The Fagan Financial Report

July 16th, 2023

Episode Transcript

(00:00):
Good morning, and welcome to theCapitol District's Money and Investment program. You're
listening to the Fagan Financial Report.I'm Dennis Fagan. Aaron's off today,
so I will be guiding you throughthe first half hour. We did a
podcast for the second half hour,so expect his voice even though he just
told you he was off today.We recorded late Friday, and it's pretty
interesting, and you know, wetalk a lot about that retirement phase in

(00:21):
life, the active versus the retirementphase that we've put forth a long time
ago, and also risk versus reward, you know, the risk of perhaps
overspending a little bit during those activephase and what that means for the passive
phase and how much how you know, between you and your spouse or you

(00:42):
and your partner, you know,what's the chances you're really getting to the
passive stage, both of you inthe capacity that you're looking forward to.
So we talk about that in thesecond half hour, But the first half
I'm going to recap the market.A lot of a lot of activity this
past week, not only in thestock market, but in the economy as

(01:03):
well. The release of the consumerand producer price indices, import prices preliminary
July reading of consumer sentiment from theUniversity of Michigan. We had prime day
Federal court judge rules that Microsoft couldgo ahead with a sixty nine billion dollar
merger of gaming company Activision. Wehave Sis Jeromee Powell talking transitory what that

(01:23):
might mean that back in two andtwenty one, why might stay a little
longer? And are we really dofor a for a pullback? And why
don't we start with fab wasn't anyindication of a pullback this past week.
All of the major industries rallied thispast week to Dow Jones Industrial Average up
seven hundred and seventy four points toclose of thirty four thousand and five hundred

(01:44):
and nine. It's about six andtwo thirds percent away from its all time
high. That's what it'll take toget there. The SMP five hundred closed
at forty five h two, it'sall time highest, forty seven ninety six.
Oh, it's within three hundred pointsor a little over six percent of
attaining it's all time high. AndI think that's the thing too, that
when you to sit here, ifwe sat here at the close of last

(02:04):
year. I know, Aaron,I've talked about this over the past three
or four weeks, you know,what was the chance of a rally like
we've seen the nas deck up twentyto thirty five percent. Thus for this
year, the SMP five hundred seventeenpercent. And how you know how predicting
where the where the market is goingis just an unactionable feudal type of a

(02:30):
really prognostication that just behooves the personto keeping their job rather they're losing their
job, rather than really adding anyactionable item to to your plate. So
I think that's something that we've learnedthis year in spades. And also the
fact that interest rates at five anda quarter percent and the Fed funds rate

(02:50):
is not providing really a headwind atall to the NAZ that composite, So
it wasn't the absolute rate that wasproviding That was I guess hosting the headwind
or providing the headwind to the NAZDACin two thousand and twenty two, it
was the fact that rates were goingup. But now the rates have settled
in a little bit, and evenif rates are going to go up a
little bit, going to go upfrom here, and futures market is suggesting

(03:15):
a couple more rate hikes before theend of the year. We can handle
the quarter point incremental increases we justto market, and especially if the growth
stocks could just not handle the threeseventy five basis point consecutive increases that we
saw back in two thousand and twentytwo, and now with rates leveling out,

(03:36):
if not peaking, and also theenthusiasm over artificial intelligence, you know,
I think you've got a backdrop forat least some support in the market.
One eight hundred to seven three tosix h two six. If you
want to give us a call oneeight hundred talk w g Y that is
the number. Feel free to giveus a call. But right now,

(03:59):
just kind of review in the markets, and I think that we've had a
strong rally right across the board.The NAZ that composite of three point three
two percent up thirty five percent.Thus for this year, US total market
innexs up eleven hundred points of closeat forty five thousand and sixty eight.
It's all time high. It's aboutforty eight thousand and nine twenty nine,
so it's within eight percent of it'sall time high. Now one of the

(04:23):
one of the industries that's getting itsmojoe really is the Russell two thousand,
and that's the second third thousand largestAmerican stocks up sixty six points for the
week to close at nineteen thirty one, up three point five six percent.
Thus, for this excuse me.This past week I mentioned the NAZI up
three point three two percent, theSMP of two point four two, the
Dow up two point two nine,the total market innects up two point sixty

(04:46):
three. So of the broader indussees, those are the three I just mentioned.
Are the four I just mentioned excludingutilities and transports. The Russell two
thousand bested them all in the Russelltwo thousand. Those second third thousand largest
American stocks may have gotten a bitof a tailwind from the the fact that

(05:08):
the federal court ruled that the Microsoftdeal could go ahead. As I mentioned
earlier, with its sixty nine billiondollar acquisition of gaming company Activision Blizzard,
the FTC had tried to block thedeal, suggesting that it was would hurt
competition, but the Federal Court saidno, in fact, it's going to

(05:33):
allow for broader access to gaming.And then, so why would the second
third thousand largest American stocks, thoseMidCap stocks benefit from a ruling that Microsoft
could acquire Activision Blizzard. I thinka lot of it has to do with
the potential for more mergers and acquisitionsif the federal court allows it to go

(05:55):
through. It and the FTC hadI think till Friday, Friday afternoon to
block it, and I don't thinkyou're choosing to block him. So it
looks like this deal is going togo through. It means that there's there's
more of a favorable really landscape forfurther M and A. And I think
that's why you saw the Russell twothousand move in the manner that it did.

