Kersten Wealth Management Group - Money Sense 9-02-23

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Episode Transcript

(00:00):
Good morning and welcome to money.Since you're listening to the advisors of Kursten
Wealth Manager Group, Kevin Kurston andBrad Kurston. Happy to be with you
this morning. As we wrap upthe month of August and go into September,
which historically is the worst month ofthe year for stocks. Market finished
August on a relative high note.I don't know, yeah, kind of
trying to make its way back toflat on the month. The SMP only

(00:22):
about a percent and a half away. We're doing this on Thursday here,
so we're on the last day ofthe month, but between one and two
percent down on the month, andthat was after a kind of high to
low for the SMP of five anda half percent and making its way back
to the flat line and then asdeck more like seven percent from high to
low and making its way almost allthe way back. We'll see how the

(00:43):
day finishes, might make it allthe way back. Laggards for the month.
Laggards for the month were emerging marketsdown five percent on the month,
and large cap foreign international was downthree percent on the month. SMP five
hundred is down about a percent onthe month. Worst sectors of the SMP
five hundred utilities at minus five pointtwo percent on the month, So that's

(01:06):
interesting to see. Consumer staples defensivesector you would think minus three point six
percent on the month, and materialstocks down two point seven five percent on
the month. And then what ledthe way energy three point seven communication services
led by Google and Facebook not arecogdation to buy or sell at just down

(01:27):
a half a percent. Those werebetter than the overall market. Also better
than the overall market was healthcare downthree tenths of a percent, and that's
that's pretty much it. Technology wasalmost the same at one and a half.
Ors is one point three on theSMP on the downside, so interesting
to see this month. It wasreally the strength of the dollar that caused

(01:48):
international stocks. Dollar was strong allmonth, so international stocks were weaker as
a result. SMP is still upeighteen point eight percent on the year.
And we're still tracking with that thirdyear of the presidential I go brad uh
average return from the low is thirtytwo point three percent. Was one year
later? Was it one year lateror was it the end of the following

(02:09):
It's it's one year later, andso that would have been October fourteenth of
last year. To this year,so we're not even there yet. And
uh so, yeah, we wereon pace to almost exceeded. I think
we're probably on pace to to getto that, uh you know, over
thirty percent return on a one yearbasis. Yeah, yeah, it's it's
at twenty six point four right now. Yeah, so you got you got

(02:30):
two a month and a half,you got six weeks. You know,
if you have a big rally offof that continues off of this bottom,
you could get there. Keep inmind, when we were in those charts
two, there's some higher, there'ssome lower, but it just meant that
its seasonally is a pretty good periodof time and one hundred percent at the
time it's positive. And so we'retracking right on that. It was eighteen

(02:51):
for eighteen and it looks like it'sgoing to be nineteen nineteen for nineteen.
I think a lot of people willget these even five percent so offs get
worried it's five going to turn intoten or twenty. And I think you
can look at these numbers that youjust talked about those sectors. When defensive
sectors are your worst area of asell off, you know it, you
usually get this flight too defensive orflight to quality, and you can look

(03:13):
at those defensive sectors of not gettingflows as a sign that we're probably going
to just continue the bowl rally thatwe were on, and that's what we've
seen even off the bottom here.Well, the same is true with bonds.
So interest rates rose a little bitin the month of August, and
the aggregate bond index was down seventenths of a percent. But in this

(03:35):
month where the stock market was violatileand everyone said here we go, yeah,
here we go, look at thesenumbers. The two best areas were
credit related. Yeah, high yieldup four tenths, bank loans up one
point one. Okay, these arebonds that are related to companies and not
just companies, companies who aren't thehighest quality companies. Yeah, okay,

(03:58):
bank loans and high yield bonds.These aren't the highest quality companies. And
yet in a month where everybody said, here we go, the whole thing
is rolling over, those were theleaders in the fixed income area. And
that that's what you get it.And usually the bond indication comes sooner that
you get this. To get thisrotation into defense in bonds or defensive sectors
in stocks, that's the precursor towhat might come next, and all signs

(04:23):
point to it was just a normalcorrection and we, all likelihood are probably
passed it. But there were somany people that missed out on the rally
since last October that we're saying no, that that twenty six percent rally that
we had that was just a bearmarket rally, and now we're going to
continue on this longer bear market thatthey were thinking that we were in,
and that in all likelihood is notwhat everything is pointing to. It's pointing

(04:47):
to we already had the bear marketlast year. We started a new bull
market at the end of last year, and this was just a normal five
percent correction that should normally get whoare three of every single year. This
year we did get two of them. The one that was in March all
around the banking crisis, was aseven percent sell off. This one was

(05:10):
a five and a half percent selloff. Two corrections like that in a
normal ball market year or bull marketcycle is pretty normal, and I think
we're back to a little bit morenormal. We'll be choppy here until we
get probably past the September months andon into the end of the year,
but you know, I think thatthe leaders of the beginning of year are
starting to be the leaders again,and I don't think that's going to change.

