Hmm, what does that mean? You’ll have to listen to all of Episode 131 of Plan For Life Now to figure it out!
Steve:
Welcome to Plan for Life Now, episode 131. Dave, it is great to see you awake for this podcast. As the longtime listeners, or just last time listeners will recall, last time we logged on, you were taking a little snooze there.
Dave:
Yeah. It’s because I was early and then I think we talked about this already. I don’t want to go over it again. It was the time of day when I get tired. Fair enough.
Dave:
Two
Dave:
O’clock. The two to three range is brutal for me, but right now it’s 12:03, so I’m wide awake. And I have my coffee also. Very important.
Steve:
Yes. Us coffee drinkers will know how critical that is. Well, welcome everyone. Thanks for joining us. We are here on August the 6th. I can’t believe it’s August. I don’t want to be one of those people who go, “Oh, where is the summer gone? I can’t believe how quickly it’s gone by.” But it feels like that. It’s crazy how quickly the year has gone.
Dave:
The summer goes fast, especially when you still have kids in the school system, the Montgomery County public schools or any public schools, because by the time school’s over, July 4th gets there real quickly after school’s over. And then July flies by and all of a sudden it’s August 6th.
Steve:
I’ve got a friend, a guy I work out with who’s a teacher, and the other day he wasn’t there working out. I go, “Oh, Mark, where were you?” He said, “Well, I had to go back and start training these student teachers.” It was the beginning of August. Oh, gosh.
Dave:
Oh, by the way, I’ll throw this in. Since you know I basically live in Ocean View, Delaware during the summer. It’s interesting that because of that story about your friend who’s a teacher working out and other things, it actually gets a lot less crowded here starting, this is the last week. Even though it’s the first real week of August, it’s the last week that it’s really crowded here in the Bethany Ocean View
Steve:
Area. Because everybody go back –
Dave:
Go ahead.
Steve:
Yeah, I was going to say, I mean, some school systems are going back next week. It’s really early. I know in Virginia, my sisters, they’ve got kids in Virginia, they all go back a week earlier than Montgomery County. So some of them go back really early.
Dave:
Right. There’s school all over the DMV, there’s sports. College kids go back to college early or at least starting getting ready. Usually,
Steve:
Yeah.
Dave:
And it’s all good for us here because it starts to winnow out.
Steve:
All right. Well, we’re not here to talk about our kids going back to school or Dave, you’re beyond that, but my kids going back to school or any of that. So we planned on doing this podcast because I’m actually going out of town, going to be actually in Europe for the next week and a half or so. So we said, “Yeah, let’s get our August podcast in early. Let’s not let it go there.” So we put this on the calendar and planned on doing this. And then you and I both said, “Gosh, I don’t really know what to talk about.” I don’t know. I mean, sometimes we do – I
Dave:
Believe my quote was, “I got nothing.”
Steve:
I mean, sometimes we do the podcast and I feel like, okay, yeah, we definitely want to address what’s going on out there right now. And I do want to go a little bit of a market review here. So let me get into the market review and then I’ll tell you how we solved our lack of any sort of topics to talk about. So stock market has done well this year, had a little bit of a slump, a little bit of a pullback, couple percent in July. And then the last week it’s just started to rip again. So overall, the stock market is up, I think it’s about 12 or 13% on the year. But here’s what’s interesting. And for those of you that done reviews with us recently, we’ve talked about this, is this is the first year in a while, basically since 2022, when that magnificent seven, if you don’t know that term, I really don’t feel like rattling off all the companies again, but it’s the big technology companies.
So if you don’t know it, just Google it, Mag seven, you’ll find it.
Dave:
Google’s one of
Steve:
Them. Google is one of them. The Mag seven is only up 9% on the year where the S&P 493, which some clever person basically said, “Okay, you got the S&P 500, take out the Mag seven. Now you got the S&P 493.” The S&P 493 is up 15%. Wow. So that has not been the case, like I said, in 23, 24, 25. So that’s actually a really healthy thing in a stock market when it broadens out and it’s not just a couple of stocks participating. It’s much broader than that. It’s across different industries as well, not just technology.
Dave:
Do you have any insight into why I had to throw that one out to you?
Steve:
Well, I mean, I think it was when the Mag seven had been up 40%, 50%, 35% for the previous couple of years, a lot of those gains have sort of been pulled forward already. So some of these other companies where they haven’t been doing quite as well, more of the money’s been flowing to the big technology companies. People say, “Oh, there’s actually value elsewhere.” And it all ultimately comes down to valuations. And if you hear people throw that out there, what does valuation mean? It just means what’s the stock price you’re willing to pay relative to the earnings of the company? So some of these companies are trading at something like 30 or 40 times earnings, and that’s pretty expensive compared to the rest of the market around 20. So I think investors kind of said, “Hey, do I really want to buy Nvidia or Apple or Google or Facebook at 40 times earnings?
