Kersten Wealth Management Group - Money Sense 8-19-23

None

Episode Transcript

(00:00):
Good morning and welcome to money.Since you're listening to the advisors of Kursten
Wealth Manager Group, Kevin Kursten andBrad Kursten, happy to be with you
this morning. Brad, we're goingthrough a little bit of a summer swoon
in the in the markets overall,which is not unexpected. In fact,
the seasonal history of the markets tellsus that in the third year or a
third year before the election in theelection cycle, that this is the slowest

(00:25):
period of the year, from approximatelyAugust onst September fifty. Yeah, in
that rage not even if you ifyou look year to year at these at
these periods, and there's not thatmade to look at. It's not even
a full two months wherever it starts, it's about a six week Well,
it's interesting because if you're looking atthe at the seasonal nature of the cell
offs, typically the week period inall years starts on September first, but

(00:49):
it actually shifts back in the thirdyear of the presidential cycle. Uh.
Typically that six weeks slow period isSeptember first through October fifteenth, September being
the weeks month out of all twelvemonths historically, and that does shift back
in the in the third year ofthe presidential cycle. So we're right there.
Five percent sell off, which isnot unheard of, given the market

(01:11):
was up over twenty percent year todate at its high point, and some
you know, people say why whydid it happen? Number one? We
could give a list of reasons,but who cares. Right, selloffs happen.
Corrections are normal. The average correctionin all years is thirteen percent.
But there were some news stories interms of FED minutes maybe signaling a little

(01:37):
bit more of a lean towards onemore rate hike. I still don't consumer
price. I don't want a surprise, and the survey says that in September
it's like an eighty twenty not cut. The consumer price index was weaker than
expected, but then the producer pricescame in a little hotter. Retail sales

(01:57):
numbers were pretty good. Earning seasonwas wrapping up ended up being only three
percent down when it came in atseven uh. In fact, we talked
about earnings last week and it goteven better after the earnings that were reported
after we did last week's show.So we're just kind of in that slow
period. It's extremely low volume.This entire month has been a very low

(02:21):
volume sell off. You have basicallywhat all of Europe doesn't work. We're
trending that way with our stay athome people and everyone vacationing so much,
we're trending towards the four day workweek or less. Uh. And we've
been talking a lot with a lotof people about that too. It looks
like we might see a little bitof a boost to productivity back to the

(02:45):
office after September first, because alot of companies are going to start requiring
it. But it is this slowperiod of time where you do have low
volume, so the market can movequite a bit on not a lot of
news. I want I want topoint out a things because people are trying
to thread the needle with I wantto buy this dip. The DIP's coming
it already, it already has,right or we're if we're looking at intra

(03:07):
day high to where we sit today, it's it's a five and a half
percent sell off from high which wouldhave been August first, maybe one day
back intra day high, closing highend of the month, okay, and
the closing high. We're almost we'realmost right at a five percent pullback right

(03:28):
now. Well, in up years, you mentioned all years what your average
intry year pullback is, and it'sit's twelve, thirteen, fourteen percent,
depending on the timeframe you're looking at, But it's a full five percent less
than that if you're looking at upyears. Let's let me just go back
the high to the to low selloff in in some of these years.
So if we look at twenty twentyone, it's only a five percent pullback.
If we look at nineteen, wherewe had a big year up thirty

(03:51):
percent, it was only a sevenpercent pullback. Seventeen was only a three
percent pullback, sixteen eleven percent pullback. Uh, fourteen was only seven,
thirteen was only six. So youget years where you don't get these big
pullbacks, and if it's gonna bean up year and a recovery year like
we've already started, you might notget that ten percent average pullback, that's

(04:12):
right, that's right. So you'relooking at that average, which includes years
like two thousand and eight, whichskews everything that what was the intraday low
you know, forty nine percent high? Right right? You got you got
nineteen eighty seven in there with athirty four percent two days you've got thirty
percent and thirty four percent and twentyone and twenty two, and you've got

(04:34):
COVID. Well, let's let's useeverything. While we're on this topic.
Then let's look at other years thatwere similar to this, because we've talked
about this in the last couple ofweeks. We were looking at years where
the market was up more than fifteenpercent six months into the year. And
let's start with twenty twenty one.What was the biggest pullback that year?
Twenty twenty one five percent, nineteennineteen was seven percent, twenty seventeen three

(05:00):
percent, So you got a three, five and a seven. Yeah,
okay, and actually three is arounding it was. It was not even
I think it was two. Therewas a two point two and at two
point seven twenty thirteen, thirteen wassix. So so three, three through
basically three through seven is your range. You can't use two thousand and nine

(05:21):
because the year started off straight down. What's another year that was up more
than twenty percent? Then you gottago back to the nineties, right,
So ninety nine ninety nine you hada twelve, can use ninety eight ninety
five was a recovery year, andso that was only a three percent pull
back. Uh ninety six was onlyan eight percent pull back. Okay,

(05:44):
So you see these years where themarket is just steadily moving higher, you're
in that three to seven percent rangeis really what you've seen, and we're
at five and a half. Likeyou said at the moment. So we
mentioned the fifty day moving average.We did go through that. Uh.
The other area of the market thatI was really targeting, Brad, was
an area that was once a ceiling. We talked in technical analysis. You

