Coasting in Retirement Ep 9: Everything Everywhere financially falling apart all at once
Segment 1 (Show Open):
Episode 9: Everything Everywhere financially falling apart all at once
Good afternoon everyone and welcome to Coasting in Retirement! I am your host, Josh Null, and I’m joined by my co-host, Michelle Lee Melton. Michelle, how are you doing? It’s great to be back in studio with you, recording in Daphne Alabama at Jubilee Studios! First, for those new to the show, a little background on me. Again, my name is Josh Null, and I am a fee-based fiduciary financial advisor, I hold my FINRA Series 65 securities license and I am the owner of Gulf Coast Financial Advisors, an independent wealth management and financial planning firm based out of downtown Fairhope, Alabama that serves clients up and down our part of the Gulf Coast. 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. We will repeat our contact info several times throughout the show!
Michelle and I are here today to discuss financial topics relevant to those in or near retirement living their best life along our part of the coast. Well dive into our topic here in our opening segment; our Michelle with the News segment comes up in about 15 minutes followed by Where Josh Nailed It; Where Josh was a Little Off in about 30. And we’re excited to announce a new final segment where we discuss things of local interest to our part of the Gulf Coast. I’ll give you a hint: a local town just got a 6 page spread in Southern Living! But before we get into all of that, for all of you investors out there, particularly you pre-retirees and retirees, you definitely going to hear what we have to say today.
Michelle, a recent movie called “Everything Everywhere all at once” recently cleaned up at some award show. I think it’s called the Oscars? Can you explain it a little bit? Great, so today we’re going to touch on what many investors are possibly feeling right now. I’m calling this episode, “Everything Everywhere financially falling apart all at once”.
As in the movie, it feels like there are a bunch of different timelines and potential outcomes our economy could take based on the decisions of our leadership, be it the Federal Reserve with it’s interest rate increases, or the FDIC with how it handles ailing banks or even our political leadership with how it handles a myriad of issues, not limited to Russia and China or the how they handle the banking crisis from a legislative standpoint. A lot has to be handled correctly for us to have any chance at avoiding a recession.
It’s time like these that you will sometimes see investors consider a “flight to safety” course of action. Now, like any forward-looking financial advisor will tell, or should tell you, the decisions you make in the moment need to be weighed against the purpose of your invested money, your risk tolerance and your time horizon. If you have a well-designed portfolio that is assembled for a specific purpose, then my general suggestion would be to stick to your plan. Of course it helps if you have a plan, so if you don’t, it might be a good time to give us a call to discuss assembling a comprehensive financial plan to address some of these issues. All of that said, the point is this - the options we are going to discuss today are for those of you out there that maybe are fearful of what path to take in the short run, maybe you haven’t used a financial professional in the past and are thinking now would be a good time to start, or maybe you’ve got cash parked in the bank and you simply don’t know what to do with it, in these times of uncertainty and heavy volatility. Hopefully we can give you a couple of things to consider today.
First, we’re going to quickly list a handful of options that are considered low-risk, then we are going to dive into one particular option that may be attractive to some investors over the next handful of months. Again, remember, all investing involves risk, and for the most part, everything listed here generally trades low return off for low risk. Here are some options for those of you trying to figure out what to do in the short run: High-yield savings accounts, Certificates of deposit (CDs), Treasury bills, notes, bonds and TIPS, fixed annuities – such as a Multi-Year Guaranteed Annuity or MYGA for short, and finally, money market funds. Later in this episode were going to talk about how some folks would include dividend paying stocks and preferred stocks, for but now, we’re going to stick to the lowest risk choices of the bunch.
We’ve discussed some of these investment choices in greater depth in our past episodes, so I’ll encourage listeners to visit our website gulfcoastfa.com and click the podcast tab to find our previous episodes. For example, we do a deep dive on annuities on episode 3. For this segment of this episode, we are going to concentrate on money market funds. We are not going to be discussing bank based money market funds, because if you listened to our last episode about the recent bank implosions, then you heard me make it very clear that I am a financial advisor, not a banker! So this brief discussion will be about money market funds available thru advisors like me to potential clients like you.
