Kersten Wealth Management Group - Money Sense 6-21-25

Episode Transcript

Speaker 1 (00:00):
Hello, and welcome to the show. You're listening to the
advisors of Kirsten Wealth Management Group, Kevin Kirsten and Brad Kirstin.
Happy to be with you today. I was just we
were talking over lunch here Brad, and I was saying,
I really kind of wish and I know there's a
lot going on in the world, some of it self
inflicted in terms of tariffs and things like that. I

(00:21):
don't know where the we have to bomb a Ran
thing came from out of Israel. I don't know if
it had something to do with that October sixth thing.
Who knows where it all started. But we were talking
to lunch, like, can we get a week where just
like nothing happens, we just have normal business news because
I really feel like if you look at the charts,
if you look at the setup, if you look at
the broad based nature of the rally, for you look

(00:43):
at the earnings growth, you look at the earnings growth,
I feel like this market really wants to go higher.
And I hate to say it. With Trump, I feel
like he keeps throwing like roadblocks in front of them
or pulling the rug. Yeah, And I think if we
had a week or two weeks where nothing happened. This

(01:05):
market wants do we say that about gridlock. When you
get gridlock with a president and a congress that and
you know nothing can happen, the market just steadily moves high.
This is exactly why when we have a split congress,
we get our best returns in the s and P.
Five hundred. Yeah, because you don't have you don't have
the market worried about just chaos and government or one

(01:26):
thing going too far, or one party getting their own
way a little to bit too much. You just need
a little bit of government get out of the way.
And the problem right now is you do have a
little bit of the Trump celebrity or the Trump maybe
vanity getting in the way. And if he's ever not
in the news for twenty four hours, he's like, I'm
gonna get out there and tweet something crazy. I know,

(01:48):
I know, And it just you know, you look at
the setup and part of it's a little bit healthy.
We've had a huge rally off the lows in April,
and a little bit of it is okay, let's consolidate
a little bit and work off a little bit of
the excess from that rally that we had and so,
but that's already happened. Yeah, that's happened in the last
couple of weeks. So now we go and we look

(02:11):
at okay, are what are going to be the roadblocks
that are going to get in the way of the
market going on past this current level and making a
new So this training range at six fifty to say
five nine hundred and fifty. That one hundred point training
range is kind of this sideways move we've seen for
two weeks. And I would say the market needs to

(02:32):
see two things. It needs to not have this bickering
about the tax plan. Just get past it. There's a
couple of really good things in the tax plan, some
that will be a little bit better than what we have,
and some are just getting extensions done so that everything
doesn't have to go back the way it was. And

(02:52):
once we get past that, and hopefully they're setting this
July fourth deadline, the market can breathe a sigh of relief.
I think I think the market needs to see that
fed PAL is not going to just dig in with
never cutting rates. One rate cut will signal Okay, we're
not as political as everyone thinks we are. I think

(03:13):
they're pretty political right now, give me the July cut
and change your tone a little bit that. Okay, inflation
has stayed below two and a half for six straight months.
We're good to cut one time and give the market
a little bit of fuel to the fire. But the
other thing is, I think you need to get three
to five country trade deals fully inked so that the

(03:36):
market can say, Okay, we're not going to have a
trade war. We're willing to make some deals. And because
we've passed on a few deals that I thought would
have already been enough and we've said no, we need more,
I think the market needs to see that. So call
it three things that we need to get passed. Hopefully
we're two weeks away from one of them getting done,
three four weeks away from all three of those things
getting done, and then that sigh of relief will be

(03:59):
a steady move higher in the market, because I think
that's what earnings are going to show the market can do.
And well the SMP it first hits six thousand, we're
just slightly under six thousand on the SMP right now,
with the S and P five hundred up two point
three year to date. We first hit six thousand on
June six, so it's about two weeks ago, but really

(04:20):
the way back up we hit it in January, correct.
But if you look at the current level that we sit,
it is May nineteenth, so we're one full month of
consolidation on the S and P five hundred. So it's
great to have had that rally. It's great to have
that consolidation. What's the next move? And I just feel

(04:40):
like we should get out of our own way. I mean,
you know, everyone just talks about this geopolitical stuff, which
we've talked about this on this show. You look at
the long term numbers, wars geopolitical conflicts are never something
that is long lasting. You get a one day or
a one week selloff, and it's not something that you

(05:02):
stick with the negativity for very long because the market
recovers after these geopolitical events very very quickly. But you're
gonna sit there and have somebody say, a financial person say, well,
based on this, buy this or sell that. I don't
even know how you would just even gain that out.
I don't even understand what we're doing. Oh, they have

(05:23):
a nuclear bomb, or they don't have a nuclear bomb,
or we think they might have a nuclear bomb. And
this is how you play it in your investments. No, no,
there's not iving done this before. Yeah, I'm not saying
that those people are good guys or bad guys. I
have no idea. It doesn't matter. There's no way to
handicap what you should or shouldn't do. On a micro level.