(06:10):
know what was once a ceiling becomesa flour Okay, one jumping up to
this ceiling, and then once youbreak through it, then six months down
the road it becomes your floor.Three months down the road becomes your And
this is not this is not somemade up thing you think about ceilings and
floors. Okay. If you're bumpingup on a level where everyone used to
sell, yep, okay. Everysingle time we got to that level,
it was like all investors came inand say, well, I'm selling again

(06:33):
because this is the this is thepeak, ye okay. And then you
jump through that level. What happenswhen you jump through that level of the
SMP five hundred, is you leavebehind all these people in cash, and
what do they say, Yeah,if I just get back to there,
there, to where I knew Ishould have bought, then I'll buy again
exactly exactly. And that level onthe SMP five hundred, if you remember

(06:58):
last last summer, we hit thelows in June, that's the to me,
that's the real low because that's whenmost stocks were hitting their lows.
We did to get a slightly lowermarket low in October, but there were
certainly more stocks hitting their lows onpercentage basis in June. And after June
there was a pretty big bear marketrally that took the SMP five hundred to
four thousand, three hundred and five. Okay, So so think about that

(07:23):
psychology. Investors were, you know, panicking in June, rode it all
the way up sold again. Sothat level is that was the ceiling.
It was once again it was anotherlevel that was that was a ceiling back
in twenty twenty one, a coupledifferent times too, but that's to me,
that's the big one because that's thatreal first bear market rally that we

(07:44):
had before the bear market ended atOctober. And so that's a four thousand,
three hundred and five the markets atfour thousand, three hundred and seventy.
So we did break through that fiftyday. We talked a couple of
shows ago about the two levels wewere targeting. As I was putting new
money to work. You set afixed set of rules, people bring me
new money. This doesn't really applyto the existing people that are that have

(08:07):
their plan in place, but ifyou're doing new money, and we don't
try to get too cute with thedollar cost averaging, because I don't want
to go years on end sitting aroundwaiting for something. It's it's time or
price. So I looked I lookedat that fifty day as as the put
the half the money to work,and you would look at that forty three
oh five for us as the secondarea, which is not that far from

(08:28):
here we're talking now, you're you'reless than two percent away from that sixty
five SMP points sixty five SMP pointson where we are on and a half
one point six percent something like oneand a half. Yeah, So those
would be the two levels. Ithink you see a lot of people jump
in at that at that previous Augusthigh. This is the time though,
that you know, just as themarket cracks a little bit and gives a

(08:50):
little bit back that every every everytime you open up Google, or every
time you you you see anything it'swarm. Buffets sell a billion dollars worth
of stock, and then if youlook at the news story, he's like,
well he also bought one billion,but he sold a billion, but
he bought a billion of something else. Or Michael Berry, the guy that
called the the housing crisis is short. Well, he's running a hedge fund.

(09:15):
He's short this, and then he'slong this. That's just the way
it works. Well, the headlineI saw Warren Buffett hates stocks loves treasuries
because he's been buying I don't evenit's some crazy number like twenty billion of
treasuries a month. But the problemis, what's that? What's the market
cap of Berkshire Hathaway. I thinkit's I mean, he's gonna be close

(09:37):
to a trillion. It is seight or nine hundred billion. Okay,
not a recommendation to buy or sellBerkshire Hathaway, but it's the eight or
nine hundred billion, and they haveone hundred billion in cash almost always right,
because they have forty billion coming inevery year from dividends, right,
right, So he's buying treasuries everymonth because he's waiting for a good deal.
Okay, fine, or he's he'sstockpiling cash to go. I had

(10:00):
an entire company, right. Sojust because you see a headline out there
that Warren Buffett loves treasuries, hedoesn't love treasuries. He's just it just
is, is this what's happening?Yes, he can buy treasuries and he
can get five percent on his hundredbillion, So of course he's a smart
investor. He's going to do it. Right. So, but every headline
is about a crash or a bearmarket. They're more rare than the news

(10:24):
headline would have you believe. We'veonly had five crashes in a hundred years,
and there's only one crash, onecrash that occurred after the after the
SMP was up more than twenty percentthrough the first seven months of the year,
and that's nineteen eighty seven, yeahright, right, right, one,
yeah, one, and then thatthe market immediately started to recover and
got back to positive before the endof the year. And if even if

(10:46):
you're talking about bear markets, twentypercent pullback there's only been fourteen in seventy
eight years, and we just hadone last year. So we had a
twenty percent pull back last year,and every headline says we're gonna have another
one back to back. I thinkthat's not taking into account how rare it
is. What's not rare as thatthe market is positive in any given year.
It happens almost three quarters of thetime, and after a negative year

(11:09):
it happens even more often. Solet's know history and and and and know
that after a negative year like this, we have the wind at our back
a little bit. Uh. Weekpoints. I just have the one month,
but it pretty much mirrors from highto low the weak points of the
market or what you would expect.Tech was up the most. Tech is

(11:31):
down the most during this five percentsell off, and communication services actually correction
actually real estates down a little bitmore. UH and UH in real estate
is actually all the way back downto flat year to date, so that
tech is second worst. The leadersleaders in this last month energy energy,

(11:52):
you got oil over eighty. It'sgoing to be energy, yep. Energy.
Interesting, financials are holding up prettywell. In healthcare is holding up,
is actually positive in the last monthas well. The one thing that
did not participate in the first eightmonths were Small Admit. They picked it
up a little bit in May,but I would say, you know,
you look at the next leg ofthis rally, it would be hard to