(06:18):
And also the Russell two thousand hashas been a laggered for quite some
time. The Russell two thousand often percent year over year, US total
marketed up sixteen, the SMP upsixteen, and they has like up twenty

(06:38):
three, sitting from its all timehigh. The Russell two thousand twenty percent
from its all time high of twentyfour to forty two. The Russell two
thousand, I don't know if Imentioned it close Friday at nineteen thirty one.
The Russell two thousand has gone fourhundred and some days. According to
be Spoke fourner this is four andtwenty days without an all time high.

(07:03):
However, the recent rally of tenpercent is better than the s and this
is since the end of May,better than the SMPS six point seven percent
the all time high. Last alltime high came back in November twenty and
twenty one, the third longest streakwithout a new high in history since its
inception back in nineteen seventy eight.So you're talking thirty five years from its

(07:30):
all time high eighty eight, fortyfive years from its all time high,
excuse me, forty five years sincethe index has been in existence, and
this is the third longest without anall time so maybe we'll see a chance
for that index to outperform going forward. I think the way you'd play it
is our largest holding, which isthe RSP, which is the equal weighted

(07:55):
index with the SMP five hundred,the SMP five hundreds of market capitalization capitalization
rated index UM ranked index and RSPis an equal weighted index. So if
you look at the SPY, whichis an ETF that's market capitalization weighted according
to the SMP five hundred UM youhave you have you know, the larger

(08:20):
tech stocks, those Big seven asand those are large A lot of our
largest holdings too, by the way, individual holdings. So what we're doing
is we're offsetting those those larger capitalizationweighted stocks with with the with an equal
weighted ETF. And that's kind ofyou know that that that's kind of how

(08:43):
we're playing it there, the RSPto offset the large cap tech. I
don't I don't think large cap tech. You know, look at Microsoft like
and it's and it's a deal withthe activision bizzard, I don't think it's
it's it's done moving over the longerhaul, but it could take a take
or breakthrough here. So the marketrallies, I think listeners to our show
have been knowing that, you know, we're primed for a pullback, and

(09:07):
listeners to our show in our clientswill also know that we publish something every
Sunday morning that kind of describes themarket what happened the past week in our
take on it. So let meread that. Yes, the rally off
the October lows appears to be broadeningout to include more sectors of the economy
as well as the mid and smallcaps kind of how I just describe.

(09:28):
However, it is not leaving thefirst half leaders name, we consume a
discretionary communication services and technology behind.This is a sign of a healthy market.
We have noted continually that given themmore than twenty percent runoff off it's
October twenty two lows, we're probablyat the point that stocks will need a
catalyst to move substantially higher, andthat a minor pullback is in order and

(09:48):
in fact would be healthy for longterm investors. So that's kind of what
we've been saying. That catalyst maybe the FOMO fear of missing out trade
as the indexes break out to theupside, and the minor pullback may very
well come from higher levels, youknow. So as our clients and regular
snapshot readers know, FACAN Associates allocatesclients assets according to their longer term objectives,

(10:11):
concentrating on managing risk over full economiccycles rather than short term volatility,
thereby eliminating the fear of missing outcomponent. So we have allocated to the
market for the full economic cycle.So now we're not you know, all
in or all out or skewed concentratedsubstantially to one side or the other,

(10:35):
but thinking longer term thinking, let'smanage risk over the long term than try
to deal with volatility over the shortterm. Volatility is unpredictable. We go
on to say within the first coupleof paragraphs of over snapshot that as for
minor pullbacks, as we are comingup on our thirty fourth year in business,
we're well aware that it can occurat any time, can come from

(10:56):
any level, and are to beexpected. They are part of the investment
process. There are always areas ofconcern, So they may say, okay,
they are always areas of concern,and I think one of the things
that you want to be concerned aboutis the move in the market. Two
of our biggest concerns are the risein the SMPF I've founded for the first

(11:18):
half of two thousand and twenty three. That rises added five trillion dollars in
market capitalization or wealth to investors accounts. Now that may you know, if
you if you think about that,that could also mean a tighter fit for
longer. You know that five trilliondollars, you think about how you feel
as an investor. You feel muchbetter now than you did in October of

(11:41):
twenty two, when the market wasdown twenty five points something percent from its
all time high. Now it's upmore than twenty percent from that level,
you're feeling a lot better. Youmight be more willing to despite higher interest
rates, you buy a new car. The average interest rate on the cars
moved from four and a half toseven and a half per cent. The
average interest rate in a credit card, which in my opinion is usually has

(12:03):
gone from sixteen to twenty two percent. Would I take money out of the
stock market to pay off some creditcard debt if I didn't think that I
would accumulate that debt again as aresult of paying it off. Some people
are pretty pretty I'm not gonna sayfrugal, but they're you know, pretty
astute with their money. Hey,they're not going to have credit card debt

