Fixed Income 101 with Ross Kronholm

May 18th, 2025.

Episode Transcript

Speaker 1 (00:00):
Welcome to the hidden world of wealth, where secrets of
the affluent become accessible to you. You are listening to
Your Money Matters, the most provocative financial radio show on
the airwaves. You are about to start your educational journey
here on Your Money Matters with your host, Drew Prescott,

(00:22):
President of Prescott Private Wealth and Chartered Retirement Planning Counselor.
Drew will unlock the complexities of the financial landscape with straightforward,
powerful insights. Whether you're planning for retirement, managing in a state,
or looking to grow your wealth. Consider this your exclusive invitation.
Turn up the volume, lean in closer. Let's navigate the

(00:45):
hidden paths of prosperity together. Your financial enlightenment begins now.
Securities off produce a Terror Financial Specialists LLC Member fin
the SIBC th reservices offered through Setara Investment Advisors LLC.
SATARA firms are under separate ownership from any other named entity.

(01:05):
Four five one THO six three Troy, New York one
two one eight zero.

Speaker 2 (01:13):
It's the Jisak name Hes.

Speaker 1 (01:20):
It's done Jisag.

Speaker 2 (01:25):
Michelbo SIXUS seven to say it sound averyros Hes. It's
the welcome back everybody you're listening to your money matters.
I'm your host, Drew Prescott, chartered retirement Planning counselor, accredited
wealth management advisor and President of Prescott Private Wealth, located

(01:47):
in Troy, New York. The phone number here is five
one eight two zero three, nineteen eighty three. So thank
you again for joining us. For all of you mothers
out there who are I hope you had a wonderful
Mother's Day last week. Also for you basketball fans out there,

(02:09):
For the Knicks fans, hey, congratulations, you guys are really
I have stepped it up too bad that your boy
Brunson filed out the other night and we lost Tatum.
As you know, I'm a Celtics fan, so very big
into Boston sports. Except for the Patriots. I want nothing

(02:29):
to do with them. So anyways, I hope you're having
a great Sunday. It's been awfully nice to have some
sunshine again, to feel like we have a hope for
a summer, right, boy, it doesn't it feel good for
you golfers out there, hey, Glad that you're able to
get out there on the course and hopefully you've had
a nice time and your course has been dry and today,

(02:53):
I have a real special treat for you. I'm very
excited that I was able to coordinate this. It took
me a little bit of time. But for those of
you who are faithful listeners, you'll remember at the beginning
of the year, I had the chief investment officer for
Satara Financial on here, Gene Goldman. Jean did a great job.
We had wonderful feedback when we had him on the show.

(03:15):
Thank you again, Gene for slowing down. Then, and I
called over to Gene and I said, hey, Gene, I said, yeah,
I want to have somebody on my show on the
fixed income side. And I said, do you think Ross
would be a good fit? And he goes, you know something,
I think Ross would be an excellent fit for what
you're trying to do. Let me see if I can
get him to slow down for you. So thank you Ross.

(03:37):
He slowed down for us here and let me tell
you who Ross is. Okay. Ross Kronholm is a senior
research manager for Satara Financial Network and Ross specializes in
the fixed income side of the desk. So we're very
thankful to have someone of his experts tease and his qualifications.

(04:03):
I've got a couple of designations. This man looks like
he has alphabet soup following him. He is a certified
financial Analyst, the certified financial planner because at one time
he also worked with clients, and he has several additional
accreditations which will save that for him if he wants

(04:25):
to talk about that. So we're very thankful that Ross
slowed down. And I think it's important that we discuss
the fixed income side of things because we're always talking
about the FED. But how does that tie into your
world as the investor here? What does fixed income mean

(04:47):
to your portfolio and to your dollar? And that's what
I want to have Ross on here to discuss. And
he is going to do a wonderful job. I've heard
him speak before, very knowledgeable and you know, he's kind
of like a walking encyclopedia, so and he actually believe
it or not, he can still carry on a conversation too,

(05:08):
So he's a multi talented, knowledgeable man. Let's say so anyways,
without any further ado, So, Russ, thank you so much
for joining us today. I hope you're having a great
morning here. Thanks again for slowing down.

Speaker 3 (05:23):
No, I appreciate the shap being on the show today.

Speaker 2 (05:25):
Thanks so ross. As you heard me tell the listeners here.
Fixed income, you know, I feel like it always gets
overlooked and it's so incredibly important. And why do you
think that Why do you think that that is? I mean,
some people may say that they feel that it's boring.
I don't think it's boring at all. What are your

(05:46):
thoughts on why is it always not as much of
the forefront as equities.

Speaker 3 (05:52):
I think probably the main reason is equities are Think
of companies that we see every day around US, a
Walmart or a Costco or a Apple, things like that.
No one ever thinks about, oh, these companies actually are
for bonds as well, or you know, think about the
US government offering bonds. But everybody goes to those stores

(06:14):
and then they know that those companies also have stocks
that they can invest in. So I think it's just
more front of mind for many people. And just you know,
you kind of always heard about stock growing up and
never really about bonds. If you think about interest rates
and things like that, it's usually more about what you
were being charged as the person rather than what you're

(06:34):
actually investing in. So think about like a mortgage or
an auto loan, things like that that's the interest rate
you're usually more concerned about, rather than the interest rate
you're going to get on a fixed income investment.

