Steve:
Welcome to Plan for Life. Now, episode 1 13, 1 13. How are different? Seems like
Dave:
This. Yesterday we did our famous 100th episode and already I guess that yesterday was probably last year, a year ago.
Steve:
No, I know exactly when it was because we were going to do the 100th episode and then Silicon Valley Bank had to go disrupt our plans and go ahead and fail. Then the 100th episode, we talked about Silicon Valley Bank and then we did 100th with an asterisk next to it and talked about, I don’t know what, but other reminiscing things
Dave:
Like that. Interesting. And that was such a big deal then, and I don’t even remember when it was. I remember what it was, but not when it was. It was I’d
Steve:
Interested March, April.
Dave:
I’m not going to make you do this, the research super fast, but I was interested, I wonder where the s and p was that day or around then because I have a feeling we’d be surprised that day or those couple days if we saw where it is today. Even though you might not be listening to this when the market is just going up every single day. It has seemingly the last couple weeks, but
Steve:
I would say, I don’t know the exact number, but I know the year over year number, the s and p five hundred’s up about 25%. So I know Silicon Valley Bank failed March April timeframe of last year. So I’d say it’d be 25% or more up since that time period. So here we sit. Happy 4th of July to everyone. Hope everyone had a fun and safe 4th of July holiday. I will tell you Dave, I had an experience on the 4th of July that I have definitely missed out on since I moved to Maryland about 20 some odd years ago. What’s that? So I grew up in Northern Virginia, as did you. And the laws and rules around fireworks in Virginia are a little bit more lax than they are here in Maryland or certainly in Montgomery County. Maybe the rest of Maryland, I don’t know, maybe they’re a little bit more liberal with it. Here in Montgomery County, you can’t have anything. You can’t have any fountains, you can’t have any sparklers, you can’t have anything. And I did 4th of July over at my sister’s place out in Gainesville, or actually I think she’s in Haymarket, Virginia. And oh my god, my brother-in-Law, all of his neighbors, I mean they were shooting off fireworks that I think would’ve been perfectly in their element down on the National Mall shooting these things off that you could feel that rumble in your chest when they go boom.
Dave:
Yeah, and I’m at the beach most of the time in the summer. My place in Oceanview, which is near Bethany and like Haymarket, Virginia, I don’t know what the laws here are in Delaware, but they’re super lax compared to Montgomery County because besides the Bethany Beach, they have their official firework display, which is pretty big, but we never go. It’s too crowded behind us somewhere because we’re in our backyard was similar to what you’re describing. It was a pretty good firework display. It could not have been that legal and it sure wasn’t far from our house in probably some field. So we basically on each side of our house we could see different fireworks. But the one display was definitely, while it wasn’t a huge one, it certainly was of the exactly what you’re describing, the haymarket experience.
Steve:
My kids, their minds were blown because the only thing that we’ve done is go to the, actually we haven’t even taken them downtown, but whatever the local fireworks and to see this stuff up close, they were, whoa. They thought it was pretty incredible. So here we sit on July the 10th, and I think of course, especially when we’ve just come through the first half of the year, I think we’ve got to do a recap of the year to date what’s gone on in the markets. So of course everybody knows that 2022 go all the way back there, 2022, pretty lousy year in the stock market. I know that’s forever ago, but we can think back to then pretty lousy year, we still had inflation running very high. The Fed was raising rates very aggressively and the broad market s and p 500 was down at one point, 26.5%, but rallied a little bit, finished the year down 18%. So that was 20, 22, 23 was nothing but up. So what did we finish the year in 2023 up 26%. And here we sit halfway through the year and the s and p 500 is up over 15% year to date.
Dave:
Yeah,
Steve:
So just fantastic stock market performance. Now if we even look more specifically at the nasdaq, and for those of you who don’t know, the NASDAQ is definitely a more technology heavy index NASDAQ up 19% year to date. So that’s definitely been the story of the market the last 18 months or so is frankly I would say that the market turned in the fall of 22, October, November when chat GPT was really introduced. I don’t know if that was specifically the reason, but it was right around that time chat. GPT introduced technology stocks and everything has rallied since then. And really the story’s been Nvidia, Google, Amazon, Microsoft Apple’s caught up recently. All of those big technology stocks have just been ripping for the last 18 months or so.
