Kersten Wealth Management Group - Money Sense 7-05-25

Episode Transcript

Speaker 1 (00:00):
Hello, and welcome to Money Central, listening to the advisors
of Kirsten Wealth Management Group, Kevin Kirsten and Brad Kirston.
I be happy to be with you today. We are
taping this show. It's going to air on July sixth,
and then it's going to be out on the podcast
soon after. But we are taking a vacation, so we're
not going to be around, so we're not going to
talk too much about the current market levels and the

(00:23):
current market conditions. But certainly, as of the time we're
taping this, Brad, the S and P five hundred is
at pretty much at an all time high, and certainly
if we go back and talk about the headlines and
think about the headlines that we had on April ninth
at the low, it's amazing how different the narrative is
at the moment, how quickly things have changed. I remember

(00:46):
many of the strategists were out very very quickly after
those twenty percent corrective levels were hit, or very close
to twenty percent was hit, adjusting their year end target.
So the SMP is only going to finish the year
at five thousand, yeah, you know, two hundred or five thousand,
So a lot of five four hundreds, and as if
a sell off in the middle of the year wasn't

(01:09):
possible to start the year, that you have to rush out.
And of course we always say five to ten percent
off is gonna happen for any reason, but in order
for it to be a twenty, it has to be
something the market isn't prepared for. But that doesn't mean
you change everything. It doesn't even mean you change where
you think you're going to be at the end of
the year. What it does change is where you go

(01:30):
from that point. If you thought that at some point
the market was going to be down sixteen percent on
the year, well then from that point forward, your nine
month return or your one year return, from that point
the expectations should go up, not down. And so it
is somewhat silly. And now, in hindsight, and it's not

(01:51):
just hindsight, everyone should know that this is this is
also possible that we are here three months later back
at an all time high again, and so so knowing
that that's possible, you should be a little bit more
of a professional. If you're the chief economist at one
of the major five ten fifteen banks or insurance companies
out there and act like you've been here before. Is

(02:14):
this the first twenty percent so off you ever experienced.
If so, you haven't been around very long. We've had
four and six years, and yet everyone was acting like
this time it's different. It's never different. It might last
a little longer, might last a little shorter, might go
down a little bit more than twenty percent, might go
down a little less than twenty percent. You might v

(02:35):
shape off the bottom, you might w shape off the bottom.
But in the end they all kind of act the
same on the way up and the way down. Some
are average length. This one was not average like. It
was pretty short. And some are erased for no reason whatsoever.
They just fizzle out. And some have a catalyst, like
a ninety day reprieve on the tariffs was the catalyst.

(02:58):
Some have a catalyst because the fat steps in. So
have a catalyst because a war starts and that it ends,
and those are really short, and so it is. It
is always a roll of the eyes to shake of
the head whenever we're looking at these headlines. When the
economists come out and revise their headlines or their expectations

(03:19):
for the year end down, we're going to take a
look at all the stats in this show and talk
about what some of these were three four months ago,
what they are currently and make our own year end prediction. Well,
and that's it's a joke. We're always say how stupid
it is to do a year of prediction. We're going
to do it based on the current stats and what
we talk about a lot right, right, And you're going
to make an educated a couple of educated assumptions based

(03:43):
on probabilities and not based on feelings. And that's my
problem with a lot of these predictions that get put
out of the beginning of the year or any time
during the year, is I feel this. I feel that
let's just look at probabilities and look at some different
stats that would lead us to certain numbers by the
end of the year with not a not a one
hundred percent probability, but would an above average level of probability.

(04:08):
If we're going to be positive, it's likely to be this.
Could you have an event that happens and then and
maybe create a range of outcomes even I would certainly
like to see instead of an absolute target to say, uh,
a range of outcomes based on certain things happening or
certain things not happening. I mean, I certainly think you know,

(04:29):
one of the big things that we have on the
horizon is the ability to pass this tax cut plan
and and whether or not the tax cuts will be
expanded on or made permanent, or some things will maybe
they get rid of certain write offs and things like that.
What will that look like and how will that affect
the markets? Does that drag into the fall? That could
be the one thing that I think is still out

(04:50):
there on the horizon, the tear offf stuff. Yes, that's
still out there, but I think there's the worries gone
away because we haven't seen the Yeah, and I think
we've seen we haven't seen the inflation. You're right, and
I think we've seen some of the worst case scenarios
kind of taken off the table with that too. But
if we look at the S and P five hundred,
let's start, first of all, right, at the beginning of

(05:11):
the year, brad so SP five hundred was at five
and eighty two. At the beginning of the year, it
was coming off two back to back twenty percent years.
Doesn't happen very often. But one stat I'm gonna give
here right off the bat, not one of the ones
that you have is after a twenty percent up year,
if we look at all twenty percent up years, the
following year on average is positive, but it's not positive

(05:34):
as much as the long term average. After a twenty
percent positive SMP five hundred year, the average year if
you take all those following that is up eight point
nine percent eight point nine percent with a starting point
of five eight eight two has an end of the
year target of six thy four hundred and five. So
we're gonna keep doing this with all the stats. Okay,

(05:55):
so that is not as much as the average year,
but you're coming off of not just one, but two
above average years, so it does make sense that the
market would call them down a little and have an
average year. That's right. I think that that makes a
lot of sense. I mean we are in the second
most positive year for the presidential cycle as well. That

(06:16):
average the current this current year for the presidential cycle
averages I think nine point eight. Yeah, a little less
than average. As well. The third year is the best,
and I think that average is about thirteen, but the
first year is better. A great batting average you have.
The market is up call it seventy percent of the time.
That first year is up more like eighty five percent

(06:36):
of the time positive, but slightly less than long term averages.
We talked to the beginning of the year as goes January,
many times so goes the year. When January is positive,
the s and P five hundred is positive for the
calendar year over ninety percent of the time. When it's
positive by two percent or more, the numbers are even

(06:58):
better the average calendar year return. When we did have
a two percent positive two point eight percent I believe
for January. So for the full year, the averager turn
with a ninety percent positivity rate is eighteen point four percent.
So our first look was following a twenty percent year
puts the SMP at six thousand, four hundred and five.

