Kersten Wealth Management Group - Money Sense 4-05-25

Episode Transcript

Speaker 1 (00:00):
Hello, and welcome to Money Central, listening to the advisors
of Kirsten Wealth Manager Group, Kevin Kirsten and Brad Kirstin.

Speaker 2 (00:05):
Happy to be with.

Speaker 1 (00:06):
You today as we still sit here with the market
trying to find some footing here, Brad, tariff talk is
all you're hearing.

Speaker 2 (00:14):
I saw that.

Speaker 1 (00:17):
Tariff in terms of Google searches. It eclipsed inflation from
two years ago by quite a bit. It even eclipsed
the searches surrounding COVID nineteen really, yes, from five years ago.

Speaker 2 (00:31):
So many people don't really know what a tariff even is,
so certainly there might be some of that in terms
of the searching, but also trying to figure out, and
this is what everyone's trying to figure out, is what
the effects on the market and the economy will be.
And I know a lot of people claim to know
exactly what the effects on the market and the economy

(00:52):
will be, but they don't because we haven't tried it.
And I'm not saying I'm in love with it either.
I've said multiple times on this show that I think
Trump don't like it. I think it's preferred level of
tariff's zero for everyone. But what I don't understand is
the pearl clutching that goes on with our media because
they just hate Trump, that it is somehow horrible and

(01:14):
awful and it will ruin everyone's life if Trump puts
in a tariff. But I have not seen one person
in the media put a microphone in the face of
I don't even know who the president of Germany is
right now, the president of Germany, Macrone in France. People
in the UK, Yeah, it's so bad for us to do.
It's awful, it's horrible. It's horrible for them to It's

(01:35):
not only going to ruin the US economy, it's going
to ruin the global economy. But somehow it's okay for
everyone else to do it to us. I mean, I
sent you a couple of tests, read some of that off,
and I mean Canada has all of these. And their
argument is, but you guys agreed to them. And Trump
says I didn't agree to it, okay, And the American
people didn't agree to it. Another president agreed to it,

(01:58):
and it's it. They are all absurd and they all
need to come down. And so it's if it's so
bad and it's going to ruin our economy. Why isn't
it ruining all the other economies. I mean to me,
it's equivalent of like someone getting a divorce and you
agreed to this alimony, and then the next person is
living high on the hog and they get remarried and

(02:20):
they have all this other stuff and it's like, wait
a minute, we need to renegotiate this. Yeah, you're wealthier
than me now right, Okay, and so, and it's not
that these countries are wealthier than us, but it is
the fact that they've been getting a free lunch. Yeah, okay,
And someone who gets a free lunch isn't always doing better.
But what you're seeing in some of these other countries

(02:41):
when you talk about the free lunch, for example, of defense,
where everyone basically uses our protection. Now Germany is investing
more money in defense than they ever have in the
last thirty years, and we don't have to spend the money.
And now we don't have to spend the money. Yeah,
so I sent you this this morning. You know, the
the temporary Canadian prime ministers out there saying, well, we're

(03:03):
gonna be tough, you know, we're gonna put tariffs on Well,
you already do the tariff on milk that we send
to Canada is two hundred and seventy percent, cheese two
hundred and forty five percent, butter two hundred ninety eight
percent tariffs Trump's talking about fifteen or twenty mm.

Speaker 1 (03:20):
Okay, chicken, if we if we export chicken two hundred
and thirty eight percent, sausages seventy percent, eggs one hundred
and sixty three percent, weeat ninety four percent, barley seed,
fifty seven percent, meat, twenty six point five percent, steel
twenty five percent, aluminum anywhere from ten to forty five percent,
copper forty eight percent, and cars forty five percent.

Speaker 2 (03:43):
And yet what what we're gonna have this battle? Right, Yeah,
We're gonna do twenty five percent across the board, and
you're gonna do what take milk from two seventy to
five hundred. I mean, there's an easy way out of this. Yeah,
just call up Trump and say we're going to zero
and you know what, Trump will say, We're at zero
two congratulations. Yeah, And that's the same with all you

(04:05):
guess anybody, By the way, we talk about free trade.
We talk about free trade, and everybody, every economist in
the United States talks about free trade. But don't you
don't they only it's a one sided affair. Okay, they
want us to charge nothing, great, I agree with that,
but I want everyone to charge nothing. Well, okay, the
EU brother, we finish up when I sent you this morning.

(04:26):
The EU imposes a ten percent tariff on imported cars.
The US imposes two point five. So we make a
Chevy or a Ford in the United States ship it
over to the EU ten percent. They make a BMW
or a Mercedes or a range Rover ship it over
here two point five. Why I know, well, and and

(04:48):
that's just that's just one example. There's other tariffs that
they have that are higher than ours. India one hundred
percent on so we send a Harley Davidson over to
India one hundred percent.

Speaker 1 (05:00):
They make a motorcycle in India. I don't even know
what company that would be two point four percent.

Speaker 2 (05:04):
When it comes back here. Yes, yeah, But the argument is, oh,
this is all going to cause inflation. Well it doesn't
in these countries, and it's going to be Their terrifts
are four times higher than what we're talking about. E
Use inflation for twenty twenty four was two point two percent.
Well if it causes inflation. Why aren't we seeing it there?
So everything gets passed around to something else. What will

(05:25):
end up happening is you'll buy a US good that
you have ignored instead of buying the foreign good. If
they even stay, And what's likely to happen is some
were just going to completely go away and they're only
going to be their temporary and then others will be
higher than zero, and we'll have some tariffs that'll stay
and that savings. And this is the reason that I
think they're doing it first, even though I don't want

(05:46):
them to do this first. That savings, they're going to
try to say, let's now pass that on to the
tax cuts, so we can go further on the tax cuts.
Instead of just extending the tax cuts, Let's go further,
and let's go lower on corporate tax. Let's go lower
on all brackets, and operations are going to have to
pay more for these tariffs, so therefore we're gonna take
the corporate tax down. But they're not floating that out

