The Fagan Financial Report

August 6th, 2023

Episode Transcript

(00:00):
Good morning, and welcome to theCapitol District's Money and Investment Program. You're
listening to the Pagan Financial Report onDennis Fagan, sitting here with my son
Aaron, as we do every Sundaynews tucking in one h three one w
g Y. You want to joinin the conversation, please still free to
do so, give us a callat one eight hundred talk WGY. That's
one eight hundred eight two five,five, nine, four nine. They

(00:21):
got a really good show for youtoday. Well, Fitch downgrading US debt.
That's not really good news. Butwe'll talk a little bit about that
yield curve could flatten out. Utilitiesfell sharply, and I think, you
know, don't get sucked in byshort term fixed income securities. Treasury bill
set an all time high, bills, notes and bonds a record highs right

(00:41):
now. Mortgage rates, you know, elevating a little bit despite the despite
the tight inventory. Housing prices alsostained strong. So we'll talk a lot
about that and then the activity onWall Street. But first and foremost,
Aaron, how are you doing today? We're doing great. How are you?
I'm doing well. I can't complain, you know, kind of a
beautiful day out in the Great Northeasttoday. Almost sound like Google, Chris,

(01:03):
don't I yeah, you know,it's a beautiful day. You know,
it's a kind of a tumultuous weekin the market with so many um,
you know, bigger companies having earnings, that the Fitch down grade.
You know, you had jobs comeout. But you know it's overall,
I think a pretty good week.Well, you know, let's I'll start

(01:25):
off with the headline, okay,and then and then get I think those
three things. We definitely got totouch on a couple of Amazon, Apple
and D's earnings. I want yourtwo cents on that. And also Fitch,
we could talk a bit about that. Probably it certainly take the whole
half hour on that, but we'llmove along a little bit. But start

(01:45):
off our weekly snapshot. If youwant to, just email us. It's
big and asset dot Com will sendit out there. It goes out before
noon every Sunday, and little reviewof the market and kind of like a
preview of the earnings and economic informationcoming up the following week. But nonetheless,
they say, as the analysts haveraised their price target for the SMP
five hundred, and I don't putthis in here. But you know,

(02:06):
Mike Wilson basically said, hey,I was wrong. The market's not gonna
go down to what I thought.Here's my new target's around forty two hundred.
The SMP closed at about forty fivehundred on Friday, But you have
that, you'll have other analysts increasingthe target for the SMP five hundred.
An investor sentiment. You know,if you look at the American Association of
Individual Investors investors investor sentiments around thehighest levels in two years, you know,

(02:30):
it's not surprising that all those kindof as contrary and indicators that stock
took a breath of this past week. As historically markets climb a wall of
worry and it's time for a breather, I said, let's hope we get
one, as the ants created bya modest pullback will provide the bricks needed
to rebuild that wall. How doyou feel about you know, great run

(02:50):
for the market year to date,dal stal up five or six percent,
but SMP up sixteen. They haslike up thirty three percent through Friday.
Yeah, you know, I thinkit's I think a pullback or a pause
even in the stock market is warranted. I you know, just talking about
the Fitch downgrade a little bit.You know, I don't take much,
um, I guess Credence and Fitchor Moodies much anymore. UM. You

(03:15):
know, they completely I guess stumbledthe ball in two thousand and nine,
haven't really done much up until now. UM. But you know, I
think I think that a lot oftheir concerns that they highlighted are warranted concerns.
But I don't think that, UM, I think they're all fixable.

(03:37):
You know, we do have youknow that thatted GDP has gone up astronomically.
They they highlighted that it's gone aboutfrom sixty percent to one hundred and
twenty percent from two thousand and seventill now. It was below sixty percent
two thousand and seven. You know, we have they highlighted the political turmoil
of January sixth UM, I thinkthat's warranted, even you know, the

(04:00):
the whole you know, currency situation, going out with the bricks nations.
You know, it's all concerning things. But I don't think there anything that,
in my opinion, will be toolong lasting other than the debt.
You know, I think I dothink that the United States obviously needs to
take care of their debt. Idon't have those numbers in front of me,
but just the amount of money thatwe'll need to finance our debt now

(04:23):
as opposed to two or three yearsago has gone up substantially. So you
know, these are all things thatwe do need to fix. But currently
I still think the market is inpretty good shape. You know, we
did see even Apple, Apple had, you know, in my opinion,
had strong earnings even though it wasdown five percent. Amazon had good earnings.
AMD head good earnings but was downa bit. I think it's above

(04:44):
where it was pre earnings, however, So I think there's a lot of
good things in the market. Butyou know, NAZAC being up, you
know, forty percent year to day, I think does warrant you know,
yeah, I guess the pause andsee where the next cat lists are for
the market, you know, AndI think you said a mouthful there.

(05:06):
I think if you if you talkabout a catalyst for the market, you
know you want you want to havea catalyst. You don't want to have
there is no other alternative as acatalyst. You don't want the market to
keep going up for I don't likefear of missing out the Fomo as the
catalyst either. You know, youwant legitimate catalyst that you think can drive

(05:27):
the market higher. I think thepotential for AI that that really very few
people saw coming was the catalyst forthe first half in hindsight. And maybe
we'll get another situation like that wherethe market will move higher and then then
all of a sudden we'll realize,hey, this was the catalyst. But
you know, a fear of missingout. I don't like as a catalyst.