(12:24):
that's twenty percent. But if youget into a pickle like that, once
you pay it off, don't getyourself back into that pickle. Quite often,
when I see clients with credit carddebt or potential clients with credit card
debt, I'll ask them that levelwhen they say, hey, should I
pay this off? Yeah, payit off. If you're not just king
to, you know, get backin that same situation. You know,

(12:46):
again, considering the fact that it'sdue to overspending. You're not going to
get back into that same situation onceagain. So with interest rates on credit
card debt moving from sixteen to twentytwo percent in the average, think about
that. If you have ten thousanddollars in credit card dead interest alone on
the average is twenty two hundred dollarsa year, that's about eighteen hundred and

(13:13):
fifty dollars a month a little youknow in and around that area that you're
just actually one hundred and eighty dollarsa month in and around that area that
you're paying an interest alone. Soyou've just got to be careful that you
don't get yourself in that situation.So right now, you know, I

(13:35):
kind of circle back to you knowwhat worked areas of concern right now.
That's five trillion dollars in market capitalizationthat's been added to the SMP five hundreds
this year. Made investors feel wealthier. Perhaps we'll make the consumer sentiments stay
stronger for longer. Consumer spending mightstay stronger. They're for longer given the

(13:58):
helicopter money back and during the earlydays of the pandemic and even after that
by the Biden administration. Unfortunately,investors. There's still a lot of accumulated
wealth and accumulated spending power in differentdeposit accounts, you know, you know
across the country. That's going togive the consumer a tailwind. And on

(14:20):
the flip side, that could makethe FED a little more stubborn in terms
of quelling inflation. You know,the Fed already used its smaller can't hunt
inflation back in the two thousand Alot of golfer really, but the ol
mulligan is when you hit a badshot, you take another one. The
Fed already used it smallogan back intwo thousand and twenty one when Jared Jerome

(14:41):
Powell called inflation transitory. So they'vegot to be a little bit careful now
that that they don't lose credibly.I think they're getting their credibility back.
I really do. I think thattheir credibility because they have been somewhat hawkish.
They did raise rates, you know, ten times five and a quarter
percent. They did raise industrates threeconsecutive seventy three seventy five bases points three

(15:05):
consecutive times. So the Fed theydo have some credibility back, gaining credibility
back after their transitory comment back intwo thousand and twenty one. They don't
want to give that up. Ifif they become too easy at this point
or dubbish, you know, they'regoing to give that up, and then
that could actually be inflationary. Ifthe market sees the FED as becoming too

(15:28):
dubbish, you know, could leadto a further rally in the market and
some inflation. So the Fed's gotto be careful right now. So we're
probably they're probably gonna err on thehawkish side. Market asn't mentioned earlier,
as priced in a couple more quarterpoint rate hikes, so and I think

(15:50):
we'll see that before the end ofthe year. But we can take it.
The market can take it. Theycan't handle three seventy five bases point
hikes in a row. But Ithink, you know, one in July
or I don't see when their nextmeeting is. Fed's next meeting is July,
at the end of July, inanother week or so, July twenty
fifth and twenty sixth, and thenone again September nineteenth and twentieth, October

(16:14):
thirty first through November second or alltwo day meetings, and December twelfth and
thirteenth. So let's say there's onetwo three four one two three four meetings
left between now and the end ofthe year. If there were two quarter
point hikes, I wouldn't be opposedto that, especially if the market doesn't
pull back. I think a themarket can take it, be the economy

(16:38):
can take it, and it wouldI think it would be healthy to re
establish the credibility of the FED.So what wouldn't have a problem with that
at all. I think that's whatyou'll see this despite the fact that really
inflation seems to be coming down toa certain extent. I remember, and
I talked about it quite often thatto move from think about anything else in

(17:03):
life. You know, if yougo out jogging, to go from ten
minutes a mile to nine minutes amile, you're down. You know,
you're down ten percent in your time. To go from ten to eight it's
twenty percent. It's harder to gofrom eight to six it's twenty five percent.
The closer you get to your goal, the harder that it gets.
And I think the Fed's going tofind themselves themselves in that same position despite
the fact and also you have lastyear inflation kind of rolling off, and

(17:29):
you can see it really in theConsumer Price Index the CPI of two tenths
of a percent during June, upone tenths of per percent during May,
but two one percent moves during Mayand June of two and twenty two rolled
off. What happened is just pushedthe year over your CPI down from four
to three percent, which is theslowest year over your pace of inflation since
March of two thousand and twenty one. Shelter remains high of four tenths of

(17:52):
a percent dur in June of sixtenths a percent one month prior seven point
eight percent year over year. Energyprices continue to well this month they were
up up six tenths of a percent, but down seventeen percent year over year.
Again, as as the war inthe Ukraine was unfolding and there wasn't
cataclysmic really move in energy supply,you've had energy costs come down. Excluding

(18:17):
food and energy, course, CPIhave two tenths of a percent, but
all across the board, the CPIis coming down, so year over inflation
is down at three percent now it'sprobably going to get down to two and
a half percent. On the retaillevel prices that the wholesale level is measured
by the Producer Price Index up onetenth of a percent during June, this
set or formed four tenth of apercent. Dur in may. So have

