Segment 1 (Show Open):
Good afternoon, everyone! Welcome in. Welcome to Coasting in Retirement! That’s. Right. Thanks for joining us today, we’re excited to have you! Josh Null here, joined by the one and only Michelle Lee Melton, the Mac to my Cheese, the Spock to my Kirk…Michelle, how are you? We are coming to you all from Coastal College’s recording studio, beautiful downtown Fairhope, putting on our hard hats and our work gloves to build yet another great show for you all!
Listeners: Michelle and I are here today to discuss financial topics relevant to those of you in or near retirement living your best life along our part of the gulf coast. Here’s what we’ve got in store for you today: First segment – deep dive on our topic of the day. 2nd segment - at about 20 minutes past the hour - fan favorite, “Michelle with the News of the Week”. 3rd segment, roughly 40 minutes past the hour,” Josh’s Crystal Ball and…(Michelle:) Big Mouth”. That’s right, big mouth. So buckle up, we’ve got a lot to get to!
Quick background on me for those new to the show. Again, my name is Josh Null, I am a fee-based financial advisor, I hold my FINRA Series 65 securities license, and I am the owner of Gulf Coast Financial Advisors, an independent investment management and financial planning firm with offices in Fairhope and Orange Beach, Alabama. You can find more information on me and Gulf Coast Financial Advisors by visiting our website gulfcoastfa.com, or feel free to give us a call at 251-327-2124. If you missed that, don’t worry, we will repeat our contact info several times throughout the show!
So, Michelle, a couple of quick confessions. First, this episode was supposed to be about pensions, a very important topic that we will get to, probably in our next episode, but unfortunately for boring old pensions, our show sometimes needs to be topical, and with both the recent stock market rally AND the Fed finally taking it’s foot off of interest rate increases, I am getting WAY more questions from folks regarding what my thoughts are about this, especially as we start to close the year out. Also, by re-visiting this topic, maybe I finally get to redeem myself from the embarrassment of one of our mid-year episodes, where I asked the question, “is this as good as it gets with fixed interest investments” and as Michelle has reminded me often since then in our Josh’ Big Mouth segment, I was immediately wrong. HOWEVER, the tides have turned, fixed interest rates investments appear to have leveled off, so not only can we re-visit that question but we can also tie in a couple other very important questions, namely, should you trust the recent stock market rally, if you do, how long do you let it ride, but if you don’t, is now the time to look at taking some gains off the table?
So let’s reset the stage Michelle. On our last episode, I laid out $1M, er $1000 representing $1M, in front of you and walked you thru some of the different investment options available to regular retail investors. I did this by both giving you more money on top of your $1M, and sometimes, by taking money away from your pile of cash. Which part of that exercise did you enjoy the most? The part where interest was added on top of your $1M? Assume Michelle likes the fixed interest options the best – discuss. To be fair, the stock market pile would have grown the most since that episode.
So why discuss fixed interest investment options again? Well, since we last spoke with you listeners, the Fed gave indication it was going to hold its Fed Fund Rates steady for December, and as a result, the market celebrated with a run up that has left some indexes nearing their all-time highs, last seen in January 2022. The problem with these valuations, or should I say concern, or maybe just something to pay attention to – let’s look at the S&P 500. While it’s still a little off from its January 2022 high, it still trading at roughly 19 times forward earnings estimates, compared to a historical average of about 15, per a site we reference often, Reuters. Also weighing on the S&P, and several other indexes, is that fact that the Magnificent 7 stocks make up such as larger percentage of the overall weighted index, nearly 15% in the S&P’s example. Why does this matter? Because these large tech companies – Apple, Meta, Microsoft, etc – are already trading at historic valuation levels, primarily due to the excitement around artificial intelligence, but may not have the much more headroom for growth, at least in the short term.
Now, for you all with a long lead time until retirement, or with a dedicated bucket of long term plays as a hedge against inflation, I’m not sure how much you need to worry about valuations right now. Just enjoy the ride. Most of you all that make regular contributions to your retirement accounts, such as a 401k or a 403b, are participating in what’s called “dollar-cost averaging”, or DCA for short, where sometimes you end up buying into the market at a discount, sometimes you overpay in the short run, but if you look back 6 or 12 months, you smooth out the ups and downs of the market with your scheduled buy-ins. Does that make sense Michelle?