Speaker 2 (06:44):
That makes sense absolutely, So now you've got your finger
on the pulse of the FED at all times, and
so kind of the million dollar question has been for
the last two years, it seems like, is you know,
what what's the FED thinking here? And with the new administration,
it seems like, you know, they're kind of almost verbally

(07:08):
expressing their frustration with the FED, and we don't know
what it's going to do, right, But sometimes someone in
your position can kind of read the tea leaves a
little bit and have your own thoughts on what you
think could potentially happen here for the rest of the year.
Is that something that you care to speak on or
are you still kind of on the fence about it?

(07:29):
What do you foresee in your opinion?

Speaker 3 (07:32):
No, I mean, I mean just this year alone, we've
seen predictions from zero cuts to predictions to five or
six cuts, and then back to maybe one cut. Now
we're right now, the consensus out there is two to
three cuts by the Fed this year. And this really
all stems back to things that the administration is at

(07:57):
least saying, and just the unknown one of what's actually
going to transpire is really what's kind of driving that
huge change in speculation. So I think right now, me personally,
I'm in a one to two cut camp. And really
what's driving that is the FED, I think right now
has rates probably on the higher end of what they

(08:20):
would like, but they're afraid of what all the tariffs
are going to mean for inflation, and so they're really
just trying to stand at The administration would like them
to be ahead of the game and maybe maybe cut
rates to increase growth in the in the country, But yeah,

(08:40):
the FED is considered. They let inflation out once, they
don't want to do it again for sure, and so
I think they're their bias right now is to keep
rates where they are and see how all the tariffs
kind of play out and see what effect that does
have on prices and inflation, and then kind of go
from there. I think what really force their hand is

(09:02):
if growth really slows because of the tariffs, we start
seeing lots of layoffs, if we actually do go under recession,
that's going to force their hand to then stimulate the
economy by lowering rates and they're just going to have
to maybe bite the bullet on inflation again. So it is,
it is up in the air. And like I said
that it's changed so much already this year, it could

(09:26):
change a lot more as we keep going through the
year because we've got again still lots more tariff deals
to get negotiated, and now the House in the set
is working on the next big tax bill, So what's
going to be in that is going to really affect
kind of the Feds looking at what the economy might
do going forward. So it is I guess stay tuned

(09:48):
is the best answer. Yeah, but yeah, I think I
think I'm in the one to two camp and census
is kind of two to three cuts for the rest
of the year.

Speaker 2 (09:57):
Yeah, you know, I'm glad to said that. I actually
subscribe to what you're saying as well, and I think
a little bit is I have a concern and my
listeners know that. You know, I haven't been against the tariffs,
but here's here's my concern is that if the FED

(10:19):
feels the pressure to make a decision prematurely and cut rates,
that could have a negative impact on things as well.
So I'm hopeful that it is more like the one
to two and I understand why people would get excited
about these cuts coming down the pike. But with that,
if that were to happen, can you kind of explain

(10:40):
how those rates would affect every day investors who own
bonds or maybe they're considering CDs or treasuries.

Speaker 3 (10:49):
Yeah, so the rate, the interest rate that you would
get on new bonds issued would be lower than current
bonds out there, and that would also make the price
of bonds that are out there go up a little
bit higher because they're paying now a higher interest rate
than bonds that are being issued. So again, a good

(11:09):
good way. I think this maybe talk about the slayers too,
maybe just logging in some of these higher rates in
anticipation of rates going lower. The flip side of that,
again is what you are charged as a consumer. So
if rates go down, auto loan rates should go down,
credit card rates should go down, mortgage rates should go down.

(11:30):
So I mean there is a benefit to that too.
You might get a little less interested on your fixed
income investments, but you might be paying less in some
of your day to day kind of big ticket items
that you buy.

Speaker 2 (11:41):
Yeah. That now, when when you're thinking about the fixed
income side of things, just like you're talking about here,
with potential changes of paying premium for a higher rate
and all that. And we've seen a lot of people
that had moved out out of equities and went into

(12:02):
fixed income and as a result of that, maybe I'm
using this term a little bit loosely. Feel free to
change it if you want to. But how safe do
you think that fixed income is for twenty twenty five?
How safe is it really with the potential of fluctuations here?

Speaker 3 (12:23):
No, I would say if you just look at the
fixed income market, especially in the United States in general,
it has gotten the credit quality probably since two thousand
and eight has really improved in general. So I would
still say I would say bonds are still obviously safe
for the inequities, and I think there is definitely some

(12:44):
parts of the bond market that are risky right now,
But if you look at it globally, I would say
the bond market in general is in a better has
a better risk profile than it did probably fifteen years ago.

Speaker 2 (12:56):
Yeah, that makes sense. Can you help bring some clarity
to the listeners on something I think that there's I
think there's a little confusion around when somebody's reviewing their portfolio,
and let's say that they are like a balanced investor,
and they've got forty percent of their money is in
some level of fixed income bonds, treasury, so on and

(13:18):
so forth. Did why did that portion of their portfolio
get hit equally as hard as what it has been
hit on the equity side of things at times in
the last couple of years.

