Just in case you didn’t believe we were a Washington DC area firm, we decided to take the month of August off from podcasting. So we start with our summer recap, including Steve’s trip to Colorado and Dave’s rare use of the word “frothy” to describe the market’s big returns in July. We also give a stern warning on falling prey to presidential politics and investment emotions. All this and more on episode——of PFLN.
*Best Pod title ever if the Dow Jones was pronounced the “Dough Jones”
Steve:
Welcome to Plan for Life now episode one 14. We are here in September. Dave, we missed August. Did you realize that?
Dave:
I realized it felt like, I feel like I was in my fifties last time we did a podcast.
Steve:
Oh, come on.
Dave:
It just feels like that long. It was that long ago, but so yeah, I’m not surprised we missed August, but you know what? I think everybody who’s listening to this would say, you know what? That’s okay guys. I was doing my own thing during August anyway,
Steve:
Our apologies just didn’t happen in August. I was doing, I had a ton of vacations in late July into August. Went down to the Outer Banks in late July. So really enjoyed it down there. I know a lot of people from this area go down there. Then I went out to the Cambridge National Conference out in Colorado. So I wanted to talk about that for a couple minutes here. First of all,
Dave:
Okay, good.
Steve:
Absolutely loved Colorado. Never been before, dying to go back to ski out there, but we were there in August, obviously no skiing. We did a lot of hiking as my family went with us and really liked Colorado. Our oldest, who’s a sophomore, right? She’s a sophomore in high school now all of a sudden she wants to look at schools in Colorado,
Dave:
Right? And then you’ll talk about the Cambridge and when my family was younger, like yours, even younger than yours, we went to Colorado in the summer and loved it. Also a big plug for Colorado.
Steve:
Yeah, it was
Dave:
Travel era. Very
Steve:
Cool.
Dave:
Then from the conference, you haven’t really, you and I haven’t discussed a lot of, I guess you’re actually going to talk about financial things from it, but you did show me the last party night at the conference, which looked like a huge bar mitzvah. They were,
Steve:
Yeah,
Dave:
That’s pretty clip that you showed me.
Steve:
That’s pretty much dead on. It was. They had a theme and it was glow night on the rocks or something like that. I didn’t realize that people would actually come prepared and dress up for this stuff. So about 50% of the people came to this glow night on the rocks, fully decked out in all their neon gear and everything.
Dave:
Wow.
Steve:
I did not, but really great
Dave:
Band that does not follow our personal history of not taking conferences that seriously. That started in the year 2000.
Steve:
Oh, it was cool though.
Dave:
We never promoted. I like going to the conferences sometimes it’s just we don’t promote that level of fanciness.
Steve:
Oh, did I tell you Dave, where the conference is going to be next year?
Dave:
I don’t think you have. No.
Steve:
Okay. It’s going to be at the Gaylord. Apparently Cambridge has signed a deal with the Gaylord for a decade and at National Harbor. So
Dave:
Really a little, little bit less exciting. I’ll be sure not to go. I didn’t go to color. I’m not going to the Gaylord at National Harbor. I can go there with my children.
Steve:
No, but I’m going to make you and Amy go to a couple of the events there.
Dave:
Maybe I should go since it’s at
Steve:
Home. I mean, it’s right there.
Dave:
But
Steve:
Anyway, so went to this conference and my take on these conferences, and I’m sure it’s the same in any industry, is you want to come away from the conference, you go to a bunch of these meetings and believe me, they’re not all great. And I mean a lot of ’em were very interesting. But you want to come away from these conferences with just a couple of good useful, Hey, I want to implement this. I want to keep this in mind here. So I definitely got a couple of those things out of it. Most of that’s not going to be of interest to our listeners here, but here’s what I think is of interest and is important. So we don’t spend a lot of time with our clients talking about who Cambridge is and how they fit into what we do with clients and how we work with people.