(05:49):
Uh. And I you know,certainly don't like momentum as a catalyst.
So so we'll see. Uh.You know, you could have catalyst
to the downside where like I said, the markets climba walla, wherey we
want some of those bricks put backin because people are getting a little bit
too optimistic on the market. Youknow, I think with the Fitch downgrading

(06:11):
US DEAF from AID A plus,kind of agree with Jamie Diamond. You
know, for a country that reallyfeeds the world, provides defense for the
world, currency stability for the world, technological innovation for the world, medical
innovation for the world. You cango on and on. It's hard to
believe that if the United States isn'tyou know, a stable country, that

(06:33):
is. And yet I'll also saythat, you know, it's like if
you're if ideal blood pressure, Ithink it's still just now, but I
hope, what do I know it'sone twenty over eighty and you go to
the doctor and your blood pressures onetwenty four over eighty two. Let's say
that's still ideal. But it's inthe wrong direction. You know, I
think that's bitch signaling, is thatthis is a step in the wrong direction.

(06:57):
The lack of really our politicians tocome to consensus over raising the debt
ceiling. January sixth, as youmentioned earlier with Fitch, the amount of
debt Bloomberg just reported, and Ithank the data firsthand, but obviously you
got to, you gotta. I'msure certainly that it writes and I'll quote

(07:19):
the combined total amount of treasury bills, notes, and bonds. A bill
is anything that matures within a year, notes one to ten years, and
bonds thereafter to pretty much the samething. Bills, notes and bonds,
I'll stay increased by about one percentduring July to a record twenty five point
one three seven trillion, according youknow, according to data, it's poised
to continued the amount. As recentlyas June twenty and twenty, total marketable

(07:41):
debt outstanding was under twenty trillion,So you have total marketable debt of about
twenty five percent in three years,fifteen trillion in June of two and eighteen,
so five years debt has gone upby forty percent. So that's what
you have. And you also haveinterest rates move from one to four and
a half or five percent, sothe cost of financing that debt is going

(08:03):
to be an issue. I thinkthe thing in centator Joe Mansion from West
Virginia was on CNBC and yeah,he's alarmed, and maybe he's alarmed,
not really, you know, maybehe's maybe he's part of politicking, but
I think he made a pretty legitimatekind of argument that yeah, I mean,
we're just going in the wrong directionright now with our dead and this

(08:26):
is kind of a wake up call. Would you agree with that or you
think it's I mean, I thinkit would kind of absolutely even you know,
even the increase of the debt feelingnow, it took basically the vast
Mansion finals. Then we just kickthe can down the road to after the
election, so we're really not gettingthere's not really much progress fiscally UM in

(08:48):
in Congress at all. So youknow, I think you're right in setting
that. You know, Hey,you guys are going in the wrong direction.
UM, and you too fix atnine a deal. But you know,
I'm and if you have multiple countriesthat have right but you're breaking up

(09:11):
a little bit, I'm sorry wehave China being extremely important, UM,
but you know it's it's worrisome inthat. Yeah, if you have other
countries I guess working against us.UM, that's we should be able to
band together at least domestically, andwe're just not right. I agree,

(09:33):
And I think that the risk isthat when you're going to the last minute
all the time on some of theseissues, you run the risk of not
being able to come to a consensus. I think the issue and then it
is kept separately social security. Ithink social security is an issue and I
and I was saying, you knowin the office, and is that you
know, I do believe that thereis going to be changes in social security.

(09:54):
There's going to be earnings tested.I think there could be a cessation
or ending of the quest of livingadjustment or that could be that could be
income tested as well. So Ithink some things like that that is going
to continue to raise the income limits, continue to raise the income limits of

(10:15):
the paying income limits for sure,just like Medicare, Medicare is paying income
limits are out. There isn't atop, so there is no there's no
cap on that. So I thinkyou'll see some changes there. But but
so so, you know, soyeah, I do think this was warranted
by Fitch. It shouldn't have beenpooh pooed. But I don't think it's
a market moving event. You know, Warren Buffer came out and said,
look, we bought ten billion dollarsand three month treasuries last week. We

(10:37):
brought them the week before, andthe only decision really really right now is
to whether we buy three or sixmonths. And I think that was kind
of like a non starter because youknow, unless you're going to buy something
that's out on the yield curve alittle bit out on the maturity. Of
course, the US isn't going toa bankrupt in three or six months,
so that that was not it reallyreally market making. But you know,

(10:58):
we did see some movements in thetreasury market, and I just want to
create like a frame this for alittle bit. You know, Jamie diamond
says that ten years could be goingto five percent Jamie Diamonds, CEO of
of JP Morgan, not on theFitch down group, but basically by the
strong US economy. Kind of Ikind of think that when the yield curve

(11:20):
normalizes, and a normalize yield curvefor those that they'ren't aware of, it
is where long term rates are higherthan short term rates. Right now,
we have short term rates higher thanlong term rates because the rest of the
world thinks that the Fed is goingto get inflation under wrap wraps A and
or B the economy goes into arecession as going into recession. But you

(11:41):
know, I kind of think thatthis is this is normal. The ten
year is at four percent, that'swhere it has spent the vast majority of
the time over the past century,seventy five, eighty eighty five percent at
the time, whatever the case,maybe beep up the vast majority. I
do think the trend could go higheras we're pushing more debt into the market,
and more supply of debt, assumingdemand stayed constant, pushes yields up,