Speaker 3 (13:31):
Yeah, I mean, unfortunately, that really just does come down
to inflation. At that time, think about twenty twenty two,
we were in those super artificially low interest rates. So
think about you know, mortgage was two and a half percent.
Interest rates that you could get at the bank were
one percent. Maybe you know, your savings very your savings

(13:53):
account I think was probably getting point zero one percent exactly,
And so you had no income cushion. And when inflation
went from let's say one percent up to seven eight percent,
you really don't have any income to cushion that blow.
So you are losing lots of real buying power by

(14:15):
holding onto that bond. That's let's say it's just paying
you one percent, but inflation is seven percent, So you're
really losing six percent a year in real buying power there,
and that is really what ate it. It was a
combination of artificially low interest rates or record low interest rates,
and then you know inflation that we haven't seen in
forty years, and just that that those two factors really

(14:37):
just hurt investors more than I think, you know, in
a long time. We really haven't seen a market like
that since the nineteen seventies, and you know, most of
us investing now or maybe now live or kids back
then just kind of it was our first experience with
a market like that.

Speaker 2 (14:55):
Yeah, that's a great explanation. I appreciate that because you know,
as you know, when we're taught to build portfolios here
at the very infancy of our careers here, we're taught
to add bonds in to reduce the risks of equity,
and then we're seeing that they're both going down at

(15:17):
the same time at one time, and that's kind of
scary for an advisor and for a client when you're
building portfolios around using bonds as a hedge for some
security in a decreasing market here. So do you think
that moving forward, if we start to see well, let's

(15:39):
say we maintain the same level of jobs and we
see inflation is cooled off and it stays pretty flat,
and maybe the tariffs are even bringing us some level
of benefit. Do you think that at that point then
all of a sudden these bonds become more attractive or

(16:00):
are they already attractive? And how do you see that
playing out? You know, if we have a good run
over the next couple of years here.

Speaker 3 (16:09):
Yeah, I would say right now, they're very attractive because
for the first time since let's say two thousand and seven,
they're actually paying you a decent interest rate, and you're
actually getting income from that forty percent of your portfolio.
And I'm kind of a traditional sixty forty equity fixed
income and so just think about a retiree ten years
ago that was getting one percent from that forty percent

(16:32):
of their portfolio of income. I mean, it just wasn't enough.
Consider if you go with the kind of the standard,
you know, we take four percent out of your reciving portfolio,
or you're only getting one percent of that from your
fixed income side. Now interest rates are in that four
to five percent, so you're getting really all that from

(16:52):
just from your fixed income side, and you can lay
your equities hopefully you know, continue to increase your portfolio value.
So it is. It's really I think a good time
to be in box because they are finally doing what
they're supposed to do, I would say, and that is
to pride, I do with consistent income and reduce the
volatility of your overall portfolio.

Speaker 2 (17:11):
Yeah, that's that makes sense. Now when when thinking about bonds,
you know, we see some of these higher risk bonds
out there, like what were the what were the hot
ones a couple of years ago, the Puerto Rico bonds? Right?
And so is there is there such tell tell the listeners.
Is there such thing as a bad bond or a
bond that looks really beautiful on the service but can

(17:34):
lose you some money?

Speaker 3 (17:36):
Yes, for sure, I would say that. Yeah, yeah, it's
kind of one of those things. If it looks too
good to be true, it probably is. So if you
see a bond paying you ten percent and it looks
really good, there's something in there that's that's riskier than
than what's out there in the market. So yes, yeah,
in h in and then I mean obviously changes too

(17:56):
with with how the economy is going by, yes, high
how you're yielding corporate bonds, So I think of your
your smaller companies that are issuing debt, think of in
the municipal bonds some of your maybe more troubled states cities,

(18:18):
they can be much much riskier. I mean if you
think about way back when Detroit defaulted on their bonds,
So you don't.

Speaker 2 (18:24):
Think like a Flint, Michigan would be the best type
of a bond to buy, then.

Speaker 3 (18:29):
Yeah, exactly. And you've got you've got ones that are
called floating rate bonds, and so they adjust with what
the interest rates are. So they three years ago were
paying out a very little amount of interest, but now
they're paying out much higher interest rates than they were.
And the companies that issued those, you know, have to

(18:49):
fund those from sales, and if they're not, if they're
struggling to bring in revenue and they're paying a hot,
much higher interest rate level, those could be much more
riskier as well. And then there's definitely some more esoteric
areas of the bond market that that could be risky.
But I think for most people, if you just if
you stick to treasuries issued by the FED, higher rated

(19:14):
corporate bonds, so I think of your your big large
multinational companies, mortgages and similar areas within the fixed income market,
those are probably your best bets for being what we
would call safer bonds. You know, nothing is I would say,
even the US government, you can't say is just free,
even though we do. There is definitely a big scale

(19:36):
of risk even within the fixed income market.

