Episode Transcript
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Speaker 1 (00:00):
Hello, and welcome to Money Central, listening to the advisors
of Kirsten Wealth Management Group, Kevin Kirsten and Brad Kirsten.
Speaker 2 (00:05):
Happy to be with you today.
Speaker 1 (00:07):
Brad looking at the overall market and one of the
things I wanted to touch right out of the gate.
Speaker 2 (00:12):
We're not going to get too.
Speaker 1 (00:13):
Much into specific numbers because we are taping the show
a little bit earlier than we usually do, but looking
at our market commentary this week that can be found
on our website Kirstenwealth dot com, talks about the market
playbook following not only the twenty percent correction that we
saw in stocks in March and April, but also the
market playbook following a bear market, and so looking at
(00:36):
some of those things, and we kind of talked more
shorter term with the September seasonality last week, and that
was in our market commentary, but this week we're talking
a little bit more bigger picture and going off of
that bear market lows that we saw in October of
twenty two and then also off of this correction, and
it would seem based on history that we might have
a little bit more legs in the current rally. Longer term,
(01:00):
we've talked about we might have some more volatility here
in the fall, but in our opinion it's probably going
to be more on the moderate side of volatility, five
percent or something in that neighborhood. But then also looking
bigger picture and looking at what the playbook is following
a big correction like what we had in March and April,
following a bear market low of twenty eight percent, like
(01:24):
what we saw in October of twenty two. So if
you look the S and P five hundred has gained
from that correction low let's talk corrections first. So this
is the April eighth lowes till today. It's up over
thirty percent in that period of time. But it's also
up more than five percent from the pre correction peak,
which was sixy one hundred and forty four. So that's
(01:45):
certainly a very encouraging thing that the market not only
got back to that peak but got comfortably above that
level as well.
Speaker 3 (01:52):
Third week of February up about four and a half
on the year, give up twenty and now here we.
Speaker 1 (01:56):
Are right after recoveries from dock market corrections. That's ten
to twenty percent if we exclude everything worse than twenty percent.
Double digit gains are the norm. Over the following twelve months,
stocks have increased by double digits seventy percent of the times,
seventy percent of the time going back to nineteen fifty,
with an average gain of sixteen point two percent, so
(02:18):
we're better than that at the moment. The S and
P five hundred was only down one year later two
times after a twenty percent correction. That was during the
dot com bust in two thousand and the pandemic of
twenty twenty, where it took a little bit longer to recover.
So it takes a lot to derail a bull market
that has broken out to new highs. So if we
(02:40):
go to the stats on the bull market which started
in October of twenty two, since that bear market low,
the SMP is up eighty one percent. This compares to
an average cumutum gain for all bull markets since nineteen
fifty of one hundred and sixty eight percent.
Speaker 2 (02:57):
So based on all.
Speaker 1 (02:58):
Bull markets, that's still with a full blown bear market
like we saw in twenty twenty two, we're only about
halfway there on the percentage gain, and even while those
median gains not as much, that's the mean the median
gains one hundred and eleven.
Speaker 3 (03:12):
Percent, and it would time up with the length of
time for average bull markets as well, because they start
to slow down when you get to the end. But
if even to get to that average, you have seventy
percent to go, it's not like that seventy per percent
is going to come in the next twelve months. The
average bull run is not two years and ten and
(03:33):
a half months like we're sitting today. It's much longer
than that. And so the bull markets are long, the
bear markets are short, the corrections are short, the recoveries
back to all time. I'm beyond here a little longer.
That's just the way the market cycles work.
Speaker 1 (03:49):
That's right, And so if you look at the time
aspect of it, the average is sixty months. The median
is fifty five months for a bull market summer longer
summer show order. Seven out of the eight ball markets
that made it to their third birthday lasted more than
four years. Six made it to five years. So pretty
(04:10):
good chance based on where we are that we're that
we're looking at at least another year.
Speaker 2 (04:15):
Yeah, And.
Speaker 3 (04:17):
Just with the other seasonality that we've been talking about,
we're not at the three year point. Next year could
have some disruption mid year, so it could last five
six years, and it would not be surprising because you'd
just be in a seasonal period of time with the
presidential cycle that is usually gonna have the wind that
you're back in that final year.
Speaker 2 (04:37):
Yeah.
Speaker 1 (04:37):
So giving the given those averages, we look at this
in our market commentary, and we're based on those averages,
you would see somewhere in the neighborhood of another two
years of rally and another fifty percent higher on the SMP,
which would take the index to to what over nine.
Speaker 3 (04:54):
Thousand, sixty five hundred today, just cracked it here at
the beginning of the week, And yeah, so you're talking
about you know that and the Dow. You're going to
have some comfort level with what you're looking at because
people just have these old levels on the brain and
sometimes the market puts those in the rearview mirror and
never looks back.
Speaker 1 (05:14):
So if we look at the catalyst that could keep
things going, keep things coming long and I'm going to
look at these four bullet points, and I think these
are all extremely important things that we need to look
at for the markets in the economy in the years
to come and I'll get your thoughts on this. First
of all, the economy resilient economy, despite ongoing tensions, lingering
trade and tariff uncertainties. Job market, it's hard to get
(05:37):
these number. These numbers are going on the job market
and then we get these huge revisions, so it's really
kind of hard to put your finger on where we stand,
but it is. There has been a slowdown in jobs.
We were two hundred thousand a month at the end
of the year.
Speaker 3 (05:50):
There has But I think we're going to look back
at this post COVID world and realize that we didn't
know where people were working because we were doing surveys
the old way. And I think we're at we're at
the precipice of having to start to figure that out
because the unemployment rate is still low, the jobless claims
are still low, and the only thing that's not showing
(06:11):
up are traditional job numbers. I think we're gonna We're
gonna be a couple years down the road and realized
that we had this little bubble of time where we
didn't the government especially didn't realize how the job market shifted.
Speaker 1 (06:26):
Yeah, and the prospect for a growing economy has historically
coincided mostly with positive equity returns, especially after the FED
starts cutting rates, which they're going to do in a
couple of weeks. Onto the interest rate discussion, moderating inflation
and stable interest rates being another bullet points that could
keep this stock bull running. Brad Inflation has cooled significantly
(06:48):
from the COVID nineteen pandemic, but remains elevated in some pockets,
even if it takes a few more months for price
measures to turn lower. From here, Fed's still going to
cut rates to maybe three times and next year another
two or three cuts as well. The lower Fed funds
rate should help stocks, assuming the economy holds up and
cuts don't go far enough to spark renewed inflation fears.
(07:12):
So you know, I heard this morning someone talking about
where do you see it immediately? And of course money
markets and CDs and savings accounts, But the other place
you see the cuts to when the Fed cuts rates
is more stimulative in nature, which is the home equity
line of lines of credit go down immediately. Auto loans
(07:34):
are very sensitive because there's shorter term to the Fed
funds rate and can can people get better rates on
their auto loans, so all that mortgage part of it's
a little bit more uncertain. But those two areas are stimulative.
Speaker 3 (07:46):
But when you have this pent up demand for refis,
I think you're going to have a coiled spring with
refis that will be immediate money back in somebody's pocket.
You REFI in three months down the road, you're looking
at your bank account and you got an extra thousand
bucks per month in there.
Speaker 2 (08:01):
Some of that's gonna get spent.
Speaker 3 (08:02):
And that's how the stimulus, the stimulative effect happens is
not even consciously. It's just millions of people all over
the country having a little bit more money and not
feeling like they have to cut back spending and actually
increase spending without even knowing they're doing it because they
have the money. And at the moment, we're seeing interest
(08:22):
rates fall, maybe in anticipation of the FED rate cut
in September.
Speaker 1 (08:26):
Repeat it last year. Really it could be could be
by the rumor sell the news. Rates might go up
a little bit, possibly on the longer term rates. The
longer term yeah, and mortgage rates have come down, but
they have not come down as rapidly as as the
as the longer rates.
Speaker 3 (08:40):
The tenure. I mean we're almost below four here, and
we have a week and two days left. You know,
you could see three something on the ten year prior
to the Fed rate cut, and I think you're gonna
see another half point on mortgages over the next month.
Speaker 1 (08:55):
If that's if you get under four, that's certainly positive
for without question. Third bullet point here, fiscal policy tailwins
and deregulation from the Trump administration, business tax incentives and
individual tax cuts totally nearly one percent of GDP in
twenty twenty six, certainly could help pick up economic growth
after a soft patch the rest of this year. Deregulation
(09:18):
could also provide corporate America with a boost, lifting business
investment broadly and increasing growth and profits for the financial
sector in particular. But if you look at if this
does pan out in terms of the investments that Trump
is saying that he's getting, that certainly is a boost
that combined with the one big beautiful bill cutting taxes, deregulating,
(09:42):
extending a lot of the tax cuts that were already
in place. I understand some of those were just extensions,
but there were additional incentives well.
Speaker 3 (09:49):
The business aspects to being able to depreciate expenses all
in the year that you spend the money, and business
is not knowing if that's going to go away when
Trump's out, I think you're going to have an acceleration
of business spending, and I think it's probably already happening.
So even if these trade deals and the promises for
spending are a fraction of what's being promised, which say
(10:10):
likely will be, there's still huge numbers that we didn't
have before. So I think you got the winds. You're
back with unexpected spending because I think everyone is in
disbelief that the foreign countries are going to come here
and spend, and when they do, even at a smaller scale,
it's it's not going to be something that the market
has already anticipated.
Speaker 2 (10:27):
Right.
Speaker 1 (10:27):
Our final potential catalyst to keep the bull market running
would be something we've always We've talked about on this
show many times, strong AI fueled growth and corporate profits.
Earnings growth in the second quarter was excellent twelve percent
for SMP five hundred companies. That certainly there's there's a
high bar at the moment, Corporate America could continue to
(10:48):
produce double digit earnings growth through twenty twenty six on
the back of the robust AI investment and productivity gains,
alongside the tax incentives and regulatory tail winds. It won't
be easy for companies to offset tariff costs and expand
their margins, but it is well within the range of
possible outcomes. So if the AI boom continues, and if
(11:09):
earnings continue double digit gains, it's hard to be negative
for stock prices when you're seeing that continue. And that's
the thing that in the tech spending, which is the
initial spending here for the AI boom, every one of
their quarterly releases they're not In April, they were reiterating.
Speaker 3 (11:30):
That they're not backing off their spending. Now in the
current quarter they're increasing the amount they're spending. So it
is again you look back three years ago, it's all
spending that you had companies, especially in the tech space,
like what are we going to do with all this cash?
And warm but was Buffett was even commenting, I hate
when companies have this much cash.
Speaker 2 (11:47):
We're going to do something stupid with it.
Speaker 3 (11:49):
So buybacks were the thing company some tech companies starting
to pay dividends were the thing, But that's not really
where shareholder growth is going to come from. It comes
from strategic spending in growth areas like they're doing now
and they're not backing off.
Speaker 2 (12:02):
Yeah, And so that goes.
Speaker 1 (12:03):
To our overall outlook on markets and the economy at
the moment, which is it's one thing to be a
little bit more shorter term cautious given the seasonality in
September and October, but it's really difficult to be longer
term negative. And that kind of segues to something I
(12:24):
saw on the Wall Street Journal, which the headline, Brad
was financial bubbles happen less often than you think. Bubbles
and market crashes make for great horror stories, but research shows.