(07:20):
It was as we tape the show, six thousand, one
hundred and forty one. If we do the January barometer
and use the average return overall on the five eight
eighty two, that gets the SMP five hundred to a
much higher level six nine hundred and sixty four if
January is positive by more than two percent, which it was,

(07:41):
And so here you have another call it data point
to say what could the market do if it if
it just returned the averages and based on what January
gave you, that average would have you almost a seven thousand,
almost a seven thousand. So if we look at what happens,
we had this bear market in March and April, I

(08:03):
mean it was just shy of twenty percent. It was
a full blown bear market. Markets pricing in a recession,
markets pricing in things that it didn't start the year
pricing in, and so all of that has come and went.
But the key data, I couldn't really officially call it
a full blown bear market, but it certainly for a
lot of investors as that drop was occurring, it certainly
felt like it. It was very quick, very similar to

(08:25):
the twenty eighteen and twenty twenty bear markets, much different
than the twenty twenty two bear market. At twenty two
was kind of right on average for the length, about
a ten month for that one, and that's kind of
smacking the in the middle of what a typical bear
market would be from high to low for length. But
like you said, you know, kind of a six week
downturn is more similar to what COVID was and a

(08:47):
little bit shorter even than what the twenty eighteen sell
off was, so the low point was four thousand, nine
hundred and eighty two. And if we look when we
have in a two month period a twenty percent gain,
So that took the S and P from four thousand,
nine hundred and eighty two to five nine hundred and
seventy eight in a two month period. We're now over

(09:08):
six thousand, one hundred at the moment, but in that
two month period, the S and P five hundred got
to five thousand, nine hundred and seventy eight on excuse
me here, that would be June fifth. On June fifth,
So after that point, what does the market average? Well,
now you can kind of look if June fifths kind

(09:29):
of close to if we're looking at the end of
the year, call it a six month metric. The average
is four and a half percent more in the next
six months. The median is four point nine percent in
the next six months, so call it four point seven
percent and the next six months. That would mean if
you take today's no, I don't think you're looking at
the right column. I'm sorry, rad, is this twenty percent
or more for two after two months? Oh? Gotcha? What

(09:53):
am I looking at? It's caught off coverage for all
six months. That's all six month period, gotcha, I am
not looking Wow yeah, much bigger return. So sorry about
that because it's cut off in the in the report
that I gave you here. So in all, in any
six month period, the average is about four and a
half percent, yep, And the market's up seventy percent of
the time in six months and every six month period.

(10:13):
Once we've had a twenty percent rally off the low,
it's one hundred percent because it hasn't happened very much
in a two month period one two, three, four, five,
six times it's happened where you have a two month
period where you're gone up twenty one hundred percent of
the time, one month, three month, and six months later
it's positive one hundred percent of the time. And the
average if you take those two, the average is sixteen

(10:36):
point three percent. In the next six months, well six
months from today. Get you to the end of the year.
Did you do sixty one to forty uh well, fifty
nine to seventy eight was the twenty percent rally. Okay,
you add sixteen point three percent of that and you
get to sixty nine to fifty two. Strangely enough, almost
exactly where the January predictor put the S and P
five hundred justus just below seven thousand. So we have

(10:59):
two indicators for the year, a twenty percent rally in
two months, a two percent rally in January, which puts
the market at just shy of seven thousand, with a
pretty high level of probability, Brad, the January excuse me,
the twenty percent gain barometer is one hundred percent probability
six months later, the worst six months being nineteen ninety

(11:22):
at a nine point nine percent return. And when you
look at the two percent January level, that takes the
SMP five hundred six months later up eighty five What
am I d here? I've got all these different ones
here going? Is here a good start to the year
eighty seven point five percent of the time higher with

(11:44):
an eighteen point four percent gain. So certainly looking at
those two metrics, positive January by two percent or more
and a twenty percent rally in two months off those lows,
leaving the S and P five hundred based on history
just shy of seven Yeah, kind of two of the
most bullish indicators we have going. But you know the mark,

(12:05):
especially the twenty percent in two months just doesn't happen
that often, but it just it is so bullish that
you would move off of a bottom that significantly, And
if you think about the psychology of it, it does
say that the market overreacted. It does say that the
reasons that the market moved down have kind of gone away,
because the market wouldn't continue up as much as it has.