Normally, I say normally, as in the past 10-12 years, financial advisors wouldn’t get too excited about discussing money market funds because the rates were so low. But recent interest rate hikes have translated to some reasonably attractive rates, again for those of you trying to figure out what to do in the short run. There are a couple of broad types that I have access to, one we will call a Prime Money Market fund that is primary based on very short term corporate bonds, one is based on municipal debt, such as that issued by state or local governments, and the other is a Treasury based money market fund. These funds typically hold extremely short duration securities, for example, the corporate based fund will have things like corporate re-purchase agreements that are a week or shorter in term. The treasure based money market fund will be comprised of, well, Treasury bills… and things such as repurchase agreements that are fully collateralized by U.S. Treasury securities. The bottom line, while these funds are NOT guaranteed by the FDIC as a bank based fund would be, the are still are considered low risk investments, particularly the treasury based fund because the securities in the fund are backed by the full faith of the US Govt.
So with the groundwork laid out, let’s talk turkey. I’m going to give you all a general idea on current rates, but with a short disclaimer – remember, these rates change daily, AND, a significant securities purchase of any kind should not be made without a conversation with consulting your advisor or tax professional. This particular part of the segment is not a solicitation for the sale or purchase of any securities, I am simply letting you all know the general types of interest rates that are available on money market funds currently. I use Charles Schwab and Fidelity as my primary custodians, so I am going to stick with Schwab examples for sake of brevity: Here’s a couple of examples:
Schwab has a fund called the Schwab U.S. Treasury Money Fund - Investor Shares that as of today, March 23rd, is offering yields around 4.20%, yield being what a normal person would call interest rate. They also have a fund named Schwab Value Advantage Money Fund® - Investor Shares4 that is offering interest rates in the mid 4’s, again, as of today. Lasty the also have a municipal debt based fund called Schwab Municipal Money Fund - Investor Shares that pays a little less interest, but it’s still in the mid 2’s.
So, one more time before we transition to our next segment, while it may seem that Everything Everywhere Financially is Falling Apart All at Once, there’s 2 primary takeaways that I think will help you in your short run decision making. First, for those of you that have a investment portfolio or financial plan that was well thought out and designed, stay the course! Now is not the time to make rash decisions. For those of you that don’t have this professional guidance, or are not happy with your current guidance, we can help! Second, for those of you sitting on the sidelines or sitting on some cash in the bank, there rates being offered on money market funds are the highest we’ve seen in years! If either of these situations applies to you – need investment management and financial planning, or just looking for a low -risk place to park your money and get a decent interest rate, pick up the phone and give us a call at 251-327-2124 or find us online at 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. Michelle and I are going to help you all understand and decipher the deeper meaning of those headlines, or at the very least, provide context. So with out further adieu, here’s “Michelle with the news of the week”!:
1. Michelle: Alright Josh, I’m going to jump right into a site we’ve used before, Bankrate.com. They have a recent article titled “10 best low-risk investments in March 2023”. So, first, they should have made the number 9, or 11, because odd numbers are better. I see that Bankrate mentions a couple of obvious choices for this type of list, such as savings accounts, CDs and treasury securities, but I was a little surprised to see stocks and annuities listed. Can you explain how stocks and/or annuities would be considered a low-risk investment in March of 2023?
Josh: So I have 2 quick things to say about the article – first this list really applies to any time, not just March 2023, but the article is titled to maximize SEO, and second, I don’t know if I would categorize ANY stock as low risk, even dividend paying stocks. One just has to look back at 2008 to see some of these types of holdings losing 20-30%, just like growth companies. So with that said, let’s quickly explain what Bankrate is referring to here. First, dividend paying stocks are just common stock of a publicly traded company, like any other common stock. The difference is that certain companies tend to be both profitable AND committed to sharing that profit to it’s shareholders via dividends, hence dividend paying stocks. Think old “blue blood” type of companies – 3M, Coca Cola, Verizon, etc – that aren’t necessarily in growth mode but more into holding their market share. These types of stocks tend to be a little more stable than growth oriented stocks, hence their inclusion in this article, but remember – companies don’t HAVE to pay dividends on common stock.