(18:38):
retail inflation up year over year,up three percent, you have wholesale inflation
what goods and services you know theproviders are paying basically flat year over up
one tenth of one percent. Thatspread, that difference that year over your
difference between inflation is is at ornear record highs. In fact, according

(19:02):
to Bespoke, that that's happened seventimes. The Finnish Goods Index, the
comparison between prices at the retail levelas a CPI and then the Finished Goods
Index UM that spreads at a recordhigh. There's been seven records, this
one included. And generally speaking thatis bullish for the market because if you

(19:26):
have retail inflation higher than wholesale inflation, that means margins, corporate margins can
stay elevated and therefore profits can stayelevated. So generally speaking, it's it's
been a positive for the market.Other economic data they came out this past

(19:47):
week UM import prices down, exportprices down, so import prices year over
year down six point one percent,export prices down twelve percent year ear so,
really they get in inflation under wrap. We just got to see if
the service side of the equation,which is about eighty percent of the US
economy, where there's still some inflation, where if that's going to get you

(20:10):
know, the fect can get thatunder control as well. We'll see how
it goes. But if you lookat inflation numbers, which was really what
the market was watching this week,inflation as represented by the PPI, the
CPI, and then import export pricesreally very tame. On the labor front,

(20:32):
not a heck of a lot.Initial claims for unemployment benefits down a
two hundred thirty nine thousand a benchmarksabout three hundred thousand, where there's there's
someone in have an issue with theeconomy. So initial claims one, employment
benefits, continuing claims, which ishow many people are continuing to file unemployment
claims. Really, you know,not bad at all at one point seven
million. And then finally preliminary Julyreading of consumer sentiment I mentioned that earlier,

(20:55):
as told by the University of Michigan, despite higher on lower inflation,
this is a Joe and Sue,the director of the consumer surveys yearhead inflation
expectations three point four percent. Consumerexpectations long run inflation expectations also really in
check at three point one percent.So investors consumers getting some good news,

(21:22):
right expected news, and I thinkthat's what the market deals with his expectations
versus the reality. We'll see moreof that this week. Really JP Morgan
out with good earnings. City Groupnot so much this past week. So
this week, this past week,this coming week there is we're really going
to get broader with economic with theearnings for the second quarter. You have

(21:49):
obviously the second quarter just ended.Corporations compile earnings and now they're just starting
to ship them out to all theirinvestors. Last week that was dominated by
the banks. This week we're gettinga runner look at the economy Locky Martin
Schwab. We'll see if their marginscontract because investors, such as a lot

(22:11):
of our clients, we've moved alot of money from the money market to
higher paying money market from bank sweepa council higher paying money market. Bank
of America also comes out as Ithink a quarter of the nation's deposits.
Morgan Stanley comes out. We'll seeif the Mergers and Acquisitions Arena has opened
a bit Tesla, Netflix, GoldmanSachs, IBM, Habit Labs, Taiwan

(22:33):
Semi. We'll see if the strengthof the semi conductors, Johnson and Johnson
and American Express. So we geta broad view of the market. But
like I said, market moved higherthis past week, it's breaking out to
the upside. We do need acatalyst that catalysts could actually be the breakout
to the upside. But we stillsay that you know markets from a long
way, you know over relatively shortperiod of time, so letting pullbacks could

(22:56):
happen at any time. So that'sabout it. That's about it for the
first half. Right now, it'sten. We didn't pick up on a
couple of things. Right now.It's ten thirty on the station depend upon
for new dollar slid. Don't worryabout it. It's just relative to saying
that inflation is under control. It'sten thirty on the station you depend upon
for news, weather, information,new Stock ten and one on three one

(23:18):
w g Y, Good morning,and welcome to the second half hour of
the Capitol District's Money and Investment program. You're listening to the Fagan financial report
on Dennis Fagan here with my sonAaron, as we sit here every Sunday
from ten to eleven right here inNew stock K ten and one on three
one w g y. You knowa wet period of time, Aaron,
Yeah, I know, it's nice. It isn't take it. You know,
we just planned grass. All aboutthe grass. If you just planted

(23:42):
some grass and it's looking good,yeah, it is looking good. Color.
I have to water it that much, you know, that's the most
important thing. It is most becauseotherwise it'll be dead. Yeah, you
know. I do have to putsome more seed down in a fall though.
That'll seat itself. Though. Didyou ask Todd? No, I
do have to ask Todd as likethe the landscaping googler grass right. Yeah,

(24:03):
he'll go out there and he'll puthis ear to the ground, Todd
Bradley. He'll take his shoes inside, exactly, his white the bottom of
his white robe gets wet. Though. Yeah, but say, let's let's
go. Let's move on to tonot let's move to something you know that
has been bothering me. Sometimes Iget a little be in my bond and
so to speak. He's cynical.You would say one would say, you

(24:25):
would say, I'm not cynical,you know. I you know, sat
with the current client. He's retiredand she's fifty six and thinking of retiring
and working as a nurse, whichfor all the healthcare workers out there,
know what a difficult job that isin this prior to COVID for sure post