Dave:
And the way I think unfortunately is that things feel too good. By the way, we are now in what is about to be predictive commentary. And remember these predictions are usually dead wrong. We’re
Steve:
Not making any predictions,
Dave:
David, I’m not making predictions,
Steve:
I making comments.
Dave:
It’s like it’s so hot right now and at some point there will be a correction and all of you listening by this point, a lot of you have been our clients for years and years. You’re very good at dealing with these things good enough that I could talk about it and not feel like anyone’s going to freak out. So I like when will a correction occur? So I’m about to say something that is predictive could be wrong. It feels so much like the election will be the correction, election correction. I did not write that down. That was adlibs. I don’t write down things for the, because my feeling now is no matter what, half the country will be freaked out since our last podcast. I don’t know. And quite frankly, I don’t know when you’re listening to this thing, but it looks like it could be Trump or it could be Biden or someone else who knows. But either way it feels like, okay, this is an inflection point of a frothy market anyway, and it’s like what’s going to happen between now and then? Anything can happen as we know that could lead to a correction or something else. But if that were to be the case, it feels so much to me whenever your correction comes, it’s going to be something generated by that election because I just feel like half the country is going to be negative regardless at this point.
Steve:
So let me take the counterpoint.
Dave:
Remember, correction is a short, I’m not saying this is going to be forever or years of event. No,
Steve:
Remember
Dave:
That at all. I’m saying what will trigger, what will historically we always know the markets don’t go straight up what will trigger it. That’s my gut.
Steve:
Yeah. So just a reminder, a correction is a 10% decline off of the previous highs, and those do tend to occur once every 10 months. And we’ve not had that in what, 18, 20 some months. So we’re sort of overdue for that. I’ll take the counter argument, Dave, to the correctional occur at the election,
Dave:
Right? Shortly thereafter.
Steve:
Yeah. Okay. I’ll take the counter argument. I was listening to some JP Morgan analysts and I hope by now everyone listening knows any of these analysts that you listen to. You’ve got to take everything with a grain of salt that nobody can predict the future. All this, their argument that JP Morgan guys was just the opposite of what you said is that they think there’s going to be a correction before the election because of the uncertainty. Who knows, Biden, some other Democrat Trump and then they think the market will rally once we have an election because the whole idea being that the markets hate uncertainty and Biden Trump, whoever after the election will have certainty
Dave:
Now. Yeah, this is
Steve:
Why, right? I don’t know. That makes
Dave:
Sense too. I mean I could arguments for both, but this is why if in the planning that you do that we do, you need to know your own risk tolerance, you need to be very, very confident of it. I know my own personal risk tolerance, I always play scenarios, super negative scenarios in my head. Well, not obviously, but I have a certain amount of money in equities for sure. And I always play scenarios in my head, really do me ones and say, if this happens, how do I feel? I mean, am I okay? I do that all the time. I say, well, this is how I’d feel. I won’t be thrilled, but I’m good. And it’s always important to know your risk tolerance, and I think it doesn’t hurt to sort of play out these scenarios that are negative. I mean, nobody plays out positives while the market goes up another a hundred percent. How will I feel? Good,
Steve:
Okay, Dan, pretty
Dave:
Damn good, but play out the negatives and see how you feel.
Steve:
I hesitate to give this guy any more oxygen than he is already getting, but darn it, I just can’t help myself. So we see this stuff and from time to time clients will forward it to me. I’ve even created a folder in my email inbox and it’s called Doomsday Outlook. So here’s one of the chief doomsday guys. Harry Dent. Harry Dent.