Speaker 3 (12:33):
How rare they actually are. A lot of people preparing
for a bubble to burst, not for a short correction
to happen. And even when a three four to five
percent correction happens, and why I'm saying three now is
the longer you go into September, the likelihood of a
smaller correction being all you get goes up. And so
people are preparing. If they're downshifting and risk for three
(12:56):
four five, they're preparing for the big one. And the
problem is the big one very rarely happens.
Speaker 1 (13:02):
So if we look at research done going all the
way back even to the eighteen hundred sprad, how often
do bubbles occur? They defined in this particular article a
bubble being rapid doubling of stock prices followed by a
crash that gives back all or more of the gains
in the next year. Okay, looking at all of those
(13:22):
possible five year periods, bubbles only happen in less than
one half of one percent of the years, one half
of one percent.
Speaker 3 (13:31):
So people are preparing for something that happens a little
over one percent of the time and giving up what
happens ninety nine percent of the time.
Speaker 1 (13:39):
Robert Schiller did a survey recently investors over the past
twenty five years, asking them about potential market crashes. Typically,
investors put the odds of a catastrophic crash in the
next six months somewhere between ten and twenty percent on average.
In a six month period, the actual number is one
half of one percent, and when surveyed, the average investor
(14:02):
puts it at ten to twenty percent, much greater than
history suggests. And so if you look at this particular
survey going to investor perceptions, brad In nineteen ninety nine,
investors had the odds of a catastrophic crash at twenty
percent the low. The low was two thousand and three,
(14:25):
it was ten percent. So that's actually encouraging the investors act.
Speaker 3 (14:29):
People understand that once the market goes down, the likelihood
of it going down again fifty percent is pretty low.
Speaker 1 (14:35):
The peak for individual there were two major peaks for
individual investors, and that was two thousand and seven and
eight it was twenty five percent. The COVID pandemic had
it at thirty five percent on this particular survey. In
terms of when if the market would.
Speaker 3 (14:51):
Crash in the next six months, well, COVID's pretty understandable
because of all the unknowns. I think most people were
just surprised at how when the turnaround happened. Not that
the turnaround happened, but that the COVID crash was only
five weeks long.
Speaker 1 (15:06):
And if you're looking for complacency, you're not going to
see it here. Investors currently have the individual investors have
the market crashing at a seven percent clip when surveyed today.
Currently it's current that's the current number institutional investors. There's
two different levels on this chart. Institutional investors are only
at about sixteen percent, but individual investors are very concerned.
Speaker 3 (15:30):
So even institutional investors, what the media would call the
smart money, they only have it at twelve times greater
than what it should be, and individual investors are more
like twenty times greater.
Speaker 1 (15:42):
Right, So the article goes on to talk about some
of the major panics that we've had. He goes all
the way back to I didn't even know this, Brad,
But do you know that there was a bubble because
we sold pieces of the Louisiana purchase you could buy.
It was in French hands, and the Crown chartered a
(16:05):
company called the Mississippi Company to develop the vast chunk
of Louisiana purchase. In seventeen nineteen, shares in that enterprise
soared by more than one thousand percent in a few months.
Investors large and small jumped on the opportunity, and it
eventually the bubble burst, of course, nineteen twenty nine. You know,
the example that they give here is RCA. If you
(16:26):
remember that company in three years went from forty three
dollars a share to five sixty eight and crashed to
fifteen in nineteen thirty two. So interesting to see. Of course,
nineteen eighty seven really wasn't a bubble. It was more
just a crash. It was just a crash that had
a lot to do with the inner workings of the
market that we've kind of put a lot of those
(16:49):
trading curbs in where the market closes after a certain
amount of time, which really would have helped nineteen eighty seven.
And then of course you have the dot com bubble
bursting and the financial crisis of two thousand and eight.
But you add all those up, they're just not that common,
and there's a lot of gains and growth to your
portfolio that you could miss in between. So so I
(17:10):
think that that you have to temper your cautiousness. That's
all I would say in terms of what we recommend.
I just talked to somebody today and you know, they
were talking you would somebody that you work with, But
I talked to them and they made the comment, well,
you know, I thought you were a little bit more cautious,
(17:30):
and I was looking at some of the adjustments that
you had done, and I said, well, yeah, we are,
but it's not all in, all out, and it's never
the expectation is well, I'm more cautious, so let's put
it in a savings account. No, I'm more cautious, so
I'm going to increase my treasury holdings by ten percent.
Speaker 3 (17:49):
Let's take the most aggressive thing right down a little
bit temporarily. Really, in most cases, and especially if we've
had models where we'd filed up risk after the downturn,
it's just to tap the breaks and bring it back
right back to where we started the year, and and
just be proven with where we're going to go before
the end of the year, probably for the goal.
Speaker 1 (18:10):
Being reduced out downside, and hopefully take advantage of any
correction you have and that improves your your year end performance. So, Brad,
one of the buzzwords out there that we often will
hear is retirement income planning. Now, to me, it's all
under the umbrella of retirement planning in general, but I
think that sometimes the word is used to get people
(18:32):
to buy in certain investment products that maybe they don't need,
maybe are very expensive. But then again, there are some
times where you may want to carve out a piece.
You know, you think about getting healthy and exercising and
eating right. There's it's never one thing right, It's it's
(18:54):
always the all of the above strategy. And so with
income planning, where where I get a little bit frustrated
is when a salesperson will come in and say, take
your whole life savings and do this one thing.
Speaker 3 (19:05):
Yeah, or doesn't matter who the person is, Oh, you
have this unique situation that we did all this planning for,
and my recommendation is this. And then the next person
comes in and oh, you have this unique situation and
we'll do all this planning and my recommendation is this
exact same thing. So you have to read between the lines,
and a lot of times when we're looking at those
(19:25):
unique products, we're looking at it and saying, let's poke
all the holes in it and see if it does fit,
because you definitely have pros and cons to every one
of those. So let's talk a little bit about that
in the next couple segments about kind of the definitions
of just investment planning that's more income related, the products
that somebody might hear, and kind of what they are,
(19:45):
what's good and what's bad about them, and do a
little deeper dive on just that generic term of retirement
income planning. You're listening to advisors of Christ and Wealth
Management Group. We'll be right back.
Speaker 2 (19:56):
Welcome back to the show.
Speaker 1 (19:57):
You're listening to the advisors of Christen Wealth Management Group,
Kevin Kirsten and Brad Kirsten. Happy to be with you today.
We're going to go into some financial planning topics here soon.
So as a reminder, we are professional financial advisors and
our offices are in Perrysburg. Give us a call throughout
the week if you have any questions about what we're
talking about, or if you want to sit down and
have a consultation to review your own financial plan and
(20:18):
investments four one nine eight seven to two zero zero
sixty seven, or check us out online at Kirstenwealth dot com. Brad,
we're talking about income planning. It's a big buzzword. Has
your advisor talked to you about income planning?
Speaker 2 (20:32):
Right?
Speaker 3 (20:32):
That's exactly what the ad would say.
Speaker 1 (20:35):
And in the Wall Street Journal, federal prosecutors charge financier
who offered guaranteed high yields. See this is the danger
sometimes with getting too wrapped up in income. I will
often hear it as it pertains to dividends. Well, why
wouldn't you just invest one way for growth when you're
working and then just shift and buy everything with dividends,
(20:58):
or seek out those diviids or seek out those yields.
Speaker 3 (21:01):
Well.
Speaker 1 (21:01):
In this example in the Wall Street Journal, Brad, the
US attorney in Manhattan, alleged that he defrauded more than
three hundred investors out of fifty million dollars with material,
false and misleading claims. Just because you're sitting down with
someone talking about this income planning, does not you have
to do your homework. In this particular example, it was
(21:21):
called Yield Wealth and Next Level Holdings. Yield Wealth Brad
promise guaranteed annual rates of ten and a half to
fifteen percent and up, depending on the program you were in.
So first off, well, why wouldn't you just pick the
fifteen right? Well, that's that's like any yield or income.
(21:41):
Do you want high yield or low yield? Oh, I'll
take hi.
Speaker 3 (21:44):
Do you want high income or low income? Oh high
is better, I'll take high.
Speaker 2 (21:47):
Right.
Speaker 3 (21:47):
Do you want extra strength tilan all or regular strength Extra?
I have a headache, I need extra right.
Speaker 1 (21:53):
So one of the things that was interesting is they
had guaranteed annual rates of ten and a half fifteen
and up, but in their disclosure document they actually said,
this offering is speculative, involves a high degree of risk,
including the possibility of total loss.
Speaker 2 (22:07):
But the word guarantee is on there as well.
Speaker 1 (22:09):
Yeah, right, As the journal pointed out, it wasn't likely
that a reputable insurer would guarantee fifteen percent annual returns.
Speaker 2 (22:15):
Oh, not likely?
Speaker 1 (22:16):
Oh, because this he claimed that it was. He claimed
that it was an insurance company that was giving these guarantees.
He also had he did not. This particular advisor also
did not disclose to investors that he had been barred
for life from the securities industry in two thousand and four.
Speaker 3 (22:33):
But the insurance industry will take you.
Speaker 2 (22:35):
They don't bar anybody, They don't borrow anybody.
Speaker 3 (22:37):
Come on over.
Speaker 1 (22:38):
He also didn't disclose a two thousand and five fine
by a state insurance regulator for forging documents and stealing
one hundred and forty thousand from a customer with dementia.
Speaker 2 (22:46):
So very nice here.
Speaker 1 (22:49):
He told one Perspective client, and this was on the
person was actually recording him, that the insurance on the
products was like a bulletproof vest and would provide all
the melot tonin you could wish for a good night's
sleep twelve to fifteen percent in perpetuity every single year forever.
So let's talk income planning and why you have to
(23:13):
be careful not only with high yielding investments, but also
promises that seem too good to be true.
Speaker 3 (23:20):
This type of thing is could it be? You know
what is the this is that's just complete fraud. Okay,
what's the income version of that for somebody that they
might actually get introduced to would probably be an annuity
with an income guarantee or some sort of some sort
(23:42):
of guaranteed income for like that's actually from.
Speaker 2 (23:44):
An insurance company.
Speaker 3 (23:45):
I mean, all of them have.
Speaker 2 (23:46):
It, but we're talking about more legitimate wey like legitimate ones.
Speaker 3 (23:50):
The problem is we while interest rates have gone up
for the last three years and they're higher, every insurance
company knew that it was temporary and we were going
right back down. So none of them had really come
up with anything that compares with nineteen ninety five through
two thousand and five era income benefits for colos. And
(24:13):
really that's why our firm evolved. I mean, we were
we were used for we were using these and recommending
when we thought it was a good deal for the client.
If you know, The question we're always asking ourselves is
what would it take to get into the insurance company's pocket.
I give them money, and they're giving First off, you're
just getting your own money back with most of these products.
(24:33):
What's it take to get into the insurance company's pocket?
And then they are still paying me a guaranteed income
for life when I run these scenarios. Now, if it's
a sixty year old, I actually just did this for
sixty year old because he got introduced to this. I said,
let's look at it. You have a one that we
purchased in two thousand and five. Let's compare it to this,
and then let's look at the current one. He is sixty,
(24:54):
His life expectancy is eighty one. It took twenty one
years with the current product. At the worst case scenario
where you have no your invested dollars, don't make anything,
and all you're getting is the income out, it took
twenty one years to get into the insurance company's pocket,
exactly the same as your life expectancy. And all you're
doing in that case is getting your own money back.
(25:17):
You're not using any of the insurance company's money until
you run out of your own money. And so if
it takes your life expectancy to run out of the
money that they're giving you before you're in their pocket,
is that a good deal? And I would say no.
