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Crushing Your Summer Money Goals

Published on June 20, 2023

John Hagensen

The weather is heating up and you’re dreaming about your summer adventures. But before you start booking flights, find out what practical strategies you should employ to keep your financial goals in sight. (3:12) Plus, discover the best place to start when paying off credit card debt (42:50) and enjoy a peek behind the curtain to see how John invests his own personal wealth. (36:56)

Episode Notes

Presented by Creative Planning, each week Host and Managing Director John Hagensen cuts through the headlines and loud takes to challenge the advice you may have been given and reaffirm what you know to be true. Plus, don’t miss his weekly interviews with Creative Planning specialists as they cover investing, taxes, estate planning and many other areas that impact your financial life!

John Hagensen:  Welcome to the Rethink Your Money Podcast, presented by Creative Planning. I’m John Hagensen. Ahead on today’s show, we’ll discuss the biggest regrets of retirees so that you can avoid hopefully those regrets for yourself, my conversation with Creative Planning Chief Market Strategist Charlie Bilello, as well as a deep dive into exactly how I invest my money. Now, join me as I help you rethink your money. Let me share a little story with you. I’m a giant sports fan and a big NBA fan.

For those of you following the Denver Nuggets, just won their first NBA championship in the franchise’s history over 40 years. They beat the surprising Miami Heat who came into the playoffs as the eighth seed and upset the number one seed, Milwaukee Bucks, followed by the New York Knicks and then the Boston Celtics in seven games to reach the NBA finals. Their architect is the legendary Pat Riley. He’s an ex-NBA player and probably most well-known for his time as the head coach of the Showtime Los Angeles Lakers back in the day when they had Magic and Kareem. But a little less than a decade ago, he had his sights set on free agent LeBron James.

Now you may remember this. This is when LeBron did the controversial decision ESPN Hour special to state where he was going to take his talents, which of course he said, to South Beach. Riley knew that to win championships, he was going to need LeBron on his team and pair him with their current star, Dwayne Wade. So, armed with a packet of information, he entered their meeting, but when he got in there, something happened. Pat realized that simplicity was the key in this whole recruitment of LeBron, and he distilled the entire pitch down to just one page. That’s right, just one page. Why did he do that? Well, because he understood what motivational author Stephen Covey once said. The main thing is the main thing.

For Pat Riley, winning was the main thing. Everything else, the statistics, the accolades, the fame, they all faded away in the face of that singular focus. He knew that by keeping the main thing, the main thing at the forefront, success would follow. He famously walked into the meeting with LeBron and his agent and his business manager, and he dropped down loudly on the conference table a bag, made a big noise. When LeBron opened it up, all that was in there were all of Riley’s championship rings. You see, all the other teams’ pitches were focused on having us poster up in Times Square or his business ventures or his movie and TV opportunities in Hollywood. Riley said, “If you want to win, you come here. That’s what I’m about.”

I encourage you to keep the main thing the main thing. Of course, the pitch worked. LeBron played four years for the Heat making four straight NBA finals, winning two NBA championships. Now let’s shift our attention from the basketball court to your financial life. How often do you find yourself, I know I do, tangled in a web of complexity, juggling a multitude of financial goals, investment strategies, and endless to-do lists? It’s no wonder you feel overwhelmed and struggle sometimes to make progress. It’s hard, a lot going on. But what if I told you that the path to financial greatness lies in simplicity? It’s found in identifying the main thing that will move the needle in your wealth plan and having the courage then to prioritize it. It’s about recognizing that you can’t do it all at once.

That’s just far too overwhelming, but that real progress is going to take time. So, here’s what I want you to do. Take a moment right now. Think about your financial journey. What is the one thing, the one most needed thing that will make a significant difference this summer? I mean, summer’s the time to relax, but it’s not a time to relax on your financial goals. So, maybe it’s paying down debt, maybe it’s building an emergency fund, or perhaps revisiting your investment strategy or getting your estate plan finally completed or reviewing your tax strategies. Maybe you say, “I’ve never had a tax strategy. I’ve never met with anyone about taxes in advance. Maybe it’s simply committing to a written defined financial plan.”

Whatever it is, make it your focal point, direct your energy towards it and make sure you keep the main thing from a financial perspective the main thing. But imagine if LeBron had lost sight of that, he would’ve ended up on the Knicks rather than winning world championships. I know, sorry to all you Knicks fans out there, but the outcome might have been entirely different. Similarly, in your financial life, don’t get sidetracked or distracted. If you don’t have that detailed financial plan, that is absolutely the main thing. If you’d like to meet with a local financial advisor just like myself here at Creative Planning that’s not looking to sell you something, but rather provide you clarity around your entire financial life, visit creativeplanning.com/radio now.