(06:09):
that I feel like. And I understand there's negotiations going
on behind the scene with taxes and they're trying to
figure it all out, But why not float that out there. Yeah,
why not say our estimate on savings or what we're
going to take in for tariffs is this, we're going
to put that right into. Instead of twenty one percent
for corporate tax, it's going to be fifteen percent corporate tax.
So you're going to get that savings, but it's a

(06:30):
US company that's getting that savings instead of the foreign
companies selling into our market. And so a little bit
of protection for the US companies, a little bit of
an incentive for foreign companies to build here and do
more here instead of finding another country to do it
all in, and all of that is growth for the
US economy. When you look there was all those talk

(06:50):
a month ago for GDP, now having this negative estimate,
which is all now coming back to it was just
a blip down and coming right back up. When you
look at the economic numbers that we've had over the
last two weeks, everything's beating. Everything's accelerating. I don't care
if it's home sales, if it's a pm I number,
if it's any kind of of of economic production number,

(07:11):
they're all beating every single number from the last couple
of weeks. And it's all going to accelerate too when
we get to some more current auto sales numbers, because
those of all for the month of March. Month of
March might be the best month we've had since cash
for clunkers when it comes to auto sales because of
everyone just pushing forward because they're fearful of something that's

(07:31):
going to hit us auto auto automakers if they're importing
parts or just foreign automakers if the if the teriffs
for autos stay in place. But all that is more
than just a pull forward from future sales. It's getting
people off the fence, and it will it'll increase the
first quarter tremendously. But then if it all goes away,

(07:51):
or if it if it comes back down to earth
with a small tariff, it'll have no effect on the
next quarter sales. And so it'll just be a boost
to the the GDP. When everyone's just kind of floating
out there and threatening that the GP number is going
to be negative for the first quarter, it doesn't look
like it's going to be.

Speaker 1 (08:08):
And the other thing, Brad, you're talking about this this
correction that we're in apparently because of tariffs. Although you
look at technology being the worst sector which has virtually
no exposure to tariffs, so someone needs to explain that.
But year to date, okay, you look at the s
and P five hundred down four point three on the year.
That's the end of the quarter two that you're quoting here, one, two, three, four, five, six, seven.

(08:33):
Eight of the thirteen sectors of the SMP positive are
beating the SMP. No, they're not all positive, but they're
beating the SMP. Well, seven are positive, seven are positive,
eight or beating. Industrials are down point two, which, by
the way, industrial stocks beating the SMP. Yeah, I thought
it was tariffs, though it was tariff's and manufacturer well,

(08:54):
let's let me read off the top for the for
the quarter, Energy was number one, and most of that
came here and just the last.

Speaker 2 (09:00):
But energy is only three percent of the smpes ten
point two percent. Number two is healthcare six point five
to four percent, Consumer staples five point two to three
positive for the quarter, and the utilities four point ninety
four positive for the quarter. The three worse consumers discretionary,
Amazon and Tesla there negative thirteen point eight, tech negative

(09:22):
twelve point sixty five, and communication services negative six point two.
How many of those actually are affected by tears. Very
few of those three of the companies in those three
sectors are affected by tariffs. So what is it? It is?
What's up the most is selling off, and that's what
a normal correction looks like. You get a little frothy

(09:43):
with a few sectors. They sell off a little bit
more than the overall market, and in this case, they
sell off when a lot of other parts of the
market are not selling it off at all. Large four
and up seven. What was it in the last two years?
Barely positive? Emerging markets up three on the quarter, last
the three year average annual including that, the three year

(10:03):
average annals one point nine for emerging market, So barely moving.
And then it's called it the flight to safety because
it's so cheap, and so people are moving out of
things that are expensive into something that's cheap. Same thing
with bonds. A great quarter, maybe the best quarter we've
seen in five years with bonds. The Agri bond index
up almost three percent for the quarter. And that's across

(10:24):
the board with all sectors, even munis, which had a
good twenty twenty four, up about one percent across the board,
depending on what you're looking at. Only really long dated
munis having a negative there, but all bond sectors positive,
International all positive, and six of the eleven sectors positive

(10:45):
for the overall market. And that even goes for the
last month. As the market's deteriorated. You've got utilities up,
You've got energy up over the last month. So a
diversified portfolio is working even if you're down. Diversification has helped,
but at some point you have to just kind of
get in the regular mode of rebalancing. And what that
would have done at the end of the year last

(11:05):
year was have you tremble a little bit of your
tech exposure, if you've got if you got a little
ahead of yourself, to add to these things that got
left behind. But now here as you're at the end
of the first quarter, a little rebalance will have you
do the opposite, getting lightening up a little bit on utilities,
energy and consumer staples and adding back to things that
have kind of overshot on the downside.

Speaker 1 (11:25):
So if you look at the sixty forty portfolio from
high to low, here SMPS was down a little over
ten and the Agriga bond index is up about almost
two percent from high to low. So if you were
sixty forty stock to bonds recently, Okay, you should expect
that your overall portfolios down between five and six Okay,

(11:49):
from high to low, from high to low.

Speaker 2 (11:51):
Yeah, not on the year.

Speaker 1 (11:52):
So that is so much better than twenty twenty two
when we had the full blown bear market. And here's why.
Not necessarily the stocks are the stocks. But I just
looked at when twenty twenty two hit, and we went
down the first ten percent and I'm not saying it's
going to go to the low, but the first ten percent, Okay,

(12:14):
the aggregate bond indicts was down six. So when you
went down your first ten, you were down nine in
a sixty forty stock to bound allocation. Today the market's
down ten and you're down half of that, Okay, So
diversification is working. We talked about those other sectors that
are also working. If you have large value, it's up

(12:36):
this year.