(05:45):
What you do know is every time, every time you
have Middle East conflict, it's been a backup the truck,
not just to it is such a short well. The
S and P five hundred was at six hundred when
we started throwing bombs in the first Iraq and the
Second Iraq War in two thousand and three, So I
couldn't exactly say that that was a cell given we're

(06:07):
at six thousand right now. But yet you'll have people
come on TV and say, well, I think this, well,
that has nothing to do with history, which is every time.
Earlier this week we heard a podcast where one of
our favorite hosts was saying, every time you hear the
words straight of Horror Moose or somebody saying, did you
know that X percent of the world's oil goes through

(06:30):
the strait of Horror Moose, it is time to buy
everything you possibly are thinking about buying because they just
can't wait to stay straight of horror Moose or did
you know straight of horror Moose? And it's always a
buying and everyone always wants to make it from an
investment standpoint. They want to make it this binary decision,
which is, well, wouldn't you admit that if we start

(06:52):
throwing bombs at Iran that that's bad for them? I
don't know, Okay. What I do know is that we've
had inflicts before and the market has always moved higher.
And two things can be true at the same time.
Our economy, in our market could be a great buy
and it's not great for the world if there's this
conflict going on, or it could be great for the

(07:15):
world that this conflict is going on, because there could
be more peace and we're moving past and the market
could still go down, right right. I don't think the
two have anything to do with one another. You look
at every one of these geopolitical events over time. You
could start with the Cuban missile crisis, and you could
go through the Vietnam War. You could go through terrorist attacks,
you could go through the Oklahoma City bombing, you could

(07:38):
go through Iraq War one, Iraq War two Afghanistan. We're
higher than all of them. We're higher than every single
year that you should have bought every one of those
if the market was selling off because of it. And
yet you'll have people come on TV and say, well,
these experts think that it'll be bad for the market. Well,
that is an opinion, and we have too many people
giving an opinion about something they can't possibly know. All

(08:00):
also have too many opinion surveys from consumers that are
affecting real policy. So you have you have opinions from
Harvard and Yale economists dictating what the what the Congress
should do on taxes, but it is only their opinion.
It has nothing based on fact because we don't know yet,
and even their past opinions were more wrong than right.

(08:22):
We have fed chairman's dictating their inflation inflation policy based
on consumer sentiment. Well, consumers think that we're going to
have inflation, why would we use the experts and and
try to rely on the experts. And yet the experts
are relying on consumers. So the expert is using the

(08:45):
University of Michigan Consumer Sentiment survey, and whether a man
on the street thinks that we're gonna have inflation next year.
That's what he's going to base his policy on. So
the experts relying on the consumer, and then the consumer
is listening to the TV where they're listening to the experts.
Who's listening to us consumer? It's a circle of nonsense. Well,

(09:05):
jer own pal is I cannot believe people talk about
talking out of both sides of your mouth. He's talking
out of seven sides of his mouth in terms of
how he's justifying his actions over the last and and
to me, he's like, he's forcing me to dislike him.
I don't want to dislike your own pal. Right, Well,

(09:27):
he's like Rory McElroy. I don't want to dislike Rory McElroy.
But he continues to do things that make you dislike Yes,
you're making me dislike you with with all the nonsense
that you do, and the and the storming off and
not getting interviewed and the and all the stuff that
you try to pull. I don't know why this is
a sidebar. You ever noticed that when he wins an event,

(09:50):
he always drinks like a glass of cabernet. Have you
seen this? No? No, well now I will. It just
rubs me the wrong way. I don't know why, but
he's out of a wineglass. Yes, oh it's very like
I'm better than you. Yes, yeah, it is very I'm
better than you. I don't know why. Like if I
see a guy, you know, shake up a bunch of

(10:10):
beers after he wins, or even champagne. Yeah, but he
seems appropriate. Cabernet after a victory. It bugs me. Okay,
I don't know why it bugs me, but it does
bugs Does milk on the NASCAR circuit bug you? I
think that's a tradition, that's a I just don't know
what happens after the milk. It seems like it's very sticky,
and I do' not do I get a shower at
least a tradition, it's a tradition. Rory started to start

(10:32):
a tradition poor a cabernet on himself. But in any event,
if Joan Powell was at a minimum, if he was consistent,
I would at least respect him for his consistency. I've
often said on this show, you know one politician that
I actually respect is maybe, like, well, if you respect
this guy, he's a socialist. Bernie Sanders's consistent never changes. Yeah,

(10:55):
you know what you're getting. I like Bernie Sanders better
than Mitt Romney because who knows where he stands. He
floats with the wind. Yeah, okay, he's a Republican one day,
and then when he doesn't like Trump, he becomes a Democrat.
I'd rather have a Bernie Sanders because you know where
he stands. Well. Jerome Poll in the same sense. If
you go back, and we've talked about this at nauseum,

(11:18):
but he just had another FED meeting this week that
didn't raise raids. He had a press conference. I have
no idea what this guy is saying in his press conference. Yes, okay,
in twenty twenty one, and I brought up I brought
it up here. This is actually an article from this March.
But Jerome Pole doubling down on a word that has

(11:38):
haunted him, saying paint from tariffs would be transitory. So
I didn't even realize Brad. In March, Jerome Pole said, oh, yeah, well,
we're definitely gonna get high inflation. This is starting on
March twentieth, yep, because of the tariffs. But he actually
said transitory in terms of it'll spike, but it'll be

(11:59):
transitory now that we haven't had any inflation from tariff's effect.
We've had falling inflation. He is now saying he's pivoted,
and he's saying that even though he thought the inflation
number would spike and it would be transitory, now because
it hasn't spiked, that's transitory, meaning oh, the non spike