(12:27):
And that's kind of what we have right now. Did
the market overreact? Yeah, are some of these reasons going away? Yeah?
It wasn't just the tariffs in the trade war. It
was are we going to have inflation because of it?
And we haven't, And even the real time indicators are
are up a little bit off the bottom. I was
always talking about the trueflation Index, which is more of

(12:51):
a real time indicator, and even though its spiked to
be just above two percent, you're still talking about two
point one to two point two percent over the last
couple of weeks, still a very low level below the
current CPI. So the inflation worry has kind of gone away,
and that's why there's so much pressure on the Fed
to get going and why they've had to change their
language a little bit to say they're not behind and

(13:13):
if we still don't have inflation in July, they're going
to be cutting. They pretty much prepare the market for it.
Going back to the markets on the predicting where the
SMP might be by the end of the year, Brad,
since nineteen eighty eight, we've only had a positive May
in June sixteen times. Say only that's you know, that's
you know, pretty good sample size from nineteen eighty eight,

(13:34):
sixteen times May and June are positive. The final six
months of the year have been positive when that happens
ninety four percent of the time. So I mentioned all
six month periods are only seventy percent. Yeah, so this
is a pretty good indicator as well. Average return for
the final six months eight point eight percent. We don't
know exactly where the SMP is going to be on

(13:54):
June thirtieth because we're taping this show early, but at
the moment it's at sixty one forty one. So it
would take you to six thousand, six hundred and eighty
at the end of the year if you're eight point
eight percent for the final six months and so little
less than those others. Kind of a kind of middle
of the road from all the indicators that we've looked at.
But a lot of bullish indicators out there if you
look at the history of the market and what the

(14:17):
market is telling you when it's at these levels at
this point in the year. So I think you can
take a look at a lot of these. It's tough
to find a barish one. It really is. Even when
you were at a low point, it's tough to find
a barish one if you look a year out now.
Could you look when you're at those low points, to say,
three months down the road, could we still be negative?
Sure you could find some of those. Could you find

(14:39):
some when you're at that low point, Well, none of
these are. There was only one that was one hundred percent,
and that's the twenty percent rally in two months. Yeah,
and a small sample size for those. But yes, you're right.
Is there still margin for error because you could still
be in one of those ten fifteen to twenty percent
occasions where you are negative from this point to the
end of the year. You could be. But you have

(14:59):
a a lot that is more favorable than just the
average year or the average six month, and you have
quite a few that are more than the average even
for the final six months. So if we look at
the last one here, which kind of goes with the
twenty percent rally in two months, when you have sixty
percent of the S and P five hundred that are

(15:20):
at a twenty day high. So that just shows you
how the breath of the breadth of the market, the
whole broad market is rallying every sector. He had all
this taught for years of it's only the big seven
companies doing it. This is not the case on this rally.
The big seven have finally caught up. But off the
bottom it was the other four to ninety that were
doing the work, and finally the big seven, big ten

(15:42):
companies in the last two weeks have finally caught up
and are getting to an all time HIAA just about
the same time. Reminds me of twenty twenty four, where
you had leading even though tech led the way. Tech
was not the leading sector for most of the quarters.
Last year, only the first quarter was tech the leader.
You had utilities leading one of the quarters, you had
communications services leading, you had financials leading for another quarter,

(16:05):
and that's what you've had off the bottom here you
had industrials leading the way along with aerospace and defense.
Once Trump got back from the Middle East meeting. You've
had tech recently off the bottom, you had energy a
little bit, and utilities off the bottom. A lot of
talk about data centers and capacity and usage of infrast
building out infrastructure and using utilities. They led the way

(16:26):
off the bottom, along with some of the industrial companies.
So it's it's been wide breadth. It's been a lot
of the market. And that's what this is telling. So
that happened on May twelfth and the and so what
was it measuring sixty percent or more of companies in
the SMP at a twenty day high. That happened on
May twelfth, eighty five percent of the time, it's higher

(16:47):
six months later. So that would take you to November
with a nine point seven percent average return, taking you
into November at about sixty four to ten, which strangely enough,
is pretty close to your prediction after a twenty percent year.
So we kind of looked at we basically looked at
five different things that are going on in the market.
The fact that we're in the first year of the

(17:09):
presidential cycle, the fact that we're coming off a twenty
percent year, the fact that we had a two percent January,
the fact that we had a twenty percent rally in
too much. We look at all of those and we
really have two indicators showing the market getting to around
seven thousand by the end of the year. We have
two indicators showing the market at about sixty four hundred
by the end of the year, and one indicator kind

(17:32):
of right in between those at sixty six or sixty
seven hundred. What would that be for the full year
on all of those, Brad, if we go from fifty
eight eighty two, we had fifty eight eighty two at
the beginning of the year. So if you look at
seven thousand in the most bullish example, you're getting roughly

(17:54):
a little more than eleven hundred points on the S
and P five hundred, So that puts you at about
a nineteen percent return on the year. So in the
most bullish example, that puts you in a nineteen percent
return for the year. If you look at the more
modest predictions for the year, which the two most modests
that we saw were the sixty percent of components up

(18:16):
and then of course you mentioned coming out of a
twenty percent year, it's only logical that you would you
would slow down a bit a little bit that puts
you at approximately excuse you're adding them all up, so
it's sixty seven hundred, almost right on the nose. There
is where is where you're going to end up. And
if you take a look at where we started the
year at fifty eight eighty two, that would give you

(18:37):
a little bit more than an eight hundred point gain
on the S and P five hundred, right, And so
if we're going to do the average of those four metrics,
still a significantly higher return than the average thirteen point
nine percent for the full year, and today we're only
four point four percent up on the year, So you're
talking about just shy of ten percent return for the
final six months. If you take a look at all