Speaker 2 (12:36):
Yeah. If you have low volatility, which is utilities and staples,
it's up this year. So if you have bonds, they're
up this year. So compared to twenty twenty two, and
even if God forbid it got to a twenty twenty
two sell off, given where we started on yields. Okay,
the sixty to forty portfolio benchmark in twenty twenty two

(12:58):
lost something like sixteen or seventeen percent. You could have
the same downturn in the SMP and the sixty to forty.
Poor someone who had bonds, and even right.

Speaker 1 (13:08):
Now, somebody who has value, okay, is going to see
a loss of less than half of that if that happened.
So we are in a much better place asset allocation wise,
for the overall market to weather any storm that we're in.

Speaker 2 (13:24):
Let's talk about that, because I think that's what's worrying
people is is this going to turn into twenty twenty two?
And am I going to see a high to low
of twenty two?

Speaker 1 (13:30):
I just looked at our more conservative model for somebody, Brad,
and it was down four percent from the high day
with a stock to bomb mix. Not really not our
most conservative model, but somewhere in the middle, somewhere in
the middle, more like a sixty to forty correct it
was down four Yeah, okay, so but not on the year.

Speaker 2 (13:48):
You're talking from highest point to lowest. That's for highest
point exactly exactly, so less than half of the s
and P because you have those bonds. You have some value,
you have some international Okay, yes, if you're low it
up on magnificent seven QQQ large cap growth you're down,
you're six, you're high to low as fifteen. Yeah, you're

(14:09):
year to date it's ten. So yeah, that's that's why
you just keep rebalancing when things get overheated. And the
same Now, you cannot give up on on tech. If
the market rallies, it's going to continue to be the leader.
But people are worried about another twenty twenty two. Let's
talk about what that. There's a lot of signs in
twenty twenty two that the Fed was going to keep

(14:30):
slamming on the brakes. They're doing the opposite now. Now,
first thing people are worried about is inflation going to
heat back up. Well, as we talked about the last
few shows, you can look at true inflation, the true
inflation index, which is a real time index versus what
the Fed posts and everyone used to look at, which
was CPI and PCE numbers which are six weeks delayed.

(14:51):
And those numbers for true inflation went all the way
down to one point three percent annualized inflation. Then they
toocked up a little bit over the last two weeks
to one point seven. They are right back down into
the one threes, one three to eight today, and so
we're gonna have some monthly CPI numbers coming up next
month in the following month that are going to be
flat or negative and are gonna take those CPI numbers

(15:12):
down in two months to the low twos or below
two if we see that the Fed is cutting before
before we get to the end of the second quarter,
and may cut twice before we get to the end
of the second quarter because they can. So it is
the opposite where you're you're not fighting the Fed. The
Fed is on your side because inflation is going to
continue to come down and the Fed has room to

(15:34):
cut and they will. So there's really three aspects to
this selloff that don't worry me at all. One is
that that the Fed is going to look at some
GDP numbers that are pretty mild but not negatives, and
so they can cut. The inflation number is gonna be down,
they can cut. And then the politics, we're going to
get a tax cut plan. How big is it, I

(15:55):
don't know, but we're gonna get it. That's a positive
for the market. And we're gonna be talking less about
tear us, and some of these tariffs will get imposed
at a lower rate and some will go away, and
that will be a positive for the market. We're not
going to have what the threat of tariffs are in
place permanently, and so if that's the worry of the market,
we know that at some point we're going to be

(16:15):
on the other side of that. So all three of
those things that would lead someone to worry that this
is going to turn into a twenty six percent high
to low self like in twenty twenty two. We don't
have the same environment with the FED, we don't have
the same political environment. We won't have the same political
environment three months from now that we have currently where
we're doing a little bit of this fighting, and we
don't have really even the first draft of the tax

(16:37):
plan yet. All of that when we get three months
out will look a whole lot different, and so will
the market. We'll say our first pause here and kind
of shift gears and talk about a little bit of
what we were talking about last week with some planning issues,
just to finish that up before we kind of do
a deeper dive on some of the current market news
out there. You're listening to money sets the advisor's of

(16:58):
Christan Wealth Manage Group. We'll be right back. Welcome back
to the show.

Speaker 1 (17:02):
You're listening to the advisors of Kirsten Wealth Manager Group,
Kevin Kirsten and Brad Kirsten. As a reminder, we are
professional financial advisors and our offices are in Perrysburg. Give
us a call throughout the week if you want to
sit down and have a consultation to review your financial plan,
whether you're just getting started, well on your way to
retirement or already in retirement, we'd be happy to sit
down for one nine eight seven to two zero zero

(17:24):
sixty seven, or check us out online at Kirstenwealth dot
com where you can get some information on our firm
and get some updates on the markets. This week's weekly
Market Commentary focuses solely on tariffs, so it's really a
good read. Encourage everyone to go out to curse to
Wealth dot com and read the weekly market commentary. Tariff
uncertainty facing stocks to start clearing soon, so talking about

(17:48):
you know, what's going on with tariffs, but then also
getting some clarity over the next week and having a
little bit of that sire relief, and I think that
that coupled with earning season sort of indicating that the
economy still on some pretty sound footing.

Speaker 2 (18:02):
Yeah.

Speaker 1 (18:02):
I think that's what may put those two things together,
and that's kind of what this market commentary.

