There is no other word to describe recent stock and bond returns, other than awful. The six months ending June 30th ranked in the bottom 2% in history for a balanced portfolio. Dave and Steve discuss the current state of the markets and what we should expect for the rest of the year. What will the Secure Act 2.0 mean for your RMDs? Should I buy I bonds right now? And why are so many people filing early for social security? Hear all this and more in the latest episode!

Steve (00:05):

All right. Welcome to plan for life now, episode number 93, Dave, I have to admit to you when we’re, we’re counting the episodes, I start to get a nervous pit in my stomach thinking, oh my gosh, if we get to a hundred, I feel like I have to do something bigger or better or something like I, I have this nervous pit that, oh my gosh, I, I don’t know what to do for a hundred.

Dave (00:33):

Well, if when we get to episode a hundred, if we were to follow what got us to episode 100 is what people do. Then we would prepare absolutely nothing or the minimum amount that we normally do, because that would really be the best way to celebrate that type of

Steve (00:51):

Anniversary. <laugh> I feel like if, if, you know, if we were a real radio show with real producers, they would go back and they would like dig up funny moments from the podcasts or radio shows over time and play those. I just, I don’t have the time or ability to do that.

Dave (01:11):

No, we’re not going to do that, but we’ll see, we may come up with something who knows this still got seven episodes and the way we’re going, that might not be till sometime in January.

Dave (01:24):

Right. What we will do. It’s the summer unit.

Steve (01:27):

Welcome everybody here. We are in late July, checking in with everybody. I, I thought, of course for this episode, the first thing that we have to do is a review of the markets. You know, not like you’ve been waiting around for this podcast to come out, to find out how the markets are doing. Everybody knows that it’s been a, a pretty rough year to be an investor. And it doesn’t really matter what you’ve been an investor in. You know, of course the, the big headlines, you know, stock market S and P 500, certainly into bear market territory. At this point, I think at the worst, the S and P 500 was down 23 or 24%, something like that. And it, you know, it’s bounced back a bit, but it’s always hovering right around that 20%, uh, number lately. And of course, if you’ve been an investor in technology stocks, small cap stocks, right. Ugh. You know that <laugh>, that’s looked pretty ugly. You know, the NASDAQ has been down well over 30%. And

Dave (02:32):

Of course you it’s been, yeah. Those numbers. It’s like, we always look at the S&P and, and that’s bad enough, but the small cap numbers, like you said, the tech stuff pretty ugly.

Steve (02:44):

Well, and the, the interesting thing is it’s been those exact stocks that really carried the market for so long have, for the most part, really been getting crushed. So, you know, you look at Google down 28%, Amazon 34% Facebook, 55% Tesla, 33%. I mean, all these companies that have done so well are really, you know, dragging the market down at this point. So, you know, yes, stocks get all the headlines, but I, I would really say, you know, and, and you can throw in there <laugh>, we don’t even want to go down the, the crypto discussion. Uh, but I, I think, uh, the, the cryptocurrency argument that they can be a diversifier to stocks and go up when stocks go down, that, that didn’t play out too well, at least this year. All

Dave (03:41):

Right. I’ve decided, I, I know what I like about doing a hundred episodes of a podcast now that we were talking about that evidence of our opinion of crypto

Steve (03:50):

<laugh>. Wow. Believe me, I’ve said this many times before, I’ve heard really smart people. Tell me why crypto is the future of money and really smart people tell me it’s worthless. I, you know, I don’t think it’s entirely worthless, but I’m not willing to wage much at all on that.

Dave (04:10):

Right. But the, the school of thought of a lot of people, including us, is if you don’t get it, stay away from it till you do get it, at least probably feels right.

Steve (04:21):

Right. But you know what? I was going to say, stocks obviously get all the headlines, but in my mind, at least one, one of the things that sets this decline apart is we’ve been used to declines in the market. And it’s amazing when I was going through this chart with a client the other day, and she was like, wow, we, we haven’t had any declines that have come close to this since the financial crisis. And I said, well, we, we had that whole thing with the coronavirus that was down even more. And then we’ve actually had a bunch of these declines that were down 18 and 19%. And we never quite got to that 20. And she didn’t remember any of those, which, you know, I don’t blame her. She’s busy doing her own thing.

Dave (05:06):

Didn’t we have didn’t we have like, because we used to, when we used to do seminars and talk about the past, it was like 1999 or 2000. It was, it was a tech level. Yeah. Was the S&P then to take a major hit.

Steve (05:20):

Oh sure. Down basically 50%, you know, from 2000 through 2002 recovered a bit there and then down, I think 56% in the financial crisis. Um, but I, you know, I’m talking in the last decade, 12 years or so, you know, we’ve, we’ve had some of these declines, but almost, you know exactly all of these declines when stocks have gone down, bonds have gone up and bonds have been there is that diversify, you know, I’m scared of stocks. I want to get out of there. So, I’m going to put my money in bonds and be safe. And in my mind, that’s what really sets this decline apart is that bonds have not been that diversifier. You know, the broad bond market is basically down, you know, 10%. I think it was down as much as 12% at one point this year. So we have not had that classic relationship of, of stocks and bonds. Now I will. Right.