(05:33):
So a couple interesting charts that Iwas seeing throughout the week, and
one of them was the amount ofcash on the sidelines. And that's nice.
You can look at the amount ofcash on the sidelines, But just
like with other charts that don't takea new account that our overall economy just
gets bigger. You know, theone that always annoys you is credit card
debt. Credit card debt set alltime high. Well, guess what,

(05:55):
ten years from now, credit carddebt will hit a new all time high,
and twenty years from now it willhit a new time high. Fifty
years from now be the highest everbeen. Yeah, and sold the national
debt and sold it out. Theysold it out, sold everything but cash
on the sidelines, which is niceto see. I mean, we had
this huge boost to cash that peoplehad with the COVID money Brad, and
then you know, more cash isgoing into money markets lately, not so

(06:17):
much from any government stimulus, justbecause people get excited about five percent yields.
Well, and I think some ofthat's just coming from traditional bond investing,
where you said, you know,to yourself, if bonds are going
to give me this volatility, justlet me park it in a money market
and get what I thought bonds couldgive me, which is five percent.
Right, And you have to keepit in perspective though, in terms of

(06:38):
okay, this is gonna be allthis dry powder that's going to come into
the market. And here's my point. A little over eight trillion, okay,
a little over eight trillion in moneymarkets at the moment. It's the
highest ever. It's the highest ever. However, the stock market is forty
six trillion. That's actually down froma peak of fifty two trillion. So

(07:00):
we're still we're still knocked off sixtrillion from the US stock market total stock
Market index pretty much right, smackdab in the middle. It went from
fifty two trillion to forty trillion atthe end of last year and then back
to forty six trillion this year.But you look at a little over eight
trillion in money markets, and thatgoes into forty six trillion in the stock

(07:20):
market, so a little less thantwenty percent, okay, a little less
than twenty percent. Compare that totwo thousand and eight, okay, in
two thousand and eight, the peakwas five and a half trillion on cash
money market investments. But in twothousand and eight the stock market only had
a value of eleven trillion that wasat the low, so almost half.

(07:42):
So we would have to have threetimes the cash and money markets to the
equivalent of two thousand and eight.So you have to compare it to something.
You can't just do the dollar amount, right, and so with debt
you're doing it to households well,because net worth or to income, you
have to compare it to something.Well. The assumption too is all this
money's gonna flood in and it's goingto cause this huge rally. And it
might. But in two thousand andeight you had the equivalent of half the

(08:05):
stock market value flowing in. Yeah, today it's only about less little less
than twenty percent. How about theother inflection point where we you know,
you always see a jump when thestock market falls, you see this jump
in money markets. People always dothe wrong thing at the wrong time.
That never changes. You think peoplelearn their lesson. Well, I eventually
see this chart bred where when thestock market falls, money actually comes out

(08:30):
of money markets. No, thatwill never happened to think the move.
I used to think that when wefirst started working, like eventually this this
buy low sell, Hi, everyonewill do it. Yeah, No,
they don't, and they never will. They will always sell it the worst
time and buy it the worst time. In two thousand and two, after
the tech bubble burst, the stockmarket market cap was also eleven trillion,

(08:56):
ironically enough, just like two thousandand eight, and the cash on the
sidelines was only two point eight trillion. So still, yeah, you know,
a little higher than today. Closecloser today. Yeah, maybe maybe
a little higher than day, butcloser today. I mean, obviously the
two thousand and eight financial crisis,money flooding out of the stock market and
into cash was the greatest we'd seenin maybe fifty years. But even though

(09:20):
we're higher now once again two thousandand eight, just shy at six trillion
today over eight trillion in money markets. Not quite the same given the size
of the stock market. But also, you know, I'm struck by the
size of the stock market, andit's obviously on one and the same as
the as the level of the stockmarket. But everyone always forgets the market

(09:41):
grows over time, right, itgrows over time, and you want to
be a participant in this. Imean, at the turn of the century,
the stock market had a value.Total stock market index had a value.
This is S and P, whichof course that all the DAL stocks
are in there, but this includessmall caps in midcaps as well. Fifteen
trillion and before the dot com bubbleburst. And one might think in hindsight,

(10:03):
well, that was a bad timeto invest. But if you'd told
somebody in two thousand, after thehuge run that we had in the nineteen
nineties, that twenty three years laterthe stock market would go from fifteen trillion
in value to forty six trillion invalue, do you think you'd want to
be in a participant in that?In all of it. Now, did
companies go bankrupt, yep? DidDow companies go bankrupt? Yep? Do

(10:26):
people make bad investments, yes,yep. But the person who just bought
it and said I'm gonna be I'mgonna be a participant in this, Yeah,
I believe in this, I'm gonnabe a participant in this did very
well. So let as we goto our first break here, I just
want to kind of drip on somethingthat I want to talk about, because
there are there are things that peopleare constantly talking about that they want you

(10:50):
to worry about, for this isgoing to be the next shoot to drop
and this will take everything down.But if you're a diversified investors, these
are not things you have to worryabout. One of them's real estate.
And maybe it's what I'm clicking onbecause everybody's telling me there's this looming commercial
real estate collapse that's going to happen. But is it going to happen,
Yeah, in a few select markets, just like a few select companies are

(11:13):
going to go bankrupt because they're obsolete. Well, quite frankly, some of
these large cities are making themselves obsoletebecause they're not a good place to do
business. And so don't own asingle commercial real estate building in San Francisco
and you don't have to worry aboutit. Don't own a single company that
has obsolete technology or an obsolete it'san obsolete business and you don't have to