Speaker 2 (18:05):
I think that's what makes the market nervous, is is
are the tariff's gonna cause or an earnings decline? Are
tariff's gonna cause some sort of spending decline and we're
not seeing it. Two different reports coming out today on
forecast for auto sales for March and then also GM
reporting beating in every line of car that they have

(18:28):
not just for the last couple of weeks and for
the month of March, but for the whole quarter, so
everything is accelerating. Of course, they're going to backfill that
story and say, well, let's cause the tariffs and everybody's worried. Well, okay, fine,
people are gonna get out and buy a car because
they think foreign automaker is gonna have some tariffs or
I don't know what they're thinking with the domestic automakers

(18:49):
that ten percent of their parts come from overseas, so
I better run out and get it before they increase
the cost by a little bit. Everyone is assuming that
the cost is gonna get is going to get pushed
onto the consumer yet to be seen if they're going
to be there temporarily, even if they're gonna be there
temporarily for a year. I have a hard time believing

(19:10):
that it's not going to also be offset with some
sort of incentive to buy or low financing. They're gonna
keep moving things like cars. They're not going to just
up the price and hope that people coming by. There's
gonna be some incentive that that you used to get
that you're not getting now. And here it comes back
something like low interest rates. So all this is going
to also be coupled with the Fed lowering rates to

(19:31):
give automakers the ability to do it, or across the board,
spending is not declining. There's the anticipation that it was,
and now when the numbers are coming out, it's not.
So let's maybe wait till some of the numbers are
actually out, and now we're starting to get it, especially
for the autos.

Speaker 1 (19:47):
In the Weekly Market Commentary, he talks about trade policy
uncertainty and looking at an index that was created the
trade policy uncertainty the last time we had this was
in twenty nineteen when and Trump was president. Previously, we're
even higher than that on trade policy uncertainty. But if
you look at the chart that's in the commentary, it

(20:08):
was very high in twenty nineteen around the tariff rollouts
for Trump one point zero market tad uncertainty. But once
it clears, stocks tend to rally. The S and P
five hundred gained seven percent three months after that trade
uncertainty peak in twenty nineteen, and.

Speaker 2 (20:23):
We're higher than that peak now. Well obviously, yeah, I
mean twenty nineteen, Yeah, it would have been what S
and P twenty five hundred. No, No, we're higher on
the uncertainty index. Oh yeah, uncertainty index. Yes, we're almost
fifty percent higher. Yeah. So yeah, you think about which
already had the tax cuts done by then, you had
you already had the Trumps, You already had some of

(20:44):
the tariffs come and go at that point. So a
lot of people were already in the belief that the
next tariff would come and go. And so we're in
this world of everyone now just can being convinced that
Trump's going to dig in and keep tariffs forever, because
that's what he's saying, but that hasn't been the history.

Speaker 1 (21:00):
Well, last time around, when when we hit that peak,
the three month return on the S ANDP was seven
percent from August thirty first of nineteen to three months later,
and the return to the pandemic when the pandemic started
February nineteenth, uncertainty of uncertainty was sixteen percent return from
August to February nineteenth. Interesting that our peak for the

(21:24):
market here recently was February nineteenth, and our peak for
the market in twenty nineteen, excuse me, twenty twenty was
also February nineteenth, So interesting to see that. In fact,
we haven't we haven't hit a new low on the SMP.
But if you go back, what.

Speaker 2 (21:40):
Was the low March nineth twenty third, March twenty third, Yeah, March,
it was a Monday. It was the monday that we
announced fifteen days to slow the spread, and that fifteen
days was going to start in a week. But the
low day was that on that announcement day. So our
recent our recent low was March thirteenth on the S ANDP.

(22:00):
So not quite lining up perfectly, but a lot of
the charts were showing some in like the AI Bowl
bear and some of the sentiment indicators were as bad
as February nineteenth, twenty twenty through March, so some of
the sentiment and the market down thirty five then during COVID,
and the uncertainty and the bearishness in the market is

(22:24):
the same when we're down eight nine ten as it
was when we were down thirty five. I think it's
a little skewed, unnecessarily skewed, because we have this really
because of tariffs, because of it can't be because of taxes.
I mean, we have the House in the Senate that's
going to get past. There's a little bit of uncertainty
around a few other policies, but all of them for

(22:46):
cutting government spending, for the ability to get the tax
cut done, all of those are positive. So if there's
uncertainty around what that will mean, say with the cuts
in the job market, still seven point seven million open
jobs out there. That number came out on Tuesday. They
expected was seven point four and it was seven point seven,
So you should be able to find another job.

Speaker 1 (23:07):
Let me just read the conclusion from the market commentary
this week too, Brad markets are facing significant tariff uncertainty
at the moment, but that fog will soon start to clear. Historically,
periods of policy uncertainty have been followed by stock market gains.
The economy is slowing but remains in relatively good shape.
We have low unemployment and rising incomes, which has historically
been very supportive of the overall stock market. Signs of

(23:29):
recession are tough to find. Despite weakening consumer and business confidence,
corporate profits are still on the rise. The Fed is
going to cut rates this year. Tariff inflation will more
than likely be transitory. Tax cuts will be extended to
what degree we do not know. Get ready to buy
that dip. You just don't necessarily have to be in
too big of our head.

Speaker 2 (23:49):
Yeah. And so when you're hearing people say, well, I'm
hearing people say this to me, Well, I'm hearing we're
gonna have a recession. Okay, show me one number that's
pointing to recise.

Speaker 1 (23:58):
What I text you about the inflation last week that
was hotter than expected. Every single number in the inflation number.

Speaker 2 (24:04):
That was hotter than expected was wages.

Speaker 1 (24:06):
Was there was every single other number was lower. The
only one that was higher was wing.