We have this discussion a lot of time with new clients, and I’ll use this example of, I’ll say, Hey, our back office is Cambridge. We are independent financial advisors. What does it mean to be an independent advisor? Well, I always give the example. If you go to work with a Merrill Lynch advisor, a Morgan Stanley advisor, they are employees of that company. And as an employee, Merrill Lynch, Morgan Stanley pays for their rent, pays for their health insurance, pays for their assistant, pays all these expenses. And as an employee, you have to sell your clients what the parent company tells you to do. And sometimes that’s fine, but not always. You don’t want this parent company saying, and believe me, I’ve got friends who are advisors at these firms and they say most of the time it’s fine. And then all of a sudden Merrill Lynch, who’s owned by Bank of America will tell you, Hey, you should sell more CDs or more checking accounts or whatever. So I use this example of saying, okay, at Cambridge we are independent advisors. Cambridge has this back office that supports us, gives us all the same compliance and legal structure, but they don’t tell us what to sell to our clients.
Dave:
And it is an interesting relationship on the, because there is a policing to a broker dealer like Cambridge, like this podcast, and every broadcast you and I have done since 2000 together, 2007, whatever is goes through compliance. Basically they will listen to every word that we do, and if there’s something that’s not right or that’s not allowed to be broadcast out to the public based on financial rules and all that, then it is deleted out of this podcast. So part of their role, even though we don’t answer to them about investment strategies, is fact to
Steve:
Trying make sure that’s a good thing. That’s a good thing. Yeah. They’re trying to make sure that we abide by the rules, the rules of finra, the rules of the SEC, which were subject to both of those. Okay, so you’ve got the general idea. Cambridge is an independent firm, all these other ones. And I tell people, listen, Cambridge is not the only independent firm around, in fact, that is, we moved to Cambridge in 2010, and that has definitely been the trend in the industry more towards independence. I think advisors get it. I think clients get it. So that is definitely the direction things are going. But here’s another trend that is going on within the independent channels, and frankly it’s going on in across all different businesses. Private equity firms are buying up businesses left and and if you don’t know what private equity firms are, private equity firms are some of the big firms out there, Blackstone, Apollo, KKR.
If these names don’t mean anything, don’t worry about it. But basically these are people that buy businesses, take them private. So they could be private already. They could be publicly traded. They try to get operational efficiencies, so they try to squeeze every penny out of things and then they flip the business and sell it a couple years later. I mean, that’s generally the model. A lot of generalizations here. And if you want to Google it, buying everything private equity and you can find articles about them buying vet offices, dental practices. They’ve been buying a ton of insurance companies and what else are they buying? They’re buying a lot of broker dealer and registered investment advisor firms because what can they do with these? They can combine them together, they can get operational efficiencies, they can squeeze and cut costs, and they can turn a nice profit.
So why am I telling you all of this? Because Cambridge has made a point ever since we joined in 2010, and they’ve made a point every year since, and they made a big point at the conference of talking about how they are not going to sell to anyone, to private equity to another firm, a merger, anything like that. So they made this big point of staying independent. And of course anybody can say these things, but it made me feel really good. I’ve always felt really good about Cambridge, but it made me continue to feel good and feel even better about the choice that we’d made just knowing that behind the scenes here, their motivation is not squeezing every dollar out, making the most profit. It really is trying to help us do the right thing for our clients.
Dave:
I would say personally, I think the end game of something like that, if private equity is basically hurting, how would that hurt? Probably wouldn’t hurt the client. Our clients more than would hurt us with the services that we get from them. Maybe down the road we get, I mean honestly, you and Amy deal more with the services we get from them than I do, but I deal with them too. And they’ve been really what I would expect from what’s called an independent broker dealer since we started with them. And that’s all you can ask for sort of offensive lineman in pro football. If you don’t hear their name called, that’s good. They’re doing their thing behind the scenes and that’s good. So I
Steve:
Like that analogy there. Yeah, because really you shouldn’t be seeing their name front and center and thinking about them a lot. It should be going smoothly and you don’t think about it. Alright, so that was probably my best takeaway from the whole conference besides the fact that Colorado is really cool and nice. So let’s shift gears here, and I think we have to talk about this, Dave tonight is the first and I think only presidential debate that’s scheduled. So by the time all of you are listening to this, I’m sure there’ll be a million takes on the left and right of who did well, who didn’t do well. But I think we need to go over something that we’ve been going over in all of our meetings with people. But Dave, this is actually a different chart. You’ve never seen this one before.
Dave:
Oh my God, I love it.