If I had to put a Mount Rushmore of Doomsday guys, there’s like Harry Dent, Jim Rickers, who’s the guy, Jeremy Grantham. Unfortunately he’s more respected, but he’s still doomsday. So Harry Dent, I mean, he’s this guy who’s just been calling for a market decline again and again. So I understand why people still interview him and ask him questions. It gets clicks, it gets people talking about it. But this website that I follow, think advisor, they interviewed him again and he’s talking here about how the market’s going to crash. And I love how he’s very specific. The s and p 500 will be down 86 to 87%, right? That’s very specific there. And the NASDAQ will be down 92 to 93%.
Dave:
Okay? It could happen, but that is so doomy and gloomy that like you said, the entire point of that is to absolutely freak people out big time.
Steve:
So I get this and I’m reading through it and I’m like, okay, I guess we should talk about it again. And then I’m not kidding. I mean this article came out sometime pretty recently, maybe it was today even. And then I’m preparing for this podcast and the website sends out emails when they’ve got new articles and who sends out an email. But our old buddy, Rick Edelman, and I’ve told people before, Rick Edelman was for me, one of the reasons I got into this industry. I read his book The Truth About Money and Man, my mind was blown. I just didn’t know about mutual funds, personal finance, all that stuff. So Rick Edelman wasted no time coming out and just dunking on Harry Dent here and just says, I’m writing to say this is quoting Edelman. I’m writing to say that when it comes to Harry Dent, the best thing you can do is the exact opposite of whatever he says.
And he goes in here and he actually talks about, I didn’t know this part. He talks about 1994, Harry Dent was saying, okay, we’re going to have a great year in the stock market. Stock market only gained 1% in 1999. Harry Dent said, okay, you’re going to have this great return in the markets. Of course the markets fell in the next three years, even going into 2004. I always thought of Harry Dent as the negative guy. I didn’t know he had this history of being positive. And man, he struck out big time because then in 2007, 2008, stock market was way down. Now he shifts gears and in 2009 he talks about the Great Depression ahead. Well, 2009, mark the bottom of the stock market, and then he just goes on and on here, I won’t read ’em all, but 2000 12, 15, 16, he’s talking about how the market’s going to keep going down and crash and burn. So thank you to Rick Edelman for doing all that homework on how wrong Harry Dent has been.
Dave:
But you and I hesitate to talk about corrections because they’re predictions and you never know he’s going the opposite way. He is going nuts. Last time, hey, the Great Recession was once in a lifetime. We’ve had two once in a lifetime things in the last 25 years. One was a great recession and the other was covid. And each one saw a pretty big stock market dip, but nothing like this guy is predicting. So
Steve:
I think there’s a broader lesson to this that we’ve talked about before, but it doesn’t hurt to reiterate it, is that being cynical, talking about the negatives, the downside of things, this has been proven. It sounds much smarter than talking about positive things, positive developments. You sound smarter. And people who listen to talking heads, they talk about negative stuff. Oh well we’ve printed all this money, there’s going to be massive deflation and blah, blah, blah, all these things. It sounds smarter and more credible than someone who says, well actually I think stocks can continue to go up. And I think, I don’t know how, but these companies will adapt and change and innovate and will continue to grow. You sound like a Pollyanna that you’re just head in the clouds, even though over the long term, that tends to be the right way to think. Alright, let’s shift gears. I told you I had four or five smallish things to talk about here. Dave, have you ever heard of the Sports Illustrated Jinx or Yes,
Dave:
Of course you’re on the cover of Sports Illustrated, so awesome. And then bad things happen. Absolutely. Sports fan, I’ve heard of it,
Steve:
Yes. Right? Or what was kind of, I’ve heard of that, but what was more relevant to me was the Madden Jinx, the Madden.
Dave:
Oh, right. That would be the modern version of it, right?
Steve:
For years, I don’t even know. Do they still publish Sports Illustrated and
Dave:
Copy sports illustrators hanging on by a thread? So we’re not going to get into that right now, but not really.
Steve:
But the Madden Jinx, if you’re not familiar with it for years and years, they would pick a player to be on the cover of the Madden video game and then that player, something bad would happen to them. And I don’t remember the specifics of who this happened to, but they’d have some devastating injury, blow out their knee or just have a really lousy year that year. And it’s this basic idea. And the Sports Illustrated jinx, same idea that you get on the cover of Sports Illustrated because I don’t know, you just hit 20 home runs in the last month or something ridiculous, and you’re probably going to have this mean reversion going forward and mean reversion sounds really fancy, but it basically means you’re probably not going to hit. I don’t want all the seam heads, the baseball purists to come after me and say nobody hits 20 home runs in a month.