Speaker 2 (24:10):
So in an environment where we have and it was
pretty moderate inflation. So on the CPI where you call
it two and a half, So here we have two
and a half CPI inflation. On true inflation, we're down
to one point three eight and the only thing bringing
it up to that level is wage increases. Is that
a bad environment. People are making more and goods cost less,

(24:31):
and I'm supposed to be worried about that. Let's do
one more to close out this break, and it is
we had something happen this week that hadn't happened, has
only happened fifteen times in history, and it is the market.
They asked me five hundred making a one year high
and then the following month being down five percent. So
it made an all time high in February and then

(24:52):
the month of March was down five percent. That's happened
fifteen other times. And there's two things I want to
look at here. Obviously, if we look at fifteen different
times that it's happened one week later, two weeks later,
a month later, two months later, three months later, six nine,
and twelve months later, they're all positive. But what I
think is important is not that they're all positive or
what those numbers are. How far out do you have

(25:14):
to go before one hundred percent of the time we
are positive. Now, if I go two months out of
the fifteen times, I still have five that are negative.
The average for those two months later is three point
three percent, pretty good. Three months later the average is
six point eight percent, and I still have two instances
where we're negative three months later. But all I have
to do is go out to six months. Probably that

(25:36):
is all it is. My charge is six months later.
But if I went out four or five months, it's
probably there. But it's six months later. Of the fifteen
times where we had this five percent correction after making
a one year high the prior month, one hundred percent
of the time we're positive, and six months later the
average is a fifteen point seven percent return. Now you
and I talk about charts and knowing what's meaningful or not,

(25:58):
it has to be a above the average, and being
positive one hundred percent of the time six months later
is above average. Being up fifteen point seven percent on
a six month is well above average. And we look
at the one year in those instance, again, one hundred
percent of the time positive. Twenty five point four to
nine percent is the average of those fifteen times one

(26:20):
year later, the worst is six and a half percent,
The best is fifty three percent, and that's the post
COVID one year later, fifty three point seven to one.
But the average is twenty five and a half one
hundred percent of the time one year later. If it's
that meaningful two and a half times better than the
overall market, it tells you that historically you should be
buying those dips. And when you get a five percent

(26:42):
negative month after a one year high, it is one
of those by the dip moments. You don't have to
wait for the perfect day, but certainly you got to
be thinking about adding like we were, like we're talking
about for the last two weeks, adding on at this
level because six months later, twelve months later most of
the time and in this case a hundred some of
those times, you're going to be happy with it. Let's
take our next pause. You're listening to advisors of Personal

(27:04):
Wealth Management Group. We'll be right back.

Speaker 1 (27:06):
Welcome back to the show. You're listening to the advisors
of Kirston Wealth Manager Group, Kevin Kurston and Brad Kirsten. Brad,
we were talking last week about the JP Morgan Guide
to Retirement. Nice little guide to walk you through all
the things that you should look out for in retirement.
We kind of closed out the segment we did at
the end of the show talking about allocations and withdraw rates.

(27:29):
That was the last thing we were looking at, and
there's sort of some interesting things that come from that.
Just to reiterate at number one, the less you take,
you could almost be completely flexible and have a successful retirement.
If you take a three percent withdraw rate, your probability
of success is ninety five to one hundred whether you're

(27:50):
one hundred percent cash or one hundred percent stock.

Speaker 2 (27:52):
Right, So you know, think think along those lines, because
do you want to be flexible in retirement or do
you have to be more rigid with your portfolio management
because historically that's the only thing that works.

Speaker 1 (28:04):
Because certainly, I would argue this is a little bit
rear view mirror too. You're not going to get that
kind of return on your bonds, like this historical chart shows.
You do a four percent rule, the only thing you
can't do is cash.

Speaker 2 (28:17):
It won't work. You'll run out of money if you
do the four percent rule. Now, this is a sixty
five year old retiree with an average life expectancy in
taking this withdrawal adjusted for inflation. But the four percent rule,
you could pretty much be anything from twenty percent stocks,
eighty percent fixed income to one hundred percent stock. Will
it will for the most part. Work.

Speaker 1 (28:38):
You start taking more money, it gets a little tricky.
And this is where I always talk about can you
afford to be conservative? You want to be able to
afford to be conservative because you're older, you don't have
the same risk tolerance, nor shouldn't you. But you start
getting to a five percent withdrawal and your twenty eighty
portfolio only has a forty five percent chance of success,

(29:00):
or the other word is fifty five percent chance you
run out of money. So you can't afford to be
that conservative. Yes, you at forty sixty stock to bond,
you only get to sixty percent. And really, if you're
going to take five percent or more, you have to
have fifty percent or more of your money in stocks
to have any chance. Now, some people go even further,
and this gets really dangerous. But people go with a

(29:22):
six or a seven percent withdrawal. A six percent withdraw
everything sixty forty in under is only a forty percent
chance or worse. So really at a six percent withdraw
you got to put it eighty percent of your money
in stocks and just hope, And certainly hoping is not
a good strategy, and that's where you take too much.

(29:42):
You get into that hope strategy and you can't afford
to do that.

Speaker 2 (29:45):
And a lot of people are thinking, I'm not I'm
not taking too much, but they don't think about one
hundred percent of my dollars are coming from an IRA,
and they're thinking about what they're taking out, but not
what they're they're gross is and the amount going to
taxes on those withdrawals counts. They're not thinking about that
once a year where we call and take a little
bit more out and that might be an extra percent too,

(30:08):
So you might have an extra percent coming out for
taxes and another percent coming out for just those one
time that are end up being once a year and
not one time every five or ten years. And so
maybe you start with a four and a half percent
withdrawal rate, but before you get to the end of
the year, it's six and a half seven And that's
where we get in trouble if we keep doing that
year over year. And I think the other thing that

(30:29):
gets most people in trouble, if left to do it
on their own, is not selling the right thing. When
stocks are having a terrible year, they think, well, I
don't want to sell my bonds they're working, or vice versa.
If stocks are having a great year, I don't want
to sell those stocks they're doing well. No, they did well,
and that's why we should be selling those for those withdrawals,
just to rebalance the portfolio and take risk down a

(30:51):
little bit. Having that discipline can also improve your chances
because you're constantly rebalancing as you're selling for withdrawals. The
thing that's done the best is going to get a
little inflated in your portfolio if you're not rebalancing it
in your portfolio deliberately or selling it for withdrawals as
a way to rebalance.