(24:47):
COVID even more so just this.Um. You know, I say what
you want about healthcare, but thecorportization of our healthcare system the big actially
in the Capitol region, you know. And I will also say, I
guess I don't want to get offon a tangent, but the closing of
the Burdette Birth Center is extremely sadto me and my wife Laurence. She

(25:08):
went down to like a rally theother day because it's done so much for
so many people, and now there'snot even a birth center in the Capitol
region. You can go to Albany, med But like I mean, it's
kind of sad. It is kindof sad, you know, it's very
sad actually, and it's you know, there's a lot of people who we
have clients who are nurses there,um, and you know, it's done

(25:29):
a lot for a lot of people, including myself, physicians, and I
think so so that the the corporateI don't know which where you would use,
but they're really turning into consolidation.Consolidation in that industry, you know,
has put pressure on a lot ofpeople. But so my point is
is that this woman and her husband, they're really feeling the pressure. Yeah,

(25:51):
she gets compensated, well, butyou know, how how much more
can you take of a very verystressful job. She's been saving her whole
life. So I've got that story. I've got you know, a friend
of ours retired and passed away,like you know, shortly after retiring,
and so you know, I puttogether a little something. This is not

(26:15):
about anybody independently, but kind ofthe title of it is, you know,
I can't drive sixty five. Ifyou remember that Sammy Hagar where you
know he was driving ninety five orone hundred all the time. None of
us drive sixty five. I don'teven know if that's the speed limit anymore.
And it sounds like I'm a segueto something else, but I haven't

(26:37):
because we don't drive sixty five.And yet you know, according to a
poll from the Surrelely Edge US Retirementedition the second quarter, the two thousand
and twenty three, and you know, barons summarize that running out of money
is the top retirement worry, andI can see it as a worry.
I can see our clients, youknow, worry about that a lot,
you know, in this in thestage of defined contribution versus to find benefit

(27:00):
plan where I don't know what percentageof people have to find benefit plans now
I think, I'm not positive.I think about twenty three yeah, and
that includes a P thirty two.Yeah, like I think less than twenty
twenty years ago, right, andd price seventy percent forty years ago,
you know. So yeah, yes, we see the worry. We don't

(27:21):
have to find benefit pension plans.I don't have one. Aaron doesn't have
one. Aaron's obviously my biggest worry, you know, not, you know,
is having enough money in retirement,yeah, to um to be able
to enjoy retirement the way you wantto enjoy it. Can you ever enjoy
it? I don't. I mean, I'm a pope over probably sitting here
thinking why the heck is he sayingthis? Because I'm thirty three years old,

(27:41):
But I don't know what do youthink. Well, you know,
it's difficult. Since nineteen forty five, there's been a bear market every five
years or about on the average.We've had three in the past five years.
Just well, the one in theend of eighteen was like nineteen percent
sending change. Yeah, yeah,you know, yeah, yeah, I

(28:03):
would count that. It was thefourth quarter of nineteen nineteen eight twenty eighteen.
Then we had obviously the pandemic,and then we had the one that
you know, who knows if it'sover yet. You know, it looks
like it is. The markets rallytwenty some percent above the October twelfth,
twenty twenty two closing low. Butmy point is that you know, now

(28:23):
we've had three of the last five. The uncertainty in people's minds and literally
the anguish I saw in this woman'sface is kind of like is illustrative of
the and the illustrative, but moremore of an emphatic, phatic way of
what I see now, which isthat concern of retirement and also her her

(28:47):
concern worry, almost to the tothe point of you know, panic,
that she's gonna die with all thismoney and not have experienced what she wants
to experience in retirement, you know, and so that, but so that
I can't drive sixty five. Noone goes sixty five. And yet we
look on retirement as we create anarmageddness situation for ourselves where what if everything

(29:11):
goes wrong? So I did writethis something again, I entitled it I
can't drive sixty five. My spouseand I are both sixty two years old
and have sacrificed over our entire adultlives to be able to retire. However,
we are going to continue to sacred. However, we are going to
continue to sacrifice over the next twentyyears so we don't run out of money
when I'm eighty seven years old.And that's said tongue in cheek. You

(29:33):
know, I think about that We'regoing to create unrealistically low anticipated returns,
follow the beliefs that the world isgoing to hell every time the market declines,
and pay closer attention to those armageddnessthan realists, and deviate from a
rational investment approach to life and investingto ensure we will have enough money to
sit on the porch. We're botheighty seven years old, and you know,

(29:55):
I don't know if you get allyou know, you know at thirty
three, but you know, well, you see people all the time.
You meet with our clients, Imeet with our clients, and and and
you know, is that what youreally want to do? Is that what
you want you want to create anarm of getting a situation for yourself that
you know, Joe Biden this,Joe Biden that, Donald Trump this,
Donald Trump that, and sacrifice therest of your life. We've had three
bear markets over the past five years. There still don't have to spend the

(30:18):
money that you think, not spendthe money that you can statistically spend because
you think this time is different.I'm saying there's people that are that,
people that do that. It's like, I'm sure they're people do that.
There's tons of people that do that. And how many of our clients,
you know, and the two thousandand two thousand and tend the market with
nowhere two thousand and ten to twothousand and twenty probably would a thirteen percent