Preferred stocks have some bond like features vs common stock. But just like any type of common stock, their value can fluctuate significantly, but they are included on this list of “low-risk” investments b/c preferred stocks have a regular cash payout, and if a company misses that dividend, they have to make it up to the preferred stock holders before the common stock holders. There are sometimes enhanced voting rules but that’s enough for today.
And for sake of time regarding if annuities are considered a low-risk investment, I am going to point our listeners to our website gulfcoastfa.com. Go to the podcast tab, and scroll down until you see Coasting in Retirement Ep 3, are annuities good or bad. That will give you the full context you need for why bankrate included annuities on this list.
(https://www.bankrate.com/investing/low-risk-investments/)
2. Michelle: Well, Josh, here’s a fun and uplifting article for you. It’s from Business Insider, and it’s titled “Brace for a ‘crash landing’ as the US economy barrels toward recession, top economist David Rosenberg warns”. This title was sensational enough that I did some quick research on the author, and come to find out, he tends to be a little curmudgeonly about the economy, in fact he even calls himself Eeyore the donkey is one interview. Rosenburg calls for both the S&P 500 and housing prices could fall 25% this year. What say you Josh?
Josh: So I must be honest, I have not heard of this economist before but he appears to be well known, especially for being kind of doom and gloom, and he also appears to have some self-awareness about that. I read enough of his stuff to say I think he’s coming from an honest place, and he has legit concerns about the economy, especially as it relates to interest rates and inflation. I don’t necessarily agree with him on housing, while I do think there will continue to be some price adjustments, the fact is that we have a nation wide housing shortage, especially in growing markets, b/c of restrictive building regulations and NIMBYism. Look, here’s the bottom line – let’s say he’s right and we have another 2008 type recession. I think he’s a little hyperbolic, but again, let’s play devil’s advocate. If you’re an investor, how you handle this depends on your age and the purpose of your money that is invested. If you’re still in the accumulation, still working, with 5 or more years in retirement, and you don’t need this money any time soon, then my suggestion is to both quit checking your account balance every 10 minutes and look at this as a potential buy opportunity at a long term discount. Now if you’re in or near retirement, it’s a different conversation, you’re trying to preserve capital as much or more than grow it, so you need to take a different approach. There are a variety of investment tools and strategies that we use at Gulf Coast Financial Advisors to preserve capital, or at the very least match up your low risk tolerance with conservative investments. ALL investments involve risk but there are ways to dial that down. If you interested in learning more, give us a call at 251-327-2124 or email jnull@gulfcoastfa.com to set up a conversation. Great article Michelle, what’s next?
(https://markets.businessinsider.com/news/stocks/rosenberg-economic-outlook-recession-crash-landing-interest-rates-banks-manufacturing-2023-3)
3. Michelle: Very well. Our next article comes from an actual newspaper, and not just a newsite, although I did pull it from a newsite…the New York Times says “Forget Stock Predictions for Next Year. Focus on the Next Decade”. I like the author’s attitude, his name is Jeff Sommer, and you can hear the exasperation through his words. And I think it’s pretty telling that Jeff claims that the median Wall Street forecast since 2000 had missed its target by an average 12.9 percentage points a year. Do you agree with what this author has to say?
Josh: So Michelle, first, I think I have a healthy dose of soothsaying skepticism just like this author. And he’s an interesting writer – I love this paragraph from the article – “It’s simply impossible to forecast the path of the markets six months or a year ahead with accuracy and consistency, as many academic studies have shown. That the financial services industry continues to label these unreliable numbers as forecasts is a triumph of breathtaking chutzpah — a technical term for shameless audacity.” I would say, see Mr. Sad Pants economist from our previous article as someone with shameless audacity. Great band name by the way, don’t you think Michelle? “Shameless Audacity”. They could be a Winger tribute band. Anyway, I do agree with the author when he states that investments tend to go up with time, particularly over most 10 year periods, so as we’ve discussed in previous episodes, sometimes is good to go long on equities if you feel that you and/or your advisor have put thought, effort and due diligence into your investment selections.