All they're doing is the actuarial calculation based on your
life expectancy and starting to give you money back. So
(25:37):
all of them work today in some fashion like that.
They might look like a good deal because they're putting
a number on there. We're going to give you five
or we're going to give you six, But think about it.
We do the same thing with the long term care planning.
How much of the premium when you finally get money back,
how much of that money back is just your premium
(25:58):
you paid or you paid for fifteen years? Okay, Well
the first X dollars is just that premium back. Ninety
days on a long term care, they don't pay you
at all.
Speaker 2 (26:08):
It's a waiting period.
Speaker 3 (26:09):
So now here we are, we're two years in and
all we were was a ninety waiting period in your
premiums back? How long is the is the long term
care for three years?
Speaker 2 (26:17):
Okay?
Speaker 3 (26:17):
So now we're ensuring year two through three? Is that
a good deal?
Speaker 2 (26:20):
Probably?
Speaker 3 (26:21):
Not? Same thing here let's think about what they're actually
giving you. And so that's the reason why we'll show
a lot of these, but just to poke holes and
it say it's not a good deal.
Speaker 1 (26:31):
Yeah, I mean, if you look at what was around
in the late nineties early two thousands before the dot
com bubble burst, when interest rates were much higher, you're
you're seeing double the cost today less of a guarantee.
Very few of them will guarantee two lives, and if
they do, you're not getting as much in terms of
(26:52):
your guaranteed income.
Speaker 2 (26:53):
When you can start.
Speaker 3 (26:54):
The higher income is at a later age, whereas before
it was whenever you want it.
Speaker 2 (26:59):
Yeah.
Speaker 1 (26:59):
Absolutely, and the way you invest is limited. You used
to be able to be one hundred percent in the
market because you had this guarantee, and now you can't.
Speaker 2 (27:06):
So who is it for?
Speaker 1 (27:08):
Just like I talked about with health and wellness, Okay,
if you want to carve out a sleeve of your portfolio,
a sleeve of your retirement portfolio and have some kind
of guaranteed income or from an insurance company, fine, I
would argue that you may want to just look at
a single premium immediate annuity. In that case, no one
will recommend that to you because there's no money, there's
(27:29):
no it won't pay the advisor anything. But I would
argue that if you're going to carve out a piece
of the pie, you'll get much more income in a
single premiummediate annuity than you would in anything else that
has some sort of cash value. And isn't that, in
the end what you wanted. You wanted to have an
additional leg to the stool. You have Social Security, maybe
(27:51):
a pension, and now you have this, but pros and cons. Okay,
The pro is obviously additional guaranteed income coming in every year,
guaranteed by an insurance. It's not going to be ten
or twelve or fifteen percent like the Wall Street Journal
article I gave. Okay, it's not okay, and I'm not
going to quote. It's just that is not going to happen.
(28:12):
It's not going to be anywhere near double digits.
Speaker 2 (28:14):
Okay.
Speaker 1 (28:15):
But obviously the pros or you have this money coming
in you don't have for that piece of the pie.
You don't have to worry about the stock market that
money's coming in, the con especially for someone who's married,
is your terms aren't that great because if you're married
and you're doing joint life, you're not going to get
as much income. And you start looking at it and
you're saying, Okay, I gave them one hundred thousand dollars
(28:36):
or two hundred thousand dollars? How long before I get
my two hundred back?
Speaker 2 (28:41):
And then how many years is that I'll be?
Speaker 3 (28:43):
How old?
Speaker 2 (28:44):
Yeah? So that's usually what the answer.
Speaker 3 (28:45):
So what you're looking at then, and it's easy to
do because anybody is interested in this. I'll just run
whatever the cur Every insurance company is available to us.
I can run everyone based on your age. It'll be
every company out there. The best one will be, you know,
say it's seven hundred and fifty hours a month, and
the second best will be seven hundred and forty eight
dollars a month. They're all very close. But what you
(29:08):
need to run is in ten years, what's my rate
of return? If I die, It's gonna probably be negative.
Say you're sixty, in your life expectancy is eighty one
as a man eighty three.
Speaker 2 (29:17):
And a half. If you're a woman.
Speaker 3 (29:19):
You're probably gonna go twenty years before you have a
positive return. And then it starts to spike. Now it'll
never spike. Spike greater than the monthly payments times twelve
divided by what you gave them. That that will never
be the rate. People think that's the rate, but you
don't get the you don't get the payment forever. That
pay rate will never be the rate. You'll approach it
(29:40):
if you get to one hundred and one hundred and five.
But it'll rapidly go from a negative return to a
zero return when you get to life expectancy to three
to five to six to seven. Get it'll get up there,
but you have to live beyond life expectancy if you're
your good health. That's the factor that the annuity companies
are not factoring.
Speaker 1 (29:58):
No, if you if you think you have a good
chance of living into your nineties, it could be a
decent addition compliment to your plan, not the sole thing
that you do. It could be a nice compliment to
your overall plan. But there is absolutely no pantasy. I
hear people say, well, no, I heard about something where
market goes up, I get all the market performance goes down,
(30:22):
I get zero, and I have a guaranteed eight percent income.
Speaker 2 (30:25):
No.
Speaker 3 (30:25):
Well, now let's talk for a second on the the
most common thing because this will lead to the next discussion.
With some of those that you don't get, they're going
to put a cap on the up, not give you
any of the down. Even if there was no cap,
and some of them are uncapped, you still don't get
the market performance because even if the market performance is
the S and P five hundred, they are point two points,
(30:46):
so you don't get the dividends. And the dividend right
now is a little over two for the S and
P five hundred. So that's the real cost is if
you think you're gonna get S and P five hundred
performance and they tell you this product doesn't have any cost,
the cost at the very least is the two percent
dividends you're not capturing.
Speaker 1 (31:01):
So just if you're looking at the retirement income planning
idea and you're thinking of an annuity as a leg
to the stool and there there there can be situations
where it can make some sense, but it's never going
to be double digits. You're not going to get one
hundred thousand and get ten thousand a year of income.
(31:23):
It's not going to happen.
Speaker 3 (31:25):
In general, if it's better than you think, you probably
don't understand it. And neither does the advisor. If it's
about the same as you thought or a little worse,
but you're still willing to do it because it's guaranteed,
you probably actually do understand it's probably always.
Speaker 1 (31:38):
Worth doing a single premium media annuity quote because that's
your starting that's your base, that's your baseline.
Speaker 3 (31:44):
Yeah, this is the max I could get. The other
the other ones, while might they might give me money
if I die early back or to my spouse, they're
not going to be as high a payout.
Speaker 1 (31:54):
Now. Another pro and con too, Brad. More of a
con is you know you have a coup. They're married,
they have kids, they want to pass money along to
their heirs. Any money that you do in this case,
you're probably going to spend it down because it's in
an annuity, there's not going to be much left to
pass on to your errors. You're getting guaranteed income in
one or But if you're eighty five years old or
(32:15):
ninety years old, you've you've worked your way through.
Speaker 2 (32:17):
The cash value anyway, and.
Speaker 1 (32:20):
If that's one of your goals, then you know that
it might be more of a pro for someone who's single.
I've had many people look at this who are saying
I don't want I don't have anyone to give my money.
Speaker 3 (32:33):
I don't want to run out of money, but I
also want to spend the most I can.
Speaker 1 (32:36):
Right, I don't have anyone that I am close enough
with that would even inherit this money. That person is
more of a fit for just guaranteed income because they
don't have anyone.
Speaker 2 (32:47):
They want to pass it.
Speaker 3 (32:48):
All, even for a fatter leg of the stool for
that person, because now they're they're taking the guess workout
of how much money can I can I take out
of these assets? And so while you might be thinking
in terms of a Ford five percent, which we're all
rate for this portion, you're gonna be able to get
a little bit more than that guaranteed for life. So
for retirement income planning, that's one thing that we see
(33:09):
often is the annuity discussion. Does it make sense? And
there can be some situations.
Speaker 1 (33:15):
Never never makes sense for a one hundred percent of someone's portfolio,
but there can be some certain circumstances where it makes
more sense than others, and hopefully we map some of
those out. Now we get back from the break, let's
talk about some more strategy that people talk about shifting
to and retirement, some pros and cons of each dividends, strategies, bonds,
what kind of bonds, and all those things that can
(33:36):
create income and retire. If you or I or your
advisor has has said this to you, how are we
going to create income in retirement?
Speaker 2 (33:44):
We shake our head at that.
Speaker 3 (33:46):
But let's talk about that idea and kind of why
it's a little silly, especially when we're talking about retirement accounts.
But even now with the way the tax structure is,
it makes no sense at all to just do income
investing for the sake of income investing. You're listening to
money Sense. The advisor's a Cherson Wealth Management Group. We'll
be right back and welcome back. You're listening to the
(34:07):
advisors a Ersonal Wealth Management Group. Brad and Kevin here
with you talking about all the hot buttons for advertisements
that come your way or dinner seminers that come your way.
A lot of them revolve around retirement UH projections and
retirement income planning, and a lot of it is are
just buzzwords. And so the next one is to get
(34:27):
people in the door, in the door and feel like
you're missing out on something if you don't talk about it,
and uh, even if it's the retirement plan, the book
that somebody wants to walk out with, what's what what's
really in there? A lot of times we'll do these
plans just to poke holes in the whole thing because
it is if that were a guarantee, everybody be doing it.
But it is it is. There's there's a lot of
(34:48):
times there's nothing in these these books that they're handing
to you. The secret, sauce is the advisor you're working with,
the adjustments you make along the way, and then knowing
how to put it all together and have the discipline
when the market is selling off to only sell those
things off that are currently I'm air quoting here working.
We talked about that last week. It's just the things
(35:09):
that hold up. You have to the discipline to sell those.
That's the recipe for success, and to not sell things
that are down when they're down, or hold off on
the one time withdrawals. But I want to shift gears
here to talk about the actual investing part of it.
When people think or their advisors tell them they need
to invest for income because we're taking income. Okay, how
(35:29):
do you solve for income. We'll get asked by other
professionals and we just shake our heads. Because you could
have an entire portfolio built out of growth investments and
take an income. You just sell the investments and take
the income. There is no magic button on the portfolio
that says, now he's an income person. I need to
shift the whole portfolio so it produces income, so we
(35:51):
can take income. Let me let me describe this a
little bit more simply, Brad.
Speaker 1 (35:55):
Let's say hypothetically, you have one hundred thousand dollars piece
of your retirement account. Okay, how we're going to generate income.
And let's say hypothetically you go out and you we're
going to use an apples to apples comparison. You buy
something that pays a yield dividend interest, whatever it might be,
and let's say it's five percent. That's pretty rich, to
(36:15):
be honest, but let's say hypothetically that it is. Okay,
So you have one hundred you get five thousand dollars
of income, okay, and at the end of the year
you have one hundred thousand dollars. Now, let's say hypothetically
you invested something with no income, something that just has growth,
maybe it's more in the technology space, or maybe it
(36:37):
goes up by five percent. Say it goes up by
five percent to one hundred and five thousand, and at
the end of the year you take out five thousand. Now,
in both scenarios, you got five thousand dollars out of
the investment. One came from growth of your portfolio. One
came from interest or dividends. Now, what is the difference.
(36:57):
What's the difference? Okay, well you answer is there is
no difference. But people don't realize there's no difference. And
let's talk about it in two different accounts in the IRA,
is there any difference. No, definitely, it's ordinary income. They
all both come out the same. You could take it
on monthly, you could take it. It's all the same.