(12:09):
and I think the short term shouldcome down. So if there's any
normalizing or flattening of the yield curve, I think it's going to to come
at the expense of the short end, and I think the ten year could
could continue to drift up. ButI think it got the four seventeen or
four eighteen to close Friday at fourh five. A week ago it was
three ninety six. At the endof twenty two, it was three eighty
eight. But could listen to thesenumbers are at the end of twenty one

(12:31):
it was one fifty two and atthe end of twenty the ten uere was
point nine four percent, you know. Seven December thirty, first of h
seven it was four point eight,so, you know, before the Great
recession. So and I'm kind oflike in some some bonds in through here,
But wouldn't be surprised if the interestrates trend upward. That's where hello,

(12:54):
you know, I would be yeah, there you go. Sorry,
Sorry, you're just breaking up alittle bit. Yeah, I wouldn't be
surprised if they trended upward as well. Um, we did go out a
little bit on the yield curve umin the past year, but we haven't
really taken a large step into thatten percent our ten ten year treasury much
UM, so we're still kind ofnot waiting to see. But you know,

(13:16):
we don't think rates will go downtoo quickly. Uh, you know,
we do think they will. Tenyear will at least hover around the
four percent mark. So we haven'treally taken a large step into um into
into the ten year treasury. ButI think you know, as we've been
saying, is you know, wewe we will. It's just a matter
of when, right right eight wguy one two five five nine four nine

(13:41):
four the listeners out there, Ithink we have a good reception, but
we're out of the office today thesecond half this podcast it so you'll get
a lot better recesion reception in thesecond half. A couple of things that
went on this past week to Apple'searnings and Amazon's earnings and am d Z
earnings. Uh, which do youwant to address first? You know,

(14:01):
I think Apple, You know,I think you always kind of have to
take Apple first. Being almost eightpercent of the SMP five hundreds down about
five percent on Friday, I'm okaywith Apple's earnings. They the things that
I would highlight in an Apple specificallyis you know they will have a new
iPhone's coming out. They do seea stronger second half. They saw China

(14:24):
was strong. I think that's extremelyimportant. Now we talked, you talked
a little bit about how you know, AI was kind of a catalyst for
large cap technology technology in general inthe first half. And you know,
I think what everyone thought would bethe catalyst at the end of last year
into early this year would be areopening of China, and that didn't happen

(14:45):
the way people thought it was goingto. But I do think that you
saw just this past week, appyou know, Apple and AMD both had
both were down the day or dayafter they reported earning, which is now
good, but they both saw astronger second half, and they both highlighted
China as being a stronger second half. Though. I think that is a

(15:07):
good thing for the global economy.Um, it is a good thing for
large calf technology technology in general.Um. You know, we're always hesitant
about China, you know, asas a as a political entity, but
there are a lot of consumers there. So I think that you know,
what was obviously what will be positivefor the second half of the year,

(15:28):
maybe a reopening of you know,the global economy a little bit more UM
services was up. I think that'salways important. We talk a lot about
Apple large cap tech again, havingyou know, one foot in the door
to UM, you know, toto current technology and as well as working
on you know, future technology andyou know, maybe technology emerging emerging technologies

(15:50):
that are five six years down theroad, and you know, I think
that's what Apples earnings kind of showedyou. iPhone revenue was at thirty nine
points to seven verse thirty nine pointnine one, so a little weak,
but still thirty nine billion dollars inrevenue. On the iPhone, the revenue
was eighty one point eight billion asopposed to eighty one point six nine,
so revenue was a little stronger thanexpected. EPs one twenty six verse one

(16:15):
nineteen stronger than expected. You know, gross margins for a multi trillion dollar
company at forty four point five percentverse forty four point two is really amazing.
So I think what's obviously good inApple is, you know, they
do have their foot in the doorto you know, their next revenue stream,
which would be services at twenty onebillion dollars, and they also have

(16:36):
one hundred and sixty six billion dollarsof cash on hand. To deploy for
you know, projects, artificial intelligence, maybe the metaverse, things like that
as well. So, you know, I think Apple's earnings were good.
And you know, you do haveto have some in your portfolio, being
eight percent of the S and Pbecause it does give you correlation to the

(16:56):
to the indices. So you know, I was happy with Apple's earning.
Um, yeah, they could havebeen better, but you know, they
were kind of what I expected.I'm happy with services, I'm happy with
gross margin, I'm happy with cashon hand, and those are the kind
of things I was looking at beforetheir earnings call, and you know,
they were all all good in myopinion. I a great June's a week
quarter for Apple. They have one, you know, as far as services

(17:21):
goes one billion paid subscriptions, soyou're getting into Facebook or men and like
numbers as far as paid subscriptions go. iPhone, Mac and iPad sales were
down year over year generally speaking.Junes a week quarter for them. You
mentioned China, You mentioned all theparticulars of their earnings, so however,
they can't add much other than youknow, gross margins were pretty constant forty

(17:44):
four point five for seven verses fortyfour point two and stocks price for perfection
like like like it's like it shouldbe. It's a well run company and
and you know, maybe maybe itprovides just mediocre growth from here, but
like you were saying, you gottahave some when your portfolio, and it
is one of our larger holdings.Man, I think with these companies as