(12:20):
is transitory. Yes. Oh, and when inflation was high that
was transitory. Yeah. But it will come down because we
think it'll come down even though it's not coming down
in twenty twenty two. Instead of being data dependent like
he always claimed and looking at what was actually in
front of him, he's assuming what's going to happen, and
he's been more wrong than right. Well, everything he talked

(12:43):
about is so someone asked him about this because they
constantly preach we rely on the data, rely on the data.
And someone said, well, if you rely on the data,
inflation's two point four percent, why aren't you cutting rates.
You were cutting rates in September of twenty twenty four
when inflation was four point three. Now it's two point
four and doing nothing. And he said, well, we also
have to be forward looking. Well, by its very definition,

(13:05):
forward looking is the antithesis of data dependent. Forward looking
is a guess, a guess or your opinion or some
experts opinion, or in this case, because he said it,
it is survey's opinion. He said, we were relying on
the surveys. Well, surveys are opinion. They are not data dependent.
They're based in no data. I just don't understand how

(13:29):
this guy gets away with it, and my frustration with
a lot of questioning. And this is true in political
seasons two rad when I finally get the question I
want answered. Debates are the same way, and I'm like
watching TV and watching Poll's press conference, or I'm watching
a debate and I get the question I want, I'm
like yes, And then the person doesn't answer the question,

(13:51):
and then they let him off the hook. There's no
follow up, there's no pressure. The only time I've ever
seen it, actually Megan Kelly on our podcast recently at
Jake Tapper talking about the Biden book, and every time
Jake Tapper would not answer the question, she pushed him.
None of these other reporters do it. Nobody ever does it.
They just let him get away. So Paul was asked
about talking out of both sides of his mouth with

(14:13):
forward looking versus data dependent. He gave some jumbled up
answer that made no sense, no follow up question. Right, okay,
So to me, this is no different if you think about, oh, wait,
who's got the best batting average in Major League Baseball
right now? Okay, so Aaron Judge? Is it? Probably? Okay,
Aaron say, let's say hypothetically it is Aaron Judge. We

(14:35):
can say that even if we're wrong. It's not like
the financial stuff where LPL will get after us. I
can guess about Aaron Judge's batting average. So right now,
Aaron Judge is the best hitter. That's data dependent. He
is currently the best hitter. But what Paul is saying
is no, no, Aaron Judge isn't the best hitter. That's transitory.
That's transitory. I think the guy who's currently batting one

(14:57):
fifty will be the next hitter. Just you wait, Well,
if any person on MLBtv said that right now, you'd
be like, what is wrong with you? Yeah, Aaron Judge,
We're looking at the evidence in front of us right now,
Aaron Judge is the best hitter. The data in front
of us says he's the best hitter. No, no, no,
we have to be forward looking, guys. We have to
see who the next best hitter is. We want the

(15:19):
up and comer. What are you the up and comer
who's currently batting? Well, I'll use a number two forty
because our inflation rate is two point four. I don't
understand it. But what's amazing to me about the transitory
comment that I found in this article is not only
has he changed the definition of transitory from twenty twenty
two when inflation was high to today when inflation is low,

(15:40):
he's he actually changed it this year in a three
month period. He went from inflation because of tariffs is
going to be transitory to the upside and now it's
deflation post tariffs is transitory and we're going to get
it in the future. Yes, So this was uh. In
March at a press conference, Paul said, the FED is

(16:02):
well aware of what happened with the pandemic era inflation,
but the situation is different because tariffs will will be
a one time shock to prices that resolves itself. That
was March. That was March. Yeah, well we haven't had
the one time shock, so now we're back to we
have to tell a different story, Otherwise we'd have to
admit we were wrong. So Scott Bessett said at the time,

(16:23):
I would hope that the failed term transitory would get
back together and think nothing is more transitory to tariffs
while commenting on FED policy, Paul's acknowledgement, has it stopped
economists from digging digging up old memories? I would have
thought that after big policy mistake of earlier this decade,
given all the uncertainties, that they wouldn't use that term again.

(16:45):
So but Besset is in front of Congress and getting
asked from Congressman FED chair Politics that that that terrofts
are going to cause inflation. Why don't you well, because
they haven't and Paul's been wrong, just like every other
account under normal circumstances. Brad, if Paul hadn't screwed up,
By the way, what's amazing about the transitory inflation of

(17:07):
twenty twenty one and twenty twenty two? In a lot
of ways? Okay, we spent a lot of money fiscally
at the government level, Biden and Trump. Okay, but part
of the reason we had all the inflation is the
stimulus that the FED did. So what's amazing about the
transitory comment? Is it led to the last stimulus. He's
commenting on the very inflation that he created when he's

(17:31):
talking about transitory. Yeah, and if he didn't start talking
about transitory, they wouldn't have done the last round of stimulus,
which caused the most amount of inflation in the it
After the fact, there's no question that the politicians at
the time were using his transitory term to do one
more thing as an excuse to say, well, if it's transitory,
we can keep spending trillions of dollars. Exactly. Absolutely, You're

(17:53):
absolutely right about it. I never even thought about it
like that. So it is just really if I just
didn't know, I know what had happened in the last
three years, and just looked at where we were, I
probably honestly would be okay with him not cutting rates
at the moment, given where the economy and the markets are.
But what would is driving me crazy is the reasoning