You know what I mean? You’re probably not going to play that fantastically well in the coming months as you did in the previous months. So it’s going to look like, Hey, I don’t even follow baseball anymore, but I do know the name Shhe has been killing it and he doesn’t play as well in the next couple of months. Oh, it’s a jinx there. Same sort of thing happens in stocks and more broadly speaking in stock markets that, oh my gosh, growth oriented technology stocks are killing it. Hey, how come they underperformed going forward? Well, because they probably can’t continue to go up by 100% per year. It doesn’t mean it can’t go up for a while, but you’ve got to understand this mean reversion there. We try to drill this into clients and I’d say 95% of them get it that this is the whole reason why you don’t take all of your money and say, Hey, I’m going to put everything in the NASDAQ 100 because maybe it won’t go up 19% in six months, every six months. Alright, next smallish topic, Dave, how often do we get this question about the US investing in the US versus international stocks?
Dave:
It’s been since we’ve started working together.
Steve:
That’s true. It’s been a long time because quite frankly, it’s been a long time basically since the financial crisis in oh 8, 0 9 that US stocks have significantly outperformed international stocks.
Dave:
And it’s been a really long time since I started my career in this business in 1998 and around the first five years of my career, nobody wanted to invest in the s and p 500. They were all into international stocks. There was definitely periods of time the first 10 years of my career for seven years where hey us was like,
Steve:
Uhuh believe it. Well, you hit it right on the head there. It was basically this decade of 2000 through 2010 where US stocks dramatically underperformed and everybody wanted to invest internationally, emerging markets, all that kind of stuff. And then it’s been totally flip flopped the last 10 or 15 years where the US has dramatically outperformed. Now the US makes up roughly half of the world’s economy, but in most of our portfolios we’re something closer to 70, 75% US stocks versus international. And I wanted to talk a little bit about why we’re overweight US stocks and why we think that’s the right place to be for going forward There. A lot of people have talked about this idea that the US will no longer be the reserve currency of the world. And if you’re not familiar with what that means, it basically means that a lot of contracts, a lot of contracts between people and exchange is conducted in dollars and people say, oh, you won’t be the reserve currency anymore. And the question is, well, what’s the alternative? Do people want the reserve currency to be the Chinese yuan? Well, maybe not because a lot of people say China kind of manipulates that value.
Is it going to be the Euro? Is it going to be the yen? I don’t think so. I don’t think those things are happening anytime soon when we talk about the type of stocks that we have, consumer technology stocks really dominate the overall markets. And I do think the US is the most dynamic business friendly economy that’s out there, even if we’ve got issues. So you make a statement like that and people invariably you’ll say, well, there’s too much regulation or there’s too much red tape or this or that issue. I get it. Nobody’s perfect. I’m saying better than anywhere else in the world. And we’ve just got some basic geographic advantages. I think this has all been a reminder the last couple of years when in Europe you’ve got Putin and Russia, right nearby or by, you’ve got a lot of issues there in the US we’ve got a couple of big oceans around us and some friendly neighbors to the north and south. We don’t have those same risks there. What was that look that you gave me?
Dave:
No,
Steve:
Look, I know the podcasters, they can’t see that look, but I am with Dave. What? Look, anyway, just making the point that yes, I think that the US is the best stock market, but we still hold some amount internationally just for the peer diversification aspects. That is the right way to develop any portfolio.
Dave:
Yeah. Again, you’re going to have times when the international portfolios do well and do better than the us. You’re going to have times with everything. The worst thing we could possibly do is put a death nail into any investment, big time, large class. And that’s usually like if the Europeans were hearing that and we said it, they’d say, oh, finally we’re going to finally beat the s and p 500 because somebody predicted that we were dead.