(18:58):
the bullish indicators that are out there, what they're telling
and the low end of that range is about eight
percent for the year, and the high end of the
range is almost twenty yeah, with an average right around
thirteen or fourteen. So you know, interesting to kind of
put that together in terms of what would be logical
through the rest of the year. I've even seen another chart,
Brad that talks about the first year of the presidential

(19:19):
cycle and what happens the market does typically have a
summer peak late July early August and then have some
kind of correction as well, So that'd be another thing
I would be looking for. And then I do not
think it is out of the question to given that
we've had such a strong broad rally off of those lows,

(19:40):
it's certainly not out of the question to look at
some of those metrics. I just saw a couple firms
that had lowered their SMP target. It's how embarrassing have
gone back up. Oh the BMO was one that lowered
and has now gone back up to six thy seven
hundred on the S and P. So it's strange that
they're just kind of chasing wherever the market is at

(20:01):
the moment. But certainly, given a lot of positives that
we've seen in the year, the strong January, the strong
rally off the bottom, the first year of the presidential
cycle is still a pretty solid year, I think it
would not be out of the question to expect some
kind of range six four hundred to seven thousand. And
I think a lot of the strategists would be better

(20:24):
off doing, like I said at the beginning, due a range,
due a range of outcomes based on if this happens,
we'll be at the low end of the range, and
if the more positive result happens, we might be at
the higher. We're going to be doing that in a
week when we talk about our mid year outlook, which
we're going to have on our website probably shortly after
this show airs. Then we'll do a show where we
talk about the midiyear outlook. Most of it is if this,

(20:47):
then that, because we can't know and there's so many
things that we can't determine. If the tax cut bill
gets past, then we're a little bit more bullish. If
it drags out, we're not. If earnings met or exceed
xs than we expect this, and so you have to
do it that way. And why they don't and give
a range of bullish, embarrassed scenarios for their predictions is

(21:09):
beyond me because there are too many unknowns, and that's
really what we're talking about here. When you get back
from the break, let's talk about some bad financial advice
that we've seen out there. Brad a couple of different ones.
We saw one on Instagram and then there's one from
Dave Ramsey, which I think we've talked a little bit
on the show, but I want to just circle back
to it as well. You're listening to Money Sense Kevin

(21:29):
and Brad Kurston will be right back and welcome back
the advisors of Kristen Wealth Management Group, Brad and Kevin
here with you this morning. Kevin, we were talking about
a lot of different things here at the beginning of
the show, kind of talking about where the market is,
expectations we're gonna shift gears, talk about some things that
and I think even some of this might even be
AI generated, where I don't even know if the person

(21:50):
I'm watching this video online is even a real person. Sometimes,
but people click on it, click on people, click on it,
and they think they're missing out. There's this fear of
missing out of a good idea, even if the idea
it has no sense, that makes no sense, but they
don't know it doesn't make any sense. It doesn't make
any sense to you. And I, because I know better,
I know what's possible, what's a guaranteed rate, what is

(22:13):
a risk free rate, what is a reasonable return on things?
And what's a reasonable withdrawal rate on things? And yet
you'll have these people that put out these videos and
just say here's what I would do. It's so easy
and just throw numbers out and if somebody were watching it,
they'd think, well, I'm not taking twelve percent withdrawal out
of my investments. This guy's figured out, he's cracked the code.

(22:34):
He's figured out how to take twelve percent out and
live on it and never run out of any money.
And it's just a bunch of bs. And so we're
gonna poke some holes in a few things that we've
heard read scene. You're gonna play a video here so
we can poke some holes and this in this particular video,
and I sent it to you because I'm like, what
is this person? What this advice is? And maybe half

(22:55):
the advice is not so bad, the other half of
the advice is just not even possible. It's just flat
out lies, and they're just not they're not telling the
whole story of the headline of the video is how
I would invest two million dollars for retirement. The gentleman
ends up getting to one hundred and sixty six thousand

(23:17):
of guaranteed income in retirement on two million, which works
out to roughly what eight eight and a half almost
eight and a half percent. Yeah, yeah, eight and a
half percent, which he calls guaranteed income. Yepesh, that kind
of goes in line, actually, Dave Ramsey. Dave Ramsey also
recommends an eight percent withdrawal in retirement. He says the
market averages ten if you're in the market. He actually

(23:37):
says the market average he averages twelve. Y. Yeah, he
says he averages twelve. Yeah, which is but in any event,
and so in this video too, and you'll listen for it.
At the end. He also hints that this eight and
a half percent guaranteed income for life is tax free,
and so we'll listen to that little wrinkle in it
as well and talk about what you'd really have to

(23:57):
start with in order for this to be tax free.
And I'll do the math on that. We'll do the
math on a lot of these things after we listen
to the video. And it's just it's a big eye
roll for all of us, and hopefully by the end
of the segment it'll be a big eye roll for
everybody else.

Speaker 2 (24:13):
Exactly how I would live off at two million dollars
in retirement and never run out of money. I've had
some more time to think about it, and first I'd
take a million and put it into a fixed index
annuity designed for income, which would guarantee me approximate one
hundred and twenty two thousand and seven to twenty three
a year for life, So no matter what happens to
the stock market, my ass is covered. Number Two, I'd

(24:36):
open up an ETF fund like Vanguard's VO that gives
me a one point three percent yearly dividend, or about
thirteen thousand a year. Then every year I'd sell out
about three percent of the seven percent returns of that
ETF and cash out about thirty thousand bucks. Now I'm
up one hundred and sixty five thousand dollars a year.