(18:16):
he's using makes no sense. Well, I think that's why
he's seems why Trump's mad, he seems very political. Trump's mad.
He's probably should shut up because I feel like Poul's
gonna have to dig in the longer Trump's sticking in.
But that's why I feel like the market does need
to see one cut, and so why it's important now
is I do think we're in a trading range until

(18:36):
we see one cut, the tax cut deal done, or
trade deal's done. Give me two of the three and
I think we can move higher. That's why it's important.
The market doesn't need the FED, except it does need it,
I think to kind of get out of the way
and not be as restrictive as they are. But it
doesn't need a lot. It needs one cut, maybe one
more at the end of the year. That's it. I
think it's the only only thing we need well. And

(18:58):
the other thing I think you can't you shouldn't hold
out hope for is massive reductions to the thirty year
mortgage rate. You'll definitely see a reduction in the adjustable
mortgages if the FED cuts. If the FED cuts and
you're looking for a thirty year fixed, it's not moving
that much, I don't think. No, No, you're already seeing
the arms a little bit lower than the arms are

(19:18):
about where the fifteen year is right now, so a
little lower than they were. And so yeah, it would
be it would be helpful for maybe the housing market
a little bit, but It's one of the things that
FED needs to do to just not have not We
don't need the FED in the headlines all the time,
and so I just I would like all of the

(19:40):
media to get past this. The FEDS are the FED
is the expert, or the Harvard economis is the expert. Enough,
They're just a bunch of people that are relying on
the same data you and I are, or a bunch
of people that are relying on false data because it's
coming from consumer sentiment surveys and you're only talking about
it because it says what you want it to say,
and so rely on real data instead of the and

(20:01):
real data is something like earnings. Real data is something
like the actual inflation numbers. So what I They'll just
close with this too. What I always think is interesting
is we only talk about this on one side of
the ledger. It's like when we talk about volatility, we
only talk about downside volatile. We never talk about upside
volatility in the markets. Well, when interest rates are low

(20:21):
and things are going well, and everyone says the FED
needs to raise rates so that when the economy slows
down they'll have wiggle room to cut rates, right, Well,
if they're truly worried about inflation, and we currently don't
have inflation. Shouldn't they cut rates so that we have
room to go up? Now? They use the other argument

(20:42):
on the way down right right now, so you have
no wriggle room to throw any kind of ammo at
high inflation. If we get it, I mean the AMMO
should be used both ways, both cutting rates and raising rates. Well,
you definitely have more ammo on the upside. If the
Fed Fund worry is high inflation is that you don't
currently have Yeah, right, I mean I know that sound

(21:03):
we have future high inflation you need to have. You
need to fill up the chamber with some bullets. And
I understand it sounds like we're twisting ourselves in a pretzel.
But the reason is Pole's already twisted himself into a pretzel.
He has already said twelve different things and that that
contradict themselves. And you know what, I thank goodness the

(21:25):
market hasn't lost complete confidence in the FED, because I
think we'd see more volatility if it did. But we
tell you, if we still have low inflation by September
and he doesn't start cutting rates, the market's going to
get nervous. They're just gonna fight. They'll fire him. Okay,
I'm not sure if he can. I mean, his term
runs out, may have twenty six, so he's gone before that.

(21:47):
If he doesn't cut, no way, if he doesn't cut
this year, he's gone and we'll have to see. I mean,
there'll be a big uproar at that point in time.
But surveys say that the fire. Yeah, the forward looking
surveys said that they would fire him. So but it well,
we'll see what happens by September. If he doesn't start cutting,
the market will revolt and maybe force his hand. But

(22:08):
I don't want to see that. I don't need to
see that extra market volatility. Let's take our first Paudge.
You're listening to money since Kevin and Brad Kurston will
be right back and welcome back. You're listening to advisors
at Kirsten Wealth Management Group. Kevin and Brad here with
you this morning. keV, we did a lot of talk
about current things going on in the market and the
economy and the world. Let's talk a little bit just
specifically about investing. There's a couple of changes we're going

(22:29):
to be making to models coming up and really across
the board with a lot of accounts. So this discussion
is one we're going to be having probably for the
next three months. But I want to do a little
bit of a history lesson as to something that when
you and I were getting into the business was just
a it was it was just a I guess you
would say it's it was known. I'm talking about facts

(22:49):
versus this was. This was this was This was fact
at the time and has now since been proven to
be something that has faded. I'm going to talk about
why it is faded with investing, and the fact was
that the prior fifty years, the prior twenty years history
of the market, if you were starting as an investor
in say the mid nineties, was that small companies had

(23:13):
about up two percent premium. There are investment firms that
are based on this thesis, like the DFA funds. It's
value was better and a there was a premium for
small and midcaps. Small and mid outperformed large and value
over time was less volatile and gave you the same performance.
That's that's basically what DFA was based on. I know
I'm simplifying it for any DFA investors out there, but

(23:35):
there was this This is how you can outperform the
market because you're in small caps because there was this premium.
But there's something that's gone away here that has has
not only had that premium shrink, it's had it go
away and actually give you more of a premium for
being a mid and large cap investor. So let's take

(23:55):
it back to maybe the biggest IPOs of the eighties
nineties two thousand. When Apple went public, it was a
small cap. It went public in December of nineteen eighties,
December twelfth and nineteen eighty raised one hundred and ten million.
The valuation because it didn't do all of its shares.
This at that same time was just over a billion dollars.
Microsoft iPod in nineteen eighty six. Its market cap at