Well, it can be fun to daydream about all the hobbies that you’ll have time for and the trips that you’re going to take once you’re in retirement, but a 2021 study revealed that 26% of retirees don’t have the lifestyle they wanted in retirement. According to that same study by Coventry Direct, 53% of retirees regret not saving earlier and 32% aren’t sure whether or not they’ll actually be able to live comfortably for the remainder of their retirement. I have seven of the biggest regrets that people have about retirement. You may be thinking, “Well, John, you’re not in retirement. How can you know these things?”

Well, because I’ve met with thousands of retirees in my time as a financial advisor, and these are the most reoccurring themes that I see from those who have already entered retirement and are now realizing this is different than I expected. First regret is not diversifying investments. Now, what do I mean by diversification? Well, the obvious one is you’re concentrated in one or two stocks, but diversification is more layered than that. You want to diversify your asset classes, stocks, bonds, real estate, commodities, cash. You want to diversify sectors and industries, technology, healthcare, consumer goods, finance, energy. How about geographic regions?

Little over 50% of the world’s market capitalization are United States stocks, but what that also means is that a lot of great companies exist outside of our borders. You want to diversify company size, large cap, small cap, midcap. Well, I just like the big guys. Well, a lot of the big guys used to be small guys and they had a lot of growth, which is what made them now large cap stocks. You want to have exposure to those companies before they make these huge run-ups and you want to diversify across different investment styles, growth, value, maybe a blend of both. So, remember, diversification doesn’t guarantee or protect against all losses, but it can absolutely help manage the risk of your whole plan blowing up due to some unforeseen economic or market event.

Next regret I see from retirees is not seeking professional financial help. Now, I know you’re rolling your eyes, I’m talking my book, but I firmly believe it. Every aspect of my life where the stakes are high, I want guidance from someone who’s educated in that arena and who has tremendous experience. Vanguard, probably the largest do-it-yourself investment platform that exists, did a study on what they called Advisor Alpha. They found that through broad-based financial planning, behavioral coaching, cost management, asset location, not just what you own but where you own it to ensure tax efficiency and total return versus income investing were all areas where financial advisors collectively added a lot more value than the typical advisor charges.

So, if you find the right advisor, and again, I am biased, but I believe wholeheartedly, the cost that you pay will be more than offset by the value that they’re providing. Next regret is not preparing for diminished capacity. The reality is at some point in your life, my life as well, hopefully, it’s far down the road, you’ll need more help with certain tasks or decisions. Not planning for that can lead to regrets, because once you have cognitive decline, you can’t set that plan up. My question for you is, do you have a good continuity plan? We went through this with a close family member of ours, but my sister’s a financial advisor. I’m a financial advisor.

The plan was dialed in and well-constructed and thank goodness it was in advance, because with all the other dynamics that are being juggled, at least we know that the financial side of things are taken care of. Another regret is not practicing retirement first. Here’s what I’d want to encourage you to do. Trial run your retirement one year prior to retiring. Now, I’m not saying you should wait to plan for your retirement until a year out, obviously, but once you are 12 months from retirement, open a new bank account. Transfer the exact minimum balance that you hope to keep in your bank accounts once in retirement. So, maybe that’s $25,000 or $50,000 or $100,000. I mean depending upon your situation, it may vary.

Then transfer the amount of income you plan to pull from your portfolio and to receive in social security and any pensions from your main checking account into that new beta retirement account. What you want to be looking for is whether that balance, let’s say it’s $50,000, is increasing or decreasing on a quarterly basis. If it’s staying about the same, then you’re planning for expenses once in retirement is probably pretty accurate. But if six months in, that $50,000 is at $30,000, you may be spending more than you realized you were. You want to recalibrate that either by reducing expenses or making your retirement plan a bit more realistic. You want to do this before you actually retire and stop receiving a paycheck, which again is why I want you to practice retirement first.

Don’t have that regret. Another regret, and this is a big one, is not having a purpose in retirement. Your only focus for retirement shouldn’t be to leave your 9:00 to 5:00 behind. All the research shows us that social connections are the biggest part of happiness and contentment in retirement. Well, if most of those social connections are occurring at work and that’s where you’re using your God-given skills to make an impact on others, it can be very lonely once in retirement. So, have a plan for those social connections prior to retiring. Another one is not having enough non-working friends. If you retire early, sometimes that sounds great, but then you look up and you’ve got all sorts of free time and your spouse is still working.

Most all of your friends are still working, your family members are still working. It’s like, “Oh, do I want to go to a matinee by myself? I don’t know.” So you’ll want to look at that as well. Finally, the last one, which might be the most important, is not having a plan to replace your income. You want your income plan dialed in. Do not leave that to chance. How much can you take? Where are you taking it from? What are the tax implications? How are the investments going to be sold? What’s going to be the strategy? For example, many of our retirees who need income, we direct deposit on a monthly basis, the exact dollar amount that they need and it hits their bank account out of their investment accounts just as when they were working. There’s no disruption.