Dave (06:21):

Well with the turbo, with the turbo rate, increase being part of all this.

Steve (06:25):

Yeah. Not

Dave (06:26):

Surprising as to the reason.

Steve (06:29):

Yeah. I mean, you basically had expectations that the fed would raise rates one time in 2022 to now they’re probably on pace to raise rates 11 or 12 times. So you had a pretty dramatic shift in what people were expecting last year to what what’s actually playing out here this year. Um, so when people ask, well, why have bonds gotten hurt so much? Basically what you’re seeing is the same moves that you’ve seen in the past. But instead of happening over four years, it happened over four months. So <laugh> in the past when it happened over four years, it, you know, two or 3% per year loss, um, plus you get some income you break even doesn’t feel so bad when it happens over four months, you know, it, it feels pretty lousy here. So you throw all this stuff together. And what you had for the first six months of the year was pretty much one of the worst periods for a balanced portfolio.

Steve (07:36):

So to put some statistics to it in the bottom 2% of anything we’ve ever experienced for a balanced portfolio. Wow. So if you said, well, this feels pretty bad. Yeah. It was, was pretty bad there now, you know, I always finish as we’re, we’re doing meetings with clients, I go through all of this and they go, oh wow, this sounds really terrible. Um, and yes, I don’t know if we’re going to go into a recession, if it’ll be a, a bad recession, if it’ll be that soft landing, the fed really hopes for, you know, I’m not going to sit here and tell you that, but we can sit here and look at past recessions, past business cycles when the stock market starts to recover. And the stock market usually does pretty well after it has a really bad quarter. So I just had this chart in front of me here.

Steve (08:35):

Oh, here it is. Yeah. Um, so, you know, I took a look at, at some of the worst quarters for stock returns, going back to 1926. Yeah. And not surprisingly, a lot of the worst quarters were in that, you know, 19 29, 19 30, 1 32, you know, all of those things around the great depression, but you do have some bad quarters in the 1970s, we lost 25% at one point, um, 2008, we lost 22% and so on. So this ranks, as far as you know, the worst, I think it’s maybe about, I’m not going to count it 15th, 16th, worst, um, of all time for quarterly stock losses on average. So averaging all these together. One year later, after a bad quarter, the stock market’s up 18%, three years later, it’s up 40%, five years later, it’s up 65%. And you know, I keep going, right? So, you know, the, the point is that, yes, if you need this money right now to buy a house or to, you know, make some major purchase and you had money in stocks, that’s trouble. But if, if you’re like most of our clients where you’re not taking money out and one big lump sum, you’re taking that out over a long period of time. Um, we really have to, we have to let that natural market process play out.

Steve (10:04):

And just to wrap up this whole discussion on, on the markets here, I found this quote, I don’t even know this is on some tweet called investment books. Um, so I’m not even sure which book this is quoting here. <laugh> so my apologies to the author <laugh> but it says over decade, long time horizons, your investment performance will be mainly derived from how you handle corrections, bear markets and market crashes. During every single bear market. There will be times when you wonder if the losses will ever stop, you will always wonder how much lower the market can go. The economic news will be terrible. Other investors around you will be depressed. Pessimism becomes pervasive. And you know, we all know this and I feel like even a casual investor nowadays has seen something like this, but I think it always helps to be reminded.

Dave (11:05):

I think it does too. I think that’s, uh, it’s good to keep reiterating these things that was well written by the way. And yeah. You know, <laugh>, it, it, sometimes it really doesn’t start to get better until you think, Ugh, I’m doomed, but I’ll just hang in there anyway.

Steve (11:24):

Right? Yeah. A lot of people, they, they feel like that you go, well, I’m doomed, but what else am I going to do? I’ll just, yeah.

Dave (11:30):

Hang in there. I mean, I hope that’s not this case, by the way, having said that. Right. I don’t, I’m not thinking that, you know, clients aren’t thinking that, but, and hopefully we don’t get to that point with this one, but yeah. Sometimes, I mean the great recession was a perfect example of that.

Steve (11:45):

Right. Um, alright. Let’s shift gears, Dave, you sent an article this morning, just talking about social security. What, uh, what are workers doing with social security now?

Dave (12:00):

Uh, well the gist of that article was that basically they are taking it early. They’re not, they’re not looking at our software was the gist of that.