Let's talk about it for non retirement. Well, it must
matter for non retirement because these advisors are talking about it. Well,
(37:18):
the qualified dividend rate is the same as the capital
gains rate long term capital gains. Right, No, it is
exactly the same. So if you're in the zero bracket,
the ten brack of the fifteen, they're both the same.
Speaker 2 (37:29):
You're dividends. You'll pay higher taxes the.
Speaker 3 (37:32):
Qualified dividend rate is the same as capital. Ain's right
right now, it's zero, fifteen to twenty depending on what
bracket you're okay, okay, and the long term capital the
lawn term capital gains are different. You're right. If you're
in the high bracket, the qualified dividends are actually more
than the lawn term capital gains. Capital gains do peak
out now, but but dividends do not. Yeah, they turned
into ordinary income. So in that case, you have advisors
(37:55):
recommending something that if it's an income strategy, could ald
in higher taxes. If they don't need to create income
to take income. It's just it's just a falsehood.
Speaker 1 (38:05):
And so if we look at saying I got to retirement,
and we talked about the annuity, you know concept that
has brought up at a lot of marketing materials. But
the other part is, you know someone honestly just in
an advisory fee based type account trying to do their
fiduciary duty, but they end up saying, let's shift your portfolio.
(38:25):
Let's you're retired now, let's buy more. Let's start with
dividend paying stocks. Well, the issue is you think you're
just creating more income. So you can live on in retirement.
But what you're really doing is you're making a sector
call on winners and losers in the US accountry. I
said to you, now that you're retired, should we have
(38:46):
a higher income strategy? You'd say yes, should I buy dividend?
Higher dividend Neildiggs. Of course that makes sense.
Speaker 3 (38:53):
But what if I said to you, do you want
me to eliminate all the technology sectors and overweight these
three in order, highest waiting to real estate, second highest
waiting to energy, and the third highest waiting to utilities.
Speaker 1 (39:05):
And then we will sort by dividend yield. That's what
you will end up. Do you have real estate, energy,
and utilities. Fourth would be consumer staples okay, Fifth would
be healthcare.
Speaker 2 (39:17):
Okay.
Speaker 3 (39:18):
All of those utilities are the exception to this, are
the worst performers this year and over the last five years.
But what will we eliminate? Well, in order, we'd eliminate
technology first, then communication services second. Out of this portfolio?
Is that what you were trying to do? And I'll
have people come to me that will have an underperforming portfolio,
(39:39):
and I'll say to them, I'll plug it all in.
But I already know what this is going to show me.
Did you mean to eliminate technology and increase your real
estate holdings? Is that what we were trying to do? No, no, no,
we were trying to create this income strategy. Well, this
is how we ended up here, and why you're disappointed
in performance because you made a sector bet and didn't
know you were going to right. The other solution for that,
(40:02):
which has come out maybe in the last five to
ten years, is some of these more exotic into index
based investments where they're using option strategies to write covered
calls to create income, where you can say, oh, well,
now I just have exposure to the S and P
or the NASDAC, but I can create income. And now
maybe I'm not making the sector call that you reference, Brad,
(40:23):
I'm just getting more income. Well, the issue being is
when we go through a major correction like what we
saw in March and April, when we go through what
happened during COVID nineteen, when we go through a major downturn.
These strategies all do great with their income and principle
(40:44):
when the market's not volatile.
Speaker 1 (40:45):
But when the market's not volatile, you're going to make
more money if you just own the index by itself
without selling calls. Yeah, here's the thing you would need
to look at with these. One of these is the
fastest growing ETF over the last year, three years, five years.
It has the most assets put into it. Okay, we
don't use it at all. And one of the reasons
is when the market is going up, it underperforms the market.
(41:07):
When the market's going down, it underperforms bonds and other
conservative strategies. So when am I gonna like it?
Speaker 3 (41:15):
I you're gonna like it if you look at long
term performance because it looks pretty good.
Speaker 1 (41:20):
Well, and I just looked at this particular strategy, Brad.
I mentioned the S and P five hundred is five
percent above it's February high. This strategy is still five
almost eight percent below it's February. Yeah, it's up year
today through today four point four or five percent. It's
yield is eight and a half. Okay, So you started
(41:41):
the year thinking you're gonna get eight and a half,
and here you are still negative on earth. Yeah, no,
you're not negative on the year. You're under that eight
and a half. So you got eight and a half.
The total return is four point four or five including
the eight and a half, So you've lost principle and
gained dividends.
Speaker 2 (41:59):
Great.
Speaker 3 (41:59):
This the same thing happens when people are seeking out
individual stocks. One of the there's very popular ones in
the real estate world with individual stocks, and I don't
need to mention any names here either, but people will
go look for the highest dividend yielding real estate stocks
and not realize that it's the price is going to
go down. This particular one, this one's been around forever
(42:20):
and everybody would always ask me about this. It's still
out over twelve and a half percent dividend yield. Guess
what including the dividend yield, the one year is negative,
the three years negative, the five years negative, the five
years native by twenty five percent. Oh, but I got
to collect twelve and a half. That's great. You're losing
money safely. You're collecting dividend and losing money on the prince.
Speaker 1 (42:39):
It never ceases to amaze me somebody who invests one
hundred thousand in something and is perfectly happy if they
get five thousand of dividend and they're at the end
of the year their value is worth ninety yeah thousand,
So I went down, but I got the income, so
I can't lose, right, I keep getting all this income.
(43:00):
Have to be careful once again, if you want to
carve out a piece of the pie. I mean typically
it's going to be large cab value. That's going to
be the asset class you're in, and have some dividends. Fine,
But just like the annuity strategy we talked about before,
it should never be an all or nothing. It's in
all of the above strategy. And by the way, there's
(43:20):
very little income, but no one talks about it. They
talk about retirement income planning and having income in retirement.
How come no one ever talks about retirement growth planning.
You need growth in retirement, yeah I do. Yeah, Well
I do.
Speaker 3 (43:36):
You want to increase your withdrawals over time? You're not
going to do it by increasing the amount of dividends
that you get. That'll be a recipe for the second
one I just introduced, where well, in order to get
more income, I'll get to go find higher income. Well,
now we're really talking about aggressive things that are going
to spiral into a zero. That's what ends up happening,
and we see advisors doing it in portfolios all the time,
(43:57):
putting these exotic real estate investments or exotic energy investments
that are all leveraged to the hilt and then they
go to zero or close to it and they don't
know why.
Speaker 1 (44:08):
So many of these ETFs that are out there doing
these covered call strategies with extraordinarily high yields are equity
premium income titled type ETF. So just they're okay, they're listen,
they're cheap. Yeah, I mean, I'd rather someone owned and
eat a low cost ETF that's liquid that they could
get in and out of than some annuity that they're
(44:30):
in for ten years. So but it needs to be
a complementary part of the portfolio, and it can be,
but you just have to be very careful because I
don't think on this particular equity premium income ETF the
I don't think anybody who started the year thinking they're
going to get eight percent would have thought that by
almost mid September, they only were up for total return
(44:54):
including dividends. And that's you know, that's typically what we
focus more on is, yes, it's okay, we want some income,
we need some bonds.
Speaker 3 (45:03):
Sometimes sometimes we end up with dividends and dividend income
because we like those sectors, but it's it's just a happenstance.
We're not seeking out the income right and we want bonds.
But more importantly, at the end of the year, if
you add up all the interest, dividend and growth, I
want to see a very good competitive total return and
(45:24):
that's maybe the most important thing that I think gets
lost to the shovel.
Speaker 1 (45:27):
Let's take our last pause. You're listening to Money since
Kevin and Brad Kristin will.
Speaker 2 (45:31):
Be right back. Welcome back to the show.
Speaker 1 (45:33):
You're listening to the advisors of Kristen Wealth Management Group,
Kevin Kristen and Brad Kirsten. Brad today talking a little
bit more about retirement income planning. It's kind of a
buzzword that's out there a lot of the mailers that
once people get to a certain age, they start getting
all these mailers for seminars and things like that. And
we kind of touched on a couple of different things
and it's not all bad. You know, you look at
(45:56):
people who go out there and want to look at
annuities or single premium immediate anwity annuities with guarantees. We
talk about people who want to maybe have some dividend income.
We didn't really even touch on what about treasuries and
investment great corporate bonds, or what about what I have
in the bank and that income that that sees. And
there's pros and cons to each and every one. Your
(46:19):
specific situation would dictate whether it's better or worse for
you at each case. But under no circumstances would it
ever be put it all here, put it all there.
But I would argue for most of the circumstances, Brad,
even if you divide up the pie and you do, Okay,
I want some retirement income planning. I'm gonna do a
(46:40):
little bit of annuity. I'm gonna do a little bit
in a covered call strategy, and I'm going to do
a little bit in some dividends. What you're gonna be
missing in your portfolio inevitably is growth. And we often
talk about one of the biggest dangers in retirement is
not just creating an income stream, but creating income stream
(47:00):
that holds up to inflation. And the only way to
create an income stream that holds up to inflation is
to invest in things that outperform inflation. Yeah, and when
when you're talking about some of these things. You know
that the account values are going to go down, but
your income's not gonna change. You kind of need your
income to change. You needed to change on the way
(47:21):
you need to go up as you get older.
Speaker 3 (47:23):
A systematic withdrawal plan that is a percentage of your
assets and your your investment return, and the goal for
your investment return should be higher than that, so that
every couple of years and over time you can increase that.
If you're gonna have a twenty thirty year retirement, you
probably need your income to double over that period of time.
(47:44):
There's only one way to do that, and it is
to grow your account.
Speaker 1 (47:46):
Yes, I mean inevitably, if even if you put all
these retirement income strategies together, the person in the annuity
is just going to have all these fees on there,
so they're not going to perform very well. The person
in dividends and covered calls is and dividends is going
to be light on technology and not have as much growth,
whether it's large cap growth, MidCap growth, small cap growth
in their portfolio, and they're going to be light on
(48:09):
that growth part there, so they can make sense for
a portion of your portfolio. I mean, I mean especially
in the case of dividends and interest investments through bonds
and maybe even some covered call strategies. Tell all of
our clients you already have a lot of that already.
It's already happening under the hood.
Speaker 2 (48:28):
Yep. You know.
Speaker 1 (48:29):
The annuity part is totally separate, but it just got
to be careful with the especially the con part. There's
some upside there. There's some strategies that you could put
together to create a little bit higher income stream and retirement,
but the biggest thing is making sure you're protected on
the downside. And that's why for income we lean more
(48:50):
towards interest in mess.
Speaker 3 (48:51):
So I would say, if anybody's looking at any of those,
give us a call, shoot us an email, and I'll
give you the pros and the cons because a lot
of them have some pros, I'm sure, and give you
a kind of an honest second opinion on anything that
you're looking at.
Speaker 1 (49:04):
All Right, thanks for listening. We'll talk to you next week.
Speaker 3 (49:10):
You've been listening to Money since brought to you each
week by Kirsten Wealth Management Group. To contact Dennis brad
or Kevin professionally, call four one nine eight seven two
zero zero six seven or eight hundred eighty seven five
seventeen eighty six. Their email address is Kirstenwealth at LPL
dot com and their website is Kirstenwealth dot com. Opinions
(49:31):
voiced in this show are for general information only and
are not intended to provide specific advice or recommendations for
any individual. To determine which investments may be appropriate for you,
consult with your financial advisor prior to investing. Securities are
offered through LPL Financial member Finra SIPC
Hello, and welcome to Money Central, listening to the advisors
of Kirsten Wealth Management Group, Kevin Kirsten and Brad Kirsten.