But for those of you in or near retirement, this could possibly be a different conversation. Especially for the part of your investments that are designated for capital preservation. I would be cautious basing my income withdrawal calculations off of these current valuations, because being off with your math and moving into a declining, or contracting market, can have severe repercussions on the long-term viability of your retirement income projections. Remember the $500k brother vs brother portfolio example we’ve used at some of our seminars, Michelle? Basically, if you had a mostly equity based portfolio of $500k, and you retired in 1990 and took a 6% withdrawal benefit for the next 10 years, at the end of those 10 years you would actually have over a $1M dollars b/c the market did so well in the 1990s. Now if you did that exact same thing in 2000, right after the dot.com crash…you would have only $150k after 10 years b/c the stock market struggled, then outright crashed during housing implosion.
The point is not that I am predicting another market crash, or saying everyone should dump their equity positions b/c the market appears to be overvalued. The point IS that these recent run up may give those of you in or near retirement a nudge to look at securing some of those gains, and re-positioning some assets to possibly preserve capital or produce income. Let’s talk about a couple of options.
There are all kinds of investments and ways to gather fixed interest, but for sake of brevity I am going to stick with the options that are readily available to most investors, and with which I am most familiar with. Some of these options, like bank CDs, are not something I handle in my role as an independent advisor, but finding info on rate offerings is simple as a google search. The things I do handle – Money Market funds, bond funds, multi-year guaranteed annuities, or MYGAs, dividend producing stocks, fixed-index and income annuities – are now producing offers respective to what they do that are as attractive as they’ve ever been, and worth consideration, again if you’re someone looking to preserve capital and/or produce income.
And I’ll put myself out there once again – all of these fixed interest investment options – appear to truly have peaked this time. Of course the Fed could raise rates again, but right now Federal funds futures, a widely used security for hedging short-term interest rate risk, imply a Fed funds rate of 4.54% by the end of July, versus 5.12% expected three months ago for that period, so unless we get devastating inflation news, we should start to see the Fed Funds rate stay stable, and who knows, possibly get eased back into 2024.
I have proof that rates have leveled off, Michelle. I use a Schwab money market fund with a ticker symbol of SWVXX that has held steady at 5.24 with it’s current day yield on deposits less than a million. There were offers of 6% plus from A rated carriers on Multi-year guaranteed annuities, or MYGA’s, just a few weeks ago but now those rates are sliding back below 6% again. T-bills and Treasuries are at or below their rates from a month ago, and its appears the bashed-in bond market is finally recovering, or at least, we’re aren’t hearing about an inverted yield curve at the moment. And we don’t have time to dive into this on this episode, but I’ve had several people in my industry tell me that income riders on annuity products are as generous as they’ve ever seen right now.
So what does all this mean for investors, particularly those of you in or near retirement? It means right now may be a good time to have a conversation, particularly if you’ve got a large percentage of your wealth tied up in the stock market, about what options are available to re-position some of those assets.
Again, if you’re interested in having that conversation, give us a call at 251-333-5151, or find us at gulfcoastfa.com. That’s gulfcoastfa.com.
Alright folks, coming up next - There’s always a lot going on in the world! Particularly the world of finance- this past week was certainly an example of big news in finance! Every week Michelle and I scour the interwebs for helpful financial articles related to our topic of the day, especially articles that pertain to those in or near retirement. Join us after the break to hear Michelle and I discuss this week’s relevant headlines in our “Michelle with the News of the Week” segment. Stay tuned!
Segment 2 - Michelle with the News of the Week:
Josh: “Welcome back to Coasting in Retirement, your host Josh Null here! As we discussed before the break, every week Michelle and I scour the interwebs for helpful financial articles related to our topic of the day, especially articles that pertain to those in or near retirement. Our job is to help you all understand how these headlines impact you, especially when it comes to your money! We also include the articles links on our show transcript, which you can find on our website gulfcoastfa.com under the podcast tab. So, without further adieu, here’s “Michelle with the news of the week!”:
1. Michelle: Alright Josh, let’s start with a recent article from Market Watch titled “Note to Bulls: Stock market valuations haven’t improved over the last 2 years”. The funny thing is that this article was published just before the rally of the last 2 weeks, which means the statistics quoted in this article would be even more elevated. This article references 10 statistics to make it’s case that the stock market is overvalued, including leaning heaving on price to earnings ratios and how they compare to our previous market peak back in January 2022. So, can you explain some of the ratios this author used to make his case, and do you agree with him?