(12:13):
believe that you're gonna be at theat the at the front end of a
longer bowl market cycle, and smallAdmit would not pick up a little bit
of somebot bonds. Yeah, withthe increase in the ten year treasury in
the last couple of weeks up tofour and a quarter percent, the aggregate
bond index is now flat on theair. Where did it give up in
the last month two point three percent. So there's your conservative and it's given

(12:35):
up two point three We've been talkingabout how you have to watch your duration
the aggregate bond index. If you'rejust in the total bond market index in
your four one K that's basically whatyour own is the aggregate bond index,
and it has some duration to it, and there's risk in that duration.
If rates are going up, you'regonna give up a little bit of your
principle. We're using more and morealternative type strategies to combat that risk of

(12:58):
rising rates that you see and bonds, whether it's market neutral type strategies or
option strategies that that give you asimilar return that bonds would have given you
historically, but protect on the downsidein a different way than bonds do.
How to bounds protect on the downsidehistorically, when the stock market sells off,
interest rates fall. Okay, wehaven't been getting that in the last

(13:22):
two years. Yeah, And Idon't think it's a two year phenomena.
We had. We had going allthe way back to nineteen eighty one,
a falling interest rate environment. Now. I don't know that we're gonna be
in a rising interest rate environment forthe next forty years. But I think
the falling interest rate environment is over. Anyone that's out there saying you need
to go long'll go buy long datedtreasuries thinks we're gonna go that the Fed's

(13:43):
gonna cut and we're gonna go rightback down to zero interest rates. I
don't think that's the case. Wherewe might go down a little bit,
but we're not going down to wherethe FED has been for the last ten
years now. And you very wellcould see the short term rates if the
FED stands at stay where they arewhile the ten year treasury goes up significantly,

(14:03):
so that would be something you'd haveto be careful careful about as well.
So your losses from here to theend of the year would only be
on your what was perceived as yourmost conservative piece of your portfolio, your
long dated bonds. And if theFed is not going to be cutting before
at the end of the year,it will be because the stock market's going
up and everything's doing well, andtherefore longer dated stuff would be going up

(14:24):
in rates and going down in price. That's right, So take our first
pause. You're listening to money sinceKevin and Brad Kurston. We'll be right
back and welcome back to the show. You're listening to the advisors of Kursten
Wealth Manager Group, Kevin Kurston andBrad Kurston. As a reminder, we
are a professional financial advisors with ouroffices in Perrysburg. You want to give
us a call throughout the week toset up your own financial plan, review

(14:46):
your own financial plan, get started. Just met with somebody this morning,
Brad twenty eight years old, justwanting to get started. And then we
meet with people who are close toretirement. We meet with people who are
in retirement and one a second opinion. So whatever your stage in life,
give us a call for one nineeight seven two zero zero six seven or
check us out online at kurstenwealth dotcom. Headline in the Wall Street Journal,

(15:09):
mortgage rates hit seven point zero nine, highest in more than twenty years.
A lot of people are seeing evenhigher than that seven and a quarter
or seven and a half, andthe math on buying a home, uh,
you know, is depressing some people. And we were just crunching some
numbers at the break there, Bradwith that thirty year mortgage upwards of seven
and a quarter percent, and theFed continuing to raise rates. The ten

(15:33):
year year old, obviously is theis the yield that is most closely associated
with mortgage rates and needing to comedown. So what are people, you
know, gonna do when they goout there. They're they're out there looking
for houses that no one wants tosell unless they get a crazy number.
Right, I have a three percentmortgage, Well you better give me fifty
thousand over asking or I'm not movingright because the next house is going to

(15:56):
cost me more. I mean,before you even get into these numbers,
you're you're saying at the ten normallycorresponds with that mortgage with a little bit
of a spread. It usually does. But look where we are. Actually,
that's another thing. It's it's oneof the highest spreads between the ten
year and the mortgage rate that we'veever had. Yeah, it shouldn't be
this high. There's no reason forit to be this high. The ten
is where everyone assumes that the ratesare going to be for the next ten

(16:19):
years, or where the Fed isgoing to keep rates, and so the
spreads typically about a one percent,and here we are at just we just
cracked four in the last week,and with the rate at the ten year
treasury between four and four point two, here we are with a seven to
seven point two. So the thirtyyear mortgage, the seventy year range average

(16:41):
was the lowest was one point three. The average is one point seven five.
So at a four ten year,the thirty year mortgage should be at
five point seven. Why is ithere? It's been like this for the
entire cycle. I don't understand whythe thirty year mortgage is where it is.
Yeah, I mean, it can'tbe every bank in the country being

(17:02):
greedy. No, they're tightening,they're tightening their standards. Yeah, they're
saying, we're not going to doit unless you give us this extra coupon.
Yeah yeah, so so uh,you know, investors are out there
looking at options of course building becausebuilding materials prices have come down, even
though the cost of labor has goneup, and they're kind of doing the
math and crunching the numbers on theirmonthly payments and it's not pretty. We

(17:25):
were just looking at some comparisons here. I mean, if you're if you're
buying the house and you're after factorin a seven percent mortgage, what it
does to your monthly payments. Solet's look at recent history first. Then
we'll go back even let's take itback to nineteen ninety five. The average
home in the United States sold forone hundred and thirty nineteen ninety five.
The down payment on that if youhad twenty percent down. I think in