(https://www.nytimes.com/2022/12/16/business/economy/stock-market-forecast.html)
4. Michelle: So we just discussed a Business Insider article that claims the stock market is going to crash. I’m going to jump off one end of this see saw and go to the other with my next article. The News & Observer site has a recent article titled “When Will the Stock Market Recover? Here’s What Experts Predict”. Josh – this article specifically states, and I quote, “Many experts agree that the worst of this bear market is over for stocks”. This is the exact opposite of what the other guy had to say! Alright, so which is it, are we headed for a market crash for a bull market?!
Josh: Right!? So here’s the position of this article – that we have a strong labor market, which is true, and that stock valuations are more in line with reality than they were during this past bull run, which is also true, and those two things should make any recession fairly mild. It’s also true that stocks rarely decline two years in a row – I think it’s only happened McMillan wrote in a blog post earlier this month. “And stock valuations are now lower and more reasonable than they were last year.” Not to mention the fact that stocks rarely decline two years in a row, I think it’s only happened 3 times since the great depression. BUT, let’s hit this thing on the head with 2 primary points – one, predicting the stock market in the short run is very, very tough to do, and those that do it are often wrong, way wrong at times, and 2, this is a great example of why dollar cost averaging is the typical investors good friend. What do is dollar cost averaging, or DCA for short, and why am I saying that. Dollar-cost averaging is the practice of systematically investing equal amounts of money at regular intervals, regardless of the price of a security, and why it works is because let’s say BOTH this author and our previous doom and gloom economist are right – which means we have another year of ridiculous volatility – by using DCA you’ve smoothed out the overall price your paid for your basket of securities. We can help with that at Gulf Coast Financial Advisors, just give us a call at 251-327-2124. Great article Michelle, what’s next?
(https://www.newsobserver.com/money/when-will-the-stock-market-recover-heres-what-experts-predict/#:~:text=After%20ending%20the%20year%20down,it%20will%20happen%20in%202023.)
5. Michelle: Good grief. Alright, this back and forth on opinions is just pushing me back to my new best friend, financial writer Jeff Sommer. Jeff had another recent article, again in the New York Times, with what I think is a brilliant title after some of the discussion we’ve had today: “When You Think About Investing, Don’t Think About the News”. HA! In this article, Jeff interviews economist Richard H. Thaler, who apparently is University of Chicago professor that won the Nobel Memorial Prize in Economic Sciences in 2017. I found this article very enlightening, and we could have possibly devoted most of this segment to it, but I guess I’ll just focus on the part where they discuss asset allocation and the risk an investor can handle. What are your thoughts on asset allocation Josh?
Josh: First, as someone with an economics degree from the Harvard of the Midwest, Missouri State University, and someone that is unafraid to express strong opinions…hence our next segment of when I was right and wrong…I love that this author interviewed Professor Thaler, who is both an economist AND unafraid to express strong opinions. He has a little bit bigger audience than I do, lol. The fact that Professor Thaler went on a financial news show and when asked what tv show investors should watch when the stock market goes crazy, he said…ESPN. Anyway, back to one of the main points they make – asset allocation. In our world of investment management that simply means what is your mix of equities to bonds in your portfolio. Now there are a lot of flavors to this mix, see our previous discussion in this episode of the differences between growth stocks, dividend paying stocks and preferred stocks, and lord knows there are all kinds of different quality of bonds available out there, but in general, if you remove 2022 from the equation, having more bonds or fixed debt instruments in your portfolio tends to smooth out the roller coaster ride of gains and losses. So if you’re watching your investments go up and down and it’s more than your comfortable with, then chances are you are heavier into equities than your risk tolerance would dictate. We can check that easily, quickly and confidentiality using a tool called Riskalyze, if you’re interested in that please give us a call at 251-327-2124. Good stuff Michelle, what’s next?