(11:37):
worry about. If you're diversified andyou're mentioning the SMP five hundred, you
own everything, and everything moves up. So let's one thing I'll say too
about the cash on the sidelines.Though in each instance, going back to
and this goes back to the earlynineties. The money did not come and
debate what this is correlated to,because sometimes it's related to the stock market

(12:01):
rallying or not. But one thingthat was pretty consistent is once the FED
started cutting, the money came outof these money markets and went into the
stock market. So obviously you're notgoing to get the five percent yield,
You're only getting the three percent yield. All of a sudden, the stock
market starts to look better. Sothat'll be interesting to see if at some
point next year, as things moderateon the inflation side, if the FED

(12:22):
does take a little bit away,maybe a percent off of the FED funds,
will that be the impetus that peoplewill take that eight trillion dollars and
put it in the stock market?Be interesting to see that. Well.
The ECB, the European Central Bank, has already kind of halted there as
even though the inflation stopped at ahigher level than ours, and their short
term rates are indicating a full onepercent cut to interest rates over the next

(12:45):
year. Our short term rates don'tdon't indicate that quite yet. But if
they start cutting, my guess isour FED is going to be cutting just
as well. So let's take ourfirst pause, come back, continue this
discussion of kind of what to worryabout, what not to worry about.
If you're sified investor, you're listeningto money Sense. They advises a Kurstian
Wealth management We'll be right back andwelcome back. You're listening to Brad and

(13:05):
Kevin Kurston advises a Kurstian Wealth managementgroup talking about the commercial real estate market
because just kind of in general,because I think there's there's a lot of
doom and gloom out there because peoplego to big cities and see vacant buildings.
But you know, these these mayorsin these cities should have saw the
handwriting on the wall even without COVIDand people wanting to work from home more.

(13:28):
Uh, they were kind of they'remaking their own bed with with with
some of the stuff and crime andthe homelessness. Not surprisingly, if you
look at the highest commercial vacancy ratesand lowest occupancy rates, meaning it's a
precursor to more vacancies because if ifyou're paying your rent but nobody's coming into

(13:48):
the office, you don't need thatspace. And so, uh, San
Francisco's number one in the country,not surprisingly, twenty six percent vacancy,
forty four percent occupied. It's onlyforty percent occupied, so there's gonna be
more. They might have a fiftypercent vacancy rate over the next twelve to
twenty four months in San Francisco.A couple of cities in Texas actually did

(14:09):
a little overbuilding when when interest rateswere low. Houston and Dallas have a
twenty five percent vacancy rate, buttheir occupancy is much higher there, so
that's probably just a little bit ofan overbuild la Chicago, Seattle, and
Denver all north of twenty percent vacancy, and occupancy is really close to fifty

(14:30):
percent in some of these areas.Chicago only has a fifty one percent occupancy
rate, so you're going to seethose continue to climb. But here's the
point. This is a big cityproblem, and and some of it will
resolve as you get you get thework from home to kind of alleviate.
But it's not a problem in areaswhere people want to move to. Below

(14:52):
the national average right now is seventeenpoint one below the national average. Not
surprisingly, cities that people want tomove to, cities that are growing,
Miami, Charlotte, even Boston verylow ten percent vacancy rate. Uh,
but those are all big cities.I looked up what some of the smaller
cities are. Sarasota, Florida,one of the lowest in the country two

(15:15):
percent vacancy rates. So it's justit makes headlines when San Francisco has completely
empty buildings, but it really doesn'taffect the individual investor, and it shouldn't
even if you were a real estateinvestor, if you were diversified, it
probably wouldn't affect you. And itreally, I think, is going to
have no effect on the stock marketbecause unlike unlike certain stock investments, in

(15:43):
real estate, one city's loss isanother city's game. We were seeing that
with the New York residents and businessesmoving from New York down to Florida or
California, moving from California to Arizona, or California to Texas. And you're
seeing that with bigger companies as Iwas looking at these stories. Uh,

(16:03):
Charles Schwab has a large office inSan Francisco, and they've already said we're
moving to Texas. So it isanother city's gain. And so it's it's
kind of zero sum game. Andand some cities are gonna become obsolete.
They're gonna they're gonna be shrinking.Uh, you're already seeing it in Manhattan.
Manhattan, both in commercial and inresidential, is shrinking over the last

(16:26):
twenty years. And how many peopleare even living there. However, if
you look up construction or sales,Manhattan dwarfs the next the next biggest city.
So you know, how bad canit be if people are still building
in Manhattan and are still making salesin Manhattan that are three times larger than
any major city in the country.So I think it makes interesting headlines.

(16:48):
And you could show a picture ofa of a vacant office building, but
you could have showed that two yearsago too. And you know now that
if you have to refy and youhave to refight it at three times the
higher rate, or if the bankis calling in the loan and say you
have to put you know, twentypercent more down than you're gonna have some
fire sales. But it's gonna besomebody's gain, and somebody will buy something

(17:11):
on the cheap, refinance it,fill it up, and you know,
ten years from now be making akilling on it. I just don't think
it's something that's gonna affect the entireeconomy, like some of these headlines would
have you believe. No, Idon't think you can. As a stock
investor, you can sit around worryingabout commercial real estate. That doesn't.