(30:41):
a year. But but but ifyou create a realistic distribution rate, and
we'll talk a little bit about that. Schwa put out a good piece in
February UM adjusted for inflation. Youknow, you've got a you've got a
very good chance. And that's whatI would say to you. Are you
gonna go ahead? Well, no, I think you know what you can

(31:02):
do. You know, I thinksometimes some people just won't believe you.
Some people will believe you. Letyou do your job, and some people
will believe you, but always lookover their shoulder. And I think every
such every type of person is right, other than the people that are dead
set that the world is different thistime that are going to all gold because
because because it's different this time,and that's just historically and statistically. You

(31:26):
know, you can't predict the future, but probably false. Are you willing
to sacrifice the next twenty years ofenjoying your life for that? That's that's
my point, okay. And whenpeople look over your shoulder and look,
I mean the market's been going great, so this has nothing to do.
I mean, when we're having agreat year, our clients are doing wonderfully.
You know, our largest holdings Apple, you know, our second largest
is probably Microsoft and then Google.And so I mean this is not this

(31:49):
is this has been a great timeframe. Um. But you were saying some
clients and it's true. I mean, it's just human nature. There's about
five or six different personalities. Andlook, we we totally appreciate we clear
through Schwab fudusciarily all your money's atSchwab and but and we we like people
to look over our shoulder and checkup. But where you look over someone's

(32:10):
shoulder is usually you're more critical atthe exact wrong time. You know,
you're you're you're you're questioning uh andI'm not saying even questioning us, but
questioning the validity of investing. Whenis when do people question the validity of
investing at exactly the wrong time?Right? Always? You know, oh
it's different this time, it's differentthis time. So yeah, even if

(32:31):
you know, even people that thinkthat, you know, let's say,
like gold is the right move,and we've convinced them that it's not.
You know, if some of theirholdings, a lot of their holdings that
are going up this year, youdon't hear them to tell you to sell
them, you know, right,even if they still think gold is the
way to go, they're not.You're not hearing hey sound because they're going

(32:52):
up, right. Yeah, SoI guess it's a you know, it's
it's it's not a tough subject,but it's something that you know, it's
kind of you know, is relentless. I guess at times, you know,
trying to you know, get peopleto you know, understand that,
you know, we try and takehistorian statistics into consideration, and you can

(33:12):
only tell people so many, somuch, so many times that this time
is not different what the right thingto do is. And you know,
either they're listening to you and trustyou, or or they they they won't
can Our clients are great, Yeah, they're really they're great. You know,
I can't think of anybody that reallyhas has Yeah, everyone has their
own it's their money. And weknow what that's telling about this a little
bit too. And I think Isaid that to you a few days ago,

(33:36):
when you know, I think Ithink clients and investors in general are
a little bit happier because every timeyou, you know, you you turn
on your TV or open your internet, you're thinking you're seeing headlines how the
world's ending, and when it's notin their in their portfolios are going up.
They're like, oh, hey,right, you know, I'm expecting

(33:57):
the world to end. I literallythese companies are going up. Oh that's
great. You know, I've satwith a couple this week. They haven't
opened their statements all year and wecan't even know. Well, but that
was more like we we haven't openedour statements all year that they were down,
Yeah, because I think because ofthe because of the media, they
don't really file the stock market andthey're like, no, no, this
is what you're doing. They're going, you know. And I also had
had another client, you know,say he moved to Florida into like a

(34:22):
you know, the retirement esque community, and he trusts us fully, but
he says, the only thing thatscares him is like the armchair experts at
the pool and on the golf coursetelling him the world's ending. Then he
has to like give us a calland be like, so, what are
you think about the market? Andthen you hear the other side right,
you know. So that's what happensin life. We tend around, You

(34:44):
tend to hang around people who havesimilar opinions as you do. And that's
dangerous a lot of times because ifyou're never hearing the other side of the
story. It's like Twitter. Youknow, you have the left and the
right on Twitter, and you know, and if you if you look at
Twitter and you look at all.Their their algorithms basically doesn't give the other
the other point of view. Soyour own all you're doing on your news

(35:05):
feed is seeing regurgitation of what youalready believe, which is confirmation of that
belief, even if it's incorrect.Yeah, you know, so and so
and I. You know one onemore kind of story, anecdotal stories.
I call it literally called somebody yesterday. I've known this individual for I think
twenty nine years, if not twentynine, twenty six. I remember they

(35:27):
came neither ninety four ninety seven withus. His wife passed three or four
years ago. He's he's in aretirement community in Florida. Called the wish
my happy birthday for his nine hisninety first birthday, and he says,
I was, I was, Iwas reading something so and so said that
we're going to go into a depression. I said to him, you know,
I just called the wish you ahappy ninety first birthday. You know
what I mean? You might haveother concerns. He's got, you know,

(35:51):
certainly enough money to carry him throughanything. And interest rates are four
or five percent now, which takessome money off the equity side of the
table. And puts it on theand for us as well, you know,
let's our growth and income can goup to seventy five you know,
we can take that twenty five percent, twenty five percent or forty ratch it
up to thirty thirty five percent tomake the ups and downs of the stock