Speaker 1 (31:09):
Look at a and we talk about those withdrawal rates
and the strategies that go with it, and some people
might say, well, wait a minute. I mean I'm looking
at the average ANU return and in this case it's
a forty sixty portfolio. The average annual return from nineteen
sixty six to two thousand was nine and a half
percent per year. Okay, but from nineteen there's a lot

(31:31):
of periods of time, especially early from sixty six to
eighty two, the market went nowhere, even though the average
an your return for that is nine point five. In
that scenario, Brad, someone who took a four percent withdrawal
adjusted for inflation. How can you possibly average nine point
five take four and run out sequence of the returns.

Speaker 2 (31:55):
So someone retired at sixty five in nineteen sixty six, okay,
they would have run out of money by age eighty
eight in that forty sixty portfolio with a four percent withdrawal. Yeah,
because you start at sixty six and by the time
you get to the end of seventy five, you have
made no money and you've taken out where we got

(32:15):
nine years there, ten years, call it ten years. If
you're taking a four percent withdraw four times ten, you're
taking forty percent of your portfolio out and the market's
gone nowhere, and your bonds probably gave you a little bit.
But now your four percent withdraw has turned into a
seven and a half percent withdrawal.

Speaker 1 (32:32):
Well, and here's the other thing that's interesting. Had you
done a financial plan at that point, Brad, on a
forty sixty the assumed rate of return on that portfolio
for that period of time would have been right around
eight percent annual because that was the historical because that
was historical at that time. So if you assumed eight
your illustration, your financial plan, oh it would have worked. Yeah,

(32:54):
this person still has money at one hundred. So even
though your assumed rate of return was less and your
actual rate of return, you still ran out of money.
People like their their minds explode right when they think that,
And it is because from sixty six to eighty two,
your stocks made nothing, and by the time you got
to the good years, you didn't have that much money.

(33:15):
And so if you weren't flexible with your withdrawals, your
four percent withdraw turned into a double digit withdrawal rate.
And that's obviously not sustainable. So it is the reason
that we shake our heads at all this time spent
on retirement plans that are completely hypothetical. They're backward looking
on performance and you're solving for the unknowable.

Speaker 2 (33:39):
Well, and most retirement plans never do a sequence of
a turn's variable performance report. People will say that's the
money Carlo. People will say that's the Monty Carlo simulation.
But when people do the Monty Carlo. They never focus
on the bottom ten percent of outcomes. Isn't that all
that matters? I mean, there are also ten ten percent

(34:03):
of scenarios where if your baseline says I'm gonna die
with two million, there's ten percent of the scenarios say
you're gonna have more than ten million. Okay, we're also
not focusing on that. So, yeah, it is. Unless you're
just a year away and you're saying, what should be
my starting withdrawal rate, none of it matters. And people

(34:23):
are spending way too much time on the plan projecting
out five, ten, fifteen year retirement scenarios that are completely
meaningless a couple years later when we actually get our
randomized returns in there, So stop spending so much time on.

Speaker 1 (34:38):
That, And you kind of touched on what we like
a lot is is a little bit more of a
bucket strategy where you keep years one, two three in
very short term fixed income that's not gonna budget in
terms of years one, two three of your income needs.
Maybe year four, five six is in something still very
conservative but intermediate. Beyond that, you probably don't need much

(34:59):
more in that bucket as long as you've reserved enough
in that bucket, and you go to that bucket strategy
and see how what this covers. Brad, look at a
five year rolling return on stocks, bonds, and the fifty
to fifty allocation, even which was kind of part of
that bucket strategy, even if you split your account fifty
to fifty, See where's your risk? Okay, a five year

(35:21):
rolling the best five years ever on the SMB, going Mack,
the nineteen fifty is twenty nine percent a year. Worst
five years ever is negative two. Best five years ever
for bonds is eighteen percent annualized. Worse five years also
negative too. So you have two asset classes here which
historically have the same worst five years, but one of

(35:41):
them on the best five years is eleven percent per
year better. So, of course, beyond five years, it almost
doesn't make any sense to have too much money in bonds. Now,
look at the one year. Why would you want money
in bonds? Well, the worst year ever for bonds was
twenty twenty two minus thirteen percent. Worst year ever for
stocks is thirty seven. That's why you need your fixed income.

(36:02):
I would argue certainly too, given where we started on
interest rates in twenty twenty two, repeating that negative would
almost be impossible from this level of interest rates.

Speaker 2 (36:12):
But let me go a little further here in this
bucket strategy. Okay, I retire in twenty twenty, that started
twenty twenty one, and I pulled five years worth of
withdrawals out call it five percent a year, twenty five
percent of my portfolio in ultra short bonds. Just keep
it simple here, Okay, the ultra short bonds in twenty
twenty one would have probably just done what the yield was,

(36:34):
call it two and a half percent. But I have
some pieces of the stock portfolio that were probably up
thirty If the plan was to take from the from
the bond bucket for the first five years and my
first year, I have parts of my stock portfolio that
have done three times better than average. You don't need
to be selling your ultra short bonds in that scenario.

(36:55):
You need to be selling your stocks and keep the
five year bucket with five years in it, and then
or if the year is good enough, maybe even add
another year to it. Yeah. So when we get to
twenty twenty two, guess what, we still have five years
in that bucket because we sold stocks because they were
three times better than what their historical average was, and

(37:15):
that way, when twenty twenty two happens, we have a
lot of levers to pull in that short term bucket,
and don't we have time to let all of our
stocks go down and back up before we refill that bucket.
We have five full years left. That is the discipline
you have to have early on to make sure it
all works. We get past those first few years and
we don't have to worry about sequence of returns anymore.

(37:36):
Let's just close it out with this.