Speaker 2 (19:39):
I agree with that. Now, when when you're talking about
credit ratings and everything like this. I remember when I
got into the industry back in two thousand and five.
And you're gonna laugh at me about this, but you know,
I always say you don't get smart until you get stupid, right,

(20:00):
And I thought that, you know, when I started in
the industry, I was like, you know, I got it
all figured out. And it takes a little bit of
time to be humbled and to be willing to learn somewhere.
So I remember in two thousand and five, I had
a client that had a million dollars in a thirty
year New York State triple A rated municipal bond fund

(20:22):
and it was paying five and a half percent tax free,
and and I thought, well, that's dumb. Now looking back
on it, I say, boy, that was that was pretty smart.
You know, that was a that was a really nice thing.
And since then, though, and learning and you know, one

(20:45):
of the things I try to share with clients is
they everyone is so quick too when they think of
fixed income. I don't know about you, but I always
hear everybody they go to CDs like straight away, right,
And maybe some people use treasuries and then more astute
people will use a bond. But I think the thing

(21:06):
that gets overlooked the most. And tell me if you
see this as well as just a tax free municipal bond,
like you know, tax free at the federal of the state,
the local. Do you see that as well? Do you
feel I feel like people turn their backs on them
a little bit too quick, for sure.

Speaker 3 (21:23):
I think I think there is a I guess maybe
a feeling out there that they're only for the people
that are in the highest tax brackets because they're the
ones that get the most benefit from the tax tree
nature of municipal bonds. But yes, anybody really can use
the municipal bond, and especially it's a great way. I mean,

(21:45):
think about how your when your school issues a bond.
You know, if your kids are going to a school
and that school is going to do some upgrades, they're
going to issue a bond to pay for those and
you know, as an investor, you can invest in that bond,
help your school out, things like that. So I mean
it's really it really is there what funds all the
improvements in your local community, your state, things like that.

(22:08):
So I think there is just maybe just a general
like I can invest in this bond, I can see
what it's doing in my local community. But just to
just to kind of go back to the higher level,
right now, municipal bonds on a tax equivalent yield to
a taxable bond are actually paying a higher rate, especially

(22:33):
if you're in the higher federal tax bracket, and then
even more if you're in a high kind of individual
tax state, so like New York. So if they take
like a corporate bond that's rated A, and you take
a municipal bond that's rated A, and you figure out
the tax equivalent yield when because of the taxi nature

(22:56):
of the municipal band, the municipal bonds actually giving you
more interest on after tax basis right.

Speaker 2 (23:01):
Now, nice, yeah, more juice than that fruit. That's nice. Yeah. Now,
when when someone is you know a lot of our
listeners here they you know, they invest for themselves as well.
They don't use a financial advisor, and when they're thinking
about the bond side of things, you know, they hear

(23:24):
these terms like laddering, right, barbells, and there's the different strategies.
And we're coming into a fresh period if if interest
rates do go down, but right now we've got a
higher rate. What are and you're not I know, when

(23:44):
we're not trying to put you on the spot and
say that you're making any recommendation. Clearly you're not doing that.
But just from an educational standpoint, how could somebody, let's say,
maybe they ladder, maybe they decided to use barbells, right,
how could they help themselves in this environment to basically
lock in a greater benefit of fixed income today so

(24:09):
that when things start to go down a bit here,
they're not left behind and continuously chasing the next offering
as they're watching them go down.

Speaker 3 (24:19):
Sure, So I mean, I would say just a barbelle
approach and a ladder approach, and what's called a bullet
approach is where you just kind of focus on one
part of a bond's age. All work better or worse
in different markets. So that's kind of just maybe a
starting point there. I would say today I would still

(24:44):
say there is a risk on the long side of bonds.
So I think if you're twenty thirty year bonds, those
rates could go up more and when the short end
could come down more if the Fed starts to ease
and cut rates a bit. So I would be hesitant
to go to invest in a bond that was maybe

(25:05):
greater than ten years in maturity, just because I think
there is some risks out there that the longer end
of the yield curve could go up a bit. Still,
I think there might be just some more risk, especially
with the tax bill coming up. If that ends up
increasing deficits more, that puts more pressure on the long

(25:27):
end of the curve to go up.

Speaker 2 (25:29):
Absolutely.

Speaker 3 (25:30):
Yeah, So yeah, I would say if you're going to
be investing in individual bonds as an individual investor, you
probably want to stay kind of ten years in at
this point. Got it.

Speaker 2 (25:40):
That's good good advice. And how how do you think
bonds compare to annuities or like a dividend paying stock
for someone that's looking for steady income in retirement.

Speaker 3 (25:54):
Sure, so I would say they're probably sitting in between
those two. So annuity, I mean, annuities can do many
things today. But the original reason to have an annuity
is it's going to pay you a set amount for
the rest of your life. And that's the so I
think of it as almost like a pension. You're going
to annuitize your annuity and it's going to pay you

(26:16):
x amount for the rest of your life, providing that
whoever whatever insurance company issued the annuity, you know, stays
in business. Right, So fixed income bonds, you know, they're
going to do the same thing. They're going to pay
you an interest amount based on the interest rate of
the bond, but it's going to have a defined maturity,
so one year, five year, ten years, and then you're

(26:38):
going to have to reinvest those proceeds into another bond
that's going to be paying you whatever interest rate at
that point in time. Dividend paying stocks, they're obviously equity,
so they're going to have more volatility than your fixed
income aside because they are they are stocks, but they
do tend to pay a higher level of dividend. So