Josh: So, first, it’s hard to not agree with the author because everything he points to is basic math, he’s not doing some of the gut-feeling click-bait “market will crash / market will soar” stuff we so often see. It seems to be a pretty fair report and take away. So listeners what the author is saying that our current stock market is one of the most richly valued in…the history of the stock market. He’s conclusion is that while this over-valuation may not matter much in the short run, in the long run, the potential for significant gains, or even a Bull run, are well below historical averages. That doesn’t mean the market will crash; what he is saying is that there is limited upside based on current valuations. He uses a bunch of ratios bunch let’s concentrate on one that everyday investors will have heard of, the price to earnings ratio. The P/E for a stock is computed by dividing the price of a stock (the "P") by the company's annual earnings per share (the "E"). If a stock is trading at $20 per share and its earnings per share are $1, then the stock has a P/E of 20 ($20/$1). P/E ratios tend to be high for growth stocks, often tech, then level off over time as the business matures. And what the author demonstrates in the article is that the P/E ratios for a lot market indexes is very high, which means a lot of the business upside is already captured in the valuation. So – what’s this mean to our listeners? The stock market is a voting machine in the short run and a weighing machine in the long run. If you think it’s time to discuss some of your investments related to information like this, give us a call at 251-327-2124.
2. Michelle: Next up, with all of this conversation around the stock market being over-valued, I wondered what the tale-tell signs would be that a stock was under-valued, at least to everyday retail investors. To help answer that question, I found an article on our often-referenced site, Investopedia, titled “What Does Undervalued mean? Definition in Value Investing”. This article discussed the intrinsic value of stocks and value investing, which I believe is what Warren Buffet is famous for. So, Josh, does this match up with your view that the market returns to fundamentals over the long run? And how do investors look for undervalued companies?
Josh: Undervalued is a financial term referring to a security or other type of investment that is selling in the market for a price presumed to be below the investment's true intrinsic value. The intrinsic value of a company is the present value of the future cash flows expected to be made by the company. An undervalued stock can be evaluated by looking at the underlying company's financial statements and analyzing its fundamentals, such as cash flow, return on assets, profit generation, and capital management to estimate the stock's intrinsic value. If there is a gap between the stock’s intrinsic value and it’s current price, it’s undervalued and you buy it, congratulations, you’re now a value investor. Now, for regular investors not named Warren Buffett, doing the sometimes sophisticated analysis of a companies future cash flows and balance sheet, one area to look at for value indications is…the P/E ratio we just discussed. You want to compare P/E ratios of companies in similar industries. For example, if Pepsi’s P/E ratio is significantly lower that Coca-Cola’s, all things considered, then may Pepsi is undervalued. OK, again, for those of you that want to hire someone like me, what practical use can you make of this information? Well, here’s an interesting tidbit for you listeners and I bet even Michelle didn’t know. Buffett made his name early by looking for severely undervalued companies and buying most or all of the company. As the years went on he shifted to buying more companies he considered “bullet-proof” – think insurance companies like Geico, railroad companies like BNSF, Duracell, ,etc – and instead of looking for cheap deals, cleaning them up and selling them, he, with the prodding of the recently passed Charlie Munger, started looking for “buy and forever hold companies”. Or in other words, most investors should quick looking for the needle in the haystack, and just find the best quality haystack they can, and buy all of it.