(https://www.nytimes.com/2022/03/13/business/richard-thaler-investments-advice.html)
6. Michelle: Well well well. I leave the last article choice to you, and what do you do Josh? You poick yourself! Kind of. So our last article headline this week will come from your website, gulfcoastfa.com, specifically the “For Investors” page. I will say that the first thing that jumped out at me on this site was your discussion about Investment Philosophy and having Core and Satellite Portfolios. I also like how you had a easy to follow chart of your different investment portfolio options. So since this is your site, what say you about it?
Josh: Talk about having an investment strategy and philosophy vs trying to get lucky or time the market, but before I talk about the specifics of this page, let me make clear that all investsments involve risk and just because I am willing to be super transparent with how we handle our investment portfolios by putting it All out there on line, it’s not intended to be a broad billboard advertisement, it’s really intended to…So with that said, here’s what we mean with Core and Satellite portfolios. Remember how we talked early about asset allocation Michelle? Well our core portfolios are intended to provide exposure to a mix of equities and bonds, dialed in to match the individual investors risk tolerance. The satellite holdings are meant to diversify away from those core holdings, often allowing an investor to have a particular goal in mind, such as income production. In other words the core holdings are the foundation of our portfolios with Satellite investments added to complement the portfolios with the intention of meeting the risk tolerance and long-term goals of our clients. Our goal is work to optimize your overall investment portfolio by maximizing returns while minimizing risk in what is know as the "Efficient Frontier". Of course this does not guarantee that the portfolios , allocations or strategies will be profitable - all investing involves risk and past performance is no guarantee of future results - but it does mean that care, thought, experience and due diligence go into our investment choices.
(https://gulfcoastfa.com/for-investors/portfolio-overview)
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, and of course you can always email me at jnull@gulfcoastfa.com.
Alright folks, coming up after the break, we get to have a little fun and I’ll probably get picked on a little bit by my co-host, Michelle in our next segment. We call it “Where Josh nailed it, where Josh was a little off”. As someone that has always had strong opinions, and often public opinions, I think it’s important to hold myself accountable for the things I’ve said that didn’t quite stick the landing. But to be fair we also discuss where my often-skeptical viewpoints proved to be pretty accurate. Remember I am originally from the Show Me State of Missouri, so means, don’t tell me, show me! Stay tuned!
Segment 3 - Where Josh nailed it, where Josh was a little off:
Welcome back! So the point of Coasting in Retirement is to offer general financial guidance and education to those in or near retirement, which means I often give my professional opinion. And while I am proud of thought, care and due diligence I put into giving my professional opinion, both on this show and in my financial planning practice, I’m also human, which means I don’t always stick the landing perfectly. So each week I get to poke a little fun at myself by admitting to any thoughts or opinions I’ve put out there that weren’t 100% on point. BUT this segment has to be fair, so I also get to pointing to some of my thoughts and opinions that were pretty accurate. We call this segment “Where Josh nailed it, and where Josh was a little off”. Alright Michelle, what’s first?
1. Michelle: Josh, just last week we talked about Silicon Valley Bank and how it’s troubles were most related to being extended in long term mortgage securities that lost value as interest rates rose, and this was a relatively recent phenomenon. Now with more information emerging, it’s looking like that SVB was being warned months ago to shore up it’s finances, and there appears to be at least the possibility of some of the executives selling stock while keeping this bad news quiet. So did you nail it with your opinion that long term bonds were the primary reason for SVBs collapse, or were you a little off.
Josh: Even with the new information, the primary bank run was triggered by loss of confidence related to SVB having to sell underwater securities at a loss to generate cash, so that part of the opinion, I nailed. But definitely a little off in not mentioning the missteps of the bank’s executive team…
2. Michelle: Alright Josh, you’ve stated that that clients that become financial planning clients tend to weather bad financial news a little smoother than investment management clients. What do you mean by this statement, and did you nail it or are you a little off with this opinion?
Josh: Nailed it. Discuss the similarities and differences in this client relationship, and why having a plan / roadmap puts the investments in the proper context, as one piece of the overall puzzle..tax planning, wealth management, etc.