(18:07):
well, you know, I thinkwhen they get to be too large of
a percent of your portfolio, itis prudent to trim them. But you
know, just off the top ofmy head, you know, then we
can go into Amazon's earnings. Amazonwas sixty five cents verse thirty five,
was up ten percent on Friday.Revenue was about one thirty four billion verse
one thirty one. Web services wasextremely strong at two hundred and twenty one

(18:27):
billion verse two twenty one point eight, and ads was at ten point seven
billion verse ten point four and itrose twenty two percent. So you know
what what I get from large captecher rings in general is, you know,
Amazon, everyone was looking at whattheir ad their ad ads was going
to be because they you know,kind of claimed that they were going to

(18:48):
be the third, you know,the third player in AD spending, and
it was it it rose twenty twopercent, as opposed to Google, which
was three percent. In Facebook wastwelve percent. You know, so,
I think what you're seeing from thesecompanies is when we see weakness in them
and some you know, I guesspeople are a little bit hesitant. We
saw it with Amazon dis quarter,We saw it with Google this past year.

(19:12):
Essentially, although the stock is up. You know Google, when chat
GPT came out, Hey, isis uh you know, Pachai losing some
UM, I guess credibility a littlebit. You have chat gpt. Are
they getting too comfortable? And youjust saw their search ad revenue extremely good
Google. So I think every timeyou start to question these companies, you

(19:33):
know, Google with their search adAmazon with their ad spending as well as
Amazon Web Services, which was uptwelve percent in Q two, you're still
you're kind of seeing these companies evenwhen they stutter, they write the ship
very quickly, and you know it'sagain, you know, they think you
trim when they get too large apercentage of your portfolio, but they kind

(19:56):
of continue to show us that theynot only have U you know, their
core business segments, Amazon with uhyou know, they're selling of good UM
and Apple with their iPhones, butyou know, they do still have their
their foot in the door into emergingtechnologies. And I think that's what's so
amazing about these companies now is umthey're how they can, how they can

(20:19):
pivot, start new businesses, startnew business segments. I mean Amazon Web
services seventy percent of American Amazon's operatingprofit of seven point seven billion dollars had
a net income of six point sevenbillion dollars. So these companies continue to
you know, not surprise, butum, you know, do extremely well.

(20:40):
If you had to take a lookat one or the other, I
think Amazon earnings were were superior toApples. I think, however, they
are more expensive. You know,if you look at a price tarnings ratio
even a price sturnings over growth ratio. But you know, you touched on
a web services were you know,over five billion dollars and and then come

(21:02):
from web services from the cloud.H Apple doesn't really have a big footprint
in the cloud. Apple does havea billion paid subscribers. I think that's
that is what they have that's there. Uh, really they're acing the whole
for future growth. Both look good. I think if you you know,
like I would be right sizing Applehere and we'll take a look at that

(21:22):
tomorrow at work UM for customers accounts, Uh, it was it was down
four percent on Friday, So justbe patient with that if you're going to
follow suit as well, h Amazon, if it pulls back a little bit
in in a general tech pullback,you know, I think you add to
that in through here. UM.You know some things that Apple can have

(21:44):
going forward. You know, certainlya new iPhone, you know, certainly
you know AI uh, continue growthin in the services, and also you
know there's always talking of an Appleautomobile. So you got a lot of
even Apple keep you a little bitstronger in China, Yeah, a little
bit. I think that'll obviously begood for Apple. They do see as

(22:06):
stronger half second half of the year. Lisa two from am D. They
had a little bit weak earnings.I think they beat on revenue. I
don't have their earnings up in frontof me. UM. It is kind
of the semiconductor story this quarter,weaker PC sales, but it seems like
the bad news is uh, it'skind of out there for for PC sales
in the semiconductor industry, and theyalso be UM sales picking up in business

(22:32):
picking up at the second half ofthe year. So I think I'm happy
with all of the earnings this thisquarter. Um, it would have been
nice to get into oil prices upfor the oil prices were up for the
sixth straight week. UM. Ithink that oil could continue to do well.
Uh, it's had kind of ayear. Yeah, you know,
China is another good thing for oil. Um. You know, if we

(22:55):
do, you know, go intoa male the session or the soft landing,
that will also be good for oil. So you know, I think
that's something I'll feel like a rightthis coming week, you know, I
guess eisaneers will turn towards inflation.Consumer and producer price dynasties will be released
this week and we'll see if inflationkeeps coming down as it has over the

(23:15):
past three and six months. AndI was just about to do it.
It's ten thirty on the statue dependingfor news, weather and information News top
K ten and one O three oneW G Y, Good morning, and
welcome back to the second half hourof the Capitol District's Money and Investment program.
You're listening to the Fagin financial Reportof Dennis Fagan sitting here with with
my son Aaron for the second halfas well. Er, how are you

(23:36):
today? I'm good? How areyou? I'm doing well, can't complain.
You know, we were brought outbroading out the topics for the second
half, and you know it's somethingthat we always talk about in the office,
uh, you know, target datefunds and the like, and how
they have just taken over really thethe four oh one K community for number