(17:32):
Yes, in the end, itdoes affect something like that would affect the
stock market. But as we sawin two thousand and eight, residential real
estate is a much bigger component tothe overall economy because it affects individuals so
much more. Okay, commercial realestate, yes, it all trickles down,

(17:52):
but it affects businesses or the hedgefund or the private equity firm that
owns that, or the real estatecompany that owns it. And it's not
it's not nearly as big as theresidential market either. So well, and
and and you're talking about the residentialA year ago, we were we were
hearing seeing all the headlines that wereyou know, black Rock and Vanguard are
buying up residential homes and they're goingto own the whole real estate. They're

(18:15):
already backing off of that. They'rethey're a tenth of the purchases they were
doing a year ago. They realizedthe business isn't that great, and that
that they're having to spend a lotmore money on on evicting people, and
it's not a business. I don'tthink they want to be in. They
thought they wanted to be in it. Everyone you read an article and they
act like it's a plan to takeover the world. No, they just

(18:36):
thought it would be a good businessand it wasn't and they're shutting it all
down. It's it's a little bitof conspiracy theory stuff out there just because
the name Blackrock is on it.And I just don't think it's something that
is going to affect anyone. Ithink it's something that we won't be talking
about it at all in another year. Well, all these evil, horrible

(18:56):
things that are happening, and thensomebody gets Biden out of office if they're
a Republican, and everything's amazing,and then then we'll have the other people
on the other side of the aislethinking this guy is going to fall Yeah
in four more years. Right politically, if you're in California right now,
you probably think they're Everything you readand see and everybody you talk to,
everybody says everything is great, andif if Trump gets reelected, it'll be

(19:19):
the opposite. Everybody who voted forTrump will say Okay, now everything's gonna
be fine, and everybody in Californiaand Portland and Denver will be the opposite.
They're all stock investors, you know, and yet they're all wrong.
They're all wrong. The stock marketgoes up over time, and it doesn't
matter who is in the presidential seat. The worst makeup of those is still

(19:44):
better than you're gonna do by sittingon the sidelines. Hey, Brad,
I ran across a chart going backto the market, which I think is
a pretty interesting way to look atthe sentiment in the overall market. And
there's two sectors that couldn't be moreopposite of one another. And then is
consumer discretionary and consumer staples. Okay, discretionary things I don't have to spend

(20:06):
money on, right, those arethe ones. Number one holding, and
consumer discretionary is Amazon, Okay.Consumer staples number one holding is Procter and
Gamble. Not a recommendation to buyor sell either, but staples are the
things you have to have the grocerystore, right. Your utility bills actually,
yeah, I'm sorry. Utility billsare a little bit separate from that.
But things that Procter and gamble sellstied in toilet paper. You're gonna

(20:30):
have to wash your clothes, You'regonna have to go the bathroom. Okay,
Consumer staples would have garbage companies likewaste management in the in the sector.
So if you compare those two sectorsand say, and we're just gonna
compare them on a chart, Basically, starting in November of last year,

(20:51):
it rolled over and staples were outperformingconsumer discretionary and that hit a low point
not in October when the stock markethits low. Which is interesting that that
ratio hit a low point in June, which I know you you've talked about
this, that June was really thereal market low. Yeah, if you
looked at the number of companies makingtheir all time low versus October, when

(21:12):
it was when when most companies wereoff of their low, when when the
ultimate bottom happened in October. Andif you look at this ratio of the
really the once versus the needs consumerdiscretionary versus staples, after June it hit
its bottom, but it really didn'tmake any headway until December. So for

(21:32):
the rest of the year it sortof trended sideways, which okay, that
makes sense. For what what theoverall market did. There were some areas
really rallying, but it really wasn'tdefinitive until January one, you know,
January one. In the month ofJanuary, it exploded in favor of the
discretionary spending. Okay, And there'sbeen two times this year where this has
exploded, Okay, from from thebeginning of June. June and July it

(21:57):
exploded and in January exploded those twothose two rallies, and in August it's
sort of trended sideways and hit anotherbottom recently, and it's trending back up
to its recent highs. So that'sreally an interesting thing to watch to see.
Okay, what's the market doing.We can always just look at levels,

(22:17):
but what's under the hood. What'sunder the hood is defense winning.
And we talked about it at thebeginning of the show, where last month
defense wasn't winning. Is defense oroffense winning in terms of what the stock
market's doing. So I thought thiswas really interesting. You look at it,
you looked at the equal weight versionsof each sector, and this is

(22:40):
combined let's see here. Okay,never mind, I was looking at something
different there this when obviously when thechart is rising. H We're seeing great
strengthen the overall market, and itreally bounced off about a week and a
half ago sort of a recent bottom, and has been rising ever since.
It'll be interesting to see if thatmakes a new high. That would be

(23:02):
a very good signal for the overallmarket that risk on or offense is working
well. And I think it goesto what we were talking about at the
beginning of the show. Did wehave seen what all indications are that we're
continuing in the rally that started atthe beginning of the year or started in
October, or started in June oflast year. We're continuing it with the
same sector leadership, and it ismore signs of the start of the bowl.