Or could I buy one of these not as cool companies, but a smaller company at 12 times earnings?”
Dave:
Yeah, but the general sentiment is the same. The stock market is the place to be. It’s between this and that, not between the stock market and something else right
Steve:
Now. Well, I mean, I hadn’t even planned on talking about crypto or anything, but I mean, crypto is just dead. There’s no activity, no excitement, no juice there. So definitely you’re right. The stock market is the place to be. And then real quickly, a summary of the bond market. The bond market of course does not get nearly the headlines of the stock market, but most people, certainly most of our clients have some allocation to bonds there. And the interesting thing about the bond market is it is absolutely flat this year. So I think I looked at the numbers as of yesterday. The aggregate bond market is up 0.02% this year. So I’m going to call that absolutely flat. Wow.
And that’s a little surprising because if you think back to a year, year and a half ago, we were waiting for the Fed to cut interest rates. We were thinking, oh yeah, Fed’s going to cut interest rates. And certainly when Trump gets his new Federal Reserve chairman in there, when he gets, who is the guy? Jerome Powell out of there. He’s going to get somebody who will aggressively cut interest rates because that’s what Trump wants. And now he’s got his guy for now at least, Kevin Warsh, and the market’s thinking that rates are actually going to go higher. So that’s been what has hurt the bond market. But I would caution people because I saw this happen last time when interest rates went up. People saw that their bond investments didn’t do that well. And they said, “Yeah, I should get out of bonds.” Well, the interest rates have gone up.
That might hurt your value temporarily, but your yields are now higher. So now you’re getting a better yield on your bonds. So I actually think bond investors are really well positioned going forward because most of the yields, depending on how risky and how long-term you are, five, 6% yields, that’s a very solid investment for most people.
Dave:
Yeah. So we just sit here. How long has it been since 2022 when everything was down?
Dave:
So
Dave:
I’ll call this that sometime then this latest iteration of the bull market has been pretty spectacular.
Steve:
Oh, it’s been fantastic. And I mean, I remember talking with people in 2022 and it is, I don’t want to say hard to remember, but it’s easy to forget exactly what you felt like back then. Because in 2022, we were still coming out of the pandemic. Interest rates had shot up so much. Inflation was really high. It was hard to find a real good reason why the market was going to turn around. I mean, it was very difficult to come up with that. And I remember even pointing to this one chart that I trot out every now and again, and it shows investor sentiment. And it’s one of these things where when investors feel really pessimistic, that’s a great time to invest. And when investors feel overly optimistic, ooh, that’s not such a great time to invest.
Dave:
Right. And now we’re getting. I’m sorry, go ahead. Finish that though.
Steve:
Well, I was just going to say, back in 22, we were at this extreme level of pessimism. And that was the only thing I could point to, to say, “Well, this might be positive.”
Dave:
Right. I mean, I looked at it back then. I would just look at things statistically and know that not every year is going to be like 2022. When you look at both the stock market and the bond market, bond market was more historically down,
Dave:
But
Dave:
The stock market wasn’t good. So now we have this run, and I definitely feel like we’re now at the point, we’re not still the tech bubble. The tech bubble, the one thing I remember so much about it at the time where a lot of my friends became stock experts. Yeah, you’re kind of a lawyer, but you’re also a stock day trading expert.
Now in 1999, I’d only been in this business a couple years. So friends of mine were saying, “You should really go to this guy.” I’m not going to say his name. “He’s really good. We’ve done amazing with this guy. “And it was like, I don’t feel like that’s the case. I don’t feel like everybody is leaving their jobs to be a stock picking expert right now. I don’t think we’re at that stage of this bull market, but we are at the stage when you start to look at individual stocks, the rise of some of these has been so high. It is hard on the. Remember there’s the fear greed index. It’s hard to look at your normal investing in stocks like funds and ETFs and say,” Yeah, okay. Yeah, 23%. I guess that’s good. But you can look at some individual stocks that have been off the charts in the last year or two.
So I start to look at that, not for myself because I better be pretty disciplined at this stage. But as some clients might look at it, and remember the brain is a powerful tool. There’s fear and there’s greed.