(24:57):
Number three, I'd take security about thirty three thousand dollars
a year.

Speaker 3 (25:02):
Now I'm up to one hundred and ninety eight thousand dollars,
and assuming I've converted everything to a roth IRA, the
only thing that's going to be taxed is this social security.
At about thirty three hundred bucks a year worth ten percent,
can your two million dollar tax retirement plan beat mine
hundred and ninety eight thousand dollars a year?

Speaker 1 (25:21):
Here's it? So let's uh a lot to in. Let's
start with the with the end first, so the only
way that that's all your social security is taxed if
that's your only income. So he does the math on
everything's tax free. Okay, so let's do the math first time. Well,
just assuming the whole thing's a wroth. Yeah. At the end,
he just throws in, assuming you've already converted it all
to a wroth. Just make it a wroth. Yeah, well,

(25:41):
it's just just make it a wroth. Yeah, well, how
do you make it a wroth? Let's see, let's start
with that. You just make it a wrong. You have
to convert it all. So let's just assume how much
would you have to have to start with two million
all in a roth. Now, first off, there's twenty six
percent of the population that has a wroth in the
if you're if you have investments at all, twenty six
percent have a roth. You know, the percentages that have

(26:04):
all of it in a wroth, no traditional ira less
than one percent. So less than one out of one
hundred people have all of their IRA money in a roth. Ira. So,
but he's talking about this is how easy it is.
But what would you what would you need at the
highest tax bracket right now, thirty seven percent? This is
assuming also that you don't have the extra taxes because

(26:24):
you're over the age of sixty five. So let's assume
you're under sixty five thirty seven percent tax bracket. Most
of your of your money's going to get taxed at
that a little bit of it, it'll get taxed at
thirty five. Assuming you have a little bit of other
income too, you're gonna most of this is going to
be at those high two brackets. And you're in a
state where you have some tax uh tax at the
state level too. You need about three point two five

(26:47):
million to get down to a two million dollars to
net two. So already we're changing the percentages because if
you have three point twenty five million, you also could
have income that would be higher, but we're starting with two.
But the way we're starting with two and having it
be tax free, and his example is that we start
actually with three point twenty five, pay all the taxes,
and now we're down to two all in a raw.

(27:08):
So that's that's the first thing. Let's get to the
first recommendation here, which is a million dollars that that
guy said, by the way, we have no this is
we're ripping on this recommendation. Okay, we know this is
absolute BS. And when I will first watch the video,
I thought, well, geez if if that first recommendation where
you can get one hundred and twenty two thousand out

(27:29):
of a million guaranteed for life, why don't you just
put the whole two million there? Why do you need
to do anything else? If you're going to get a
twelve percent return guaranteed for life, heck, just put it
all there. Why well, it doesn't really exist well, and
an annuities with guaranteed income are as bad today in
terms of the payouts as they've ever been because insurance

(27:50):
companies were burnt. They offered two good of benefits in
the late nineties and early two thousands, got burnt by
the bear market. Of the two thousands that from the
year two thousand lasted thirteen years and have completely adjusted.
And to say that you could get a twelve point
two percent guaranteed income stream from a fixed intextnuity is

(28:11):
so irresponsible. It's just it does not exist. Soles examine
it a little bit, could I reverse? By the way,
By the way, if you're starting income right away, the
best I could find, the best I could find for
that type of product for an age sixty five was
about five point six percent. So already we know. I
scoured a lot of companies. Let me reverse engineer how
you could do it. You couldn't do it just by

(28:32):
putting a million bucks in and getting it right now.
Not possible. It's not possible to get the income. Very
best one today is five and a half. You said, yes,
five and a half. Okay, how could you reverse engineer it?
The only way to do it is that you take
your million when you're we'll say you're fifty five, You
defer it for ten years, and then we can come
up with a lifetime income. If you annuitize means you've

(28:53):
given up your Principle've given up your principle, you're starting income,
and if you die tomorrow, it's gone on a sink.
You're going tonuitize on a sin life, so single life,
not a joint life, no period. Certain I can do
today a million where I defer for ten years and
the income is pretty much the same. And I and
I have about six companies that would do it. All
the companies that we do, you would know, but you

(29:16):
would have to tie your money up, not touch it
for ten years, take income on a single life anutization
at the age of sixty five, then you can come
up with that income. But that's not exactly what he said.
He made it sound like you put a million in, right,
one hundred and twenty two thousand out, But you don't.
You put a million in, you wait ten years, and
then you anuitize it and give up the ability to
access those dollars, and if you die too early, the

(29:38):
insurance company gets to keep your money. So in two
of his recommendations, one of them he's talking about tax free,
which you would have to start with three point two,
not the two that the gentleman referenced. The second one,
you'd have to go back in time, and it has
already invested the million the million and deferred it for
ten full years, right, which, by the way, if you

(30:00):
you had done that just in the s and p.
Five hundred, you'd have vastly what's the last ten what's
the last ten year return? Almost I think it's just
just north of ten percent a year. Okay, So you're
you're talking about in seven years it would have doubled.
You're talking about probably one point five percent at that point.
The one point five a double and a half. So
it just doesn't exist, right, It just does not exist.