(23:25):
Market has not faded. It's justgoing to continue. Yeah, And
I would think that I don't liketo put one month prediction hats on,
but we're probably going to chop intothe FED meeting yep, Okay, some
updates then give it right back.I mean, I wouldn't be surprised with
the sideways market maybe one or twopercent down. People take a little risk

(23:45):
off going into those FED meetings.Personally, I would I would like it
to be one or two percent downgoing into the FED meeting, because if
the market goes straight up into theFED meeting, I think you're setting yourself
up for some big drop trend sideways. What are we forty five twenty two?
Yeah, so you you cracked fortysix hundred on the SMP five hundred,

(24:07):
about a percent above where we aretoday intra day. But the closing
high just below forty six hundred wouldn'tsurprise me if we even hit it today
and then and then faded a littlebit, and then hit it a week
later and then fade a little right, So be somewhere in this in this
area. And when is that FEDmeeting mid month? Uh? Yeah,
yes, we've got uh uh yeah, I think we got three weeks because

(24:30):
I think we still have two weeksbefore the next CPI and then CPI is
a week before. Yeah. Therange you know, high to low is
about four thousand, four hundred andtwenty five two forty six hundred, So
if we're somewhere around forty five hundredor even a little bit under that going
into the FED meeting, I thinkthat sets up for a pretty good second
half of September. Uh and andseasonally even though September is the worst month

(24:52):
in the third year of the presidentialcycle, it's it's not quite as as
bad. So well, I thinkeverything HI is on that FED meeting.
Whether or not they raise, Ithink that probably still is okay. As
long as they say they're done well. That'd be the first time that they
surprised, and the consensus is thatthey're still not going to raise. So
if they don't raise now, Ithink they're done forever and the next move

(25:15):
that they'll forever well for this forevercycle, for this current cycle, and
the next move they'll make will bea cut, and it'll be you know,
hopefully sometime next year, just toyou know, really keep us competitive
with international rates. Brand we getback from the break, I want to
talk life insurance specifically a lot ofpeople out there. It's just not something

(25:36):
that we're really fond of like touse it for retirement planning. But there
we'll talk about the pros and consand why is it just as opposed to
saying don't do it, and thenmaybe some of the reasons why and how
we position it in our own inour own client plans. You're listening to
money Sense, Kevin and Brad Kurstonwill be right back and welcome back to
the show. You're listening to theadvisors of Kurston Wealth Management Group, Kevin

(25:57):
Kurston and Brad Kurston happy to bewith you this morning. As a reminder,
we are professional financial advisors in ouroffices are in Perrysburg. If you
want to give us a call throughoutthe week, set up a consultation to
review your plan, get a secondopinion. Whether you're just getting started for
preparing for a retirement, or you'rewell on your way, or you're already
in retirement, We're happy to sitdown with you and help you out.

(26:18):
Four one nine eight seven two zerozero six seven saw a headline in US
News Brad using life insurance as anasset class for investing. Properly designed life
insurance can fill important gaps in yourretirement plan. Pros and cons of each
and not gonna come at this.It's not something we recommend, and I
want to I'll get later into someof the reasons why that that we don't

(26:42):
recommend it. But let's start withwhat are the different kinds of life insurance.
Let's just start with that. Let'sget a little bit more of an
overview. So get your term insurance, Yeah, straightforward, same annual premium
for the term that you're that you'rethat you're electing to do it when you're
younger. I think that it's whatmost people should have because you can get

(27:04):
ten times more for the same cost, and you need ten times more.
I don't have a lot saved.You don't have a lot saved. If
you're thinking of life insurance as incomereplacement or asset replacement in case your income
goes away because you die, andyou're thinking of your family, then that
chart needs to be a higher lefton how much I need to a lower
right on how much I need onceI start saving. If you say to

(27:25):
yourself, I need three million dollarsto retire, and you're just starting out
and you have a family, thenhow much do you need right now?
Probably clear, pretty close to threemillion, and you probably can't afford the
amount of insurance it would take todo permanent insurance, yeah, because the
cost is astronomical to get three,four or five million dollars worth of it.
Now, if you did three millionof insurance and you're thirty years old

(27:47):
and you were doing a thirty yearyeah, it might cost you a couple
of thousand dollars a year. Butif you're just doing a ten year because
in ten years you're going to doanother one that's less probably gonna cost you
four or five hundred dollars a yearbecause you're thirty and the likelihood of you
using in the next ten years arenot that great. And then ten years
later you probably need two million,and the ten years later you probably need

(28:08):
one million. And when you retire, if that's the reason you were doing
at his income replacement, you probablydon't need any at all because you've now
built the critical mass. And that'sa lot of times how we're thinking of
it for someone and then once theyretire they need a different kind of insurance.
They need to protect their assets withan umbrella policy. But that's term
insurance. And thinking of term insuranceas that what is what what's the insurable

(28:30):
need? And if it's income replacement, then term is the cheapest insurance you
can buy or the cheapest way tomaximize how much coverage you have. I
often wonder if life insurance sales salesmenor saleswomen, what would what would the
insurance industry look like if they madethe same commission on term on permanent as