Speaker 2 (00:05):
Happy to be with you today.
Speaker 1 (00:07):
Brad looking at the overall market and one of the
things I wanted to touch right out of the gate.
Speaker 2 (00:12):
We're not going to get too.
Speaker 1 (00:13):
Much into specific numbers because we are taping the show
a little bit earlier than we usually do, but looking
at our market commentary this week that can be found
on our website Kirstenwealth dot com, talks about the market
playbook following not only the twenty percent correction that we
saw in stocks in March and April, but also the
market playbook following a bear market, and so looking at
(00:36):
some of those things, and we kind of talked more
shorter term with the September seasonality last week, and that
was in our market commentary, but this week we're talking
a little bit more bigger picture and going off of
that bear market lows that we saw in October of
twenty two and then also off of this correction, and
it would seem based on history that we might have
a little bit more legs in the current rally. Longer term,
(01:00):
we've talked about we might have some more volatility here
in the fall, but in our opinion it's probably going
to be more on the moderate side of volatility, five
percent or something in that neighborhood. But then also looking
bigger picture and looking at what the playbook is following
a big correction like what we had in March and April,
following a bear market low of twenty eight percent, like
(01:24):
what we saw in October of twenty two. So if
you look the S and P five hundred has gained
from that correction low let's talk corrections first. So this
is the April eighth lowes till today. It's up over
thirty percent in that period of time. But it's also
up more than five percent from the pre correction peak,
which was sixy one hundred and forty four. So that's
(01:45):
certainly a very encouraging thing that the market not only
got back to that peak but got comfortably above that
level as well.
Speaker 3 (01:52):
Third week of February up about four and a half
on the year, give up twenty and now here we.
Speaker 1 (01:56):
Are right after recoveries from dock market corrections. That's ten
to twenty percent if we exclude everything worse than twenty percent.
Double digit gains are the norm. Over the following twelve months,
stocks have increased by double digits seventy percent of the times,
seventy percent of the time going back to nineteen fifty,
with an average gain of sixteen point two percent, so
(02:18):
we're better than that at the moment. The S and
P five hundred was only down one year later two
times after a twenty percent correction. That was during the
dot com bust in two thousand and the pandemic of
twenty twenty, where it took a little bit longer to recover.
So it takes a lot to derail a bull market
that has broken out to new highs. So if we
(02:40):
go to the stats on the bull market which started
in October of twenty two, since that bear market low,
the SMP is up eighty one percent. This compares to
an average cumutum gain for all bull markets since nineteen
fifty of one hundred and sixty eight percent.
Speaker 2 (02:57):
So based on all.
Speaker 1 (02:58):
Bull markets, that's still with a full blown bear market
like we saw in twenty twenty two, we're only about
halfway there on the percentage gain, and even while those
median gains not as much, that's the mean the median
gains one hundred and eleven.
Speaker 3 (03:12):
Percent, and it would time up with the length of
time for average bull markets as well, because they start
to slow down when you get to the end. But
if even to get to that average, you have seventy
percent to go, it's not like that seventy per percent
is going to come in the next twelve months. The
average bull run is not two years and ten and
(03:33):
a half months like we're sitting today. It's much longer
than that. And so the bull markets are long, the
bear markets are short, the corrections are short, the recoveries
back to all time. I'm beyond here a little longer.
That's just the way the market cycles work.
Speaker 1 (03:49):
That's right, And so if you look at the time
aspect of it, the average is sixty months. The median
is fifty five months for a bull market summer longer
summer show order. Seven out of the eight ball markets
that made it to their third birthday lasted more than
four years. Six made it to five years. So pretty
(04:10):
good chance based on where we are that we're that
we're looking at at least another year.
Speaker 2 (04:15):
Yeah, And.
Speaker 3 (04:17):
Just with the other seasonality that we've been talking about,
we're not at the three year point. Next year could
have some disruption mid year, so it could last five
six years, and it would not be surprising because you'd
just be in a seasonal period of time with the
presidential cycle that is usually gonna have the wind that
you're back in that final year.
Speaker 2 (04:37):
Yeah.
Speaker 1 (04:37):
So giving the given those averages, we look at this
in our market commentary, and we're based on those averages,
you would see somewhere in the neighborhood of another two
years of rally and another fifty percent higher on the SMP,
which would take the index to to what over nine.
Speaker 3 (04:54):
Thousand, sixty five hundred today, just cracked it here at
the beginning of the week, And yeah, so you're talking
about you know that and the Dow. You're going to
have some comfort level with what you're looking at because
people just have these old levels on the brain and
sometimes the market puts those in the rearview mirror and
never looks back.
Speaker 1 (05:14):
So if we look at the catalyst that could keep
things going, keep things coming long and I'm going to
look at these four bullet points, and I think these
are all extremely important things that we need to look
at for the markets in the economy in the years
to come and I'll get your thoughts on this. First
of all, the economy resilient economy, despite ongoing tensions, lingering
trade and tariff uncertainties. Job market, it's hard to get
(05:37):
these number. These numbers are going on the job market
and then we get these huge revisions, so it's really
kind of hard to put your finger on where we stand,
but it is. There has been a slowdown in jobs.
We were two hundred thousand a month at the end
of the year.
Speaker 3 (05:50):
There has But I think we're going to look back
at this post COVID world and realize that we didn't
know where people were working because we were doing surveys
the old way. And I think we're at we're at
the precipice of having to start to figure that out
because the unemployment rate is still low, the jobless claims
are still low, and the only thing that's not showing
(06:11):
up are traditional job numbers. I think we're gonna We're
gonna be a couple years down the road and realized
that we had this little bubble of time where we
didn't the government especially didn't realize how the job market shifted.
Speaker 1 (06:26):
Yeah, and the prospect for a growing economy has historically
coincided mostly with positive equity returns, especially after the FED
starts cutting rates, which they're going to do in a
couple of weeks. Onto the interest rate discussion, moderating inflation
and stable interest rates being another bullet points that could
keep this stock bull running. Brad Inflation has cooled significantly
(06:48):
from the COVID nineteen pandemic, but remains elevated in some pockets,
even if it takes a few more months for price
measures to turn lower. From here, Fed's still going to
cut rates to maybe three times and next year another
two or three cuts as well. The lower Fed funds
rate should help stocks, assuming the economy holds up and
cuts don't go far enough to spark renewed inflation fears.
(07:12):
So you know, I heard this morning someone talking about
where do you see it immediately? And of course money
markets and CDs and savings accounts, But the other place
you see the cuts to when the Fed cuts rates
is more stimulative in nature, which is the home equity
line of lines of credit go down immediately. Auto loans
(07:34):
are very sensitive because there's shorter term to the Fed
funds rate and can can people get better rates on
their auto loans, so all that mortgage part of it's
a little bit more uncertain. But those two areas are stimulative.
Speaker 3 (07:46):
But when you have this pent up demand for refis,
I think you're going to have a coiled spring with
refis that will be immediate money back in somebody's pocket.
You REFI in three months down the road, you're looking
at your bank account and you got an extra thousand
bucks per month in there.
Speaker 2 (08:01):
Some of that's gonna get spent.
Speaker 3 (08:02):
And that's how the stimulus, the stimulative effect happens is
not even consciously. It's just millions of people all over
the country having a little bit more money and not
feeling like they have to cut back spending and actually
increase spending without even knowing they're doing it because they
have the money. And at the moment, we're seeing interest
(08:22):
rates fall, maybe in anticipation of the FED rate cut
in September.
Speaker 1 (08:26):
Repeat it last year. Really it could be could be
by the rumor sell the news. Rates might go up
a little bit, possibly on the longer term rates. The
longer term yeah, and mortgage rates have come down, but
they have not come down as rapidly as as the
as the longer rates.
Speaker 3 (08:40):
The tenure. I mean we're almost below four here, and
we have a week and two days left. You know,
you could see three something on the ten year prior
to the Fed rate cut, and I think you're gonna
see another half point on mortgages over the next month.
Speaker 1 (08:55):
If that's if you get under four, that's certainly positive
for without question. Third bullet point here, fiscal policy tailwins
and deregulation from the Trump administration, business tax incentives and
individual tax cuts totally nearly one percent of GDP in
twenty twenty six, certainly could help pick up economic growth
after a soft patch the rest of this year. Deregulation
(09:18):
could also provide corporate America with a boost, lifting business
investment broadly and increasing growth and profits for the financial
sector in particular. But if you look at if this
does pan out in terms of the investments that Trump
is saying that he's getting, that certainly is a boost
that combined with the one big beautiful bill cutting taxes, deregulating,
(09:42):
extending a lot of the tax cuts that were already
in place. I understand some of those were just extensions,
but there were additional incentives well.
Speaker 3 (09:49):
The business aspects to being able to depreciate expenses all
in the year that you spend the money, and business
is not knowing if that's going to go away when
Trump's out, I think you're going to have an acceleration
of business spending, and I think it's probably already happening.
So even if these trade deals and the promises for
spending are a fraction of what's being promised, which say
(10:10):
likely will be, there's still huge numbers that we didn't
have before. So I think you got the winds. You're
back with unexpected spending because I think everyone is in
disbelief that the foreign countries are going to come here
and spend, and when they do, even at a smaller scale,
it's it's not going to be something that the market
has already anticipated.
Speaker 2 (10:27):
Right.
Speaker 1 (10:27):
Our final potential catalyst to keep the bull market running
would be something we've always We've talked about on this
show many times, strong AI fueled growth and corporate profits.
Earnings growth in the second quarter was excellent twelve percent
for SMP five hundred companies. That certainly there's there's a
high bar at the moment, Corporate America could continue to
(10:48):
produce double digit earnings growth through twenty twenty six on
the back of the robust AI investment and productivity gains,
alongside the tax incentives and regulatory tail winds. It won't
be easy for companies to offset tariff costs and expand
their margins, but it is well within the range of
possible outcomes. So if the AI boom continues, and if
(11:09):
earnings continue double digit gains, it's hard to be negative
for stock prices when you're seeing that continue. And that's
the thing that in the tech spending, which is the
initial spending here for the AI boom, every one of
their quarterly releases they're not In April, they were reiterating.
Speaker 3 (11:30):
That they're not backing off their spending. Now in the
current quarter they're increasing the amount they're spending. So it
is again you look back three years ago, it's all
spending that you had companies, especially in the tech space,
like what are we going to do with all this cash?
And warm but was Buffett was even commenting, I hate
when companies have this much cash.
Speaker 2 (11:47):
We're going to do something stupid with it.
Speaker 3 (11:49):
So buybacks were the thing company some tech companies starting
to pay dividends were the thing, But that's not really
where shareholder growth is going to come from. It comes
from strategic spending in growth areas like they're doing now
and they're not backing off.
Speaker 2 (12:02):
Yeah, And so that goes.
Speaker 1 (12:03):
To our overall outlook on markets and the economy at
the moment, which is it's one thing to be a
little bit more shorter term cautious given the seasonality in
September and October, but it's really difficult to be longer
term negative. And that kind of segues to something I
(12:24):
saw on the Wall Street Journal, which the headline, Brad
was financial bubbles happen less often than you think. Bubbles
and market crashes make for great horror stories, but research shows.
