, if I invest and I make money, I can then spend the money that I’m making. But how do I know what’s going to work? How do I have the confidence it’s going to work? What about inflation? What about taxes? What about government? What about all of the changes that are going to happen over the next 30 or 40 years? That’s where if we can add value by showing someone how to get a higher average rate of return net of fees, if we can show them how to get a higher average rate of return, but also reduce the amount of risk they’re taking to get those returns, we’re adding value. Those are the conversations we’re having every day with our complete financial plan. It’s just to find out if we can provide value, but at least you’re walking away with a financial plan.
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 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.