(17:47):
ninety five we probably were in thatmarket of doing it. We didn't get
crazy until two thousand and six andseven, and so you had twenty six
twenty six thousand down on one hundredand thirty thousand dollar house, but the
average mortgage had come down to awhopping seven point eight six percent on average
for that year, making your monthlypayment seven hundred and fifty three dollars per
month. Average household income median householdincome for a husband and wife combine was

(18:12):
twenty nine thousand a year, whichI'm sorry, thirty seven thousand a year,
which meant it was twenty four percentof your household income went to your
mortgage. Points your mortgage. No, I mean that probably at that time
got your twenty five one hundred squarefeet that's about right. Yeah, yeah,
in nineteen ninety five, so flashforward to two nineteen, we had

(18:33):
some of our lowest rates ever untiltwenty and twenty twenty one. The average
home sold for two hundred and sixtythousand, so exactly a double from nineteen
ninety five to two thousand and nineteen. So your down payment, if you
were doing twenty would have been fiftytwo thousand. Your average mortgage that year
was four percent. Yeah, gottago back. I mean, that's the
one thing people said, real estateis your best investment. Ever it how

(18:53):
long did it take to double?Fourteen years? None, it was nineteen
twenty four year, twenty four years, twenty four years, So it's uh,
that's just a little over three anda half percent. Yeah, yeah,
yeah, a little over three anda half percent. And in that
time frame ninety five to nineteen,you have stock market probably average fifteen percent,
have two real estate booms in thatperiod late UH late two thousands and

(19:17):
then also and boom and bust,but another boom in the UH in the
twenty ten decades. This isn't whenyou go from one hundred and thirty thousand
and ninety five to two hundred andsixty thousand. If that were your your
if that were a CD, ifthat were the SMP five hundred that you
bought, did you have any maintenancecosts? No, you just bought it.
Did you have to pay taxes?If you just bought it and you

(19:37):
sold it? You know, twentythree placed the roof, and then the
first did you have did you haveto mow the lawn or pay to have
the lawn? Mode you have tobuy a mower? No? No,
you just bought it and it doubledor it you know, in this period
of time it doubled it. Didyou know it would have doubled? How
many times it would have doubled?Four times in that period? I mean,
I know, we're getting off topicin terms of off topic, because

(20:00):
we kind of everyone says how howgreat real estate is, Well, it's
because they people leverage it. That'sthat's why they think. Yeah, I
mean, if you're if you're,if you're eight times leverage, sure you
can do a little bit better thanthree percent. But that's all this is.
So, yes, we're complaining aboutthe SMP five hundred being down five
percent, but in nineteen ninety five, when we're starting this exercise, Brad,
the SMP was at four hundred andfifty and it's at four thousand,

(20:22):
three hundred and seven, twelve hundredtimes return over that period. Okay,
let's go back, go back tothe house. Two hundred sixty thousand and
two thousand and nineteen is the averagehome price. Home price fifty two thousand
down. If you had twenty percentdown, four percent mortgage gave you just
under a thousand dollars nine hundred andninety three per month. That compares with
nineteen ninety five's payment of seven hundredand fifty three per month, So not

(20:45):
bad. In that amount of time, the house doubled and your payment only
went up what twenty percent? Yeah, the average median household incomes sixty eight
thousand and two thousand and nineteen,giving you a eighteen percent of your household
in went to your mortgage. That'sone of the lowest percentages ever. Yeah,
so it's not obviously it's going togo up from there if we uh,

(21:06):
you know, the long term averageis right around a quarter of your
household income would go to your toyour mortgage payment. Where are we today,
after the spike in interest rates,we have seen home prices go up
quite a bit in the last fiveyears. Here we are the average home
price this year just under four hundredand twenty thousand, four nineteen. If
you had twenty percent down, you'dhave eighty four thousand dollars down. The

(21:27):
mortgage just cracked seven. But solet's call it seven and a quarter percent
on a thirty year mortgage, makingyour monthly payment two thousand, two hundred
and eighty three dollars per month.Flash forward to the median household income.
It has gone up last two yearseighty two thousand median household income, meaning
a third thirty three percent of yourhousehold income is going to your mortgage.

(21:47):
So it is a high number.Is it crazy? Yeah, it might
feel like that if you're if you'reif it's your first house, it might
feel like a lot of income goingtowards your mortgage payment. But we're at
a peak, you know, wecould be at a you know, I
don't, I don't know. You'renot gonna see interest rates go beyond this,
mortgage rates go beyond this, becauseeven the spread that we're seeing long
term rates, it's a rele yougonna have the Fed keep going higher as

(22:10):
long as that spread comes in.Yeah, it's fine, but it's gonna
be so to one of two thingsis gonna happen. Maybe both. You're
gonna see prices come down to homesa little bit just to get some houses
moving, and you're gonna see mortgagerates drop. I mean, I really
think that you could see the stockmarket go up and the Feds still cut
rates because they know they've created alittle bit of problem with their own balance
sheet, with bank balance sheets,and what are the bonds are sitting on

(22:32):
those bank balance sheets, and withwhat they're doing to mortgage rates and the
mortgage market. So in order toget to let's call twenty two percent,
the average for the last twenty thirtyyears of your household, income eighteen thousand
on this average or eighteen thousand wouldbe twenty two percent of eighty two thousand
average household income. Would mean thatif rates were five point five percent on