3. Michelle: I think we’ve been fair in our discussion around crypto currency. Specifically Josh, you have always qualified that you truly don’t know if blockchain has a future, but there’s a lot of capital behind it. But you also said that no strong sovereign nation would ever let its private citizens print currency, and that you thought the speculation of crypto would continue to cool off, even with crypto industry stalwart Bitcoin. Well apparently Bitcoin prices have rallied the past week, so did you nail it, or were you a little off?
Josh: So allow me to be fair while also still being skeptical. Yes, Bitcoin and other cryptocurrency prices have risen recently, so in regards to that, I was a little off. But like you said Michelle we’ve been specific in our criticism of crypto, in that no one in or near retirement should have a significant portion of their investment portfolio is such a speculative asset. I don’t follow crypto that close – the crypto bros wore me out a long time ago if I’m being honest – but I will say as some one with an economics background, my guess is crypto’s resurgence has as much to do with the realization that the Fed is going to have to cool it with interest rate increases or cause a true bank panic / market downturn, and speculative assets of all kinds tend to do better in steady or decreasing interest rate environments. Plus there is a significant court case involving a crypto “stable coin” going on so we will see in the long run if I nailed or was truly off on crypto.
4. Michelle: Josh back in March and April 2020, when Covid was shutting down the world basically, you decided to increase your online efforts significantly in order to give people as much financial information as you could during an incredibly difficult time. Going back to that time, you vocally expressed that you thought the market would be down for some time, and that the chance of a V-shaped stock market recovery was slim. However, a V-shaped recovery was exactly what we had. So…nailed it? I vote a little off.
Josh: Yes. Way off. But here’s why. Talk about 2008 housing crash and how long it took the market to recover, how no one could have seen QE and the billions that flooded the economy from the US Govt, etc.
5. Michelle: So Josh, using annuities as a hedge against potential losses and stock market volatility. What was your opinion in the past, what is your opinion now, and did you nail it or were you a little off with this opinion?
Josh: Use this part to describe how hard it has been to get gains in an investment portfolio the past couple of years, how most people are more concerned about not losing money vs having huge gains, and how your opinion has changed regarding annuities. Also talk about what wild ride it was this week in the market, give specific numbers of how much the various indexes were up and down.
Well listeners, once again I didn’t totally nail it with all of my opinions, but I had valid reasons for being a little off. And I’m learning to be more open minded! Impressive maturity, one would say, right Michelle? Now, to our listeners that have more questions bonds, investments, inflation, interest rates, annuities, etc., we invite you to reach out to us. Call us anytime at 251-327-2124 to make an appointment or request more information.
Alright folks, Michelle and I cooked up a new segment for you all. Regular listeners of the show or anyone that follows us on social media will know that we love living along the Gulf Coast down here in Lower Alabama. Both Michelle and I are outdoor people, we love to hike, camp, take the boat out, go to the beach, you name it. So in this next segment were going to dive into some of the specific reasons we love our part of the country, plus give you all some tips and pointers for things to do while you’re down here. Who knows – even you natives may learn something new! Stay tuned for out next segment, we’re calling is Living the Gulf Coast Life.
Segment 4 – Living the Gulf Coast Life
Discuss the Southern Living spread on Fairhope, AL.
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!
Disclosure:
Advisory products and services offered by Investment Adviser Representatives through Prime Capital Investment Advisors, LLC (“PCIA”), a federally registered investment adviser. PCIA: 6201 College Blvd., Suite#150, Overland Park, KS 66211. PCIA doing business as Prime Capital Wealth Management ("PCWM") and Qualified Plan Advisors (“QPA”). Certain services may be provided by PCIA affiliates. In this format, Josh Null provides general information, not individually targeted personalized advice, and is not liable for the usage of the information provided. Exposure to ideas and financial vehicles should not be considered investment advice or a recommendation to buy or sell any of these financial vehicles. This information should also not be considered tax or legal advice. Past performance is not a guarantee of future results. Investments will fluctuate and when redeemed may be worth more or less than when originally invested.