Speaker 3 (12:33):
How rare they actually are. A lot of people preparing
for a bubble to burst, not for a short correction
to happen. And even when a three four to five
percent correction happens, and why I'm saying three now is
the longer you go into September, the likelihood of a
smaller correction being all you get goes up. And so
people are preparing. If they're downshifting and risk for three
(12:56):
four five, they're preparing for the big one. And the
problem is the big one very rarely happens.
Speaker 1 (13:02):
So if we look at research done going all the
way back even to the eighteen hundred sprad, how often
do bubbles occur? They defined in this particular article a
bubble being rapid doubling of stock prices followed by a
crash that gives back all or more of the gains
in the next year. Okay, looking at all of those
(13:22):
possible five year periods, bubbles only happen in less than
one half of one percent of the years, one half
of one percent.
Speaker 3 (13:31):
So people are preparing for something that happens a little
over one percent of the time and giving up what
happens ninety nine percent of the time.
Speaker 1 (13:39):
Robert Schiller did a survey recently investors over the past
twenty five years, asking them about potential market crashes. Typically,
investors put the odds of a catastrophic crash in the
next six months somewhere between ten and twenty percent on average.
In a six month period, the actual number is one
half of one percent, and when surveyed, the average investor
(14:02):
puts it at ten to twenty percent, much greater than
history suggests. And so if you look at this particular
survey going to investor perceptions, brad In nineteen ninety nine,
investors had the odds of a catastrophic crash at twenty
percent the low. The low was two thousand and three,
(14:25):
it was ten percent. So that's actually encouraging the investors act.
Speaker 3 (14:29):
People understand that once the market goes down, the likelihood
of it going down again fifty percent is pretty low.
Speaker 1 (14:35):
The peak for individual there were two major peaks for
individual investors, and that was two thousand and seven and
eight it was twenty five percent. The COVID pandemic had
it at thirty five percent on this particular survey. In
terms of when if the market would.
Speaker 3 (14:51):
Crash in the next six months, well, COVID's pretty understandable
because of all the unknowns. I think most people were
just surprised at how when the turnaround happened. Not that
the turnaround happened, but that the COVID crash was only
five weeks long.
Speaker 1 (15:06):
And if you're looking for complacency, you're not going to
see it here. Investors currently have the individual investors have
the market crashing at a seven percent clip when surveyed today.
Currently it's current that's the current number institutional investors. There's
two different levels on this chart. Institutional investors are only
at about sixteen percent, but individual investors are very concerned.
Speaker 3 (15:30):
So even institutional investors, what the media would call the
smart money, they only have it at twelve times greater
than what it should be, and individual investors are more
like twenty times greater.
Speaker 1 (15:42):
Right, So the article goes on to talk about some
of the major panics that we've had. He goes all
the way back to I didn't even know this, Brad,
But do you know that there was a bubble because
we sold pieces of the Louisiana purchase you could buy.
It was in French hands, and the Crown chartered a
(16:05):
company called the Mississippi Company to develop the vast chunk
of Louisiana purchase. In seventeen nineteen, shares in that enterprise
soared by more than one thousand percent in a few months.
Investors large and small jumped on the opportunity, and it
eventually the bubble burst, of course, nineteen twenty nine. You know,
the example that they give here is RCA. If you
(16:26):
remember that company in three years went from forty three
dollars a share to five sixty eight and crashed to
fifteen in nineteen thirty two. So interesting to see. Of course,
nineteen eighty seven really wasn't a bubble. It was more
just a crash. It was just a crash that had
a lot to do with the inner workings of the
market that we've kind of put a lot of those
(16:49):
trading curbs in where the market closes after a certain
amount of time, which really would have helped nineteen eighty seven.
And then of course you have the dot com bubble
bursting and the financial crisis of two thousand and eight.
But you add all those up, they're just not that common,
and there's a lot of gains and growth to your
portfolio that you could miss in between. So so I
(17:10):
think that that you have to temper your cautiousness. That's
all I would say in terms of what we recommend.
I just talked to somebody today and you know, they
were talking you would somebody that you work with, But
I talked to them and they made the comment, well,
you know, I thought you were a little bit more cautious,
(17:30):
and I was looking at some of the adjustments that
you had done, and I said, well, yeah, we are,
but it's not all in, all out, and it's never
the expectation is well, I'm more cautious, so let's put
it in a savings account. No, I'm more cautious, so
I'm going to increase my treasury holdings by ten percent.
Speaker 3 (17:49):
Let's take the most aggressive thing right down a little
bit temporarily. Really, in most cases, and especially if we've
had models where we'd filed up risk after the downturn,
it's just to tap the breaks and bring it back
right back to where we started the year, and and
just be proven with where we're going to go before
the end of the year, probably for the goal.
Speaker 1 (18:10):
Being reduced out downside, and hopefully take advantage of any
correction you have and that improves your your year end performance. So, Brad,
one of the buzzwords out there that we often will
hear is retirement income planning. Now, to me, it's all
under the umbrella of retirement planning in general, but I
think that sometimes the word is used to get people
(18:32):
to buy in certain investment products that maybe they don't need,
maybe are very expensive. But then again, there are some
times where you may want to carve out a piece.
You know, you think about getting healthy and exercising and
eating right. There's it's never one thing right, It's it's
(18:54):
always the all of the above strategy. And so with
income planning, where where I get a little bit frustrated
is when a salesperson will come in and say, take
your whole life savings and do this one thing.
Speaker 3 (19:05):
Yeah, or doesn't matter who the person is, Oh, you
have this unique situation that we did all this planning for,
and my recommendation is this. And then the next person
comes in and oh, you have this unique situation and
we'll do all this planning and my recommendation is this
exact same thing. So you have to read between the lines,
and a lot of times when we're looking at those
(19:25):
unique products, we're looking at it and saying, let's poke
all the holes in it and see if it does fit,
because you definitely have pros and cons to every one
of those. So let's talk a little bit about that
in the next couple segments about kind of the definitions
of just investment planning that's more income related, the products
that somebody might hear, and kind of what they are,
(19:45):
what's good and what's bad about them, and do a
little deeper dive on just that generic term of retirement
income planning. You're listening to advisors of Christ and Wealth
Management Group. We'll be right back.
Speaker 2 (19:56):
Welcome back to the show.
Speaker 1 (19:57):
You're listening to the advisors of Christen Wealth Management Group,
Kevin Kirsten and Brad Kirsten. Happy to be with you today.
We're going to go into some financial planning topics here soon.
So as a reminder, we are professional financial advisors and
our offices are in Perrysburg. Give us a call throughout
the week if you have any questions about what we're
talking about, or if you want to sit down and
have a consultation to review your own financial plan and
(20:18):
investments four one nine eight seven to two zero zero
sixty seven, or check us out online at Kirstenwealth dot com. Brad,
we're talking about income planning. It's a big buzzword. Has
your advisor talked to you about income planning?
Speaker 2 (20:32):
Right?
Speaker 3 (20:32):
That's exactly what the ad would say.
Speaker 1 (20:35):
And in the Wall Street Journal, federal prosecutors charge financier
who offered guaranteed high yields. See this is the danger
sometimes with getting too wrapped up in income. I will
often hear it as it pertains to dividends. Well, why
wouldn't you just invest one way for growth when you're
working and then just shift and buy everything with dividends,
(20:58):
or seek out those diviids or seek out those yields.
Speaker 3 (21:01):
Well.
Speaker 1 (21:01):
In this example in the Wall Street Journal, Brad, the
US attorney in Manhattan, alleged that he defrauded more than
three hundred investors out of fifty million dollars with material,
false and misleading claims. Just because you're sitting down with
someone talking about this income planning, does not you have
to do your homework. In this particular example, it was
(21:21):
called Yield Wealth and Next Level Holdings. Yield Wealth Brad
promise guaranteed annual rates of ten and a half to
fifteen percent and up, depending on the program you were in.
So first off, well, why wouldn't you just pick the
fifteen right? Well, that's that's like any yield or income.
(21:41):
Do you want high yield or low yield? Oh, I'll
take hi.
Speaker 3 (21:44):
Do you want high income or low income? Oh high
is better, I'll take high.
Speaker 2 (21:47):
Right.
Speaker 3 (21:47):
Do you want extra strength tilan all or regular strength Extra?
I have a headache, I need extra right.
Speaker 1 (21:53):
So one of the things that was interesting is they
had guaranteed annual rates of ten and a half fifteen
and up, but in their disclosure document they actually said,
this offering is speculative, involves a high degree of risk,
including the possibility of total loss.
Speaker 2 (22:07):
But the word guarantee is on there as well.
Speaker 1 (22:09):
Yeah, right, As the journal pointed out, it wasn't likely
that a reputable insurer would guarantee fifteen percent annual returns.
Speaker 2 (22:15):
Oh, not likely?
Speaker 1 (22:16):
Oh, because this he claimed that it was. He claimed
that it was an insurance company that was giving these guarantees.
He also had he did not. This particular advisor also
did not disclose to investors that he had been barred
for life from the securities industry in two thousand and four.
Speaker 3 (22:33):
But the insurance industry will take you.
Speaker 2 (22:35):
They don't bar anybody, They don't borrow anybody.
Speaker 3 (22:37):
Come on over.
Speaker 1 (22:38):
He also didn't disclose a two thousand and five fine
by a state insurance regulator for forging documents and stealing
one hundred and forty thousand from a customer with dementia.
Speaker 2 (22:46):
So very nice here.
Speaker 1 (22:49):
He told one Perspective client, and this was on the
person was actually recording him, that the insurance on the
products was like a bulletproof vest and would provide all
the melot tonin you could wish for a good night's
sleep twelve to fifteen percent in perpetuity every single year forever.
So let's talk income planning and why you have to
(23:13):
be careful not only with high yielding investments, but also
promises that seem too good to be true.
Speaker 3 (23:20):
This type of thing is could it be? You know
what is the this is that's just complete fraud. Okay,
what's the income version of that for somebody that they
might actually get introduced to would probably be an annuity
with an income guarantee or some sort of some sort
(23:42):
of guaranteed income for like that's actually from.
Speaker 2 (23:44):
An insurance company.
Speaker 3 (23:45):
I mean, all of them have.
Speaker 2 (23:46):
It, but we're talking about more legitimate wey like legitimate ones.
Speaker 3 (23:50):
The problem is we while interest rates have gone up
for the last three years and they're higher, every insurance
company knew that it was temporary and we were going
right back down. So none of them had really come
up with anything that compares with nineteen ninety five through
two thousand and five era income benefits for colos. And
(24:13):
really that's why our firm evolved. I mean, we were
we were used for we were using these and recommending
when we thought it was a good deal for the client.
If you know, The question we're always asking ourselves is
what would it take to get into the insurance company's pocket.
I give them money, and they're giving First off, you're
just getting your own money back with most of these products.
(24:33):
What's it take to get into the insurance company's pocket?
And then they are still paying me a guaranteed income
for life when I run these scenarios. Now, if it's
a sixty year old, I actually just did this for
sixty year old because he got introduced to this. I said,
let's look at it. You have a one that we
purchased in two thousand and five. Let's compare it to this,
and then let's look at the current one. He is sixty,
(24:54):
His life expectancy is eighty one. It took twenty one
years with the current product. At the worst case scenario
where you have no your invested dollars, don't make anything,
and all you're getting is the income out, it took
twenty one years to get into the insurance company's pocket,
exactly the same as your life expectancy. And all you're
doing in that case is getting your own money back.
(25:17):
You're not using any of the insurance company's money until
you run out of your own money. And so if
it takes your life expectancy to run out of the
money that they're giving you before you're in their pocket,
is that a good deal? And I would say no.