(22:59):
the average mortgage, the house pricewould have to come down about eighty thousand
down to three thirty twenty percent.We aren't thirty thousand have to come down
twenty percent. For it to onlycome down ten percent down to three hundred
and seventy thousand from four hundred andtwenty thousand, we would need the average
thirty year mortgage to be down atfour and a half. And if you're
gonna do the math, okay,for the for the thirty year mortgage to

(23:22):
be four and a half, wewould need the ten year treasury at around
three. Yeah, okay, Andfor the ten year treasury to get back
down to three, you are probablygonna need the FED to cut rates from
five to two and a half.Yeah. Yeah, they maybe over the

(23:44):
long term, if we're talking aboutthe next eighteen months, they need to
cut a couple times and then saywe're on a glide path of going lower,
and that would push long term ratesdown because it would be the anticipation
of where are they going over thenext five years, but they have to
they have to change everything. Theyhave to say, we are now we
fixed inflation, and we're going toget back down to a more of a
comfort level, because otherwise we're gonnahave deflation. And deep down they know

(24:07):
that they've created a little bit ofproblem with their own balance sheet and the
bank balance sheet, and they haveto fix that problem so that loans go
out again. So if you lookat their policy minutes which were released this
week, there was a little bitof that. Okay, for the first
time in a while. We havesome quotes here from the policy minutes.
Some officials said the risk of raisingrates too much versus too little has become

(24:30):
more too sided. It's important thatthe committee's decisions balance the risk of inadvertently
overtightening against the cost of insufficient tightening. Officials still saw significant risks that inflation
might not fall as much as theyexpect, which could require them to raise
rates again later this year. Theserisks include stronger stronger than expected economic growth

(24:52):
and the reversal of supplot recent supplychain improvements or declines in commodity prices.
So in looking at this in June, most officials thought they would raise rates
to five to five seven five,but inflation is slowed notably in the last
two months since they made those projections. One FED president Patrick Harker said,

(25:15):
I believe we may be at apoint where we can be patient and hold
rate steady, but we don't knowif that's the majority or not for the
for the upcoming September meeting. Sowe still have one more CPI that is
gonna tick higher and uh, andso there is a little nervousness in the
market that that that might spook theFED into raising already in September. I'm

(25:37):
hopeful that they will wait because ofwhat the projections are for the rest of
the year. Uh. Probably someof it will hinge on where we see
energy prices, if we if weget the if we get oil prices to
kind of find their peak and getback down into the seventies. I think
could probably give them a little bitof faith that that we have some deflation
coming. Yeah, and how manymore inflation numbers are we getting? That

(26:00):
meaning do you know just one?Just one more? Yeah? Yeah?
Okay, So I don't know.I may have been reading. Did you
already say that? No, Idid I didn't say, but we do
get one more, but it's projectedto be significant. The Cleveland Fed's been
off, but they have it.They have the next one coming up in
three weeks. At point seven ona monthly now, they've been at least
point two off in the last twobut even still, you get a half

(26:22):
a percent, and we're replacing apoint one from the prior year. You're
going to see maybe a three pointsix or seven from a low point of
two point nine seven two months ago. But hopefully the Fed is not just
looking that short term. They'll looka little bit more longer term, and
they've come a long way. Theycan just wait now and see if if

(26:45):
all of all that they've done isgoing to make it an impact over the
long term. I sent this toyou the earliest week. The Atlanta Fed
does something called GDP now and theyjust increased their You talk about the Fed
trying to weigh a slowdown of theeconomy versus raising rates, and this is
not good if you're in the youwant them to cut rates. Camp.

(27:07):
Yeah, if you're in the goodnews is bad because the Fed might cut
so I might raise. I sentyou this early early this week. They
increased it from something like in thelow threes on GDP to five the quarterly.
Yeah, I just looked at itjust now, one day later after
I sent it to you, theyjust went to five point eight on GDP.
Yeah, So so anyone, anyonein the recession camp isn't looking at

(27:33):
real data. After this morning's HousingStarts report from the US Census Bureau and
industrial production report from the Federal ReserveBoard of Governors, the now cast of
third quarter and personal consumption expenditures growthand third quarter GDP have increased from four
point four percent eight point eight percent, respectively that was personal consumption to four

(27:57):
point eight and eleven point four thatis investment growth and personal consumption. So
in real gross private investment growth elevenpoint four percent personal consumption, that's what
the individuals are spending four point fourto four point eight, which has caused
them to move their GDP estimate toalmost six percent. They've had four in

(28:19):
a row, or they've been alittle hot, but directionally you're a little
hot from five point eight there,it might come in at four point eight
or it might be come in atfive. Same thing with the Cleveland Fed.
They directionally they've got it right.But they've come in a little hot
on their inflation projections the last twomonths, so we'll see. But it's
not going to be it's not gonnabe a disappointing number when GDP comes out.