(30:20):
You cannot get double digits guaranteed income on a fixed indeate.
It does not exist. It doesn't exist, and it didn't
exist ten years ago, twenty years ago. It didn't exist.
If you're starting right away, even if you're doing single
life and giving up all your principle on day one,
meaning if you die on day two you lose all
your money, you're still only seven eight percent seven eight
percent best. Yeah, twelve is not possible, right, Okay. The

(30:45):
last recommendation that he does on here, which is maybe
the least offensive, just because he's recommending a low cost
SMP five hundred indecks. There's a couple of problems here.
He says, take the second million that you have, okay,
and invest in the low cost s and P five
hundred indeck one point three percent dividend, which it doesn't have.
It's actually one two four on the S and P
five hundred and then above and beyond the dividend, take

(31:09):
three percent a year because you're gonna get seven percent
at least. He doesn't say that he actually shows a
reasonable accurate per average per year return on the SMP.
The problem is he states the seven percent annualized gain
as if that happens every year, no matter what. Yeah, okay,
and obviously that doesn't work like that. What do you

(31:30):
do in the down yere? He says, I'll take three
percent of my seven percent gain? Well, what are you
doing a down year? Take nothing? Right? You're going going
to do that if you have a game and then
you're seven percent behind at that point, So in the
even in the recovery year, Well, then you wouldn't be
allowed to take three percent because until your total return
was fourteen percent, you wouldn't You would be off track, right,

(31:52):
You'd be off going down, you'd be going backwards. Something
called the sequence of returns risks. This is why large
withdrawals do not work. You can't you can't just take
what your your long term average is going to. Cannot
take a withdrawal that is your long term average. It
doesn't work. Yeah. Well, the other thing that struck me
about the whole let's let's take the dividend and let's

(32:12):
take a little percent. He already said it was in
a roth ira. What's the point if you're taking the
dividend income out Because it's in a non retirement account
and you're not going to reinvest it. Okay, there's there's
some merit to that. It's in a roth ira. What's
the Who cares? Who cares what part of your return
came from dividend, what part came from total return or
came from capital appreciation. It's irrelevant. If he's saying take

(32:36):
a four point four percent rate of return or withdrawal
rate out, fine, who cares what came from the dividend?
It doesn't matter. And if you're in the year two
thousand with three consecutive negative years, you just take out.
You just took out thirteen or fourteen percent while your
principal value dropped forty Yeah, so now you're you're down

(32:56):
fifty eight to sixty percent. Now, if you don't adjust
your withdraw rate, you're right. Just became does not work.
This is why you need bonds. This is why you
need short term treasuries in retirement. You have to have
the discipline to take from that when stocks are down.
I was just looking at one of our models where
somebody was taking a monthly withdrawalout and almost every month

(33:21):
the bonds were pretty consistent. In the middle but almost
every month it was a different piece of the portfolio
that got sold for the withdrawals. More often in stocks
it was it was tech stocks. The first two months
of the year. It was two different bonds for three
months in a row. And now the last two actually
came back and were taken from stocks again because they

(33:42):
were out of tolerance. They were the higher percentage than
than they would have started the year, or higher percentage
than the model intended. And so that's the discipline that
somebody needs to have. Is when stocks are down, you
don't say to yourself, those bonds are working. I don't
want to touch it. And when and that is when
you're selling them. And when stocks are up, you don't

(34:04):
want to say, oh, look at how they're doing compared
to the bonds. The bonds aren't even doing that good.
Why would I hold those? Why don't I just get
rid of those for rye withdrawal. No, you have to
have the discipline to sell the thing that's working and
let everything else have time to recover. And this year's
a perfect example of it. That's right, So we get
back from the break, let's shift gears to the Dave

(34:26):
Ramsey strategy of an eight percent withdrawal, which is very
similar to this. I mean this ended up being an
eight percent withdrawal overall, and talk about talk about why
that does not work either. You're listening to Money Cents
Kevin and Brad Kirsten. We'll be right back. Welcome back
to the show. You're listening to the advisors of Kirsten
Wealth Management Group, Kevin Kirsten and Brad Kirsten. As a reminder,
we are professional financial advisors and our offices are in Perrysburg.

(34:48):
Give us a call throughout the week if you want
to set up 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
with you four one nine eight seven to two zero
zero six seven or check us out online at Kirstenwealth
dot com. Brad, we're talking about bad financial advice. In
the previous segment, I'd played a clip from Instagram that

(35:10):
talked about two million dollars somehow net of roth taxes,
which you would have to start with three point two
million to net two million dollars, and two different crazy
recommendations somehow getting twelve point two percent guaranteed withdrawals from
a fixed index annuity, which is impossible, and then taking

(35:34):
three percent of a guaranteed seven percent is what this
gentleman called it. On the S and P five hundred index.
Dave Ramsey goes even further. He says, he averages twelve. Wow,
he's great, it's great. Right, I'm better than he's gonna
do twelve and he's going to take out eight. So
you know, piece of cake got four left over every year.