(24:17):
the time was seven hundred and seventy million. Oracle went
public and later that same year in eighty six, its
market cap was two hundred and twenty million. All three
of those were in a small cap index, not the
S and P five hundred at the time, and so
part of the hyper growth of publicly traded companies in
the sixties, seventies, eighties, even nineties was that they would

(24:40):
go public, and you, as an investor investing in small companies,
would have that hyper growth where they would outperform the
overall market because they're small, and the law of large
numbers would just tell you that a five hundred million
dollar company go into a billion dollar company was easier
to grow than a one trillion go into two trillion.
You would get this hyper growth of tech companies or

(25:02):
any other company could be a financial company even, And
so at the time, three hundred million to about a
billion maybe a billion five was thought of as small
small caps, and so here you had all these companies
that that's how they access the market. You go into
the nineties and we had a few. Probably tech is

(25:23):
probably the easiest ones to look at. But Cisco went
public in nineteen ninety. Two hundred and twenty four million
was its market cap in the two thousands. Visa has
only been a publicly traded company since two thousand and eight.
When it went public, it was thirty four billion dollar
market caps. So now we're jumping ahead ten years and
you got these market caps that are starting to be bigger.
Google went public in two thousand and four. It was

(25:43):
a twenty three billion dollar company. So put that in
the MidCap space. MidCap kind of thought of as ten
to thirty, ten to fifty billion, depending on the decade
that you're looking at. Now, I think everybody takes it
up to probably sixty to eighty billion is still a MidCap.
But here you are with Visa and Google going public
now in the two thousands, and they're more like midcaps.

(26:05):
Take us to twenty ten biggest IPOs of the twenty
ten decades and fourteen Ali Baba went public in fourteen,
one hundred and seventy five billion market cap, Facebook one
hundred and four billion market cap. Uber went public in
twenty nineteen, a seventy billion dollar market cap, And so

(26:26):
all of those would have been large caps at the time,
and some of them not even small. They're top twenty
companies in the world. And now we're in the twenty tents.
So the good IPOs you don't really hear about them.
They're small caps, but they're kind of ones that venture
capital didn't want. Venture capital didn't hang on to and
didn't wait until they were large caps so that the

(26:46):
venture capital firm could make all of the hyper growth
money before they took them public. Two thousands have been
the same thing. You had airbnbgo public and it was
one hundred billion dollar company when it did in twenty
twenty one. Here just recently that most people have never
heard of went public and it's a fifty billion dollar
market cap, and so all of this hyper growth. You

(27:07):
don't have venture capital firms investing in companies and taking
a public when they're a billion dollars. They're waiting, and
so they're taking a public when they're fifty one hundred,
two hundred billion dollar companies, and so they skip the
small cap, they skip the MidCap, and that hyper growth
is happening while they're privately held and private equity is
making the money. Now. The good thing is there's a
couple of different ways you can invest in private equity.

(27:29):
There's a couple of good ways, a couple of bad ways.
There's a couple ways where there's layers of fees where
you can invest in the privately held companies but through
maybe investments that have two two and a half percent
fees on them, and so there's a little bit of
cost drag there. Those are the ones probably that most
financial advisors are going to share with with clients because

(27:51):
they're going to make a little bit more money on it.
They're restrictive. You maybe can get out quarterly or not
at all until there's the lockup is fully done. Some
of them are ten year holds, where though the companies
will invest in privately held companies and hope that they
go public. Or you could just invest in an ETF
that trades every second that the market trades, and you

(28:12):
could invest in that ETF that is investing in companies
that invest in private markets, and most of those are
just all in the financial space that invest in some
invest just in tech, some invest just in real estate,
some invest just in in other financial companies and take
you know, private credit and do other things, and that's
what they're focused on. But you don't need layers of

(28:33):
fees to do it, and you don't need the small
cap market to be accessing the privately held market anymore
and hope that they become an IPO when they're young
and a small cap. If you simply gain access to
the companies that are doing this through an ETF, it's
the ultra low cost way to do it. It's liquid,
so you can get out it anytime without any issues.

(28:56):
But the sales pitch is always access exclusivevity. You can
get this this access to private credit or private equity,
you know, private private debt or private equity. You know,
all we need to approve you, and you're an accredit
and investor and all this other stuff. I in my opinion,
that is just a recipe for your money being tied

(29:18):
up when times are tough at the exact moment, you
will need your money and you shouldn't ever sacrifice that liquidity.
And to me, if I look at the performance and
you look at just gaining exposure, say I just want
some exposure to that area. Because as you mentioned, things

(29:39):
have changed over the last thirty years. This is now
the way that companies are brought to market. They don't
go the IPO as large caps, they don't IPO as
small caps like they used to. Let's just get exposure
to the companies that are in that industry and do
it at an ultralow cost, in an ultralow cost way,
and do it liquid There's to me, that's the way

(30:01):
you need to do it. Let me give a few
more examples just to talk about this, because let me
do let me do three, let me do four of them. Okay,
Gap went public May of nineteen seventy six, it was
a small company. It was in the Russell two thousand.
It was in the Rustle two thousand from nineteen December
of seventy eight until eighty five. It had a two

(30:22):
hundred and fifty five percent return over that time. I
didn't do the math on the per year, but it's
more than the market. Once it became in the S
and P five hundred September of eighty five. The return
since then is three point eight percent. Okay, best Buy
same thing. Best Buy was in the small cap index
for two and a half years, seventy six percent return
was in a small cap. Since then, its return cumulative