(28:41):
It's not gonna be recession flags.It's going to be are we growing
too hot for the Fed's liking?And that's that's gonna be a problem for
the sentiment out there for a fewmonths. Okay, taking our next pause,
we get back from the break,we're gonna tackle some questions. Retirement
questions at the Wall Street Journal hadsome of their most common questions that readers
were writing in. You're listening toMoney since Kevin and Brad Kurston will be

(29:03):
right back and welcome back to theshow. You're listening to the advisors of
Kurston Wealth Management Group. Kevin Kurstonand Brad Kurston, happy to be with
you this morning. Brad, Isaw on the Wall Street Journal they had
retirements tricky tax A lot of theseare tax related, but good retirement questions
from the Wall Street Journal some oftheir most commonly written in questions that they

(29:23):
get and just kind of give youthe synopsis of what they have here.
For the vast majority of people,the issue of how to save, invest,
and spend in retirement as the hardest, nastiest problem in finance. Congress
has it made this problem easier Whenlawmakers can agree at all, They layer
poorly drafted law upon law, leavingthe irs and savers to confront a maze

(29:47):
of confusing provisions. No better examplethan the recent confusion with inherited I raise
that went back and forth for whata year and a half. Well there,
I don't think they're done. They'rehad done with that. They've already
changed it twice in three years,so they're gonna they're gonna change it more
again. And that would be oneunless you're gonna get to it here that
I'll mention. There are a lotof advisors out there saying, now that

(30:07):
you're inherited IRAA for a non spousebeneficiary is ten years, you should just
make sure you do ten percent ayear or a tenth every year. I
completely disagree that is doing more thanyou need to. You should do the
minimum unless you need the money,because if you liquid it at all too
soon, you're going to give upthe chance that that they're they're going to

(30:29):
change the law again and go morein your favor. So just just yeah,
go with the rules that are infront of you, and don't assume
that it's going to be one wayor another. We see that all the
time. First question, here,will my children or grandchildren have to take
annual required distributions or R and d'swhen they inherit my iras or four oh
one case as it's what we werejust talking about. So it's a non
spouse beneficiary. Uh. They Itused to be that if prior to twenty

(30:52):
twenty of twenty twenty, they couldtake just the required distribution out no matter
what their age was. They didn'thave to be retire beginning date any age
when you were inherited, and thenyou could defer the rest for your whole
lifetime. Now they change the ruleto ten years, and then the most
recent change was to clarify that youstill have to take just the required minimum
out in those first nine years andthen the tenth year liquidated. And if

(31:17):
that's the rule and you don't needthe money, just take the required minimum
because I'd hate to get to theninth year and only have ten percent of
the account left. And then theysay oh, by the way, we're
going back to the old rules.You can keep deferring for the rest of
your life. And meanwhile, you'vepaid tax that you didn't have to pay.
That's right. And roth iras priorto twenty twenty had to take required

(31:37):
distributions if it was children or grandchildrenspouses. It's still the same for spouses.
Spouses can just roll it over intotheir own ira or roth ira,
but prior to twenty twenty they couldspread it out over a lifetime in a
roth ira and have tax repayments.Same set of rules with the roth ira
in that ten year rule. Andif you happen during this confusion, if

(32:01):
you happen to miss some distributions,as long as you take the distribution right
away, there's no penalties. Congressand the Irs are acknowledging that it was
not clear. It was not rightright. I think there's a few reasons
they will change. One is they'vemissed a couple of things. They didn't
do anything with non retirement annuities thatyou inherit. You're still allowed to do

(32:22):
a lifetime stretch on those. Ithink they just missed it. They also
changed the rules for qualified charitable distributionsafter retired beginning date age seventy three now,
but on your own IRA. Butthey didn't change it on an inherited
IRA. So for an inherited iras, if you're seventy and a half,
you can go ahead and do aqualified charitable distribution out of that inherited IRA.

(32:45):
That doesn't make any sense. You'rea retired beginning date for the qualified
charitable and an inherited seventy and ahalf and the others are seventy three.
Makes no sense. Well, itis what it is. Doesn't matter if
it makes sense. I just meanthere. I think they're going to go
back and change it, right right. Well. Another strange part of this
too is on this ten year rule. If you're a child or a grandchild

(33:05):
and inherit an IRA, you actuallydon't have to take a minimum distribution if
the person you inherited from hadn't reachedrequired beginning date. Yeah, but you
still have to have it out bythe end of the tenth year. Yeah,
So that would really only benefit youwill significantly on a ROTH. If
you got a ROTH you could justleave alone for ten years, you get
that much more taxed for growth.Don't touch it. Yeah, yeah,

(33:29):
So can IRA owners taking annual rmds, So now we're not we're off of
inherited IRA is the next most popularquestion. Can IRA owners taking annual rmds
still contribute to a traditional or WROTH? The answer is yes, but they
must have earned income. People askme this a lot. They're retired and
they say, well, I canlower my tax burden my contributing to my

(33:51):
traditional IRA. You can't. Youhave to have earn income and the income
from your retirement accounts pension and soulsecurity do not count that that question.
Uh, it says still you weren'tallowed to do it before. Now you
can. So that was a changefrom the UH from the first Secure Act
that allowed them to do contributions afteryour required beginning day and with the most

(34:14):
recent change that they affirmed it.So can roth ira ROTH four owing K
withdrawals used to be managed tax rates? Of course obviously if you if you
have both and you want to manageyour tax brackets by taking your distributions from
your roth IRA, Uh, thatthat could certainly that can certainly help you
out. Say a savior has asurge of taxable income from some sort of

(34:36):
work they were doing that could raisetheir their income taxes paying higher Medicare taxes
as well. This person might beable to use tax free roth withdrawals to
provide cash so that they don't increaseyour taxable income and even more or after
tax, if you still have yourfour one k and you're retired, your
after tax but also in your fourone k would be a better option.