Steve:
It is kind of blurry here. I zoomed in quite a bit. But we get these questions an awful lot where people will say, well gosh, Steve, if Trump gets reelected, I don’t want to invest anymore. Or if Kamala gets reelected or gets elected, I don’t want to invest anymore. It’s just going to be terrible for the stock market. It’s going to be terrible geopolitically, whatever. And we’ve been using this one chart in a lot of our meetings that shows if you decided to only invest during Republican presidencies and if you decided to only invest during democratic ones, and not surprisingly, to me at least, is that’s a really bad strategy that you should stay invested regardless of who’s president. But Dave, this chart that I’m sharing with you, which doesn’t really do our listeners any good, but I’m going to explain it. This actually goes back even further. So most of the time when you see stock market returns quoted, they always start in 1926, somewhere around there. This one goes back to 1900.
Dave:
It does.
Steve:
So we get
Dave:
Teddy Roosevelt had a good year. I could see, yeah,
Steve:
Teddy Roosevelt, 23% change during his presidency there. So this one actually goes all the way back to 1900, uses the Dow Jones Industrial average. And the bottom line is that the returns from then until now under Republicans have averaged 6.6%. And under Democrats, they have averaged 6.6%.
Dave:
Oh my gosh.
Steve:
So I’ve seen this data spliced and diced different ways. Of course, you can pick a different starting time period and it’s going to really impact the returns if you just say, okay, we’re going to start it at this time or that time. But the bottom line is, and the point that I try to make to people is that companies are very good at figuring out to make money in any sort of environment and ways to grow profits. That’s what capitalism really encourages, ways to make money, ways to grow profits regardless of the political environment. So this idea that I’m not going to invest because one person, one party or another party is president. I think you just have to throw that out entirely.
Dave:
All the data this and all the other data just points to that. It is one of those bottom line emotional things that have to be thrown out the window. If you’re investing, get over it. You’re allowed to have your political opinions and be super emotional about it, but when it comes to your money, you are making a huge mistake. If you’re going to go down that road.
Steve:
And let me just take this one step further here, because this was sort of an add-on to that where some people will say, yeah, yeah, I get it. You can’t time the market of figuring out the political party, but what I can do is certain presidents are going to be more favorable to certain industries or certain sectors. And if a Republican gets in, the assumption is, well, that’s good for energy, that’s good for oil stocks. And just as a counterpoint to this, this took a comparison of President Obama and President Trump and looked at the best sectors under Obama and the best sectors under Trump. They were the same. The top three were the same for both consumer discretionary technology, healthcare, all three, the best performers under both presidents and energy. So those oil stocks that we would’ve thought man, oil stocks would’ve been the best under Trump, a Republican drill baby drill. Actually that was the worst performing asset class there. So it’s not just an absolute given that, oh, okay, a Republican’s in, I should put everything in oil stocks. And people will say, well, why isn’t that the case? There’s just a lot more factors going on than just the president. And the president controls certain things, but he doesn’t control everything.
Dave:
Things are out of control. Look at, I mean, COVID is a great example. Hey oil, I believe at one point oil was minus 10 a barrel, which I was like, are you just going to wait? You’re going to pay me to give me oil? I can get a bunch of barrel. I didn’t understand that from a practical point of view, but what was that? That was a huge disruptor could have happened during any presidency and that has nothing to do with who the president is. That was going to happen regardless as so many other factors, which is why these statistics are what they are.
Steve:
So let’s back up from talking about the political stuff and like we said, after the debates, and by the time you’re listening to this, who knows the narrative could change entirely in one party or the other, but let’s talk about generally Dave, what the market’s done this year. Market as we sit here today, I think is up 15 or 16% year to date. That’s the s and p 500. And what we saw was the market was really ripping through the end of July. So probably through the last time we did a podcast, it was really doing well. And then the first week or 2nd of August, the stock market pulled back big time and you saw the NASDAQ down something like 15%. I think the s and p 500 was off its highs by about eight and a half percent. I know it didn’t quite make it to that 10% threshold.