Steve (12:09):

Well, let’s, let’s, you know, argue both sides of this here. Of course, you know, what, what Dave’s talking about is, um, the software that will show you if you collect SOC, if you wait to collect social security, you know, say all the way till 70, you get those additional deferral credits. And if you live long enough, that makes sense. You know, and, and depends on the assumptions you put in, but for most people that breakeven point where you say, okay, I could collect at age 66 or 67, but I’m going to get a smaller benefit or I could wait all the way till 70. It’s usually going to be a break, even point in your late seventies, early eighties, where you’re essentially going to say, okay, I got the smaller benefit for longer, but now it’s about equal. And if you live all the way to 90 or 95, you’ll be glad that you waited to take that benefit.

Steve (13:08):

And, you know, once again, that’s easy to look at on a piece of paper where I will actually argue the other side of this is if you are in a situation where you are having to decide between, okay, my investments are down. I didn’t do a good job of diversifying. I don’t have any sort of safe or guaranteed assets that I haven’t lost money. You know, I, I basically was too risky. What can I do? I can either sell off some of my risky assets while they’re way down, or I could collect social security a couple years early in that case. I think you could actually make a good argument for taking social security.

Dave (13:55):

Absolutely. I think you’d make a statistical argument for that, that you would, our software would probably agree with that.

Steve (14:01):

Yeah. Because it, in that case, you’re allowing yourself to avoid selling those risky assets that are down right now. So, you know, maybe that’s part of it. <laugh>, I’m more guessing that, you know, most Americans just didn’t plan very well and <laugh> are forced to collect.

Dave (14:22):

I’m sure that, I mean, you know, that is the case,

Steve (14:24):

Right? Of course. And

Dave (14:25):

Remember part of, it’s not just not planning. Well, part of it is a lot of people are just in a situation that you can make an argument is no fault of their own where they’re just forced to do that.

Steve (14:39):

Yeah, no, I mean, you know, we, we discuss problems and issues here that, that frankly aren’t problems for a lot of people, they just don’t have the retirement savings to even, you know, have the flexibility to make these decisions. Um, and then the other part of that article that you sent was more people plan on continuing to work, which I think was news to absolutely. Nobody is, you know, when you feel more economic uncertainty, you’re probably not going to be so quick to give up that job. And you’re probably going to say, all right, well maybe I can stick it out for an extra year or two if I have to. Um, so it’s not, not surprising at all in my mind. And the next thing, see, Dave, actually, this was one of those shows where I actually did prepare a show outline or summary of things.

Dave (15:35):

That’s good. I like it so far.

Steve (15:38):

Well, it’s, you know, it’s when you haven’t done a, a podcast in six weeks or so you know that’s long.

Steve (15:45):

Well, I don’t know. I, I should go back and look, I shouldn’t say maybe it hasn’t been that long. Um, but it’s been a little while and I save these articles just as I come across them. And so when you’ve got a lot of stuff, although I will say sometimes I save these articles and I, I look at ’em two weeks later. I go, why did I save that? That’s not interesting at all. Um, but I, in this case, I, I did find a bunch of things. So one other thing just to touch on real quickly here, um, David, have you seen any, any info about this secure act 2.0, that’s working its way through the house and the Senate?

Dave (16:23):

Uh, I haven’t seen the latest on it. No. Okay. I’m going to let you inform me

Steve (16:27):

Well, so <laugh>, I think the, the original secure act kind of got lost in the whole coronavirus shuffle. Um, it’s probably not the right term for it, but the whole coronavirus thing, um, the secure act was passed at the end of 2019, went into effect in 2020 and January. And then of course, you know, February, March is when everything went down, but the secure act made some changes to required minimum distributions. Um, you know, it changed that age from, uh, 70 and a half to 72. Uh, it changed some rules around, um, how much the RMDs had to be and then also changed some rules around, um, inherited IRAs. That was actually probably the biggest thing that they changed. Right.

Dave (17:19):

So the 10 year, the 10 year thing you’re talking about, correct?

Steve (17:22):

Correct. Yep. And that’s, well, let’s just talk about it while, while we’re on it. Um, that basically says in the past, if you inherited an IRA, you were allowed to take a distribution over your life expectancy. So, you know, I inherited an IRA at age 35. I mean, I’m not 35 now I’m 43 now, but if I inherited it, then I could take a distribution over the rest of my lifetime. The new rules said that you had to do it, have to do it over 10 years. So that in my mind, that was probably the biggest change that really impacted people. Yeah. But for whatever reason, they’re talking about a secure act 2.0, so there’s have to be somebody out there clamoring for this. Um, and a couple of changes. Uh, first ones that that would probably impact our clients, the RMD ages. They’re talking about pushing that back even more so pushing it back to 73 next year, uh, pushing it back to 74 and the year 20, 30 and 75 and 2033.

Dave (18:30):

I have to start thinking of when I’m going to be these ages now <laugh>,

Steve (18:34):

It’s, it’s on the radar screen for

Dave (18:37):

You. How old am I in 2030? I’m 70. So I’m 74 and 2034. No, wait, no, no, no, no. I’m 70 at 2036. Excuse me.