(26:58):
think of you. Utilities are probably the usual example you
used the utility it's a stock. If you're here in Minnesota,
we have Excel Energy. I'm not sure what the major
utility is out there, but they have money coming in
from all of us paying our electric bills or gas bills,
and all that they have to do really is provide

(27:18):
that energy and then anything else can kind of be
put as a dividend to the to the stockholders. So
they tend to put out a higher level of income
with usually a little bit less volatility than say, your
your high tech stocks that usually don't pay a dividend,
so your your Microsoft's, You're nividios things like that. So
there is it's going to be a respectrum from the

(27:40):
the annuity that's going to pay you a set amount
for the rest of your life, the fixed income bond
that's going to pay you a certain amount for a
certain amount of time, and then the dividend paying stock,
which is going to give you potentially more growth because
it is a stock with maybe a probably a little
bit less income than a bond is going to pay
you just in general, but yeah, you get a little

(28:03):
bit more potential for growth there.

Speaker 2 (28:05):
Yeah. I like to sprinkle in a little bit of
the three because I always say, you don't want to
go headlong in any one.

Speaker 3 (28:12):
Direction, right kind of diversifications key, absolutely.

Speaker 2 (28:16):
And so with this talk of fixed income, A lot
of people are really kind of wondering, now, is it
right now? Is this the time to lock in the
yields and stay more flexible? And you kind of alluded
to that earlier and said, you know, I think that
this would be a fair time to try to lock
in some of these yields. Did I hear you correctly

(28:40):
on that?

Speaker 3 (28:41):
Yeah? I think I think the I mean, there's always
a chance that the FED would have to raise rates,
but I would say that the probability of that is
less than that they're going to lower rates right as today.
So I would think, yes, locking in at least a
portion of your fixed income holdings at this time is
probably a good idea because I think, yeah, the probability

(29:04):
is that RAG should go down from here rather than
going up now.

Speaker 2 (29:09):
So fixed income is such a wide array of products nowadays. Now,
do you personally have an experience I don't know if
you do on this part because it's the complex products, right,
Does structured CDs fall into your wheelhouse or no?

Speaker 3 (29:29):
I mean it's not something that we typically recommend just
because there it is such a broad array of different
products out there, and so we leave that up to
if we're recommending a say, a mutual fund or an
ETF fixed income manager that invests in those, we're going

(29:51):
to default to their expertise in those where they can
actually go in and look at all the different individual
pieces of those structured products and make sure that that
they're a good investment. It's just the universe is too
large really for us to to to go and look
at each one of those individually.

Speaker 2 (30:09):
Yeah, and you set me up for my next question perfectly. Actually,
So what I was going to say is, do you
think it's smarter for individuals to buy individual bonds or
should folks stick with bond funds and ETFs? And before
you answer that, let me just tell the listeners, Uh,
one of Ross's roles is actually to vet the different

(30:32):
ETFs and bond funds that are out there to determine
which him and his team feel are those that they
could recommend or kind of say, well, maybe maybe it's
not the right product for our house. So with that
in mind, do you think that if it's if it's

(30:56):
a kind of explained like a new investor versus someone
that might be a little bit more seasoned, and why
somebody may want to choose a bond fond or ETF
versus individual bonds.

Speaker 3 (31:08):
Sure, And the main thing is the bond market compared
to the equity market is I don't even know that
the size comparison, but it was multiples. The fixing come
market is multiples bigger than the equity market, and it
trades in a different way than the equity market too.
It's on a bid kind of almost an auction process

(31:30):
to buy and sell a bond. And so there are
just so many areas of the fix income market and
so many nuances within those areas. I think it really
does pay to use a professional manager, so a mutual
fund or an ETF. And I would also say too,
like we hear the stories of you know, only thirty

(31:54):
percent of managers beat the index, and really when they're
saying that, they're really usually talking about stocks and the
S and P five hundred. On the fixed income side,
I would say a majority of managers are usually able
to beat their index just because the universe is so large,
there's more opportunities for them to find missed pricings within

(32:14):
their markets, take advantage of those and really outperform.

Speaker 2 (32:19):
Right, all right, that makes sense? Now, So one thing
I wanted to kind of shine a light on here
is as you were saying, it is a very complex market.
And for me personally, when I have somebody that is
looking for a very very knowledgeable individual and fixed income,

(32:47):
you know, we have specialists in house like yourself that
I'll turn to and seek that help. I feel like
it's awfully hard to keep your sword sharp on both sides,
and I find that with using ETFs and with using
funds on the fixed income side, it tends to be

(33:07):
for a majority of investors. I would say more advantageous
because you do need that active component on that piece.
Would you agree with that?

Speaker 3 (33:17):
Yes, Yeah, for sure. I would say, like I mentioned,
most active managers are able to outperform the index on
the fixed income side. And it's just yeah, it is
so so, so much bigger than the equity market. Right now.
There's you know, I think six thousand stocks roughly, there's

(33:38):
probably six thousand individual bonds issued by the State of
New York. Yes is the state of New York. Yeah,
you know, And then you think about all the corporate
bonds that are out there. You know, Microsoft maybe has
ten fifteen different bonds that are issued at different rates
and different maturities and just explosion there. And then you
think about that the United States believe from there. So yeah,

(34:02):
it's just it's a massive, massive market.