(36:14):
market easier for people mentally and emotionallybecause you're put take money out. And
what you were saying, and Imentioned this to a client, is that
you know, and it really struckhome for me, is that you know,
when when you go in to retire, you want more peace of mind,
you want to want to enjoy thingsmore, and higher interest rates have
really enabled a lot of our clientsto begin to do that. Yeah,

(36:34):
and we're continuing to lock in thoselonger rates and keep in mind high the
higher the rate not always the better. The highest rate out there and treasuries
is that like, well maybe theone month with the three month treasury bills
maybe five point five percent, theten years about three point eight, you
know, but the ten year acombination of a ladder along the way provides

(36:55):
you with predictability and income along theway. And I think that's a that's
a that's a big thing. Let'sget we'll get to the Schwab kind of
a study that they did, andI forget what wealth manager came up,
I think it was in nineteen ninetyone. Came up with the one percent
of four percent rule. You canyou can, you know, take four

(37:19):
percent of your distributions out of youraccount per year and increase that as inflation
increases. So if it's two percentand you'd say, have a million dollars,
you can take forty grand out thefirst year, forty eight hundred the
second year, because that's a youknow, two percent increase of forty thousand,
and it's good for thirty years.Right. It assumes a thirty year
time horizon. Depending on your age, thirty years may not be needed or

(37:40):
likely. According to the SSA estimates, the averager mating life expectancy of people
turning thirty five today is less thanthirty years. So text so they're saying,
basically, with a ninety percent chance, the rules US, it is
very high, likely close to onehundred percent, in historical stance scenarios that
the portfolio would have lasted for athirty year time period. Another, it

(38:00):
assumes that nearly every scenario the hypotheticalportfolio would not have ended with a negative
balance. I think there's three timesin history and this is this is just
from something I read and listened toa while ago, so I don't know
it's accurate, but I think it'sthree times in history that that would not
be the case. And it waslike three days. One of them was

(38:20):
like the day before, like Octoberseventh of twenty eighth, nineteen twenty nine.
There was like three days that ifyou invested in a lump sum that
it wouldn't have that wouldn't have beenthe case assuming a four percent distribution,
And so you know, I think, yeah, yeah, I mean what
else do you and you have tosay with a with a study like that

(38:43):
to convince people you know that yourmoney will last you. So so what
goes wrong though, what goes wrongI think is that and we'll get into
more of the statistics in a coupleof minutes, but what goes wrong is
what goes wrong with a diet.So great plan, but you know,
if you you know, have acouple of beers in each, a ton

(39:04):
of chicken wings, you go outto dinner five nights a week, you're
going off too percent turns to fourpoint three and you're like, oh,
it's only point three, but themarket goes down, and you are you
know, you reallocate out of outof your intended asset allocation model. Because
this is also for a fifty stockto in fifty fifty percent five poort folio
model as well. And then soso this is you know, so it's

(39:28):
a starts out at four percent threepoint eight percent distribution four and then it
goes up to not yeah, thenit goes up two percent annually, right,
I guess, yeah, Well itgoes up what inflation is annually.
So there's a there's a there,and you can you can, depending upon
your asset allocation model, with amoderate asset allocation, then initial withdrawal rate

(39:50):
of three point eight to four pointfour percent, there's a seventy five well,
three point eight to four four fourpoint four percent, there's a ninety
to seventy five percent chance you'll makeit all the way. You know,
at least ninety and at least seventyfive twenty years. You know, with
a moderately conservative five point nine tofive five point four to five point nine
that you'll make it at least twentyyears and I think the thing that also

(40:13):
comes to mind is that you know, and you know, I've been doing
this forty years, You've been inthis business twelve and I'm sixty one.
And think for all the listeners outthere, you know, how many people
do you know that are eighty yearsold? And there are a lot of
them, for sure, but there'salso a lot that you know, if
if they are married, one spouseis deceased, one spouse cannot do what

(40:34):
he or she wants to do,either cognitively or physically. One spouse can't
do it. So the question thatI have rhetorical question for the listeners out
there is, you know, ifthere is a ninety plus percent chance your
money's gonna last at least thirty years, you know what do you really want
to discontinue what you're doing in orderto increase that chance to one hundred?

(40:58):
And you said, there's let's saythree three times in history where you know
if you picked that four percent rule, you know if you if you if
you did it at the wrong time, that you would not have you know
that you would not end up withwith money? All right? You know
what? What what do you well? How it's sacrificed. Do you want
to continue to make to make certainthat that money lasts forever in the waning

(41:22):
periods of your life where really youryour concerns are more sustenance rather than participating
in the vibrancy of life. Yeah, they're not there. It's not going
to be, you know. Andsome you know, more money is spent
in the last six months of yourlife un medical than the entire balance of
your life. Statistically, most peopledon't realize that, and certainly certainly so.