All they're doing is the actuarial calculation based on your
life expectancy and starting to give you money back. So
(25:37):
all of them work today in some fashion like that.
They might look like a good deal because they're putting
a number on there. We're going to give you five
or we're going to give you six, But think about it.
We do the same thing with the long term care planning.
How much of the premium when you finally get money back,
how much of that money back is just your premium
(25:58):
you paid or you paid for fifteen years? Okay, Well
the first X dollars is just that premium back. Ninety
days on a long term care, they don't pay you
at all.
Speaker 2 (26:08):
It's a waiting period.
Speaker 3 (26:09):
So now here we are, we're two years in and
all we were was a ninety waiting period in your
premiums back? How long is the is the long term
care for three years?
Speaker 2 (26:17):
Okay?
Speaker 3 (26:17):
So now we're ensuring year two through three? Is that
a good deal?
Speaker 2 (26:20):
Probably?
Speaker 3 (26:21):
Not? Same thing here let's think about what they're actually
giving you. And so that's the reason why we'll show
a lot of these, but just to poke holes and
it say it's not a good deal.
Speaker 1 (26:31):
Yeah, I mean, if you look at what was around
in the late nineties early two thousands before the dot
com bubble burst, when interest rates were much higher, you're
you're seeing double the cost today less of a guarantee.
Very few of them will guarantee two lives, and if
they do, you're not getting as much in terms of
(26:52):
your guaranteed income.
Speaker 2 (26:53):
When you can start.
Speaker 3 (26:54):
The higher income is at a later age, whereas before
it was whenever you want it.
Speaker 2 (26:59):
Yeah.
Speaker 1 (26:59):
Absolutely, and the way you invest is limited. You used
to be able to be one hundred percent in the
market because you had this guarantee, and now you can't.
Speaker 2 (27:06):
So who is it for?
Speaker 1 (27:08):
Just like I talked about with health and wellness, Okay,
if you want to carve out a sleeve of your portfolio,
a sleeve of your retirement portfolio and have some kind
of guaranteed income or from an insurance company, fine, I
would argue that you may want to just look at
a single premium immediate annuity. In that case, no one
will recommend that to you because there's no money, there's
(27:29):
no it won't pay the advisor anything. But I would
argue that if you're going to carve out a piece
of the pie, you'll get much more income in a
single premiummediate annuity than you would in anything else that
has some sort of cash value. And isn't that, in
the end what you wanted. You wanted to have an
additional leg to the stool. You have Social Security, maybe
(27:51):
a pension, and now you have this, but pros and cons. Okay,
The pro is obviously additional guaranteed income coming in every year,
guaranteed by an insurance. It's not going to be ten
or twelve or fifteen percent like the Wall Street Journal
article I gave. Okay, it's not okay, and I'm not
going to quote. It's just that is not going to happen.
(28:12):
It's not going to be anywhere near double digits.
Speaker 2 (28:14):
Okay.
Speaker 1 (28:15):
But obviously the pros or you have this money coming
in you don't have for that piece of the pie.
You don't have to worry about the stock market that
money's coming in, the con especially for someone who's married,
is your terms aren't that great because if you're married
and you're doing joint life, you're not going to get
as much income. And you start looking at it and
you're saying, Okay, I gave them one hundred thousand dollars
(28:36):
or two hundred thousand dollars? How long before I get
my two hundred back?
Speaker 2 (28:41):
And then how many years is that I'll be?
Speaker 3 (28:43):
How old?
Speaker 2 (28:44):
Yeah? So that's usually what the answer.
Speaker 3 (28:45):
So what you're looking at then, and it's easy to
do because anybody is interested in this. I'll just run
whatever the cur Every insurance company is available to us.
I can run everyone based on your age. It'll be
every company out there. The best one will be, you know,
say it's seven hundred and fifty hours a month, and
the second best will be seven hundred and forty eight
dollars a month. They're all very close. But what you
(29:08):
need to run is in ten years, what's my rate
of return? If I die, It's gonna probably be negative.
Say you're sixty, in your life expectancy is eighty one
as a man eighty three.
Speaker 2 (29:17):
And a half. If you're a woman.
Speaker 3 (29:19):
You're probably gonna go twenty years before you have a
positive return. And then it starts to spike. Now it'll
never spike. Spike greater than the monthly payments times twelve
divided by what you gave them. That that will never
be the rate. People think that's the rate, but you
don't get the you don't get the payment forever. That
pay rate will never be the rate. You'll approach it
(29:40):
if you get to one hundred and one hundred and five.
But it'll rapidly go from a negative return to a
zero return when you get to life expectancy to three
to five to six to seven. Get it'll get up there,
but you have to live beyond life expectancy if you're
your good health. That's the factor that the annuity companies
are not factoring.
Speaker 1 (29:58):
No, if you if you think you have a good
chance of living into your nineties, it could be a
decent addition compliment to your plan, not the sole thing
that you do. It could be a nice compliment to
your overall plan. But there is absolutely no pantasy. I
hear people say, well, no, I heard about something where
market goes up, I get all the market performance goes down,
(30:22):
I get zero, and I have a guaranteed eight percent income.
Speaker 2 (30:25):
No.
Speaker 3 (30:25):
Well, now let's talk for a second on the the
most common thing because this will lead to the next discussion.
With some of those that you don't get, they're going
to put a cap on the up, not give you
any of the down. Even if there was no cap,
and some of them are uncapped, you still don't get
the market performance because even if the market performance is
the S and P five hundred, they are point two points,
(30:46):
so you don't get the dividends. And the dividend right
now is a little over two for the S and
P five hundred. So that's the real cost is if
you think you're gonna get S and P five hundred
performance and they tell you this product doesn't have any cost,
the cost at the very least is the two percent
dividends you're not capturing.
Speaker 1 (31:01):
So just if you're looking at the retirement income planning
idea and you're thinking of an annuity as a leg
to the stool and there there there can be situations
where it can make some sense, but it's never going
to be double digits. You're not going to get one
hundred thousand and get ten thousand a year of income.
(31:23):
It's not going to happen.
Speaker 3 (31:25):
In general, if it's better than you think, you probably
don't understand it. And neither does the advisor. If it's
about the same as you thought or a little worse,
but you're still willing to do it because it's guaranteed,
you probably actually do understand it's probably always.
Speaker 1 (31:38):
Worth doing a single premium media annuity quote because that's
your starting that's your base, that's your baseline.
Speaker 3 (31:44):
Yeah, this is the max I could get. The other
the other ones, while might they might give me money
if I die early back or to my spouse, they're
not going to be as high a payout.
Speaker 1 (31:54):
Now. Another pro and con too, Brad. More of a
con is you know you have a coup. They're married,
they have kids, they want to pass money along to
their heirs. Any money that you do in this case,
you're probably going to spend it down because it's in
an annuity, there's not going to be much left to
pass on to your errors. You're getting guaranteed income in
one or But if you're eighty five years old or
(32:15):
ninety years old, you've you've worked your way through.
Speaker 2 (32:17):
The cash value anyway, and.
Speaker 1 (32:20):
If that's one of your goals, then you know that
it might be more of a pro for someone who's single.
I've had many people look at this who are saying
I don't want I don't have anyone to give my money.
Speaker 3 (32:33):
I don't want to run out of money, but I
also want to spend the most I can.
Speaker 1 (32:36):
Right, I don't have anyone that I am close enough
with that would even inherit this money. That person is
more of a fit for just guaranteed income because they
don't have anyone.
Speaker 2 (32:47):
They want to pass it.
Speaker 3 (32:48):
All, even for a fatter leg of the stool for
that person, because now they're they're taking the guess workout
of how much money can I can I take out
of these assets? And so while you might be thinking
in terms of a Ford five percent, which we're all
rate for this portion, you're gonna be able to get
a little bit more than that guaranteed for life. So
for retirement income planning, that's one thing that we see
(33:09):
often is the annuity discussion. Does it make sense? And
there can be some situations.
Speaker 1 (33:15):
Never never makes sense for a one hundred percent of someone's portfolio,
but there can be some certain circumstances where it makes
more sense than others, and hopefully we map some of
those out. Now we get back from the break, let's
talk about some more strategy that people talk about shifting
to and retirement, some pros and cons of each dividends, strategies, bonds,
what kind of bonds, and all those things that can
(33:36):
create income and retire. If you or I or your
advisor has has said this to you, how are we
going to create income in retirement?
Speaker 2 (33:44):
We shake our head at that.
Speaker 3 (33:46):
But let's talk about that idea and kind of why
it's a little silly, especially when we're talking about retirement accounts.
But even now with the way the tax structure is,
it makes no sense at all to just do income
investing for the sake of income investing. You're listening to
money Sense. The advisor's a Cherson Wealth Management Group. We'll
be right back and welcome back. You're listening to the
(34:07):
advisors a Ersonal Wealth Management Group. Brad and Kevin here
with you talking about all the hot buttons for advertisements
that come your way or dinner seminers that come your way.
A lot of them revolve around retirement UH projections and
retirement income planning, and a lot of it is are
just buzzwords. And so the next one is to get
(34:27):
people in the door, in the door and feel like
you're missing out on something if you don't talk about it,
and uh, even if it's the retirement plan, the book
that somebody wants to walk out with, what's what what's
really in there? A lot of times we'll do these
plans just to poke holes in the whole thing because
it is if that were a guarantee, everybody be doing it.
But it is it is. There's there's a lot of
(34:48):
times there's nothing in these these books that they're handing
to you. The secret, sauce is the advisor you're working with,
the adjustments you make along the way, and then knowing
how to put it all together and have the discipline
when the market is selling off to only sell those
things off that are currently I'm air quoting here working.
We talked about that last week. It's just the things
(35:09):
that hold up. You have to the discipline to sell those.
That's the recipe for success, and to not sell things
that are down when they're down, or hold off on
the one time withdrawals. But I want to shift gears
here to talk about the actual investing part of it.
When people think or their advisors tell them they need
to invest for income because we're taking income. Okay, how
(35:29):
do you solve for income. We'll get asked by other
professionals and we just shake our heads. Because you could
have an entire portfolio built out of growth investments and
take an income. You just sell the investments and take
the income. There is no magic button on the portfolio
that says, now he's an income person. I need to
shift the whole portfolio so it produces income, so we
(35:51):
can take income. Let me let me describe this a
little bit more simply, Brad.
Speaker 1 (35:55):
Let's say hypothetically, you have one hundred thousand dollars piece
of your retirement account. Okay, how we're going to generate income.
And let's say hypothetically you go out and you we're
going to use an apples to apples comparison. You buy
something that pays a yield dividend interest, whatever it might be,
and let's say it's five percent. That's pretty rich, to
(36:15):
be honest, but let's say hypothetically that it is. Okay,
So you have one hundred you get five thousand dollars
of income, okay, and at the end of the year
you have one hundred thousand dollars. Now, let's say hypothetically
you invested something with no income, something that just has growth,
maybe it's more in the technology space, or maybe it
(36:37):
goes up by five percent. Say it goes up by
five percent to one hundred and five thousand, and at
the end of the year you take out five thousand. Now,
in both scenarios, you got five thousand dollars out of
the investment. One came from growth of your portfolio. One
came from interest or dividends. Now, what is the difference.
(36:57):
What's the difference? Okay, well you answer is there is
no difference. But people don't realize there's no difference. And
let's talk about it in two different accounts in the IRA,
is there any difference. No, definitely, it's ordinary income. They
all both come out the same. You could take it
on monthly, you could take it. It's all the same.