Steve:
Oh, absolutely. And I mean, this is very anecdotal, but just in our conversations with people when we’re talking about, “Oh, hey, you’ve got some extra money to invest.” Coming out of 2022, the easy thing, people were saying, “Oh, I want to invest in either CDs or fixed annuities or things like that where I get a set rate of return for a set number of years.” That was a slam dunk. Now I feel like people say, “Yeah, okay, I could get five and a half percent guaranteed, but maybe I should go into stocks. Maybe that’s the place to be.” And yeah, I think it is that shift that people have in their thinking and their emotions there.
Okay, let’s shift gears to what I was saying at the very beginning, that we had nothing. We had nothing to talk about. And so I did something that I found myself doing quite a bit recently, which is asking ChatGPT a question. And if you’re not familiar with ChatGPT, I’m not really sure where you’ve been for the past three and a half years, but it’s one of these, what they call large language models that you can conversationally ask questions. And I found myself using it quite a bit. And of course, I’m somebody who’s always, I say always, but I do remember a time on the internet before Google. I tell my kids about this, that I did not have Google in college. We had Yahoo and there was something called Ask Jeeves. Do you remember Ask Jeeves, the internet button? I was
Dave:
Thinking about what I had in college and most of the people listening to this, it was like ask your brain or find an encyclopedia.
Steve:
Oh, yeah. Yeah. I mean, I didn’t have a personal computer in high school.
Dave:
I was back in the day where, boy, is this a tangent? But I had a very good memory for trivial things, always have. And back from the era when you had to really look stuff up and people would say stuff and I knew it was wrong and I would sucker them. It’s like a poker game. “Yeah, are you sure about that? Give me like an actor. “I don’t know. I don’t think you’re wrong. I’d work it into a bet ultimately. Smart. But then to find the answer, you can’t just go to Google or anybody you had to then
Steve:
Research. And go to a library.
Dave:
Right. To find the answer to these things. But yeah.
Steve:
Anyway, what I was going to say is I’ve been using ChatGPT. I’ve always used Google. You have questions. I’d like to think that I know everything about financial planning, but you don’t. There’s obscure things about social security and about taxes and whatnot. So I’ve been using ChatGPT more and more. And one of the things that I love about it, and I also understand that this for some people creeps them out about it, is that ChatGPT knows me now.
Dave:
Yes.
Steve:
He knows that I’m a financial advisor, that I work with people in their 50s and 60s who are taking Social Security, who are trying to produce retirement income. So when I ask him –
Dave:
When you ask they?
Steve:
It’s a him to me.
Dave:
Okay.
Steve:
To me,
Dave:
It’s my chat. All right. Now we’re getting into a whole other subject of the proper way to talk about ChatGPT, but I also use it. I wasn’t going to fall behind on this technology like I did on the internet. And yes, I find, I don’t think it’s bad personally, but I could see why it would creep people out. I like the fact that they get to know you and tailor those answers.
Steve:
So I went here with all this background and I can look and see all the stuff that I’ve been, what do you call it? You don’t call Googling it, chatting it. I’ve been asking it, I guess. And I said, “I need some topics for my podcast. Any ideas?” That was my prompt right there.
Dave:
That’s good.
Steve:
And it gives me, of course, a very long detailed thing. Since your audience is largely people approaching retirement or in retirement and you spend your days answering client questions, I’d spend your time more on questions that people ask rather than an overall market summary.
Dave:
So we’ve already messed up.
Steve:
Well, yeah, I’ve already messed up. According to Chad,
Dave:
We’ve already screwed this podcast up.
Steve:
So he goes through all of these different topics, which I think are spot on. Social security, retirement income, taxes, estate planning, investing with all of these subtopics in here that any one of these would be really good. And then he said a couple ideas. He said, “You could do client question of the week and have that be a recurring segment.” And then he spits back to me questions that I have asked this week. So one of my questions, can my wife collect social security if she’s a Guatemalan citizen? Actual
Dave:
Client
Steve:
Question.
Can I make a qualified charitable distribution from an inherited IRA? Actual question that I asked. Talked about some stock hedging and some market linked CDs, but he’s spitting all these things back to me. And then he gives me my 10 favorite potential episode titles here. And retirement mistakes that cost the most. Okay, that’s a good one. The truth about Roth Conversions. What happens to your money when you die? How much cash should retirees keep? I mean, some of these are pretty generic and whatnot, but this is why I am particularly bullish on this technology because I view this not as replacing me or replacing even the need for thinking. I think some people think, oh, you just put into ChatGPT because you didn’t want to think about it. Well, if I didn’t do this, I’m going to Google it. I’m going to read a bunch of different articles.