(35:56):
But if you look at a couple of different scenarios,
you really just have to look. Get am I am
I guaranteed to retire when the market's going to go
up and exceed the long term average. Great, if that's
the case, maybe it will work. What if you retired
at the January first of twenty twenty two the market
went from high point to low point down twenty six

(36:16):
point two percent, tire of a million dollars, you're taking
a withdrawal of eight percent out. Okay, if you didn't
take anything out and you were and at the low point,
your million would be worth if it was just in
the SP five hundred be worth seven hundred and forty thousand.
But oh guess what I'm taking out eighty and by
that point in the year, ten months into the year,
I would have taken out sixty five So what's my

(36:39):
what's my value? Then I'm seven hundred and forty If
I wasn't taking anything out, but I'm taking out at
that point in the year ten months, ten and a
half months into the year, would taken out sixty five thousand,
seven forty minus sixty five thousand. Now I've taken out
now my value six hundred and seventy five thousand. Okay,
from that point, if the next twelve months, I'm going

(37:00):
to take out eighty eighty thousand divided by six hundred
and seventy five thousand is eleven point eighty five percent
of the account. So now in ten months, my eight
percent withdrawal became a twelve percent withdrawal. So the market's
down a third of the time, or not quite a
third of the time, seventy seventy percent of the time

(37:21):
it's up, So thirty percent of scenarios taking that aggressive
of adrawal rate blows the whole thing up. And now
your eight percent withdrawal turns into a twelve percent withdrawal
because you retired in one of the thirty percent of
years that was going to be negative. If you bought
the S and P five hundred and two thousand and
took an eight percent withdrawal, you were out of money
by eight completely eight years. Yeah, out of money. Now.

(37:43):
I know what people are thinking. They're thinking, well, I
won't invest just all in stocks. I'll have some bonds
and I can take from the bonds and gon'n let
the market have time to recover. That's fine, But Dave's
talking about a twelve percent withdrawal. The only or a
twelve percent return. The only way you're getting there is
if you're one hundred percent stocks. I agree, if you
had a weld of versified portfolio, then you can make

(38:03):
it work because you can give your stocks time to recover.
You don't have to sell things when they're down. But
your long term average is not going to be twelve
percent in a over a thirty year retirement period. If
you take an eight percent withdrawal, as Dave Ramsey recommends,
and just simply buy the S and P five hundred,
you have an eighty five percent chance of running out
of money before the end of the thirty years. Eighty

(38:25):
five percent chance of running out of just based on
historic returns, and that's if you're one hundred percent stock.
And so the only way you can get over ninety
in a thirty year retirement in the S and P
five hundred is to take three percent withdrawals adjusted for inflation.
The only way you can get over ninety and have
a four percent withdrawal, Brad, is to invest in let

(38:51):
me see here, sixty sixty forty is to be sixty forty.
That's the only way you can have a four percent
withdrawal and be over ninety. So, looking at more conservni,
how would you do a five percent withdrawal and be
over ninety Actually, somewhere in between, right around a seventy
thirty allocation, you could get to write on ninety percent

(39:12):
chance of success, ten percent chance of running out of
money if you did a seventy thirty allocation. So you
we hear all these scenarios where somebody might say, you know,
this works when the stock market goes straight up. Yeah,
everything works when the stock market goes straight up. But
we even hear it. We hear it even with a
different investment scenarios where they say, well, this this particular

(39:34):
exotic strategy does great. When the S and P five
hundred goes up, well, so does the S and P
five hundred, And it does better than your exotic strategy.
And with these withdrawal strategies that are so aggressive, this
works if the first couple of years are up, Yeah,
that's great, but we have to plan for the worst.
Let's plan for one of the first few years being negative. Now,
how does it work, and if it works in those scenarios,

(39:55):
then we can increase the withdrawal rate later. And the
first few years are all that matters. The first year
is the most important, the second year is the second
most important, and if we can get past those, then
we can start to increase the withdrawal rates. So you
go conservative early, planning for a little bit of an
increase in your withdrawal rates. I mean it just I

(40:16):
get nervous when people are north to five. You look
at the studies. The study show you should be nervous
if you're north unless you're If you're taking five percent
and you're seventy five years old, that's different. You know,
I'm talking about the beginning of which it depends how
old you are. When we're talking about retirement, the younger
you are, the more conservative your rate is. And that

(40:36):
conversation is I'm never hearing that with most of these
aggressive withdrawal strategies. They act like a seventy five year
old taking eight is the same as a fifty five
year old taken eight. And it's not the only way
I would say a slightly higher withdrawal rate to prior
to social security age is appropriate is if the plan
is we're delaying social Security, and then however much the

(40:58):
Social Security is, we're going to lower the withdrawal rate.
Let's not get comfortable with both or plan on both.
We do have to if it's a six seven eight
percent withdrawal rate, but the plan is once I start
taking solid security, we're going to cut it back down
to four or five. Okay, I can live with that,
but you got to be disciplined in order to do it.
There's five significant periods of time that we've had where

(41:19):
too aggressive a withdrawal rate would have blown up your
entire retirement. I don't know where we are today, there's
no way to tell, right, Okay. Obviously we always talk
on the show it pays to be bullish on the market.
It does, it does, but you don't know when that
peak will eventually occur, because in those moments, those people
didn't those investors didn't know it either. Yeah, I guess
you're right because people are listening to what we're saying,

(41:41):
or generally bullish because it pays to be bullish. But
we're pretty conservative with withdrawal rates because it pays to
be conservative with your withdrawal rates. Both of those, the
odds are in your favor. It's not like if you
start a withdrawal rate at four percent, that you've committed
to that for life. If your account value goes up,
percent of a higher account value is more money out.