(24:00):
of reasons. I think the primaryreason is is the sponsors of four O
one case one as a kind ofadhering to the fiduciary responsibility, our pushing
target date funds to make sure thatreally you don't shoot you know, investors
or employees don't shoot themselves in thefoot by going too far out in the
spectrum. As far as their acidallocation models, however, it's also to

(24:25):
be noted that they they have underperformed. So we'll talk a bit about that
in the second half AMDs earnings.We're going to touch on that mathematical attraction
of stocks belies the risk of ruinand an article by Jay Bradford DeLong that
came out this past Tuesday, talka little bit about that offset that by
thirty seven percent of baby boomers havemore stock exposure than they should, Fidelity

(24:48):
says, and a couple of questionsthat appeared on Market Smith. We're retired,
have about three and fifty thousand dollarsin our accounts and live comfortably with
social security and pensions. Should wepay off our one hundred and thirty two
thousand dollar our mortgage? We'll seeif our age difference between me at sixty
one and you at thirty three.There's differences in opinion there maybe. And
then the final topic that we have, assuming that we don't run out of

(25:12):
time, we're fifty seven in ourwork is unpleasant and tiresome. We have
eight hundred thousand dollars in four Oone K plans at one point one five
million in a pension. Can wejust retire already? We'll talk a little
bit about that as well. AndI think a lot of people are like
that. We meet with a lotof people in the medical field there,

(25:32):
and nurses specifically, they get tired. You know, they're tired. It's
a tough job. Staffing has reduced, really, their hours have picked up,
their responsibilities have grown as hospitals haveconsolidated, they've people have retired nurses
have retired post COVID find people people. We're seeing that locally with you know,

(25:56):
seeing Peter's health partner was really strugglingto find workers because you know,
I think a lot of these nursesare traveling nurses now. They are now
so they can you know, gofrom place to place or you know,
still settle down in an area.But yeah, it's a and they're they're
and they're tired. I mean,they dealt with COVID, They dealt with
COVID, and and it's attire stuff. It's attire mentally attire some jobs.

(26:19):
So we'll talk a bit about that. This one couple there who was in
their late fifties and wanted to knowif they can retire. Um, well,
let's you know, let's start offwith that air because it's you know,
we just we're fifty seven and ourwork is unpleasant and tiresome. We
have eight hundred thousand dollars and fourone K plans and one point one five
million dollars in the penchion. Canwe just retire already? So what are

(26:42):
some questions that you would ask somebodyif they if they you know, rode
into us because we we we getform submissions all the time of people who
want to at least seven initial comesdown to you know how much money you
spend, you know what your debtsare, if you want to leave money
to your kids. I think thoseare kind of the big questions that I

(27:02):
would ask someone to start. Youknow, I think a lot of there
are a lot of clients that wehave that have, you know, more
in depth, let's say, difficultfinancial situations. Difficult, not meaning hard,
just more difficult to navigate. Um, if they have multiple current screams
of income depending on their job.But you know, if you just have
a pension, um some money inyour four one k really comes down to

(27:26):
what's going in and what's coming out. These people have no they have one
point one five million in a pension, so basically they have one point nine
five million one point nine one fivemillion dollars saved up and want to know
if they can they can retire out. For me, that sounds like a
lot of money. Um. Butbut some of the topics that you just

(27:47):
brought up, you know, youyou mentioned kind of like and I can
think about a specific individual that camein with a with a with a similar
amount and forget the amount as muchas the topics that are of the concern
for us is discretionary versus non discretionaryincome. For every dollar that comes in,
how much is already accounted for,whether it be you know, mortgage

(28:07):
bills that you need to pay,you know, things like that, as
opposed to what's your lifestyle? Islike, right, you do you have
do do you generally speak and havea car loan? Do you are you
paying? Someone was in the otherday that she's paying for her children's student
loans. They've kind of they wentin and it together and she's paying half
and her daughters are paying half.Uh, that's that's a that's a an

(28:32):
obligation that she has. Uh.Do you still have a mortgage? You
know there was a question. Theprior question was should I pay off my
mortgage? And you know, let'ssay your mortgage interest rate is four or
five percent? Um, let's sayit's five Your mortgage rate is five percent,
and you have five hundred thousand dollarsin non qualified moneys and brokerage accounts,

(28:56):
and you have a fifty thousand dollarsmortgage, So fifty thousand dollars mortgage.
Have more than enough money to payit off and you're paying five percent,
and it's questions, say a thousandbucks a month for that mortgage,
would you pay it off? Youknow, I think that's a tricky,
tricky question because you know, Ithink when paying off mortgages, you know,

(29:18):
there's people with a two percent mortgagethat's like, yeah, it's a
no brainer, don't pay it off. And then you know, when it
gets to four to five percent,you know, I would probably say pay
it off. And I always leanedtowards the pay it off mentality. You
know, I know it's not alwaysthe most prudent, but or you know,
all it's not always the you know, financially smartest decision, but you
know, I just think it's youknow, mentally relieving for retirees to get

(29:41):
those that non discretionary spending off theirplate. Mentally, I think it's easier
for people to enjoy life knowing,hey, you know, let's say only
having less you know, debts thatthey need to pay. It's just kind
of clearing up some space. MentalI think it's easier when the market goes
up and down to whether that knowingthat you don't have a mortgage. So