Speaker 1 (37:37):
And I think this even applies right now talking about
how to stay invested, what to be in, how much stock,
how much bond to have. But even in a short
term correction, it's important to remind folks of impact of
being out of the market. When policy uncertainty is high,
like it is right now with tariffs, the instinct is
I'll just sit on the sidelines for a little while,

(37:59):
let things get better, let things were we often here.

Speaker 2 (38:03):
I'll wait till things calmed down.

Speaker 1 (38:04):
Calm down, Things will calm down. And when you look
at when things calmed down typically I mean you look
at COVID for example, Well, well, COVID it was.

Speaker 2 (38:11):
I'll wait for things to calm down. I'll wait for
the market to open, and then I'll wait for the
vaccine to be here. By the time that happened, two
of those three happened, we were at an all time
high already, right, And yet there were people that would
have sat out for all of that. Right.

Speaker 1 (38:25):
So, in the last twenty years, if you had stayed
fully invested, you've averaged about ten percent per year. If
you missed the ten best days in the last twenty years,
you went down to six point one.

Speaker 2 (38:38):
Per ten total. That's not ten a year.

Speaker 1 (38:40):
Yes, that's the ten best yes of that twenty year period.
If you missed the twenty best days, your return three
and a half percent per year. And you might as
well be in treasuries or a CD.

Speaker 2 (38:50):
Yeah. And that's what I would argue with people who
try to time the market and say, I'll just get
back in when things called down. Get me out.

Speaker 1 (38:54):
I'm nervous, Get me out. If you're going to be
the type of investor that panics and gets out every time,
you should be in CDs or treasure because you'll never
beat it, because your return will be the same, but
your anxiety will be triple.

Speaker 2 (39:07):
Yeah. Whatever, Well, the other problem is though that person
left on their own will only get back in when
everything is calm. And everything is calm, is you market
at all time high and you've already missed ten of
the best, twenty of the best thirty. I'm reading that
everything's fine. I'm seeing that everything. The Dow is now
at fifty thousand. I'm hearing from all my friends that

(39:28):
everybody's making money. It's time for me to get in.
If you miss the forty best days in the last
twenty years, Brad, just forty days in twenty years. Twenty years,
so two a year. There's two hundred trading days a year,
so that's four thousand trading days, okay, And you miss
forty of the best your negative your return is negative
fifty of the best, your minus two point two per year,

(39:49):
sixty of the best, your minus three point seven per year.
Seven of the ten best days in the last twenty
years occurred within two weeks of the ten worst days.
This is why there's this huge risk. These best days
and these worst days are right next to each other. Okay,
so you can't. You have to put the plan together.
You have to stick with the plan, and the plan

(40:11):
includes volatility around tariffs. The plan will include even what
happened during COVID. Yeah, the plan will include look for recession.
What if what if we get to the to the
eleventh hour on the tax cut deal and the Republicans
don't pass it, We'll probably have a little volatility, and
then a week later they do pass it, and then
we'll have a little upside volatility it had. The plan

(40:34):
has to include that uncertainty as well. Right there, there's
sometimes you know, this urgency to do something. If you
didn't have a plan that included contingencies and money and
fixed income for your withdrawal needs to cover a recession,
a bear market, tariff and policy uncertainty, uncertainty around taxes,

(40:57):
uncertainty around what's going on globally. If you didn't have,
then you didn't do the right thing. I often talk
about you need to prepare for whatever hurricanes coming before
the hurricane, not after it goes through. Okay, And so
that's that's what missing those best days and worst days
will do to your portfolio if you're not thinking ahead

(41:19):
of time that I've planned for all of those contingencies.
So let's take our next pausseure lit'sten to your Money Sense.
Kevin and Brad Hurston will be right back. Welcome back
to the show.

Speaker 1 (41:27):
You're listening to the advisors of Kirsten Wealth Manager Group,
Kevin Kirsten and Brad Kirsten. Just wrapping up here, Brad,
it is tax season, wrapping up the season on April fifteenth?
Is it April fifteenth? This year is the deadline because
I guess if it's not on a weekend, it would
be you know, you still have time to do your
your IRA contributions, Wroth IRA contributions, step IRA contributions if

(41:50):
you're self employed, and still some ways that you can
save money. But I definitely think that if you look
at the economy and you look at tax receipts, and
you look at the fact that people or making more money.
We mentioned rising wages before. Yeah, you know, it's a
good time a year to assess your situation. If you
don't like what you paid, yeah, you know, you still
have nine months to prepare for next year. Yeah, max

(42:12):
out that four oh one k If you're somebody, Yeah,
sometimes you have enough with holding on a paycheck. You
don't know, Look at what you paid, Look what your
effective rate was, and that's your savings if you're not
doing one of two things that apply to most people,
and it's fully maximizing your four to one K.

Speaker 2 (42:28):
Okay, you've got a lot. Most people have gotten a
lot of raises over the last three years, so that
if you're under fifty for twenty twenty five, it's twenty
three thousand, five hundred. If you're over fifty, you're adding
another seventy five hundred to that. So it's thirty one
thousand that you could be doing into the four one K.
Your own contribution does not include the employer's contribution thirty
one thousand a year. The HSA is something that I

(42:51):
think most people don't don't think about it. If you're
in a high deductible plan as a family, could be
doing eight five hundred and fifty dollars into that. And
it's not like the old I can't remember what we
always called them, the cafeteria one twenty five plan, but
the old the thrift savings, health plans, flex spending, the
flex spending plans, it's not like that where you have

(43:11):
to use it. It'll just a crew in there. And
I just looked at one with somebody that grows tax
deferred comes out tax free if it's used for yeah, so,
and you can have a very cheap plan that has
the one I just looked at with somebody. It was
it was all index funds inside of there that were
essentially free form to use. Uh. It's better than a
roth ira, Yeah, because a roth ira goes in after tax.