Steve:
Right? I mean you remember it was less than two years ago, the nail was in the coffin of the 60 40 portfolio. The 60 40 was dead and buried, and then it rose up from the dead and came back
Dave:
What was never going to come back at one point. What’s that? It took forever to come back from the nasdaq.
Steve:
Oh yeah, that’s right. Because I mean the NASDAQ was down over 80% in the early two thousands. And I mean that took, I don’t know the numbers, but I think it took more than 12 years to regain its previous highs. Yeah, that was dead and buried. Why would anybody invest in the nasdaq? That was definitely gone. Alright, this last article that I wanted to talk about, or the last topic here, this was a study, and I swear we’ve seen this study before and I’m sure these companies just recycle it and do it again, but I don’t think it hurts to reiterate this. And we’ve talked about this a number of times over the years, but it was a study done of retirees. And here’s the headline, which I think really summarizes almost everything you need to know here. Retirees spend twice as much money when they have guaranteed income versus simply taking portfolio withdrawals. So when people have guaranteed income and guaranteed income can be money from a pension, money from social security or guaranteed income from annuities, it gives people this license or comfort level with spending that they don’t have when it’s just purely coming as withdrawals from a portfolio. And I think, not to put words in your mouth, but I think after working together for almost 20 years now I can, this falls in the no duck category for us.
Dave:
Absolutely.
Steve:
Yeah, of course. People just feel more comfortable when you have that income amount coming out. Guaranteed people feel that license to spend. Yeah, it’s guaranteed. I’m going to go ahead and spend it versus when it’s a withdrawal, maybe I don’t want to spend all that. I’ll save a little more for a rainy day there.
Dave:
Yeah, that’s always been the way we think, but now that I’m older at 62 years old, I happen to have older friends. They’re just, I don’t have, besides, I can hear you are friends, Steve, you’re much younger. And the guys we play basketball with, they’re much younger, but for the most part, my friends are older and you see this stuff in real life with clients, with friends. People are older and I’m still working and have no plans not to. But when you’re not earning anymore, what are you looking at? You’re looking at what you know is guaranteed to come in every month, and that is the psychological moat that protects you from what we started this podcast with today talking about maybe the bottom falling out at some point for while the answer has to be, well, a part of you, your brain realizes statistically and historically, my money will come back to market, the equities will come back. But the other part is even if it takes a long, long time or whatever, I have this money coming in and for the most part it’s covering my expenses. For many of you listening covers all your expenses and that is what you need to go through retirement without freaking out about things you can’t control.
Steve:
And this is why with some of our clients where it fits, we’ve started doing some of these bucketing strategy illustrations and the basic idea with bucketing is just breaking down your assets into different categories. So you say, this is the money I’m going to spend for the next five years. This is the money I’m going to spend for years five through 10, and then this is the long-term, 10 plus money. Very simple illustration there. And it just helps when you look and you see your portfolio’s down 30%, and I’m telling you, don’t worry, it’ll get better. Mean reversion, blah, blah, blah. It sort of helps to look at that money and say, well, I wasn’t going to touch it for 10 plus years anyway, so yeah, I’m okay with that. I’ve got money here in the one to five to to 10 buckets. And I think that I consider that right in the same category with some sort of guaranteed or risk-free type of money.
Dave:
If anyone tells you you’re worried about it, you don’t have things set up. But we use the words mean reversion. That’s not going to make anybody feel better. Hey, I’m really worried. Well, we haven’t really done anything to set up a tiered income plan, but that mean reversion thing, you know it’s going to happen.
Steve:
You just start throwing around terms. Well, there’ll be some mean reversion that we’ll do some tax loss harvesting. Yeah, that’s going to be great. That’s
Dave:
Harvesting and mean reversion.
Steve:
Oh man. Alright, I think that’s about all I’ve got here today. Thank everybody. Thank you everybody for listening. Hope people stay cool out there. Looks like by the time you’re listening to this, hopefully it’ll have cooled off a bit, but we’ve been in some very, very hot high heat index days here, so I hope everybody has a good and cool summer and we will check in again next month.