(34:57):
Question here, I've realize my wifewill get hit hard on taxes if I
leave my large traditional IRA to her. Can I leave it to other errors
The answer is yes, but thequestion is is wrong. You're better off
leaving it to your wife because yourwife does not does not have the same

(35:20):
restrictions or rules that have to liquidatethe IRA in ten years, and your
wife would also have a lot moreshe can do during her lifetime through qualified
charitable distributions and other other things thata non spouse beneficiary would have. Sefishery
still can do a lifetime worth ofrequired distributions only and a non spouse beneficiary
cannot. I mean, now,if you're talking about the widows penalty where

(35:45):
they go from married filing jointly tosingle file or status so their tax brackets
go up. Maybe if you wantto spread it out among more people.
Okay, I suppose that would beless money to your spouse, but better
ask your spouse first, By theway, they may not be Uh yeah,
hey, I didn't want you tobe burdened with all this money.

(36:07):
Yes, give it away. Youwere going to get five million dollars,
But what that would have been atax nightmare. That would have been a
tax nightmare. So I'm only gonnagive you fifty thousand. There's a scene
in the Shawshank Redemption about that.Yeah, yeah, you know, I
didn't want to win the lottery.Yeah, I didn't want to inherit that
I'm worse off for inheriting this money. So but anyway that you want,
it's actually most ideal from a taxstandpoint for a spouse to get it and

(36:30):
then the kids to get it afterthat. And that's the same with non
iras as well. The best wayfor anyone to inherit it is not to
get it before you die. Itis to get it after you die and
get the step up of all thegains so that nobody's paying any tax.
Here's an answer to the answer tothis question is a strategy that we put
in place for a lot of people. While working, I saved aggressively in

(36:51):
my traditional iras and four oh onek's on a pretax basis. H Now
I'm approaching my required beginning date.Let's say you're sixty five, and I
realized that my required distributions will bewill be very large, larger than when
I was working, or more thanthe income that I'll even need. Yes,
so how do I manage this?It may be hard, you have

(37:12):
to look for professional help. Butone strategy that they talk about here is
doing ROTH conversions in the years leadingup to your required beginning date to lower
that IRA balance. And all you'rereally doing is spreading those required distributions out
over more years. And I think, especially with this current tax code,
if you're if you're in the tenor twelve bracket, topping out those brackets
is certainly an option for the amountthat you could do each year on those

(37:37):
ROTH CONVERSI so you can do ROTHconversions. And then if if you're,
say you're sixty five, once youget to seventy and a half, you
can also do charitable as well.Right, so you could you could lower
that IRA balance, reducing your requireddistribution or seventy and a half only on
the inherited it's it'll be seventy threenow for the required beginning date for the
qualified charitable for everyone. Yeah,or you could just be one of those

(37:57):
investors that's a really bad investor,doesn't have an advisor, sells at the
bottom, buys at the top thatyou'll reduce your required distribution if you're that
Yeah. Part of the part ofthe factor is your account balance. So
if you're a really poor investor,you're doing it on your own, which
is obviously we're biased and using anadvisor, but that would help you as
well. So Can ROTH accounts helplower the costs of Obamacare health coverage or

(38:22):
tax on SOLI security payments? Yesto both. On the current law.
Tax free WROTH withdrawals don't count asincome for Obamacare subsidies and or SOLI security
tax ability. So or do onemore before the next break? Can my
company's matching funds go into my WRATHfour oh one k? As of twenty

(38:42):
twenty three, some employer contributions toa worker's four ohn K can be to
a ROTH four O one K.However, the employee owes the tax on
those contributions. So if you decideto put the match into your wrath.
A lot of people are doing morea roth. Foh, in case these
days, you're adding to your taxableincome. There you go. Somebody's got

(39:04):
to pay the tax on right,right, So you get your employer is
gonna take it. It's a writeoff. Yeah, So there needs to
be a ledger where that zero's out. You make a hundred, the employer
contributes five thousand into your four Oone K, you choose to have it
go into the roth. Now youmade one hundred and five. I don't
know why anyone would do that.That doesn't make any sense whatsoever. Now,
there is one provision coming down theroad. Oh, actually, this

(39:27):
is the last question on here,so we'll just wrap it up. There
is a provision coming down the roadwhere the ketchup contribution is now going to
be required to go into an aftertax roth starting in twenty twenty four.
This is talking about the matching.I don't know if it were me.
There's very few scenarios unless you're makingless than one hundred thousand and you're between

(39:47):
the ages of probably twenty two andthirty five, that you would want to
do the roth. Yeah, ifyou're forty five years old making one hundred
and fifty thousand dollars a year.I don't know why you do the roth.
You're getting more bang for your bto not do the roth. But
if it's the Ketchup contribution and thechoices, I'm gonna I'm gonna contribute to
a non retirement account and get notax of vantage, or contribute to the

(40:09):
Ketchup contribution into my wrath four onek or the match is going into the
row four one. I'd rather seeyou do that. That's right, We'll
take our last pause. You're listeningto Money Sense Kevin and Brad Kurston.
We'll be right back and welcome back. You're listening to the advisors A Kursten
Wealth Manager Group, Brad and Kevinhere this morning. Kevin had had a
client just talking to him over thephone and we're in the middle of this