(30:45):
is thirteen point nine percent. Costco same thing, seventy seven
percent return from nineteen eighty six to nineteen eighty eight.
Then's after that less return. So in the eighties you
had this where they were going public as a very
company and had hyper growth that doubled or tripled the
overall market. And then when they were in they were

(31:06):
became larger companies. It's harder for them to grow at
a rapid pace that is gone now. Even in Nvidia, Netflix,
super Microcomputer at Sea, all of these they maybe take
a stop at MidCap and small cap, but very briefly,
and then they're already in the S and P five hundred,
and that is when their continued growth is happening. And

(31:27):
so so if you only way to access it, that
early growth, that early growth is to be in the
company that is the early investor, and they are publicly
traded and they're all in an index packaged right up
for you that you can buy minute to minute and
have exposure. This is the new way to invest in
small caps and IPOs, to invest as as private companies.

(31:48):
And you use a lot of terminology there that a
lot of people don't probably don't know, even the term
venture capital. Okay, let's talk about real quick what that is. Okay.
The venture capital companies who are almost all publicly traded
companies on the stock exchange that you can buy, Okay.
They are companies that get a sales pitch essentially from

(32:11):
an upstart. I mean some of them became huge. Yeah,
Uber is an example of it. Even Facebook was doing
rounds of funding trying to get money from venture capital.
Please instead of having to go public, please please invest
in our company so that we can grow. At some
point we might go public at some point we not.
But you're investing in our company, You'll give you ten

(32:32):
percent of the value of the company. You're going to
give us a billion dollars. You're value in the company
at ten billion, exactly, Yeah, exactly, And that that's what
venture capital firms do. Some companies, especially more more so
in the past, elected to do an IPO. And in
an IPO, you are giving up ownership to shareholders to

(32:55):
the general population. Okay, so maybe you owned one hundred
percent of the com company and you do an IPO
and you want to own fifty one percent of the company,
you're going to sell off forty nine percent of the
company to the general population. That's an IPO. Now I'm
way over simplifying this, but that's an IPO to raise money.
So as an example, when Apple went public, they raise

(33:17):
one hundred and ten million and it value the company
at just over a billion, so they only gave out
ten percent of their shares. That all happens now with
venture capital funding raises, and it happens with one, two,
three rounds of raises, and then finally they cut it off.
They wait for the company the company's got enough money
to grow, and then they take it public. So the
question would be how do I, how do I get

(33:39):
his exposure as an investor to this and what's out
there right now, in my opinion, are a lot of
sales pitches where your money's ill liquid and they say, well,
it's private equity. You know, this is the way you
have to do it. No, it isn't. Yeah, there are
ways to get exposure through liquid, low cost ETFs and
in a way you're getting that same small cap exposure

(34:04):
that you got you got in the eighties and nineties.
But even though the companies that are in the the
the index are large, of them are actually I was
just looking at the breakdown, but what they're investing into
are all micro and small cap companies that are doing one, two,
three rounds of funding and then going public. So you're
investing in more like a Berkshire Hathway in its infancy,

(34:27):
where it's a it's a conglomerate of a bunch of companies,
and that's how the the financial company is investing the
dollars of the company to then probably the most understandable
investment that anyone could have in terms of private equally.
Now it's a combination of private and public is Berkshire Hathaway.
I mean it's it's more public now, but in its

(34:47):
in its early stages, Berkshire Hathaway had a lot more
private investments in their overall portfol and taking companies and
then taking companies public. So to try to like get
people to unders stand what these companies are in a way,
they're they're like mini Berkshire Hathaways, but Berkshire Hathaway in
nineteen seventy, Berkshire Hathaway in nineteen eighty, Right, and you

(35:09):
can invest it in a whole portfolio of a bunch
of Berkshire Hathways all trying to do the same thing.
And by the way, people will also be sold a
sales pitch that somehow private equity is less risky and
less volatile. It is the same, if not more risk
and volatility, and hopefully the reward on the other side
is better. Yeah, but people will get sold a bill

(35:31):
of goods brad that somehow private equity or private credit
is less risky and why are they getting sold that?
Because it's not valued every day. If private equity only
has to be valued once a year for the portfolio
that you're buying, and you're claiming that it's less volatile
because you're only valuing it once a year. Private credit
is the same way. If you're only valuing it once

(35:52):
a quarter once a year, and you're claiming that it's
not volatile because of it, that is that'd be like
that's a false sales. That'd be like saying my weight
is less volatile when I only step on the scale
once a year. Yeah, yeah, I only I barely move. Yeah,
it doesn't change from day to day because I don't
look because I don't look right. So you know, it's

(36:12):
an interesting Uh, it's an interesting area of the market
that we feel like people should start to look at
gaining exposure to. But I would stay away from the
pitches where you're tying your money up. Yeah, that to
me is the big risk. Let's take our next pause.
You're listening to Money Sens. Brad and Kevin Kirsten will
be right back. Welcome back to the show. You're listening

(36:33):
to the advisors of Kirsten Wealth Manage for 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 set
up a consultation 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 and review
things with you four one nine eight seven to two
zero zero sixty seven or check us out online at