Let's talk about it for non retirement. Well, it must
matter for non retirement because these advisors are talking about it. Well,
(37:18):
the qualified dividend rate is the same as the capital
gains rate long term capital gains. Right, No, it is
exactly the same. So if you're in the zero bracket,
the ten brack of the fifteen, they're both the same.
Speaker 2 (37:29):
You're dividends. You'll pay higher taxes the.
Speaker 3 (37:32):
Qualified dividend rate is the same as capital. Ain's right
right now, it's zero, fifteen to twenty depending on what
bracket you're okay, okay, and the long term capital the
lawn term capital gains are different. You're right. If you're
in the high bracket, the qualified dividends are actually more
than the lawn term capital gains. Capital gains do peak
out now, but but dividends do not. Yeah, they turned
into ordinary income. So in that case, you have advisors
(37:55):
recommending something that if it's an income strategy, could ald
in higher taxes. If they don't need to create income
to take income. It's just it's just a falsehood.
Speaker 1 (38:05):
And so if we look at saying I got to retirement,
and we talked about the annuity, you know concept that
has brought up at a lot of marketing materials. But
the other part is, you know someone honestly just in
an advisory fee based type account trying to do their
fiduciary duty, but they end up saying, let's shift your portfolio.
(38:25):
Let's you're retired now, let's buy more. Let's start with
dividend paying stocks. Well, the issue is you think you're
just creating more income. So you can live on in retirement.
But what you're really doing is you're making a sector
call on winners and losers in the US accountry. I
said to you, now that you're retired, should we have
(38:46):
a higher income strategy? You'd say yes, should I buy dividend?
Higher dividend Neildiggs. Of course that makes sense.
Speaker 3 (38:53):
But what if I said to you, do you want
me to eliminate all the technology sectors and overweight these
three in order, highest waiting to real estate, second highest
waiting to energy, and the third highest waiting to utilities.
Speaker 1 (39:05):
And then we will sort by dividend yield. That's what
you will end up. Do you have real estate, energy,
and utilities. Fourth would be consumer staples okay, Fifth would
be healthcare.
Speaker 2 (39:17):
Okay.
Speaker 3 (39:18):
All of those utilities are the exception to this, are
the worst performers this year and over the last five years.
But what will we eliminate? Well, in order, we'd eliminate
technology first, then communication services second. Out of this portfolio?
Is that what you were trying to do? And I'll
have people come to me that will have an underperforming portfolio,
(39:39):
and I'll say to them, I'll plug it all in.
But I already know what this is going to show me.
Did you mean to eliminate technology and increase your real
estate holdings? Is that what we were trying to do? No, no, no,
we were trying to create this income strategy. Well, this
is how we ended up here, and why you're disappointed
in performance because you made a sector bet and didn't
know you were going to right. The other solution for that,
(40:02):
which has come out maybe in the last five to
ten years, is some of these more exotic into index
based investments where they're using option strategies to write covered
calls to create income, where you can say, oh, well,
now I just have exposure to the S and P
or the NASDAC, but I can create income. And now
maybe I'm not making the sector call that you reference, Brad,
(40:23):
I'm just getting more income. Well, the issue being is
when we go through a major correction like what we
saw in March and April, when we go through what
happened during COVID nineteen, when we go through a major downturn.
These strategies all do great with their income and principle
(40:44):
when the market's not volatile.
Speaker 1 (40:45):
But when the market's not volatile, you're going to make
more money if you just own the index by itself
without selling calls. Yeah, here's the thing you would need
to look at with these. One of these is the
fastest growing ETF over the last year, three years, five years.
It has the most assets put into it. Okay, we
don't use it at all. And one of the reasons
is when the market is going up, it underperforms the market.
(41:07):
When the market's going down, it underperforms bonds and other
conservative strategies. So when am I gonna like it?
Speaker 3 (41:15):
I you're gonna like it if you look at long
term performance because it looks pretty good.
Speaker 1 (41:20):
Well, and I just looked at this particular strategy, Brad.
I mentioned the S and P five hundred is five
percent above it's February high. This strategy is still five
almost eight percent below it's February. Yeah, it's up year
today through today four point four or five percent. It's
yield is eight and a half. Okay, So you started
(41:41):
the year thinking you're gonna get eight and a half,
and here you are still negative on earth. Yeah, no,
you're not negative on the year. You're under that eight
and a half. So you got eight and a half.
The total return is four point four or five including
the eight and a half, So you've lost principle and
gained dividends.
Speaker 2 (41:59):
Great.
Speaker 3 (41:59):
This the same thing happens when people are seeking out
individual stocks. One of the there's very popular ones in
the real estate world with individual stocks, and I don't
need to mention any names here either, but people will
go look for the highest dividend yielding real estate stocks
and not realize that it's the price is going to
go down. This particular one, this one's been around forever
(42:20):
and everybody would always ask me about this. It's still
out over twelve and a half percent dividend yield. Guess
what including the dividend yield, the one year is negative,
the three years negative, the five years negative, the five
years native by twenty five percent. Oh, but I got
to collect twelve and a half. That's great. You're losing
money safely. You're collecting dividend and losing money on the prince.
Speaker 1 (42:39):
It never ceases to amaze me somebody who invests one
hundred thousand in something and is perfectly happy if they
get five thousand of dividend and they're at the end
of the year their value is worth ninety yeah thousand,
So I went down, but I got the income, so
I can't lose, right, I keep getting all this income.
(43:00):
Have to be careful once again, if you want to
carve out a piece of the pie. I mean typically
it's going to be large cab value. That's going to
be the asset class you're in, and have some dividends. Fine,
But just like the annuity strategy we talked about before,
it should never be an all or nothing. It's in
all of the above strategy. And by the way, there's
(43:20):
very little income, but no one talks about it. They
talk about retirement income planning and having income in retirement.
How come no one ever talks about retirement growth planning.
You need growth in retirement, yeah I do. Yeah, Well
I do.
Speaker 3 (43:36):
You want to increase your withdrawals over time? You're not
going to do it by increasing the amount of dividends
that you get. That'll be a recipe for the second
one I just introduced, where well, in order to get
more income, I'll get to go find higher income. Well,
now we're really talking about aggressive things that are going
to spiral into a zero. That's what ends up happening,
and we see advisors doing it in portfolios all the time,
(43:57):
putting these exotic real estate investments or exotic energy investments
that are all leveraged to the hilt and then they
go to zero or close to it and they don't
know why.
Speaker 1 (44:08):
So many of these ETFs that are out there doing
these covered call strategies with extraordinarily high yields are equity
premium income titled type ETF. So just they're okay, they're listen,
they're cheap. Yeah, I mean, I'd rather someone owned and
eat a low cost ETF that's liquid that they could
get in and out of than some annuity that they're
(44:30):
in for ten years. So but it needs to be
a complementary part of the portfolio, and it can be,
but you just have to be very careful because I
don't think on this particular equity premium income ETF the
I don't think anybody who started the year thinking they're
going to get eight percent would have thought that by
almost mid September, they only were up for total return
(44:54):
including dividends. And that's you know, that's typically what we
focus more on is, yes, it's okay, we want some income,
we need some bonds.
Speaker 3 (45:03):
Sometimes sometimes we end up with dividends and dividend income
because we like those sectors, but it's it's just a happenstance.
We're not seeking out the income right and we want bonds.
But more importantly, at the end of the year, if
you add up all the interest, dividend and growth, I
want to see a very good competitive total return and
(45:24):
that's maybe the most important thing that I think gets
lost to the shovel.
Speaker 1 (45:27):
Let's take our last pause. You're listening to Money since
Kevin and Brad Kristin will.
Speaker 2 (45:31):
Be right back. Welcome back to the show.
Speaker 1 (45:33):
You're listening to the advisors of Kristen Wealth Management Group,
Kevin Kristen and Brad Kirsten. Brad today talking a little
bit more about retirement income planning. It's kind of a
buzzword that's out there a lot of the mailers that
once people get to a certain age, they start getting
all these mailers for seminars and things like that. And
we kind of touched on a couple of different things
and it's not all bad. You know, you look at
(45:56):
people who go out there and want to look at
annuities or single premium immediate anwity annuities with guarantees. We
talk about people who want to maybe have some dividend income.
We didn't really even touch on what about treasuries and
investment great corporate bonds, or what about what I have
in the bank and that income that that sees. And
there's pros and cons to each and every one. Your
(46:19):
specific situation would dictate whether it's better or worse for
you at each case. But under no circumstances would it
ever be put it all here, put it all there.
But I would argue for most of the circumstances, Brad,
even if you divide up the pie and you do, Okay,
I want some retirement income planning. I'm gonna do a
(46:40):
little bit of annuity. I'm gonna do a little bit
in a covered call strategy, and I'm going to do
a little bit in some dividends. What you're gonna be
missing in your portfolio inevitably is growth. And we often
talk about one of the biggest dangers in retirement is
not just creating an income stream, but creating income stream
(47:00):
that holds up to inflation. And the only way to
create an income stream that holds up to inflation is
to invest in things that outperform inflation. Yeah, and when
when you're talking about some of these things. You know
that the account values are going to go down, but
your income's not gonna change. You kind of need your
income to change. You needed to change on the way
(47:21):
you need to go up as you get older.
Speaker 3 (47:23):
A systematic withdrawal plan that is a percentage of your
assets and your your investment return, and the goal for
your investment return should be higher than that, so that
every couple of years and over time you can increase that.
If you're gonna have a twenty thirty year retirement, you
probably need your income to double over that period of time.
(47:44):
There's only one way to do that, and it is
to grow your account.
Speaker 1 (47:46):
Yes, I mean inevitably, if even if you put all
these retirement income strategies together, the person in the annuity
is just going to have all these fees on there,
so they're not going to perform very well. The person
in dividends and covered calls is and dividends is going
to be light on technology and not have as much growth,
whether it's large cap growth, MidCap growth, small cap growth
in their portfolio, and they're going to be light on
(48:09):
that growth part there, so they can make sense for
a portion of your portfolio. I mean, I mean especially
in the case of dividends and interest investments through bonds
and maybe even some covered call strategies. Tell all of
our clients you already have a lot of that already.
It's already happening under the hood.
Speaker 2 (48:28):
Yep. You know.
Speaker 1 (48:29):
The annuity part is totally separate, but it just got
to be careful with the especially the con part. There's
some upside there. There's some strategies that you could put
together to create a little bit higher income stream and retirement,
but the biggest thing is making sure you're protected on
the downside. And that's why for income we lean more
(48:50):
towards interest in mess.
Speaker 3 (48:51):
So I would say, if anybody's looking at any of those,
give us a call, shoot us an email, and I'll
give you the pros and the cons because a lot
of them have some pros, I'm sure, and give you
a kind of an honest second opinion on anything that
you're looking at.
Speaker 1 (49:04):
All Right, thanks for listening. We'll talk to you next week.
Speaker 3 (49:10):
You've been listening to Money since brought to you each
week by Kirsten Wealth Management Group. To contact Dennis brad
or Kevin professionally, call four one nine eight seven two
zero zero six seven or eight hundred eighty seven five
seventeen eighty six. Their email address is Kirstenwealth at LPL
dot com and their website is Kirstenwealth dot com. Opinions
(49:31):
voiced in this show are for general information only and
are not intended to provide specific advice or recommendations for
any individual. To determine which investments may be appropriate for you,
consult with your financial advisor prior to investing. Securities are
offered through LPL Financial member Finra SIPC
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