Steve (18:48):

All right. Uh, catch up

Dave (18:52):

20, 34. I won’t even be able to come close to doing this map in my head.

Steve (18:55):

<laugh>, um, catch up contributions. They’re talking about increasing those. Um, you know, that’s basically, you know, how much you’re allowed to do as a catch up contribution right now is just 50 and older, but of course the house and Senate have different versions of this bill, but each one of them want to increase it even more. If you’re over 60 and qualified charitable distributions, you know, this is something that we bring up the clients an awful lot. Um, just because it’s a smart way to give money to a charity without, you know, essentially with avoiding, uh, paying taxes on money in an IRA. So right now you’re allowed to do up to a hundred thousand dollars per year. I don’t know the statistics, but I would say that 99.99% of people aren’t coming close to that. Um, so kind of hard for me to see how this, uh, <laugh> how this benefits everybody, but they want to index that for inflation.

Steve (19:58):

So you can give more and more a way to, to charity each year and a few other small things in terms of early distributions, making more exceptions for the early distribution credits or penalty there. All right. Had to cover that one last thing, Dave, that I wanted to cover, this is something that I’ve gotten a bunch of emails about. I can’t remember if I talked about this in one of the past podcasts, but it doesn’t hurt to touch on it again. Um, I’ve been getting a lot of emails from people about I bonds, you know, what are they? Yes. Um, how do I buy them?

Dave (20:36):

Good thing to touch on.

Steve (20:38):

Yeah. So iboss are something that you can only buy directly through the us treasury. So you go to a website, treasury,, I believe. And you are allowed to, as an individual put in $10,000, that means husband and wife. You could each put in 10,000, but you’re limited to that $20,000. Now these have always been around, but they’ve frankly have not gotten a whole lot of attention, uh, because inflation’s been so low, you know, prior to, to this year, inflation’s been running, you know, 2% per year for a very long time. So why they’re getting all the headlines right now is if you put money into IBOs right now for the first six months, you’re guaranteed an interest rate of 9.62%. Right. So if you talked about on an annual basis, you know, so if, if you wind up getting zero return after that, you’re at least getting 9.62 for that, you know, first six months. Right. But you’re probably not going to get zero after that because I doubt inflation is going to zero. You know, I, none of us can predict, but I think inflation will, yeah. Might taper off a bit, but it’s probably going to stick around

Dave (21:56):

Bottom line is you’re probably getting a really good rate for that first year, no matter what really good.

Steve (22:02):

Yeah. And I mean, let’s imagine that you put it in there, you got that big rate in the first year and then, you know, GU J Powell, just his dream comes true. He executes this soft landing and we get two and a half, 3% inflation for the next five years. Okay. You know, so you got a big return in the first year, you got two and a half, 3% for the rest of the time. That’s okay. Um, and I should say, that’s what the, the requirements, the holding requirements on this, you have to keep it for a year. You can, you can keep it for up to 30 years, but in those first five years, so after the first year, but before five years, if you surrender it, you’re going to pay a penalty of three months interest in my mind. That’s not a big deal at all. Because if we think about why would we surrender it? Well, we’d probably surrender it. If the returns on it were super low. So, if inflation’s a 2%, okay, so I’m going to pay half a percent interest to get out, no big deal. Right. If inflation’s at 10%, I’m not surrendering it.

Dave (23:11):

Right. You’re not getting out

Steve (23:13):


Dave (23:13):

Onto it. So those are, look that is a soft landing penalty for any type of investment like that. <laugh>, that’s a good deal.

Steve (23:23):

Yeah. So, um, you know, that’s, once again, something I can’t do, uh, we can’t recommend it for everybody because you know, just like any financial product, not everything is good for everybody. It doesn’t solve all the problems, but I think it’s worth looking at, um, if you’ve got some cash sitting around, that’s just doing nothing for you.

Dave (23:45):

Um, I don’t know if you’re near the end yet, but I am. I want to help you with, I do you write that little blurb at the beginning of these podcasts? Like a little preview blurb or does someone else write that?

Steve (23:58):

I, yeah, I write it, although you’re welcome to write it. If

Dave (24:01):

You want, I’m not going to write it. I’m going to give you a hint. And it would be something like this instead of their usual BS-ing and general pontificating, Steve actually prepared real information for this podcast.

Steve (24:15):

<laugh>, I’m not sure if I’m going to quite say that directly, but maybe

Dave (24:20):

I’ll, I, I don’t want you to say that act like

Steve (24:24):

Right, but,

Dave (24:25):

But good job.

Steve (24:28):

All right. Uh, we covered a lot of stuff there. Thanks for checking in. Stay safe. Hope everybody’s summer vacations are going well.