(30:06):
I would I would lean towards payingit off. Great. You know,
it's funny because and the listeners don'tknow this. That's why they're listeners,
because they can't see us. It'seasy to sit here and think, Okay,
this is a canned type of aradio show. And granted, some
of it we talk about beforehand.We don't talk about responses beforehand because you

(30:29):
kind of want them candid. ButI'm sitting over here and when I ask
you that question, and for thoseof you obviously don't see us, don't
realize that I can see Aaron,he can see me, but I'm not
moving my head at all, like, yes, pay it off or no,
don or I wouldn't So I'm justlooking at you. You're looking at
them, and you're like no.I mean, because it could be different.
But I think which is said isa couple of things that I agree
with entirely. Clearing up space mentallyis a great phrase to use, and

(30:56):
it kind of it kind of addressesone of the reasons you would pay the
mortgage off. And I think theother thing is discretionary income. You know,
if you're paying a thousand bucks amonth for that mortgage to pay off
fifty that's twelve thousand dollars a year. You know, let's say if interest
rates are five percent and you putthat fifty to five percent, it's going
to generate twenty five hundred dollars ayear an interest. So your your cash

(31:18):
flows right, you know, LikeI had someone come in the other day
with you know, he had likeeight or nine thousand dollars in a pension,
and you know, he had amortgage and it was like four and
a half five percent, and youknow, and in different criteria, you
know, warrants, different responses,and him being four or five percent.
I was like, don't pay itoff. You got you have, you

(31:41):
have cash for the rest of yourlife. It's not necessary for you to
overpay your mortgage. UM. Butyou know, if you have, if
you you know, if you're inthe private sector, UM, and you
have basically you know, a fourone k UM something like that, and
just money saved, that's much moreor financially that's much more mentally draining and

(32:04):
tiresome. And you know, Ithink you can do the wrong mistakes much
there's an easier chance of you makingthe wrong mistakes when you only when you
don't have that you know, cashflow of of a pension or you know,
so you know, for him,I would say no, even though
it was four percent. And theother person, if I said, if
they had, um, you know, only a four one k, I'd
say, yes, he doesn't needto clean up space mentally yep, yes,

(32:28):
always has that money coming in.So I think it's a difference too.
If you were say to me,all right, so I created the
scenario of somebody having a fifty thousanddollars mortgage balance at four percent, four
or five percent, you had said, hey, at two percent, it's
a no brainer. And by theway, my wife Carolyn and I have
a mortgage at two point three percent. I'm not paying it off. Do

(32:49):
I put a little bit extra onit every month? Yes? Why do
I do that? Clean up spacementally? Really, and it's a good
habit. It is a good habit. Um. Now, Dave Ramsey would
say you pay that off because thenit frees up money to do others.
And that's a whole other topic.And I would disagree completely on that because
you don't want to pay off atwo point three percent mortgage. Just look
at the past two, five,ten, fifteen years. It would have

(33:10):
been a big mistake paid off,but nonetheless assuming you were disciplined in your
spending. But yeah, So,however, the scenario I created is fifty
thousand dollars mortgage five percent. Solet's say, yes, you should pay
it off, all right, becausefifty thousand at five percent. Now,
if you have no money really inthe non qualified moneys mean a brokerage account

(33:34):
or the bank or whatever. Soall of your money or the vast majority
of it, or all you haveis fifty thousand dollars in the bank,
and then you have four hundred andfifty thousand dollars, will say, in
your four oh one K. Sothen the question would be, well,
I've got to take money from myfour oh one K to paid off?
Now should I pay it off?And then you kind of go into that
second level of considerations, as inour fiduciary capacity as an advisor, would

(33:58):
be well, let's look at youracts return to determine the tax ramifications.
If you were to take out fiftythousand dollars from your four oh one K,
you know your twelve percent bracket goesup to gross income of about one
hundred and seventeen thousand in change.Now, if you've got gross income of
forty thousand coming in, you'd haveto take out you'd be taxed at a
twelve percent rate, you know,so so that would be an issue.

(34:21):
You would also incurse some state taxes. And just again drill down just to
kind of see the method and theconsiderations that the steps that we perform when
determining this, and they're multiple.Is that in New York, the first
twenty thousand dollars once you're fifteen nineand a half from iras or four h
three vs are non taxable in NewYork. So if you and your spouse

(34:45):
or you and your partner have bothhave four oh one k's, maybe take
thirty from each to pay it off. That way you limit the state tax.
So these are all considerations and stepsthat we take whether or not to
pay off a mortgage. Now,cleaning up mental space mentally is a great
visual and also to increase cash flowbased upon the amount you might have fifteen

(35:09):
or ten or fifteen thousand dollars incredit card debt that might be questioning fifteen
hundred bucks a month and you're like, oh, I can't retire. I
got fifteen hundred bucks a month goinghere, I got to take the fifteen
thousand and pay it off and freethat up. Now, the problem with
that is that don't get yourself backinto that problem if you're yeah, that's
what you find too, is youknow, some people go through situations where

(35:31):
you know, they have to haveten thousand dollars on their credit card.
You know, not everyone has themthe luxury of let's say, having an
emergency fund to pay for things likecars in the like. But you know
what I see is a lot oftimes that are people come in here,
you know, they retire, theythey finally have access to their four one
k money, they have a tenthousand bucks on their credit card. They