(28:51):
they did term. Uh. That'sthat's the thing that I think is very
disingenuous among among people like that.Nobody recommends term because there's no money.
There's no money. I mean,if you're doing a one hundred thousand dollars
term policy on a thirty year oldand it's a ten year the annual premium
is going to be fifty dollars,how much money could there possibly be in
it? Right? They pay theagent five dollars? Is you got to

(29:12):
go through the work of doing itright exactly now. Permit insurance is much
different, more complicated simply because youhave the death benefit, but you have
the added You have the additional benefitof some cash value that you're building up.
You may choose to use the cashvalue over your lifetime for retirement income
or other long term goals. Youwill make a payment that not only covers
your death benefit, but also coversan amount to cover the accumulation of cash

(29:36):
to meet a future goal, suchas a stream of income. There's a
lot of times a dizzying array ofinvestment options. It could be variable options,
it could be something fixed interest ratesare going higher, so something fixed,
could be could be available, couldbe attractive as well. But you're
building cash value. But the questionis there's always this opportunity cost of you're

(29:57):
putting money in that policy and buildingcash value because and we'll get to why
you would do that, you know, for retirement down the road. But
what would that money have done foryou otherwise, Because if you're buying low
cost ETFs, okay, that thatis going to save you thousands of dollars

(30:18):
compared to buying some investment product insideof a life insurance policy. So where's
the opportunity cost of what your moneywould have grown to versus the tax benefit?
And there is one of investing inthe life insurance. So in the
life insurance growing tax deferred, andthere are ways to get it out without
having to pay tax on your gain. However, there's a there's a insurance

(30:42):
cost that is a drag on yourperformance. But then also when the when
the withdrawals are coming out down theroad, only some of it can come
out without a cost for the forthe withdrawal as well, And so some
of it can come out it's justa withdrawal, it's just the amount of
your premium you put in and therest of it has to come out as
a loan. And while the agentswould say, well that loan is just

(31:06):
you paying yourself, it is adrag on the policy and there has to
be cash value in there for itto stay enforce otherwise. And we'll get
to that strategy in a second.But you have the big thing, which
is the opportunity cost of where yourmoney could have been invested in lieu of
the cash value. What you're doing, okay, and then why it's not

(31:27):
you know, to say, oh, well, these people are terrible who
are recommending there is a tax benefitthere, And we'll talk about that in
a second. One thing that peopleshould pay attention to though, because this
is assuming that you don't have anyother options available to you, and many
times your own employer will give yousome pretty favorable terms on some insurance.

(31:48):
Yeah, and so that would wipeout any additional benefit of a term,
doing a term on your own ora permanent policy. So pay attention to
what your ployer offers you at alow cost. I mean, that would
be the comparison. Talk about twodifferent comparisons. One would be if you're
looking at the doing ten times morethan what the employer is offering as as
as group covers. See what thatpremium is versus you going out and doing

(32:12):
a term on your own, orif we're comparing apples to apples, like
you mentioned, building up cash valueat a variable or universal life compared to
doing the same thing without the lifeinsurance, right and so and so,
that's something that you have to thatyou have to weigh and you have to
pay attention to. But here's mybiggest issue with it, okay, is

(32:37):
the idea being that you can getprinciple out first. You know, if
you buy the S and P fivehundred, you put a million dollars and
it grows to two million dollars.When you want to take money out,
you pay capital gains on the growth. Now your principle is still it's is
tax free, but not until youget to it. Not until you get
to your your principle. And ina life insurance policy, you could take
the principle out first and then likeyou said, they recommend a loan strategy.

(33:00):
Here's here's my issue with it,okay. This requires steady, ongoing
management and someone looking at it constantly. That never happens in the life insurance
world. Okay, what does thelife happens in the life, We'll sell
you something, see you later,and many times when you go to access

(33:22):
it. Okay, it's twenty thirtyyears later. The person who sold it
to use not even around. Thecompany got sold three times. The company
got sold three times. You don't. You're not monitoring it year to year
to make sure there's enough cash valueso that this strategy continues to work.
And the person who sold it toyou is either retired or dead, and
they don't have a fiduciary responsibility tocontinue to monitor this. There's no fiduciary

(33:44):
responsibility for them to come back yearafter year after year and say, let's
make sure this thing's still on track. Not that they're doing anything wrong,
that's not that's not the role ofthe life insurance agent. But this long
term strategy of this life insurance beinga retirement plan, requires annual maintenance to
which a life insurance person will neverdo and they're not required to. So

(34:07):
Inevitably, whatever assumptions that person putin will not happen. Interest rates will
be here, interest rates will bethere, The stock market will do X,
the stock market will do why thosethings won't happen the way they thought,
and it will require an adjustment,and you won't make that adjustment because
you don't know, and they won'tcall you to make an adjustment, and

(34:30):
inevitably it'll get so far down theline and the policy will get so messed
up based on your original expectations thatthere's no digging out of it. So
that's my issue with it is itworks in a perfect world where you have
somebody that looks out on annually,but in life insurance they get paid an
upfront commission and they get paid nothingafter. So where's their incentive to monitor