(42:03):
It's amazing how many times I get really conservative with
people who have gotten to the stage in their life
with the amount of money that they have by being
more aggressive. Say well, wait a minute, we've done great.
You've been advising me for the last twenty years, and
I've done great owning just stocks. Well, that's because every
sell off that happened when you had ten or fifteen

(42:25):
years till you we retired was the greatest thing that
ever happened to you. Because you were buying more shares
at a lower price. That completely changes. I can't tell you, Brad,
how many times I've had to sit down with people
who don't want to come off the one hundred percent
stock ledge because they've done so well, And it makes sense.
I've done so well, why would I do anything different?
And it's because the math changes when you're taking withdrawals

(42:48):
versus putting money in. Yeah. The easy math on a
five percent withdrawal rate is I need a little bit
of dry powder to buy a dip, and I need
a little bit of dry powder for that to be
your only withdrawal. Your previous dry powder was your income,
which you now don't have, and you really have to
look at worst your income from workime. Yeah, and if
the worst case scenario is an eight scenario and it

(43:09):
took four and a half years to get back there,
then at the bare minimum, if you're taking five years
worth of withdrawals out, the bare minimum is twenty five
percent in something that won't go down, short term conservative things,
short term bonds, conservative investments that are not going to
be correlated to stocks, and have the discipline to go
from seventy five to twenty five to one hundred percent

(43:32):
stock by the end. And now we're going to give
it some time to recover. I hate to say, brand,
I think the worst case scenario isn't eight. It was
a larger down draft, but it was a quicker recovery.
I think the worst case scenario is nineteen sixty eight
and the year two thousand, because the year two thousand
includes two thousand and eight until we were finally above
that all time high. You're going from March of two

(43:54):
thousand to March of thirteen. Yeah, is how long it took. Yeah,
so nineteen sixty eight to nineteen eighty two s and P.
Five hundred went nowhere. You would have run out of
money with an eight percent with draw rate. Nineteen twenty nine,
of course you would have run out of money with
an eight percent with draw rate. In fact, that was
the quickest you had to run out of money. In

(44:14):
sixty months nineteen excuse me, two thousand, year two thousand,
you would have run out of money with an eight
percent withdraw rate. And then of course September of two
thousand and seven, you would have run out of money
with an eight percent withdraw rate in all of those periods.
In all of those periods, so you have to have
money in fixed income. Yes, Over time, the stocks are
going to outperform the fixed income over time. You're always

(44:36):
going to look at that fixed income and say why
do I own it? Why do I own it? And
then there's going to be these periods a bear market
or a prolonged sideways period in the market where you're
going to need that fixed income. And this is why,
whether it's what we did on the last segment or
the Dave Ramsey advice of the eight percent withdraw in
my opinion, is very irresponsible. Let's take our last pause. Brad,

(44:58):
you're listening to money since Kevin and Brad Kirsten will
be right, Bratt, welcome back to the show. You're listening
to the advisors of Kristen Wealth Manager Group, Kevin Kirsten
and Brad Kirsten. Brad, just a couple of minutes left.
We talked two weeks ago about private equity, which is
the hot term right now, private credit, private equity, private
credit more than private equity. And what we were saying

(45:19):
two weeks ago is it's really the new way to
invest in small casts because so many venture capital and
private equity firms are holding these what would be IPOs
until they're megacaps and there's no way for that. It's
also to invest, but it's also an alternative investment. It's
also an opportunity for people to be confused, people to
get their money tied up for longer than they expected.

(45:40):
We just see the headline in the Wall Street Journal
this week. Blackrock is adding private investments. Looking to add
private investments to four h one K plans and add
it to their target date funds. I don't know if
this is necessary. I mean, again, we were talking about
all the layers of fees. Here's another one, right, You're
putting it into a target date fund and how are

(46:01):
we even going to know what the fees are? And
we're layering it in there so that Blackrock can have
more dollars to spend on venture capital maybe or you know,
pre ipo shares. It seems like we're adding a lot
of layers of fees. You could just invest in the
company itself that's doing it. It doesn't have to be Blackrock,
but there's a lot of companies that's all they do,
and they are publicly traded. That really is what our

(46:23):
main focus was two weeks ago. Is invested into the
index that invests in those companies. The new target date
fund will be approximately forty basis points overall overall, with
only five to ten percent invested in private equity, So
it's definitely increasing the overall fees. You know, in terms
if you select one of the target day funds that

(46:44):
has the private equity, I don't know, you know what
I want to know the companies that do the private
equity in the private credit, what do they own? What
are the people that work their own I think I'm
guessing here, but I think they probably own shares of
their own own company, right. I don't think they own
the exotic instrument that the company is creating that is

(47:05):
locked up for ten years or has no liquidity until
they decide to sell it. I don't know how you
would know, but you can look at an insider's role
of who owned shares, and I'm pretty sure the majority
of their wealth is in their own shares. And if
they're buying the stock, but they're recommending that you buy
this product that they're selling, yeah, yeah, I don't know.

(47:28):
That's where I would be skeptical in terms of if
their own people aren't putting their money there. And it's
really the the reason that we brought it up. I
think this is going to be We're going to have
a year or two or this is going to be
the new fad that every advisor is going to be
showing you some exotic investment. And this is the way
the rich people invest, is what they'll say. Be skeptical.
It is especially when there's not liquidity. That's right. And

(47:52):
I think that's going to be the focus of all
these new investments is is we're going to tie your
money up, but it's just going to be ten percent
of your money and it'll work. I would be skeptical. Well,
thanks for listening everyone. We'll 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

(48:15):
or Kevin professionally, call four one nine eight seven two
zero zero six seven or eight hundred eight seven five
seventeen eighty six. Their email address is Kirstenwealth at LPL
dot com 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

(48:36):
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