Speaker 2 (34:06):
What what do you think would be I guess, what
are some avoidable mistakes Let's say that you see investors make.
Maybe maybe they're pretty common, maybe it's from time to time,
but you know when you see even even an advisor

(34:26):
right when when they call in and they're asking some
questions about what's available or what have you, what do
you think is like the thing that you and your
desk kind of chuckles out all the time, or it's
maybe it's a thorn in your side, and you guys say,
I just still can't understand how people don't understand that
that's may not be the best idea. Is there like

(34:47):
a common theme that you see out there, kind of
like a miseducation if you would, of fixed income that
you see is just constantly coming back around and it
bothers you. Is there anything like that on the fixed
income side for you? Yeah.

Speaker 3 (35:04):
In our team, we call it chasing yield, and it's
kind of what I mentioned before. If it's too good
to be true, it probably is, and we definitely saw
this a lot more when interest rates were at you know,
one two percent and something was paying ten percent, and
everybody would just pile into it without really you know,
looking at what's under the hood and what the risks

(35:26):
are there, because it was just it was painting this
huge amount of income that you weren't getting anywhere else.
And we still see that today. It's just not i
would say, not as pronounced when interest rates are super low,
but it is definitely still there. And I think anybody
that kind of thought fixed income was safe kind of
got an education in twenty twenty two with inflation and

(35:49):
what that does to fixed income. I think there's just
there's definitely some areas of the fixed income market now
where people make an education that if it's paying you
a seven, eight ten percent yield, it might not be
as safe as you think it is and there could
be some issues there. So I'd say that's that's probably
the number one thing we see that that causes us

(36:12):
a concern.

Speaker 2 (36:14):
Yeah, I can see why people are tempted to do
that as well, kind of driven a little bit by
fear I think at times, and looking for some type
of an escape plan, and it seems like a logical one,
especially in the fixed income market at times. But like
you said, you still have to do your due diligence
and look under the hood and make sure you understand

(36:34):
the risks that you're getting involved in.

Speaker 3 (36:36):
Yeah, I would say, you know, I think about your
your equity portion of your portfolio. That's where you want
to take the risk. I'm not sure you really want
to take a lot of risk in your fixing conportion, right.

Speaker 2 (36:46):
Right, that's the idea behind it, right, Yes, to reduce
the risk yep, not increase it. So now as you
were looking at all of your you know, we've got
that pedometer that I look at quite a bit here
through Satara and you guys are always, you know, keeping
a pulse of could we potentially be heading towards a recession?

(37:09):
You know, what what indicators are out there? What do
we want to be careful of, and so on and
so forth. Do you from what you're looking at and
the different reports, does it look to you as though
we are flirting with the line of a recession or
are we trending in a good direction here? What do

(37:30):
you see on your side of things?

Speaker 3 (37:32):
Yeah, it's wy We We had this debate internally last
week at our our team meeting, and there was definitely
a people on kind of both sides. I would say,
if we're going into this year, we really didn't think
there was much risk of a recession given the all
the tariff discussions. That really puts some fear into the

(37:54):
market with what the what was being proposed. Now they've
started to scale back a bit, and that's get you know,
I guess, given the markets some relief that they're not
going to be as as high, which would potentially curtail
growth because people may pull back on their spending, especially
on some of the bigger ticket items, and that would

(38:16):
put us into a recession. So that there is definitely
more risk to day than there was at the beginning
of the year, but there's less risk here in May
than there was maybe in April. And so again it's
just it's it's kind of like we talked earlier with
interest rates. It is really up in the area now

(38:38):
and still kind of dependent on where policy goes in Washington,
how the FED response to that. But then really just
done to the end of individual consumer. If if individuals
are consumers are afraid, they pull back on spending, which
then has the effect of pulling back on the economy

(39:00):
and putting against a recession, which then causes companies to
layoff people, which we're just suspending even more, and it
kind of becomes that snowball effect. And so I would
say it's I would say consensus is under fifty percent,
maybe kind of in the thirty percent chance that we
have a recession this year.

Speaker 2 (39:20):
Which is down from what like a sixty one percent
back in April.

Speaker 3 (39:23):
Right, Yeah, And but I mean this is going to
sound bad, but because people could lose their jobs and
things like that, but it should not be a recession
like the last two we had, which was COVID and
then a Great Financial Crisis. I mean those were kind
of epically Fortunately the COVID mode was really short lived,

(39:44):
but so many people, you know, lost their jobs there,
at least temporarily. So and then yeah, the Great Financial
Crisis was a completely different one. So they call it
maybe it would be a more of a normal recession.

Speaker 2 (39:58):
And I also feel like if there are a a
loss of jobs, it may only be due to like
a sector rotation almost like where the need for jobs
are going to be going from this sector to another sector,
where there's a whole new development of careers.

Speaker 3 (40:16):
Yeah, and I would say two, we'reloqy at this point
where right now there's still more job openings out there
than there is unemployment. So I think if people do
lose their jobs, there are there's places for them to
get new jobs. Yeah, right now conversed compared to other times, Yeah, yeah.