(34:51):
this thing? Okay? So USNews goes to what should I be wary
about? Okay, they call itthe three ds for a life insurance investment
design. The policy must be properlydesigned in order to minimize the internal costs,
but also properly design with reasonable assumptions. If they make these ridiculous assumptions
just to get you in the policy, that aren't assumptions that that that you

(35:15):
can feasibly do. Okay, someof them way back in the eighties and
nineties, what do they say?Okay? Oh well, and based on
interest rates, Yeah, you knowyou're going to have a million dollars by
the time you retire. Yeah,and oh, well, what's the minimum?
You always have to ask what theminimum? Well, the minimums three.
But that'll never happen. The tenyear treasuries twelve percent? Well it

(35:37):
did. Yeah, okay, howabout on stocks. If you're gonna do
a variable, somebody could be doingit now and say, well, the
nazac's average eighteen for the last tenyears, let's just run that out for
thirty. Yeah's that's what's That's whatpeople will do. Discipline. You must
understand that permanent insurance is a longterm investment. If your goals are not
at least fifteen years in the future, the policy will not have enough time
to maximize the strategy through favorable taxu favorable accessibility options. Your insurance professional

(36:01):
professional must also exercise the discipline toconsistently monitor the policy. This never happens.
I'm saying never. And the onlytime it happens is when they call
you up and they wanted to doa new one. Yeah, yeah,
okay, yeah. Well and evenif you're to see somebody, uh do
a little too and I see this, I see it on Instagram a little

(36:22):
two minute. Oh did you knowyou could do this with life insurance and
then you have tax free withdrawls forthe cost of thirty years worth of life
insurance cost drag coming out every singlemonth out of the policy. I'm gonna
get tax free withdrawls. Well,they're they're not. They're not entirely free
because then there's cost when you getthe loan out. But there's that cost

(36:44):
drag is so significant, I'd ratherjust pay loan term capital gains. You
know, that's the comparison. IfI do it outside, all I'm paying
is if I liquid it every dollarof it in one year, I'm paying
fifteen percent. Guess what I'm payinga whole lot more than that year after
year after year in life insurance costscoming out. Then I would just paying

(37:05):
fifteen percent capital gains. This strategyof this permanent insurance being a retirement plan
only works in a world where theincentive structure is completely different than what we
know is real life. Yeah,and so could you design something where this
might be better than dollar cost averaginginto the SMP over thirty years. Sure,

(37:28):
but here's the difference. Dollar costaveraging in the SMP over thirty years.
You could go into a coma tomorrowand that will work. Yeah,
this does not work unless someone's lookingat it constantly, and no one's looking
at I equated to this, Brad. It's like someone looking someone who always
buys and sells at the wrong timein the stock market. Right, And

(37:49):
we know that those people, that'sthe average investor, average about two percent
a year. So you might showsomebody right now, say you know you
can buy a one year treasury atfive. Why don't you do that?
Well, because you can make ninein the stock market. And oftentimes I'll
say, well you can't. Somebodycan, but not you because you constantly
sell at the bottom and buy atthe top. So your stock market return

(38:13):
is not the nine you see onthe chart. We're trying to beat two
point three the average investor return.Right. And so the same thing is
true with this life insurance. Theperfect investor couldn't make this work with the
perfect life insurance person. But thosetwo things don't combine together. And so
talk about the discipline of looking atit, okay. And the last thing

(38:34):
is that dedication. Here's the otherpart of it. Okay. So I
mentioned where it could be the lifeinsurance salesman's fault. But here's the other
part, dedication. You must beable to make the schedule premiums on time
as agreed. So that's the otherpart. Yeah, I have this illustration
that shows I'm gonna have a milliondollars in retirement. Well, it also
showed thirty years worth of commuting payments. Correct. Correct, So you have

(38:55):
to maintain the delicate balance of providinga death benefit and accumulating cash, and
you need that consistency. Okay,you'll have some flexibility if things do better,
but you also have to worry thatif it does worse, you got
to put even more in. Okay, and you have to have the flexibility
in your income to be able todo that. And sometimes people either say,

(39:16):
well, I'll take a year offthings have been going well, you
know, maybe you had a goodMaybe it's a variable and you had a
good five year run. I'll takea few years off. Okay. So
that's the issue with these things,and in most times for people, even
if you can find a strategy likethis where you might be better off from

(39:36):
a tax standpoint ninety nine point nine, people are better off in the simplest
strategy. Yeah, Because and thesimplest and low cost one. Even if
those withdrawals will have taxes on itwill end up with more money in it.
If we compared apples to apples.It's it's a maybe you're talking about
if I'm going to invest in anon retirement account. Of course you should

(39:57):
always maximize your retirement accounts, butthis life strategy is non retirement money.
If I'm going to do that,Number one, fifteen percent capital gains aren't
that bad, right? Okay?Number two. All these variables we talk
about that have to go right inorder for this to be perfect, because
you're not choosing between life insurance andI mentioned dollar cost averaging into the SMP

(40:17):
five hundred. Okay, you're notchoosing between well, that's really good and
that all on the other ones reallybad. No, they're both better than
doing nothing. They're breath better they'redoing nothing, and you don't know which
one will be better. I'd arguethat the life insurance strategy will only be
better if you're the perfect investor andyou have the perfect life insurance salesman,

(40:39):
which I don't. I don't thinkit's I don't think it exists because the
incentive structure for selling life insurance isso out of whack that the only time
they're going to call you is toredo it. I had a new idea.
I got a new idea exactly,so I just be very careful with
that strategy. It doesn't mean itcan't work, but I think most people

(41:00):
out there would be better off gettingterm, getting a lot of it when
they have when they need it,when they need not at retirement, and
then if they have money to saveoutside of a retirement account, do some
tax efficient investing in a in abrokerage or advisory account outside of that.
I think most people would be bestdoing that. Take our next pause.