That’s considered a correction, but certainly pulled back there. And I think anytime when you have a market doing really well, and I would say that coming off 2023, being up 26% and then through July, whatever it was, up 18, 19%, I’d say that’s doing really, really well. When you have the market pull back a little bit, you have to stop and say, hold on a sec, this is very normal. This is not weird or strange or Oh my gosh, what’s happening here? That’s a very normal thing. Stock markets, I think the statistic is that in 94% of years you’ll have a 5% pullback, and in something like two thirds of years you’ll have a 10% pullback. So it’s not rare or uncommon. And frankly, when a lot of stocks are up that much, it’s pretty healthy and normal. It’s not an abnormal event for markets to pull back like that,
Dave:
Right? It’s just not a great idea to be paying too much attention to it. No. When you’re a consumer, I’m just thinking of my friends who aren’t my clients, I’m not talking about our clients, I’m talking about my friends who are retired, and I always think to myself, huh, your advisor should be telling you not to do what you’re doing, which is every day looking at the stock market, which naturally when it’s up fine, but when it’s down by a lot, a lot of commentary, oh, I’m losing so much money today.
Steve:
Right?
Dave:
Well, oh my gosh, I’ve lost so much money today. It is. I don’t say anything to my friends about it. They know what I do. We talk generally about stuff, but I basically say to myself, not a good attitude. You are really, this is not the world’s thing. The best thing you should be concentrating on right now, stick to your golf game. That’s not that good. Don’t worry about today in the stock market.
Steve:
Well, I mean the problem is that so many of us benchmark off of that high watermark value. So your portfolio gets up to a million. You think I’ve got a million dollars. Well, two weeks later it’s down to 950,000. You’re thinking, oh my gosh, I was at a million. Well, the beginning of the year you were only at 850,000. So unfortunately you’ve got to take the downs with the ups there, and it seems so simple, but that is the key to long-term success in investing.
Dave:
Not only that, it’s like, I mean, you and I behind the scenes when this stuff goes on, we’re like, yeah, it’s about time. I think we’re the, I mean honestly, yeah, not only surprised because the reality is you look at July, end of June, July, the market was so frothy, as I was saying to you, that I find that to be a little unhealthy, quite frankly. It’s too frothy. Absolutely.
Steve:
Yeah. So just one more thing I wanted to touch on because this has changed pretty dramatically as well, is interest rates are down, I’d say a pretty decent amount from the beginning of the year, of course, depends on what you’re talking about. But I think the 10 year treasury is around 3.7, 3.8%, something like that. And the 10 year treasury had peaked out above five, probably late last year or so. But let’s put this in terms that a lot of people will see every single day in their bank account. CD rates. CD rates. For a while there you could get a one year cd. I think the highest that we saw was five and a half percent. I think it touched up there, five and a half percent for a little bit. Now a one year cd, the best I’m seeing is around 4.2%. So that’s a pretty dramatic difference there. And I don’t know why, but I think there is something magical about that 5% threshold for a lot of investors where, hey, if I can get above 5%, you know what? I’m good with that. But it starts to dip below 5% and they’re like, nah, I don’t know. I don’t know if it’s even worth it. 4%, that’s not even worth doing.
So I think that’s interesting because you will see that if everything plays out, you’ll see that rate continue to go down over the next year or so. And my only takeaway from that is there are places, particularly with fixed annuities where we can lock in some of those rates for three years or five years or even beyond, where we can say, you know what? We can lock in 5%. Yeah, it’s not as good as it was earlier in the year, but that’s still pretty good for something that’s a very low risk part of the portfolio.
Dave:
Yeah, we don’t like making predictions, but making the prediction of interest rates slowly falling, seems like one that you got to go there a little bit. I mean, the Fed has basically indicated that they’re going to lower the prime anyway, and it’s just like, yeah.
Steve:
Yeah. I mean the market,
Dave:
I like to make predictions, but that one is certainly looking like one that’s coming true.
Steve:
The market is expecting basically 2.25% decrease in rates between this year and next year. Now maybe it won’t wind up being that much, but even a one to one and a half percent decrease in rates, you’re going to see that directly impacting your money markets, your CDs, all of those things.
Dave:
And your high interest savings.
Steve:
Your high interest savings. Absolutely. I mean, that one will change the day that the fed changes. It’ll be overnight, it’ll decrease. Alright, well we will check in with everybody again soon. I am quite confident we’re going to do another podcast, Dave, before the election, so we will definitely hit one in October there.
Dave:
Absolutely.
Steve:
It’d be an interesting next two months and hope everybody is enjoying fall so far, and I’m sure it’ll, it’ll be 2025 before we know it.