(43:34):
This money goes in pretex, because in pre tax grows
tax deferred and comes out tax free. Everyone should be
doing that if they have it available. You're going some
people you have that much expense anyway, if you have
a family and you have some deductibles that that maybe
even for one family member you meet a year, you're
gonna spend it all. Okay, it goes in, it comes
back out, but it's still worth it. You got all

(43:56):
the right off for that. Those dollars that go in.
You have to do the dance of putting in and
taking it out. But for other people it's okay. If
you're going to accrue some dollars later in life, you're
gonna use it and you won't have any out of
pocket when in tax free, it grows tax free, it
comes out tax free. You need to be looking at that.
They up it every year for a family, it's up
to eight thousand, five hundred individual four thousand, three hundred.

(44:18):
I think that's a tax deduction that gets missed more
than the four to one K.

Speaker 1 (44:22):
Yeah, and as you said, most people don't max out
the four oh one K. If you're over fifty, now
you can do thirty thousand, five hundred, thirty one, thirty
one five, thirty one five or thirty one five. Well
it's twenty three to five plus seventy five hundred, oh yeah,
thirty one thousand, So you know, most people aren't taking
advantage of that. And then if you're self employed, you know,
I see a lot of people self employed, and this

(44:43):
could include people who have like a split pay where
they have some W two income it's some ten ninety
nine income if they have ten. If you have ten
ninety nine income, there's a lot available to you. And
what I see with people a lot of times with
ten ninety nine income or they're self employed, is they
do all these gymnastics with their expenses. Yeah, and sometimes
it's yeah a little questionable.

Speaker 2 (45:05):
Yeah, Okay. Instead of living on the edge running stuff
through your business that you shouldn't be, just make a
retirement plan contribution It can be as simple as a SEP.
You can open it for almost free, as simple as
a simple yea. It can be as simple as a
simple If there's a simple IRA, you could do. The
sepper works a little bit better if you don't have
as many employees individual four to one ks. If you

(45:25):
have no employees and it's just you, or you and
a spouse, or for hot if you're making a lot
more ten ninety nine income, you can get a little
bit more creative, a little.

Speaker 1 (45:33):
Bit have the if you have the self employment income
and you can do almost what is it now on
the individual almost seventy thousand dollars seventy seven if if
you're over fifty. If you're over fifty, that deduction is
never going to be questioned by the irs. But you
see people instead of doing that, instead of paying themselves,

(45:56):
try to figure out every week, have.

Speaker 2 (45:58):
The business pay for my morga, have the business pay
for my car, all.

Speaker 1 (46:02):
These questionable items, when you could just pay yourself through
an individual four oh one K. Now I do have
people that do that and it works wonderfully for their
retirement savings. Some people want to go even further. Brad
and if you're self employed, you could even open up
what's called a cash balance retirement a plan, which is
effectively a pension plan for your small business that you
can set up and that allows you to put even

(46:24):
more money on a tax deferred basis pre tax into
a retirement plan.

Speaker 2 (46:29):
It's not limited to the seventy seven we were referring
to before.

Speaker 1 (46:32):
Yeah, you want to max out if you're self employed,
you want to max out the individual four oh one
K or sepira A first. But if you still want
to do more and you want to, you know, really
get your income down so you're paying the high harass
a lot less money, then you can go and do
that cash balance plan. You need a third party administrator
to set it up for you, so you have.

Speaker 2 (46:50):
A couple thousand of upfront, maybe a couple couple thousand
of ongoing. You would only be doing it if you
were going to do it a handful of years because
you have the upfront, and only do it if you
were going to try to maximize it every single year.

Speaker 1 (47:03):
Yes, but we've done it at our firm and we
do it for our employees as well. They're part of it,
and it's another way for you to.

Speaker 2 (47:13):
Go above and beyond the four to one k above
and beyond the step of the traditional iras.

Speaker 1 (47:18):
And it's it's a line on you're paying yourself, you're
getting money back on your federal and like I said,
it is a line item that can never be questioned
by the IRS. You know, people go in there and
do all kinds of crazy things with their expenses. And
it's interesting to me too, bra some people who are
self employed. I get it, you don't want to pay
the IRS any more money than you have to. But

(47:38):
you've seen it a number of times where you're not
making zero, but they claim they're making zero, and then
they go out and try to get a loan. Yeah, right,
and they say, well, show me your show me your
ten forty Yeah, show me your taxes.

Speaker 2 (47:51):
Well, yeah, you're ten forty shows you didn't make any money. Well,
you're living in a nice house, you have a nice car,
and you've been negative every year for the last ten years.
Something's not adding up, right.

Speaker 1 (48:00):
But of course you're not gonna be able to get
loans at the bank if you do that. So to me,
do it the right way.

Speaker 2 (48:07):
Save for your retirement, because a lot of times people
who do that, Yeah, you don't pay the irs any money.
But those people also don't have any savings, so they
they work, they work till they're eighty years old because
they never saved any money.

Speaker 1 (48:19):
Pay yourself. You're gonna get some of that money back.
And really, when you think about it as a rate
of return, it's it's an instant rate of return on
your money, given that you're you're taking a good chunk
and not paying the irs. Or we have much time left, No,
we don't, So we're gonna take our We're gonna wrap
it up, and we'll continue on this discussion next week.

Speaker 2 (48:39):
Thanks for listening. Talk to you next week. You've been
listening to Money since brought to you each week by
Kirsten Wealth Management Group. To contact Dennis Brad or Kevin professionally,
call four one nine eight seven to two zero zero
six seven or eight hundred eight seven five seventeen eighty six.
Their email address is Riston Wealth at LPL dot com

(49:02):
and their website is Kirstenwealth dot com. Opinions voiced in
this show are for general information only and are not
intended to provide specific advice or recommendations for any individual
to determine which investments may be appropriate for you. Consult
with your financial advisor prior to investing. Securities are offered
through LPL Financial member FINRA SIPC