(36:56):
kirstenwealth dot com. Brad, I had a lot of questions
about the tax bill that they're still debating in the
House in the Senate, going back and forth. The Senate
has now sent it back with a lot of changes. Uh.
One thing I've heard a lot of clients ask me,
and maybe I feel like, in general, if I'm doing
a little bit of a survey among clients, there's an
assumption that this is going to include because it was

(37:19):
a campaign pledge, this is going to include no tax
on soci secret for assuming that it must be true,
right right, It's not going to happen. The House bill
proposed four thousand as a senior deduction that has certainly
falls short of eliminating taxes on Social Security. I mean,
let's take a somebody in the you know, twenty two
percent bracket for example, Brad, and let's say husband and

(37:41):
wife has pick a number fifty grand of Social Security. Okay,
well eighty five percent of it's taxable, right, Yeah, so
forty two thousand, five hundred is taxable. So if you're
in the twenty two percent bracket, well, easier math. If
you're in the ten bracket, you know, a four thousand
induction would would would save you four hundred dollars. Isn't

(38:04):
just only Yeah, I mean if someone's in the twelve
or the twenty two, you're talking about paying tax even
if it's only on eighty five percent of your sold
security eight hundred, nine hundred dollars savings something like that.
But no, I'm doing the comparison. Okay, if you're in
the twenty two percent bracket, you're paying almost eight thousand
dollars on your solal taxes on your you're paying. If

(38:27):
you're in the twelve percent bracket, you're paying five thousand
dollars on your Social Security. Well, an extra four thousand
dollars write off is only saving you. Yeah, it's not
a tax credit eight hundred to one thousand dollars total.
So you're in a situation where you're paying In that scenario,
I laid out six to eight thousand dollars tax on
your Social Security but with this new bill, your overall

(38:49):
tax is going down one thousand at best. So well,
and think about right now, you already have a standard
deduction over to the age of sixty five where you
get a little bit of a boost, So this is
just a little bit more. And on the first proposal
that came over from the House, that extra boost over
the age of sixty five was only for two years,
and then they were taking it away and going back
to what it was, which I think was thirteen hundred

(39:11):
per person if you were married, so it was twenty
six hundred dollars. So what the proposal is is effectively
is an additional standard deduction for seniors for the same
way they have it now, where you over the age
of sixty five you got a little bit of a
boost to the standard. Yeah, and even people who aren't
taking Social Security would actually get the benefit. Yeah, because
it's anyone over the age of sixty five, even if
you have, regardless of you taking it Social Security. So

(39:33):
provision also doesn't do anything for people who get survivor
and disability benefits who are under sixty five. So it's
one of the promises that has proven to be much
more difficult to keep because he did do the no
tax on tips part. Did that come back from the
Senate with the no tax on tips? I believe it did.
I believe it did. And then did I hear you

(39:54):
also say that part of the proposal coming back from
the Senate was going to include the qualified charitable for
anyone over the age of seventy and a half, where
they're going to have a new tax code for those.
I think that was actually a separate just IRS recommendation
and change. I'm not sure if it was part of
this tax bill. I did read about that recently, and

(40:15):
that's sort of a separate discussion. But on those qualified charitables,
it has always been frustrating for people because there's no
notation on your ten ninety nine for what you did,
you did or did it right, and so you have
to just keep an eye on it. In addition, Brad,
that four thousand dollars per person deduction only applies to
people joint filers within come up to one hundred and

(40:36):
fifty thousand, so if you're over one hundred and fifty thousand,
you don't get it. So certainly not nearly as good
as as Trump had promised. But people I just worry
about it because people are almost I even had one
person with almost like baking it into what they're going
to owever taxes. I said, you know, that's it's not
going to happen. At best, you're gonna get a little

(40:56):
bit more of a of a standard deduction. So yeah,
I mean that still makes the standard deduction, which is
thirty to thirty two thousand for joint filers, that's what
the House bill was, thirty two thousand for joint filers,
takes you all the way up is four thousand apiece
on that'stra piece. It's about so forty thousand of your

(41:18):
income not taxed. Yeah, yeah, so it's still pretty good. Yeah,
and certainly increasing the standarduction. I was told that this
doesn't help anyone in the lower brackets. Here, we are
capping all these extras over one hundred and fifty. Even
the salt is capped at a certain level. Just making
sure that only the bottom three for most of these

(41:40):
plans brackets and only the bottom four brackets for almost
everything is going to be where the real reduction in
your taxes are, and everything else is likely to go up, right, right, Yeah,
and I guess that it's four thousand per person, so
that deduction savings is a little bit more than I
had estimated, but still a far cry from completely tax
free Social Security benefits. So certainly, if you're doing tax

(42:02):
planning for the year, don't plan on that. I think,
I definitely think if you're over sixty five, you're going
to see a little bit of a benefit with those
extra standard deductions that they're putting into the provision that
they're putting into the bill, but you're not going to
get a fully tax free Social Security So don't plan
on that. Let's take our last pause. You're listening to
money Sents Kevin and Brad Kirsten. We'll be right back.