(41:21):
You're listening to money since Kevin andBrad Kursten'll be right back and welcome back.
You're listening to advise as a KurstonWealth Management Group. Rad and Kevin
Kurston here with you. A fewminutes left. Kevin, something we touched
on last week or maybe a fewweeks ago, and that is how out
of whack the thirty year mortgage iswith a ten year. Historically there is
a spread of under two percent,and right now it's three point three percent

(41:43):
and growing. I think when Iprinted this out it was three point three
I think I saw this morning wasthree point four percent. So ten year
Treasury plus three point four percent isnow the national average. National average for
three straight weeks has been over sevenpercent on a thirty year mortgage. It
should not be that high. Whyis it that high? I think everyone
doesn't know where the top is goingto be for the FED and once those

(42:05):
start to come down and instates interestrates start to level off, they're going
to plumb it. And so alot of people would say, well,
why would that be. Is itbecause we have rising interest rates? No?
Actually, typically when there's rising interestrates, mortgage companies are reluctant to
raise interest rates, and you havea lower spread of the ten year versus
the thirty and the seventies. Forthe entire decade, the spread between the
ten year, when interest rates werehigher and growing and the thirty year was

(42:29):
one point three percent, a fulltwo percent lower than it is today.
That to be the same that wouldbe in the national average for the thirty
year would have to be five.Why do I bring it up? Financial
companies probably struggling a little bit onthe mortgage side. We've we've seen that,
you know, new applications are startingto slow a little bit. Nobody
wants to sell their house because youknow, you know, I would have

(42:51):
to move and get another. Itis temporary. We're going to see a
drop in this and next year mightbe a boom for refis. We might
we might see an influx of peoplefinally willing to sell their house to move
typical downsizing or wanting to move south. It is temporary, and sometimes we
just see these headlines. It's justlike, oh, this is the wave
of the future. We're gonna havetwo decades of rising rates and nobody's gonna

(43:14):
ever want to move now. Thatwould not be normal. And what's normal
even for this thirty year mortgage isthat we should be at least a percent
and a half lower than we aretoday. And if we saw a drop
in the next six months of oneand a half percent on the thirty year
mortgage, I think you're going tosee a lot more people moving, a
lot more buying and selling of realestate, and that always votes well for

(43:37):
the US economy. When people aremoving, you have a lot of expense
going into that, whether it's remodelingor just building of new houses, and
all of that's a boom for theeconomy. So there's a lot of bright
spots out there, and I thinkit's been pretty resilient even with as high
as interest rates or mortgage rates havegone, that we've had any activity at

(43:57):
all, because in the last yearit is really move pretty quickly, and
I think we're going to see thisas a spike that will come right back
down not to distant future. Thepeak of the thirty year mortgage just a
week and a half ago was sevenpoint eight. Yeah, down to seven
point five at the end of themonth. But like you said, if
we're at historical norms compared to theten year treasury, you're looking at six

(44:22):
is where it really should be basedon the current level of the ten year
treasury. If you get some evenfurther moving in the ten year treasure,
you could get even better. Soit would be one of the other reasons
the Fed may cut is if there'sany struggles and anything interest rate related,
commercial or with housing. They don'twant things to implode, and so just

(44:45):
giving a sign with a cut ortwo would be one that would bring this
spread of the ten year treasury andthe thirty year mortgage back to equilibrium,
and that would be stimulus that theycould do without having to do a whole
lot. What are you calling ifyou do an average of all those,
Yeah, it was still under two, and we're looking at the whole decades.
So just to give it to youreally quick, the seventies was one

(45:05):
point three, the eighties two pointone, nineties one point five, two
thousand's one point nine two thousand andtens one point seven two thousand and twenties,
which we've only had three years oftwo point two. So but I
mean that would put for one.That number now was even higher a week
ago. At the peak it was, my goodness, it was three point
eight percent. If we're at historicalnorms right now, the thirty year treasury

(45:30):
should be right around six. Yeah. Yeah, And just if we're at
historical night and if you're going tocompare it to other rising rate periods of
time, it'd be in the fives. And I think we could once it
starts to tip over. I thinkthat's what we're getting and we'll get there
because mortgage companies will want to compete, and so the first time one starts
to go down, they're all goingto come down and it will be a
race to the end. You don'tneed to get movement in the housing market.

(45:52):
You don't need to see that ratego to three percent again, you
don't, You don't. It's youknow, once you've seen seven five five
point eight five will seem like alike a bargain, right, That's right.
So 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.

(46:15):
To contact Dennis brad 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 Kurstonwealth at LPO 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

(46:38):
may be appropriate for you, consultwith your financial advisor prior to investing.
Securities are offered through LPL Financial memberFinra SIPC