(41:45):
Um So that's you know, it'smore food for thought than anything else.
But it is kind of how youknow, we do business at Fagan
Associates. Yes, we crunch thenumbers, you know, infinitely. However,
we also don't want our clients toand we stick to to uh,

(42:05):
you know, a proven investment strategy. And like let's say, you know,
I'm kind of saying this on awhim a little bit, but you
know, even being an investment advisor, Hopefully when I'm sixty, you know,
Fagan Associates is still around, soI'll have someone to manage my money.
But I don't even want to managemy money when I hit retirement.
Being in this business. It's justnot something that I mentally want to do.

(42:30):
I want to put my trust insomebody else that I know can do
as good of a job as meand I can actually enjoy my life,
you know, So I think that'sI mean, I would think that is
important as well, and that youknow, yeah, I don't want to
spend and you know, I knowhow many of our clients probably you know,
worry about their money, rightfully sobecause they want to enjoy their retirement.

(42:51):
And you know, it's just youknow, the just the stress that
someone can take away from you ifyou if you can't do it yourself,
it is worth you know, Ithink it's it's weight in gold a little
bit, just being able to mentallyenjoy retirement. I think that's half our
job too, is you know,helping people, you know, stop worrying
about money because they spent the lastforty years doing that, right you know.

(43:15):
And it's hard, even like itmight sound a little um, I
don't know the word, but youknow it might it's easier said than done,
I guess, because you spend yourwhole life doing something, it's hard
to get out of a routine likethat. But you know, we try
our best to help people be ableto you know, sit back, enjoy
retirement and not be you know,always worrying about money. Yeah, let

(43:37):
us do the worry. And really, you know, and we're not trying
to recreate the will. I thinkwe see that all the time with you
know, as the market struggled lastyear, what should we do now?
What should we do a different Maybewe should move to value over growth and

(43:57):
and and then not having done thatand seeing laur cap growth thus far this
year, you know, be upthirty percent or thirty plus percent, I
think makes sense that you stick towhat you're doing. I will say,
though, and we have been paringback some allocation to equities and some in

(44:21):
some cash, you know, movingmore and more into you know, fixed
income securities where we know that uhyou know that that that uh, you're
going to have an x percent ofa return over time. And I think
that just makes all the sense inthe world with with interest rates where they
are. So that's that's kind ofa almost like a second half type of
a soapbox. The only thing theother thing I wanted to do was,

(44:43):
you know, an article really byBen by Ben Carlson. He points that
points out a few things contrarians Andthis was posted on July second, and
I post you mentioned that contrarians areusually wrong. You know that that And
yet I was saying that to youthe other day, Aaron, And you
know that. Why is it?Is? Is it because fear is a
greater motivator than greed? But whydo bears always seem smarter than bulls?

(45:07):
You know, if the market goesup, you know, fifty four percent
of the days, which which isn'ta big difference, you know, plus
or minus, you know, youbreak even, but seventy some percent of
the years. And you know why, why do why do bears seem you
know, you know, like Ijust thought of this, But I think
because bears think rationally in the market'snot rational. That's a good point,
you know, they I think theythink term rational votes. You know,

(45:30):
something should happen in quotations doesn't meanit will happen, but the markets should
go up over time because earnings,you know, market files earnings. But
so I think you're onto something.Although I do think it's more of the
bears think rationally, But I thinkthey think rationally over too short of a
time frame where you know, whereyou know, history isn't you know,

(45:51):
in exactly we're not replicating history here, so you know, you can take
history into account, but it's notthe only thing you can take into account.
And you know, maybe bears takehistory into account too much based on
past market cycles, past interest rates, things like that. So you know,
you always have, you know,evolution of technology, economics, market
the markets, investors, so asthe investor involves historic history, doesn't right,

(46:17):
so right, and also the compositionthat that invest in investor body,
the composition of that body changes overtime as well, you know, So
I think that that would be anotherissue that I think, uh, you
know, we should, you should, we should address But so that that
was one thing, and uh thusdid he say, um, yeah,

(46:38):
so I'm not wrong. I'm justearly. I would have been right if
it wasn't for the FED. Listen, the system didn't collapse, but it
was close. Surely it's not methat's wrong, it's the economic dating.
You see that a lot right nowwith some of the perma bears out there.
And look, we're not we're notdefinitely not tooting our own horn.

(46:59):
I think that's a mistake. Oneof the things that being in this business
for forty years. Is that humility. You know, We've had our hats
handed to us more more times thanwe care to count, but we have
always stuck with the with the beliefthat the market is going to take you
where you want to go over theshort term and to try a try to
take shortcuts or be outsmarted is amistake. And I think that that's kind

(47:20):
of kind of what we stick with. So you know, I appreciate you,
you know, people listening to us, you know, for this half
hour. I hope it provides bodyto the discussion. Lots of times we
can just work with numbers, butother times you've got to, you know,
really feel the passion of of reallyyou know, what we feel for
people, and that is, youknow, we want to get you where

(47:43):
you want to go, and wealso want to prevent harm along the way.
But recognize that over the long run, this is the this is the
best avenue you have to creating wealthand enable you to do things. Give
us call during the week five eight, two, seven, ninety four checkers
in the web, but fagan assetdot com or let us on Facebook,
have a good day, Take care