Speaker 2 (40:35):
That makes sense. And you know, I think in April
it's almost like there was quite a stir and you
think of, you know, just dust all like a little
dust storm. Right now we're starting to see kind of
the dust start to settle a little bit and be
able to see the picture here. It feels like that
all the talk about recession is kind of calming down

(40:57):
a little bit because people can kind of see the
larger picture where it felt like we were a little
bit lost a month ago, not really knowing, you know,
which end was up on certain things. So so with
if we do end up in a recessionary period, or
if the Fed starts to cut some rates soon, do

(41:21):
you think that that's going to drive let's say, bonds
to have a higher premium at that point or do
you think that they'll be on sale? What can you
explain that?

Speaker 3 (41:35):
Well, I would think they should perform like they have traditionally.
If we do whatever recession where you could expect some
of your equity, the equity sit your portfolio come down
a bit, but the bonds, the bonds that your portfolio
should actually maybe rise and value a bit and really
provide kind of the ballast that he usually does within

(41:55):
our portfolio. So if things are bad on the equity side,
usually the fixed incomes side is doing better because rates
are coming down the bonds in your portfolio and are
worth more than they were beforehand. So I think, unlike
what happened with inflation where they both came down at
the same time, I think it should be if the
equities come down, your fixed income side should go up

(42:17):
to help stabilize your overall portfolio.

Speaker 2 (42:19):
This time, you're right, Okay, I got it. Then that
seems to hold water with what I believe as well.
One thing I'll touch base on and then we'll let
you go for the day. But with CDs because our
older investors and or are very conservative investors, like I

(42:39):
find I do a lot of work with individuals that
are business owners in the construction industry and so on,
and they seem to want to make sure that they
have money in CDs. And one of the things that
I think is a great value to working with an
advice with buying CDs versus buying them at a local

(43:04):
bank is because the component that they're brokeered and that
we can actually sell them at a time and sometimes
even make a little a little jingle on them. Right,
what would you say to that person that's listening, that's
a CD buyer that just typically just goes over to

(43:25):
the bank or something and says, you know, hey, I
saw your advertisement for your offering for these CDs, or
they've got an advisor that's telling them I got this
phenomenal CD with the Bank of India. Right, what are
some things that people should be aware of or cautious
of as it relates to CDs.

Speaker 3 (43:48):
Sure, so, yeah, you probably touched down the number one,
which is just if you buy a CD from the bank,
you are kind of locked in until that CD explayers.
If you do you need to get your money out,
you're usually going to pay a penalty that makes charge
you of penalty. So that's the kind of the main
issue there. Again, you also don't want to go over

(44:08):
two hundred and fifty thousand that's the FDI see insurance amount,
because so if the bank does go under, which we
had happened. We had a couple of banks go under
last year in March. So you're only insured up to
that amount. And you should also know too that you
don't get that Monday back instantly. It takes time for
the for the government to pay those funds back. Yeah. Yeah,

(44:33):
it's like an insurance claim. So I think those are
the kind of two things you just need to think about.
If you're going to buy a CD, maybe, yeah, you
probably want to get it from one of the bigger banks,
kind of think of your you're JP, Morgan's Bolts, Fargo's
US Bank. I'm not kind of I'm not sure what
kind of the local big chain is out there in
New York, but rather than maybe just the one that's

(44:54):
on the street corner.

Speaker 2 (44:55):
Yeah, makes sense. And leave us with a little word
words of wisdom from Ross. What do you know today
that you wish you knew sooner? With fixed income?

Speaker 3 (45:07):
With fixed income, Yeah, just how big the market is
and how many different areas there are to invest in
that can really provide you with some great income, not

(45:27):
a lot of risk, and just diversification for your overall portfolio,
and maybe just add one more on there. Kind of
thinking broadly, I wish I would have done earlier, started younger.
I think anyone of us can can can say that probably,
but yeah, the younger you start, the better it is.

(45:47):
And then maybe one other plug to for financial advising.
There's been a number of studies out there. The term
is kind of advisor alpha. People that invest by themselves
versus investing with a professional typically earned about four to
five percent more, kind of depending on the study you
see per year, because the advisor can help you in

(46:10):
those especially those times of Marcus stress. So yeah, if
I would have gotten a before I gotten it, you know,
I was doing other jobs before I fell this career,
So if I would have started with an advisor earlier,
I think that would have been another things.

Speaker 2 (46:21):
Yeah, that's great, great, great advice. I appreciate it. And
Ross again, thank you so much for slowing down. It
means a lot to me, and I'm sure the listeners
have thoroughly enjoyed your wealth of knowledge. So thank you
so much, and hopefully we'll have you on in the
future here when we get a better understanding of you know,
what's changing with the fixed income market.

Speaker 3 (46:42):
Oh yeah, you happy to come back anytime.

Speaker 2 (46:44):
Great, Thanks so much, Ross, I appreciate it.

Speaker 3 (46:46):
Yeah, thank you very much too.