I’m going to come up with a series of lists similar to this. So I think a tool like this is just that. It’s something that’s a tool that will help people be more productive, to be more educated, to be more knowledgeable rather than the sort of dystopian future that people are predicting where they go, nobody will know anything. All they’re going to do is plug it into ChatGPT and we’re all going to be so dumb and chat does all the thinking for us.
Dave:
Right. And I’m with you. Just like a podcast, doing the podcast, not just looking at. Chat, if we actually just did what ChatGPT said, honestly, it’d probably be a pretty boring podcast.
Dave:
No,
Steve:
It’d be totally
Dave:
Boring. Yeah. And it can’t replace personality. It can’t replace mistakes. Okay. Chat said we made a mistake because we did a market overview. Well, guess what? I don’t think it was a mistake. Could be whatever. A podcast is an insight into the human beings doing it. And that would be the antithesis of AI.
Steve:
Yeah.
Dave:
Great tool. Going to replace us doing a podcast and it’s not going to replace, in my opinion anyway, it’s not going to replace the nuance that is our business and many other businesses that require human communication and subjective thinking. Absolutely. Not being objective.
Steve:
I mean, I think of it in the terms of when people talk about that accountants were going to become obsolete because of TurboTax or something like that. And I don’t think accountants are obsolete at all. In fact, I think it’s hard to find good ones that the good ones are very much in demand there.
Dave:
A big article in business stuff about five years ago was how radiologists would be completely obsolete. It wouldn’t be a job anymore. Several of my friends are radiologists. They’re older in retirement age. The demand for radiologists is so high. The hours that they put in is so well paid that they’re not retiring. That’s the opposite of what that was supposed to be.
Steve:
Yeah. Maybe we will, I’m going to of course keep this or Chad will keep it for me and remember it. Maybe we will come back and touch on some of these topics in the future. I’m sure
Dave:
We will. We’ve touched on all of those topics in previous podcasts along the
Steve:
Way. I know, but I’m talking about maybe a deeper dive. One that jumps out at me, what happens to your money when you die? Just because I will often bring that up with people in meetings when I’ll say, look, here you’ve got an IRA. When you die, that IRA goes to whoever you named as the beneficiary. You named your two kids fifty fifty. It goes to them. It does not matter what you put in your will. It goes to whoever’s named as the beneficiary. And by the way, remember that you inherited some money from your mom 20 years ago and you were able to take distributions over your life expectancy? It doesn’t work like that now. Your kids are going to have to distribute that money out in 10 years. So I could see doing things like that. I
Dave:
Could totally see doing things like that. I could also see not giving Chet any credit.
Steve:
Oh, of course not. No. We’ll just say, oh yeah, that was something that people had questions about.
Dave:
Exactly.
Steve:
Yeah. And I mean, things I explained to clients this week, that’s not a bad idea. I mean, I did go through, I actually learned something brand new from a client. I don’t think it actually applies to his situation at all, but it’s interesting. Let’s say, this is probably an issue more that San Francisco-based advisors might have. Let’s say that you have a huge stock position in one particular stock, and you’ve got tremendous capital gains, and you want to diversify. You’re in this one stock, but you know that’s risky. There are actually exchange-traded funds that you can create, swap your stock for that exchange-traded fund, and diversify. I mean, to me – Oh, without
Dave:
Tax, no tax implication.
Steve:
Without a tax implication. You basically are able to spread the taxes out over, I think it’s a seven-year time period. I just learned that this week. I thought that was cool.
Dave:
That’s the first real interesting nugget. And how long have we been doing this podcast today?
Steve:
For all of you out there that have a concentrated stock position of, let’s say, $3 million or more, great solution there.
Dave:
I don’t know how long this has been going on. Maybe a half hour. We’ve given you a lot and a really useful, for somebody out there listening to this podcast, useful nugget. It’s been a lot, a lot of chat, so to speak, no pun intended, and a useful nugget.
Steve:
Personally, I listen to a fair number of sports show podcasts, things like that. I actually prefer when they’re just talking personal stuff, chit-chat, tangents, then they’re going hardcore into sports. So I kind of imagine some of our listeners are the same where they go, “Yeah, the market stuff’s okay, but I actually like it when Dave and Steve talk about other stuff.”
Dave:
You know what? Well, most of you who, if you understand our personalities, know that I write the little podcast blurb for each podcast. The title of this one is going to be A Lot of Chat and a Useful Nugget. That is the title of this podcast, and you’ll have to listen to it to find out which will be
Steve:
The blurb. Ah, it’s a good teaser. You’re good.
Dave:
And it’s kind of cool because you got to wait till the end to hear this part.
Steve:
There you go. All right, thanks for joining us. Enjoy the rest of summer, and we’ll talk to you probably after Labor Day.