3. Michelle: Alright Josh, let’s pivot to well-known custodian Fidelity and a recent article on their site called “Managing positions: When to cut and run, when to take profits”. Or as Kenny Rogers says in The Gambler, “you’ve got to know when to hold ‘em, know when to fold them”. I really enjoyed that this article included a 55-year-old chart from Stock Trader’s Almanac that depicts the emotional roller coaster an investor goes thru after buying a position at the top of the market, such as “What?! That’s it! I’m done with stocks”, “Son of a gun!! Not again” and “That’s it! Last Time. SELL!” I think the main point this article is trying to make is use a well-reasoned portfolio approach to your investments and avoid what the author calls the “7 deadly sins to avoid for investors”. (Josh – what’s in the box?!). What’s your thoughts on this article?
Josh: So the author’s main argument is to lock in profits as you can with your portoflio by using a simple, old school method of “selling half on a double”. For example, If you own 100 shares of a stock, and it doubles in value, sell 50 shares. This way you take some of your initial investment off the table and you let your winnings ride. Now he allows for the fact that there’s no guarantee that any stock is going to double in value, so he also discusses basic math like “if you’re up 40% from your purchase price, sell 20% of your position”. So listeners, all this is fine, and maybe useful for those of you that manage your own investments or want to discuss with your investment advisor or broker, and while the author does a great job showing how his own investments performed mathematically in a real world, up and down stock market, you also have to be careful of trying to time the market with this approach, and/or just driving yourself nuts with spreadsheets trying to figure out where you stand with every investment. This article is a nice contrast to our next article, but I think the more useful example from this article is the author’s 7 deadly investment sins to avoid:
- Averaging down into losing positions – i.e., continued buying as a stock craters, hello GameStop
- Over-concentration in too few positions
- Investing in illiquid positions
- Falling in love with a stock, position, or a management team
- Excessive use of margin
- Over-concentration in one sector
4. Michelle: Our last article of the day comes from our good friends at the Fool, Motley Fool that is. They have a recent article titled “What is a Buy & Hold Strategy in Investing?”. I picked this article because I felt it was good contrast to our previous headline that encouraged folks to take gains off the table every time they can. The Fool’s article makes the case that by simply buying and holding positions in quality companies, over time you will vastly outperform anyone that tries to time the market. And like so many articles, they reference investing sage Warren Buffet, who famously has said that his most favorite holding period for stocks is “forever”. So Josh, which philosophy do you agree with – Kenny Roger’s now when to hold em and fold em, or Warren Buffet’s forever and ever stance?
Josh: I think there’s really valuable lessons in both that apply to regular, retail investors. First, for the Kenny Rogers approach of knowing when to fold, sometimes you can be in an individual position that just isn’t working out, or maybe even in an investment portfolio that just doesn’t fit your time horizon and risk tolerance, and knowing when to make a change is an empowering moment for most investors. On the buy and hold front, it’s not so much the strategy that should be noted – tons of folks say buy and hold, take Dave Ramsey for example – but I think the bigger takeaway is this: at the end of the day, what you want to do is hold positions in quality companies. Period. When it comes to your retirement accounts, it’s not about the next “to the moon” stock with shaky financials, it’s not crypto or something very risky that you barely understand, at the end of the day you should be able to look at your statement and recognize the names of many of the companies you see. And if you hold mutual funds or ETFs, which are collections of stocks and/or bonds, you are looking at quality managers that have a proven track record. Because trust me, portfolio managers, most mutual fund, or ETF managers are not here to bet the bank on junk. Quality is what matters over time.
Josh: Michelle, great job as always with the headlines, these are all important pieces of information that impacts those in or near retirement! Listeners – if you have questions around the topics in our headlines of the week, or questions related to your investment strategy or financial plan, why don’t you give us a call at 251-327-2124 to have a conversation or set up an appointment, or you can reach out to use via our contact page on our website gulfcoastfa.com.
Alright folks, coming up next : Josh’s Crystal Ball and Big Mouth. What have been some of my predictions? Have I been right? Was I ever wrong? How wrong? What do I think is going to affect investors in the near future? We talk about all of these things and poke a little fun at my big mouth. Stay tuned!
Segment 3 – Josh’s Crystal Ball and Big Mouth:
Welcome back! Your host Josh Null here, along side co-host Michelle. So, I am opinionated, I have strong opinions at times, I would say a radio show host that isn’t probably wouldn’t be very interesting to listen to. And I am paid in my profession to offer professional guidance and opinions to my clients, otherwise what use am I? Sometimes I feel so strongly about something that I talk about it publicly, on the various podcasts and radio shows I’ve had, sometimes I’ll even make predictions, and while I usually proved right, there are times I swing and I miss. Want to hear me eat a little crow? Then let’s get at with Josh’s Crystal Ball and Big Mouth. Alright Michelle, what’s first?