(35:52):
pay it off right away. Butmore times than others, you see people
who they just go in a yearor two right now, they're gonna have
ten thousand bucks on their credit cardagain right now. That happens more often
than not in my opinion for peoplethat we see. So, you know
a lot of times credit card spendingthat we see in retirement planning is more

(36:13):
of a you know, a financialcharacter trait. The ten it is not
being able to you know, affordit right, yeah, and the other
and part of that consideration and theresponse by market market watch without getting into
the specifics because but for the listenersout there, these are just some of

(36:36):
your own considerations. Is healthcare,You know, Medicare starts at sixty five.
If you're both fifty seven, thatmeans you have eight years to consider
for health consider about healthcare healthcare.There's a lot of more inflation and healthcare
and education, which is odd notodd, but if you think about it,
the two big sectors of the economythat have government control really is education

(37:00):
in healthcare because you push off healthcareto insurance companies, you push off healthcare
to medicare, and so you don'tsee really the out of pocket as much
as if you pay to yourself.That's why it's inflation, ay, because
those companies then it's easier to raisetheir price because they're raising their price on
the government. I you same thesame with the institutions of higher education.

(37:22):
They're raising their price to yourself.Yeah, if you're taking out loans or
you're getting government assistance. Again,it's easier. If you think about it,
if you had to pay out ofpocket for your college degree, you'd
be much more selective as to howmuch money you spend and where you went,
so healthcare expenses down the road.I also was Aaron and I you're

(37:45):
fifty seven. Let's say you havea joint left fixed life expectancy of eighty
two, right, that's twenty fiveyears. We differentiate at Fagan Associates active
versus passive retirement. The passive stageof retirement is is kind of uh,
you can It's signified by you slowdown, you've done all the things you

(38:07):
want to do. You can't.You can't get around as much has passed,
your spouse has passed, your spousehas cognitive or physical issues. Yeah,
yeah, you're not You're just notdoing as much, you know,
And and we see that all thetime. Um, and what are you
spending your money on? Really healthcare, dental work, things like that.
So you know, you're just notspending as much time. And whether it

(38:30):
be mental or physical, it's justyou're not spending as much money on trips
and things like that. So,you know, we always tell clients like
that, at least enjoy the forthe early stages of retirement where you can
do things and get enjoyment out ofthe money that you saved. But that's
part of the problem. At aat a fifty seven because if you look
at if let's say for the averageperson, that passive stage begins at seventy

(38:53):
seven. So I brought up threethree ages here fifty seven, your retire
seventy seven. You begin the page. One of your one of the spouses
is working. In the beginning,you can't still can't go on the chips
that you hunt. You can't.Right, But if you're both retired and
and eighty two is the end point, Let's say you pass away twenty of

(39:14):
the twenty five years, you're goingto spend in an inflationary environment because you're
gonna be in the active stage whereyou're traveling, you're doing this and doing
that. So it's hard to retireat fifty seven. And you're probably going
to go through a few bear markets. Definitely. Oh yeah, so that's
stressful. It is stressful. Butyou say to yourself, um, so

(39:35):
so what do we use you?Right? If you're fifty seven, man,
you better have a huge cushion inorder to retire, meaning cushion meaning
income versus outco. The second thingis that you had men mentioned cleaning up
space mentally at this age, I'msixty one, and been doing this since
nineteen eighty three, so forty yearsin business since eighty nine, so thirty

(39:55):
four years in the next week ortwo. You know, I find that
as you age, people want justsome flexibility in their life. You know,
they don't a lot of a lotof people don't want to retire.
Some do want to retire completely,but a lot of people, if they're
working full time, maybe they wantto. Like, like we were talking
about the people in the healthcare industry, there are a lot of nurses that

(40:16):
come in and most of the timethey're women, the vast majority, and
they're like, yeah, I meanI want to work per dam I'm gonna
work a couple of days a week. I just don't want to work five
days a week. Yeah, andthat's a good way to retire. Well.
I think it helps mentally with yourportfolio as well, knowing that you
have income coming in, not stressedout about you know, your only income

(40:36):
being distributions some of your accounts,which you know probably are dwindling your accounts.
You know, if you have asafe distribution, it should hover around
that original principle. But you know, if you can't, you know,
time the market, so you can'ttime. Let's say the complex wanta vent
or something like that. Let's say, so you know, yeah, it's
nice to have your foot in thedoor somewhere, so you do have some

(40:57):
income so you don't make the wrongmove at the wrong time, right,
So, so ideally you do scaleback your work, you know, so
your income from your let's say,your income from your investments, whether the
you know, the mental turns inthe market. You know, let's say
you have sixty percent of your moneyin the stock market. You know,
it helps whether that you know,let's say you lose you know, five
percent on that on that sixty percentor ten percent, you're not you know,

(41:19):
running to bonds or running to cash, you know. So you know,
I always, I always think it'ssmart for people, you know,
mentally to you know, continue towork a little bit, you know,
if they want to in retirement,if they're kind of on the brink of
having enough money without a doubt,because that's also icing on the cake,
you know, your portfolio and yoursocial security. You get a quest of
living adjustment on soul security. Um, I think that's going to go buy

(41:44):
the board. To be honestly,I think it's going to be income tested
at some point in time. Youknow, um, for they get they're
gonna have to do something, especiallywith social security. But so let's say
let's say your your income from yourportfolio and your and your soul security takes
care of the daily living fences andand and now you say, okay,
I want to travel a little bit. I'm willing to work a couple of