Speaker 2 (46:48):
So that wraps up our interview with Ross, and I
hope you enjoyed it. I find my time with Ross
and Jean and his team to be always it's just encouraging.
It's good to hear their perspective on things. It helps
you have your own thoughts already, and maybe it helps

(47:09):
to refine them a little bit more, maybe further's your
conviction on what you were thinking. Maybe it's an eye
opener and it's something that you haven't thought about, or
it's changed your perspective. But nonetheless, I really hope that
you found some value in this. And you know, with
that being said, it really just pulls me right back
to what I tell you all the time, which is

(47:31):
my strong conviction is as a financial advisor, you need
a financial plan. You need to work with a team
that can put together financial plan for you and hold
you personally accountable to it. So every time that you
have a decision to make, you vet that decision through
the process of how does your financial plan account for

(47:56):
these types of things and this past week particularly, we've
looped back around on a handful of clients that had
some very big financial decisions to make. We had some
people that sold their businesses. We also had another business

(48:17):
owner that was receiving as final payment. And what we
did was we just incorporated these tweaks, because that's what
they become. They become tweaks. They don't become such a
major financial decision when you have a financial plan because
they've already somewhat been accounted for. Now it's just time

(48:38):
to really smooth out the burrs that are on this
and make sure that everything is still aligned with your goals,
that your goals haven't changed, and how is this going
to impact your tax situation and your overall planning. So again,
I just want to encourage you to take the time
and get yourself a financial plan if you do not

(48:58):
have one, or if you're financial advisor is somebody that is, well,
let me give you an example. Let me share this.
This is something that I went through this week. Friend
of mine known them since we were teenagers, and he's
working with a financial advisor. And I'm not somebody that

(49:21):
likes to disrupt the apple cart with friendships. If they're
working with somebody fantastic. I don't disrupt those relationships unless
they ask for me to. And so it was brought
to me by this friend of mine and he was
being sold a new life insurance policy, and he was

(49:47):
being sold this life insurance policy by an advisor that
had already sold him a policy that he has in force,
and just was pushing for my friend to get rid
of the old policy to pick up the new one.
And the whole thing was just very convoluted, and he

(50:09):
was getting him to get rid of an old whole
life policy to pick up a term policy. And this
individual has a nice construction company. And what I had
said was so and so, just hold that whole life policy.
That's probably going to come in very helpful for you
in the future for state planning. And if you need

(50:33):
some more insurance, pick up some term but don't get
rid of the whole life insurance to pick up the
term insurance. It just doesn't make sense for your situation.
So goes back, shares this with the other advisor, and
the other advisor comes at him with another sale, and

(50:53):
that was so discouraging, you know, just to see that
really there's no planning being done. Is just the advisor
kept on looking at this as a Rubik's cube. Well,
what continues to present itself for me to have an
opportunity to make another sale here? And you know that's
discouraging because as my friend, you know, he's a hard worker,

(51:18):
family business and he's just trying to do the right
thing for himself. And then you've got somebody that's behind
the scenes that is, you know, trying to do the
best thing for themselves and not for him. So you know,
just how do I say it? Just make sure you're
surrounded by the right people. That's all I can say.

(51:42):
And if you're not sure that you are, love to
talk to you, have you in here and give you
an honest overview. If you need a financial plan, we'll
put a plan together for you. We are still running
that financial plan at a discount for one thousand dollars.
If it's something you're interesting in, please reach out Drew
at PRESCOTTPW dot com or five one eight two zero three,

(52:06):
nineteen eighty three. Again you're listening to your money matters.
I'm your host, Drew Prescott, chartered retirement planning counselor a
credited wealth management advisor and president of Prescott Private Wealth,
located on Who'sick Street in Troy, New York again five
one eight two zero three, nineteen eighty three. Check out
our website PRESCOTTPW dot com a lot of wonderful resources.

(52:29):
They are great calculators. You can schedule a time to
meet with me right on the website. And as always,
if you have any questions or any topics you'd like
for me to cover on the radio show, don't hesitate,
just reach out, send me an email Drew at PRESCOTTPW
dot com or call five one eight two zero three
one nine eight three and leave me a voicemail. We'll

(52:50):
get you on the show. And if you have any
questions about what we discussed here today, again feel free
to reach out. Love to hear from you, and let's
just hope that this weather it straightens out, continues to
go on a good path here, that we get some
water to keep the grass green, but not too much.

(53:10):
We don't want to be drenched any longer. We're over that.
But thank you again for listening to the show. Hopefully
you'll tune in next week to your money matters. I'm
your host, Drew Prescott, Chartered retirement planning counselor and a
credited wealth management advisor. And I'm going to try to
get a fellow over here on the show, either Tyler

(53:34):
or Brian. And what they do is they too are
They give speeches on asset allocation, the proper allocation, what
to use, what not to use, when to use it,
when not to use it, and to have risk at
the forefront of your plan. So thank you so much

(53:57):
again for listening, and we will talk to you next
next week. Until then, May God bless you and God
bless your family.

Speaker 1 (54:05):
PIV Wealth. We understand your financial picture is unique. Don't
get lost in the noise of mixed advice. Visit us
at four five one Hoosix Street in Troy, New York,
or online at PRESCOTTPW dot com. Led by Drew Prescott,
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(54:25):
were fully licensed to safeguard and grow your wealth Prescott
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