1. Michelle: Alright Josh, guess what’s back in the news!!! The Michael Myers of investments, this thing just won’t die. That’s right, crypto. Main cryptocurrency Bitcoin smashed thru the $40,000 valuation, recently peaking at $46,000 before retreating. According to Barron’s, Bitcoin has been gaining momentum since mid-October amid hopes that the first spot Bitcoin exchange-traded fund will soon be approved. Also adding momentum are Rate-cut hopes lower interest rates typically increase investors’ appetite for risky assets like Bitcoin’, plus as we’ve discussed, there are record levels of cash sitting in money market funds – over $5.7 trillion – that can be accessed fairly easily and quickly. But wait! JP Morgan Chase CEO Jamie Dimon has testified to Congress that all crypto should be shut down, plus yet another crypto exchange boss is going to jail for a bunch of nefarious activity. So is crypto back baby! Or is this just more of the same nonsense we’ve seen over the last, what, 10 years?
Josh: More like 15. I agree with Jamie Dimon, crypto has had plenty of time to provide a use case and it has failed, outside of being really helpful for illegal activities such as money laundering. Make the case that people in or near retirement should not be dipping into risky assets, especially the mother of all risky assets. Blockchain is basically a fancy database. No strong sovereign nation on earth is going to let it’s citizen print their own money, at least at scale, and even if they did, the price is so volatile, so up and down, that it would be absurd to use it. And that even taking out the part that it’s a pain in the ass to use. Let me again recommend a book called “Number Go Up” by Zeke Faux
2. Michelle: So Josh on our last episode you predicted that the Fed would increase rates one more time in December and that the market would struggle to finish out the year on a positive note, but guess what! It looks like the exact opposite has happened, with all indications being that the Fed is NOT going to increase rates this month AND some stock market indexes have rallied to 2023 highsyou’re your curmudgeonly prediction was wrong on all counts, whatcha got to say for your big mouth?
Josh: I can’t say I’m totally surprised I appear to be wrong because at some point Fed Chairman Jerome Powell was going to have to ease up on his economic head lock and give investors a break. Fortunately the CPI came in low enough at 3.2% increase to give him a leg to stand on, but, and I can’t prove this, I do think there was some political pressure to “chill out” as the holiday’s were approaching. Now as it come to the stock market, as we discussed earlier this episode, voting machine in short run and weighing machine in long run, and valuations appear to be, at the very least, rich, or at the worst, significantly overvalued. I think both of these pieces of news give investors an opportunity to see if they should take some gains off of the table AND lock in interest rates being offered on fixed interest investments now, like, before the end of the year.
3. Michelle: Alright Josh for the last one I’m going to mix it up a little. No crystal ball, no big mouth, no predictions. What I want to know as the end of the year approaches, what are some professional goals you have? Do you plan on working all thru the holidays? Or are you going to goof off over the final 2 to 3 weeks? Are you meeting with clients? Are you taking on new clients? Basically, what do you want to accomplish before 2023 is gone forever, and what are you actually willing to do?
Well listeners, I hoped you enjoyed a peak behind the curtain on how I form my opinions and predictions, and more importantly, that I’m willing to admit when I am wrong. Which isn’t very often, but still. Now, to our listeners that have more questions the various investments and topics we discussed in this segment, we invite you to reach out to us. Call us anytime at 251-327-2124 to make an appointment or find us at on our website at gulfcoastfa.com.
Folks, that’s it for us this week here at Coasting in Retirement! I want to give a huge thank you to my lovely co-host, Michelle Lee Melton, a thank you to our awesome radio station 106.5, many thanks to the provider of our show music, local band Sloth Racer, and as always my sincere appreciation for all of your out there that have been listening and joining us on this journey. We would love to be a part of your journey as well. Until we talk again next Sunday, have a wonderful and productive week. This has been Coasting in Retirement with Josh Null!
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