(42:06):
days a week for that icing onthe cake. Let's say, as let's
say you make as as a sickstay in line with the healthcare profession and
I know this is not they earnmore than this generally speaking, Let's say
fifty dollars an hour. You worktwo days a week, you work seven
hours a day, that's three hundredand fifty dollars a day. Two days
a week is seven hundred thirty fivethousand dollars after taxes, maybe take home

(42:27):
twenty eight twenty seven thousand. UhSo that's your that's your spending money,
that's your fun money, entertainment,gifts, travel, whatever. So it
pays to work from that level becausethe icing and the the marginal income will
be spent in enjoyment. So sothen you then you're working for the fun
things in life. And the secondthing which Aaron mentioned is it gives you

(42:49):
a peace of mind during market turmoil. And I also think it gives you
socialization, so you're not you know, you know, you've got you know,
places to go and things to do. So those are some things that
we've seen through out the years.UM. So you know, social security
is another consideration which you're fifty seven, you can't take your social security till
sixty two. Um. If there'sa huge discrepancy and income. Lots of

(43:10):
times it pays for uh, theperson with the lower amount of income to
take his or her soul security atsixty two when the other person to wait.
Another consideration is health. You know, we see that quite often.
Another consideration just within this article,we see people come in here that uh,
one of the one of the individualsdoes not like his or her job,

(43:31):
the others the other is okay withit. So the one continues to
work, the other the other retires. The one that doesn't like his or
her job. The one that's workingcarries the health insurance. The one that's
not so the one that's working.You know, when when when your spouse
or partner is retired, then youknow he or she's available to go and

(43:53):
do things when when you can dothings. So that's kind of like the
position that mom and I are andMom's retired and I'm working and I'm available,
she's always available. It's now likeokay, let's got to we have
to coordinate schedules in the lake.So those are some things. Those are
some other issues to retire at fiftyseven. But on balance, again going
back to the top, our workis unpleasant and tiresome, I think that,

(44:16):
and they have almost two million dollars. We don't know their income needs
that, we don't know their healthincome needs, so it's you know,
right, so so but but againI'm just we're bringing up some topics for
the listeners to kind of determine,you know, what we would do if
you came in here with that,uh, the other thing, the other

(44:38):
question that's on that same vein,and we only have a few minutes.
We always do this, go gobuy. But you know what, I
think it's we have three and fiftythousand and our accounts and live comfortable with
just social Security? Should we payup one hundred and thirty two thousand hour
words were kind of touched on that, But why don't you elaborate down a
little bit. I wasn't listening,sorry, I was looking at something else.
I was kind of looking at thetarget date funds because we started talking

(44:59):
about them, but we really didn'ttalk about them at all. And you
know, it says that they underperform, and that might be the case,
but if you have money in yourfour one K or something like that,
you know, I think it wasa study done by Fidelity that's said about
seventy four percent of people don't changetheir asset allocation in their four O one
case throughout you know, where thetimes that they have it at that company.

(45:20):
So I think target date funds arejust good for that reason. You
know, at least you know it'sgoing to be working for you and being
managed for you if you don't lookat your account. So you know,
maybe they might underperform, but youknow, it takes the asset allocation part
of the of that off the tablea little bit. Well, you know,
I don't know. I still thinkthey are good funds, and you

(45:42):
know, I do recommend them forpeople if they do have money in a
four one K. As you know, you don't have to look at it.
You have someone actively kind of managingit, you know, increasing bond
exposure as you get nearer to that, you know, retirement date. So
I think it's a good I dothink it is a good h they are
good funds general, I agree,And I think one of the biggest issues

(46:05):
is that if you compare a targetdate fund, Yeah, what did it
comparing it to? Is it comparingit to the SMP? Is that comparing
it to the same weight fund isIt's it's hard to find in this article
where what they're comparing it to they'recompare they're comparing it to the SMP five
hundred and basically, it turns outthat the target date funds have underperformed because
of a lot What we say isthey call it home court advantaged, like

(46:30):
a balanced fund triumphed overall target datefunds because they're overall equity exposure the timing
of the recuit exposure or the time, not because of their equit exposure,
not because of the timing of therecud exposure. But basically, they have
most of the vast majority of theirassets in the United States, where it's
a target date fund, allocase assetsaround the globe, and let's say you

(46:51):
have outside the US is about fortypercent of the publicly traded market capitalization.
So if a target date fund hassixty percent of the stock market and forty
percent in the bond market, thirtyforty percent of that sixty percent or twenty
four percent is outside the United States. And that's that's where these target date
funds fail. However they do.But you know, and and we don't

(47:14):
have that much time. But ifyou look at like Great Daios all weather
portfolio, yeah, it it underperformsthe SMP, but it has much less
risk than the SMP, and itperforms much better during down markets. So
you know, I think what they'retrying to create is like this all weather
portfolio that's not you're not going towake up to any surprises. And I
agree with that retirement. Yeah,and now that I do think that there's

(47:35):
a good possibility over the next tenyears international is gonna outperform domestic. Yeah,
I think there's a very good giveus called during the week five one,
eight, two, seven, nine, ten, forty four. Check
us out on the webit faginasset dotcom, Like us on Facebook, Enjoy
the rest of the day, takecare of, take care