(42:22):
Welcome back to the show. You're listening to the advisors
of Kirsten Wealth Manager Group, Kevin Kirsten and Brad Kurston
going to close outs. Only got a couple of minutes left. Periodically,
we do buy the numbers, looking at a couple a
few stats that really are pertinent to what's going on
in the overall market right now. Just updating people here, Brad,
twenty percent in two months. The S and P five

(42:42):
hundred recently hit the twenty percent over a two month stretch,
just the sixth time in seventy years that that happened.
From April ninth to June ninth, Following the five prior
two month rallies of twenty percent nineteen seventy five, nineteen
eighty two, nineteen ninety eight, two thousand and nine, and
twenty twenty, the index was higher every single time over

(43:03):
a one, three, six and twelve month period. The average
twelve month game was thirty one percent. So that kind
of goes to do you buy the dip? Yes? But
what if you missed buying the dip? Is it still
okay to be in? Or once you get back to
the all time high, is it okay to stay in?
And that would tell you past history would tell you
yes every single time. I've got one here, Kevin, which
is office vacancies are still at near an all time

(43:26):
high nineteen percent in the US office conversions of office
space to retail and residential all time high is going
to be reached in twenty twenty five. We're set to
reach that all time high already. If it continues, it'll
be at an all time high of percentage of office
space getting converted something you and I talked about why
we're not doing that post COVID, and it's now starting
to happen. People realizing it get a lot more per

(43:48):
square foot doing it that way. Another stat here, off
the lows, if you look at the April ninth lows
till now, A lot of times I'll have people ask
me about, what about I get to retirement, Why don't
I just look for dividends? Why don't you look for dividence?
If I, you know, if I just find everything that
pays five percent dividen and I can live on that
and I don't worry about the principle and the performance

(44:11):
of the underlying names. Well, a lot of times we
see those high dividend pairs. A lot of times are
the next dividend cutters. But also the high dividend is
there because the stock drops so much. Well, how about
this one. How about off the lows. The ninety five
stocks in the S and P five hundred that don't
pay any dividend whatsoever are up twenty one point seven

(44:31):
percent cumulativing since April ninth. The ninety five stocks with
the highest dividend yield are only up eleven point four
from the April ninth, low. So you don't need to
most most people are taking money from their eyes ten
percent difference. Yeah, dividend makes don't need to create income
out of your investments to take income from your investments.

(44:52):
We will have We'll even have experts in our field say,
how do you create income for clients? How do you
create it? You set up a withdrawal and you just
take income. You don't need a dividend payer to create
income in order to get income out of the investments.
It's a falsehood that I think is maybe something from
the eighties that was thought of by financial advisors. This
is how I create income, and it's false. You were

(45:15):
talking earlier in the show about surveys specifically on inflation
and how that's not real numbers. These are just guesses, okay,
by consumers most times. Well, here's even more evidence that
we shouldn't be using surveys as proof and drome piles
using it as a way to run policy. The New
York Fed Survey of consumer expectations in the month of

(45:38):
May showed expectations for the next twelve months decline from
three point six to three point two on inflation, While
the University of Michigan survey showed inflation expectations at six
point six, so even more ridiculous than using surveys. Then
the second question is, well, which one yeah, right, even

(46:01):
when it has to do with estimates on GDP, the
FED gets it wrong. The GDP now, if you remember
flashed sharply negative for a month, and what did it
turn out to be in the first quarter? It was positive?
What's it expected to be in the second quarter sharply positive?
Estimates now or four percent? If you can even believe that,
It's pretty amazing here, Brad, the provision in the current
budget bill working its way through Congress gives all newborn babies.

(46:24):
I actually like this. I'm not sure if this will
figure out an opt out or opt in, but all
newborn babies a thousand dollars account at birth. Now, it
has to be extremely limited, just by the S and
P five hundred whatever it is. But how about this, Brad,
one thousand dollars in the S and P five hundred
fifty years ago fifty years ago is worth three hundred

(46:47):
and fifty thousand dollars today. So effectively, what you're doing
is guaranteeing a newborn a three hundred and fifty thousand
dollars retirement account at fifty what is it to go
ten more years? You know you're talking about or do
fifteen more years. You're gonna have two doubles on that.
So now you're talking like a million five one thousand
dollars just ten years ago is worth over thirty five hundred.

(47:11):
So the ten year old would or already have thirty
five hundred dollars, but fifty years ago one thousand is
three hundred and fifty thousand dollars. You're talking about eliminating
almost eliminating poverty at retirement in fifty years. Yeah, well,
if it is truly, if it does go into the
SMV five, it's one more reverse gravity to our stock
market that isn't doesn't exist in other markets. If you

(47:33):
talk about why the US market outperforms, our US investors
in four to one case are constantly putting money into
our markets. Foreign markets don't have that, especially in areas
like Japan and China and India where they are savers
in their bank account and not investors in their own
stock market. That's absolutely right. So to me, I would

(47:54):
also like a provision not only to get started, but
I'm wondering if it will be able to the kids,
parents or whoever, will be able to add to those
accounts as well, you know, even birthdays and Christmases. If
you could make it easy to add a few dollars
to those accounts and make it hard to take out
and definitely make it hard to withdraw as well, I
think that that would be a great thing overall for

(48:16):
for society and for investors, just to get people to
understand markets and have skin in the game. Thanks for
listening everyone, We'll talk to you next week. You've been
listening to Money since brought to you each week by
Kristen Wealth Management Group. To contact Dennis brad or Kevin professionally,
call four one nine eight seven to two zero zero

(48:37):
six seven or eight hundred eight seven five seventeen eighty six.
Their email address is Kristenwealth at LPO dot com and
their website is Kristenwealth 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

(48:58):
your financial advisor prior to investing securities are offered through
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