(40:32):
current sell off here that's currently atabout a five percent from two weeks ago,
and at the time it was abouta three percent pull back and he
said, she's marked it down threepercent. I guess I should have just
done those five percent CDs at thebeginning of the year and at the time
he was still up nine percent onthe year, and it just reminds me
of that that people would be happier. I guess is the word with a

(40:57):
straight line of four percent than itcurvy line of ten percent? And that's
what the market over time gives youten percent, but it just does it
in this volatile line. If wewere if we were to look at it
and we had the same thing.I remember in a review meeting that you
and I were kind of looking at, had an investment for a client that
was kind of that four percent ina straight line and another one that had

(41:20):
averaged double that over time, andthe client even said, I wish I
just had more of that, Butthat that they were pointing out was half
the return of the curvy line.And that's the I feel like the market
that we're in. You and Iwere looking at at a print out and
I showed it to a handful ofclients, and it showed two different people.
One that was just a person justkicking back, smiling, and it

(41:44):
showed the value of their account goingfrom one hundred thousand to two hundred thousand,
smiling. The other person was lookingat their computer screen and they were
all stressed out not smiling, andtheir account had gone from ten one hundred
thousand to three hundred thousand, backto two hundred thousand, and now that's
a pretty extreme example, but onehundred to three hundred back to two hundred.
They both ended up in the samespot. One person's happy, one

(42:06):
person's stressed and upset. And yeah, I think you just you cannot let
the volatility of the current volatility ofthe market cloud you from what is long
term returns of the market. Theyare what they are, but they don't
go in a straight line. AndDenny was mentioning he's reading a book right
now, and the difference between lifeand investing on the opposite, which is,

(42:30):
in life, it's the journey,not the destination. And with investing,
it's the destination not the journey.You know where you need to get
to, but the journey along theway is going to be a little bit
rockier, and you just need tofocus on the destination. And there's so
many things with investing the opposite oflife. Well, everybody tells you in
life, right, enjoy the journey, enjoy the journey. No, in

(42:52):
investing, I want the journey tobe the most boring thing. You've ever
done, but boring because you're notYou're not focused on the day to day.
You can't be focused on the dayto day because it will drive you
nuts and you make the wrong decision. Yeah, there's a lot of quotes
about life that are not worrying aboutthe destination, but about the journey,

(43:13):
living the moment, living the moment, not with investing. Do not live
in the moment. Do not,It will drive you crazy. I saw,
actually, I think it's a MorganHousel quote that said, if I
told you we had to create twentyfour seven news financial news, how much
would you have to make up?And that's what's happening out there. They're
making they're backfilling every day's story withthe market is up, it's because of

(43:37):
this. The market is down,it's because of this. It doesn't matter.
Know your history of the market,know what it does, invest accordingly,
make a few adjustments throughout the year, and then the rest of the
time, go enjoy the journey oflife. That's right. I mean,
you know we're all told this though, right The carpet DM mentality sees the

(43:59):
day, seize the day, So, uh, you don't need to be
in I don't need to see theonly thing you need to seize the day
on is the start of saving andretirement planning, Meaning what do I do?
What do I start? Do Ido? Roth? Do I do?
Here's the thing too, I've seenpeople get frozen in starting because their

(44:19):
four oh one K provider provides themall these choices pre tax traditional four oh
one k, after tax ROTH traditionalirase ROTH irase, non retirement accounts.
I don't want to do anything.Here's here's a point, okay, and
obviously sit down with a financial advisorand go through all of this. But
even if you don't, okay,Let's say you start your four o one

(44:42):
K and you do pre tax andmaybe it would have been a little bit
better to do after tax, Sowhat still good to save? Let's say
you started your four oh one Kand you did the after tax ROTH,
and you should have done the PRETEX, So what ye still good to save?
Let's say you didn't do the fouroh one k at all, and
you saved it all in a jointa out with your spouse, So still
okay, Still okay, These areall good decisions. Your people are so

(45:07):
worried about making a bad decision.That they make no decision. Yeah,
I have a quote that I hadpulled so I think I was in a
hotel and they gave me like somethingon the pillow. It was. I
kept it so Louis Lamar the Westernfiction authors quote that said, the trail
is the thing, not the endof the trail. Travel too fast,

(45:28):
and you're gonna miss the reason youtravel for in the first place. Investing
is the opposite. If you're worriedabout the trail, you won't even start
the journey, and that is worsethan just starting the journey and worry about
where you're going and looking out inthe distance. Instead of worrying about where
you are currently with your investing,Just start and start and then just worry
about the destination because you will getthere if you just keep going. That's

(45:51):
absolutely right. And everybody wants toreview that for themselves or they are finding
themselves in a little bit of astalemate. Give us a call at the
office, set up a consultation.Four one nine two zero zero six seven.
Thanks for listening, everyone, we'lltalk to you next week. You've
been listening to Money since brought toyou each week by Kursten Wealth Management Group.

(46:12):
To contact Dennis Bratt or Kevin professionallycalled four one nine eight seven two
zero zero six seven or eight hundredeight seven five seventeen eighty six. Their
email address is Kurstenwealth at LPL dotcom and their website is Kurstenwealth dot com.
Opinions voiced in this show or forgeneral information only, and are not
intended to provide specific advice or recommendationsfor any individual. To determine which investments

(46:36):
may be appropriate for you, consultwith your financial advisor prior to investing.
Securities are offered through LPL Financial memberFINRA SIPC