In some cases, people even want it biweekly, just like their paychecks. Man, we have the dollar amounts land just as they always have, zero disruption. That is a big regret getting into retirement and having anxiety around where you’re going to receive income from and whether ultimately it is sustainable. So, my suggestions, be diversified, have a great advisor, have your estate plan dialed in if something were to happen to you cognitively, trial run your retirement in advance, figure out where you’re going to define purpose and the social connections that you will have and make sure you know exactly where you’ll receive income from.

If you have any uncertainty or questions about exactly what your retirement will look like, speak with one of our credentialed fiduciaries now here at Creative Planning, so that we can provide clarity around what you’ve worked a lifetime to save. Visit us today at creativeplanning.com/radio. Why not give your wealth a second look?

My special guest today, he’s Creative Planning Chief Market Strategist Charlie Bilello. Charlie has been named by Business Insider and MarketWatch as one of the top people to follow on Twitter and his market insights are often featured in Barron’s, Bloomberg, and the Wall Street Journal. He is also an award-winning author. Charlie has a JD and MBA in Finance and Accounting from Fordham University and a Bachelor’s of Arts in Economics from Binghamton University. He holds the chartered market technician designation. Oh, and by the way, also has a certified public accountant certificate as well. Charlie Bilello, welcome to Rethink Your Money.

Charlie Bilello:   Thanks, John. Great to be with you.

John:     I want to start with over a half million Twitter followers. So, when did you start on Twitter? Did you intend initially to become this influencer or did it just happen? Talk to me about how that’s evolved over the years.

Charlie: Yeah, definitely not and I don’t recommend becoming that big, because it becomes unmanageable and you get an increasing number of haters, the more followers you have. No, it started out about 10 years ago and just posting charts anonymously actually. People responded well to it, so I just kept doing it. Similar to investing, what I tell people about Twitter is it’s a game of compounding. So, if you keep putting out quality content with no expectation of anything in return, that’ll keep compounding on itself.

You’ll get more retweets, more exposure, and the numbers just grow from there. It’s taken 10 years to get to that point. So, it’s definitely not an overnight thing, but Twitter’s a fun space. You just got to be very careful about who you engage with on there because you get some strange and often extreme replies even in the financial world where you think it’s not politics, it shouldn’t be things that people get that angry about, but oh, they do, believe me.

John:     Don’t put too much stock in the trolls in the comment section.

Charlie:   Absolutely. Try to ignore that. It’s the only way you’re going to keep your sanity and stay on there.

John:  Well, for those who are unfamiliar, share a little bit about what you post on your Twitter.

Charlie:  Yeah, so almost every tweet is accompanied with a chart. What I’ve learned is pretty simple. People would rather see a chart than read text. If you combine the short text, which Twitter is perfect for, with a chart, I don’t often give my opinion with the chart. So, you can interpret it the way you want, but it’s anything from economic data to market data to sentiment data. It really spans the gamut to other stuff as well. Just anything interesting that I’m reading or learning about, I like to share and put it out there.

John:  Let’s transition over to inflation. There was positive signs related to inflation. People are always wondering, “What’s the best hedge against inflation? What do you see related to inflation now that it’s showing a sharp move lower?”

Charlie:  Yeah, so good news on the inflation front, we have now 11 consecutive months of CPI moving down on a year-over-year basis. So, that doesn’t mean the prices are going down, which is difficult for people to understand. It just means the rate of increase in terms of those prices is now down to 4% over the last year, which is much better than where we were last June. We were at 9.1%, which was the highest levels that we’ve seen in 40 years. Scared obviously a lot of people. That was the big hot topic last summer. If you remember, gas prices in the US went over $5 a gallon. That was really all anyone could talk about. There was a thinking that that was just going to continue, that extremely high rates were going to continue.

We’ve just seen a steady decline every single month to where we are today. If you dig into that 4% number, you’re seeing a lot of good signs. What we’re seeing is lower energy prices. So, you’re going to see it at the gas pump obviously. You’re going to see it in your utility bills, even your electricity bills, and you’re going to see it in places finally like the supermarket. So, we’re finally seeing food price inflation start to move down in a meaningful way. That’s something that everybody talks about. Remember a few months ago, we were talking about the price of eggs and they really skyrocketed. They were over $4 for a dozen eggs and now that’s come down significantly. I think they’re down around 45%. So, you’re seeing a number of good areas where inflation’s improving.

John:  You just need to have chickens. We have four chickens and so we get our eggs and it’s great on the household budget. I encourage people that chickens are an easy pet to have and they actually give you something of some value.

Charlie:   So you could have taken a nice capital gain there back in January.

John:  Oh, yeah.

Charlie: I don’t know if you’re day trading chickens.

John:  I held them longer than a year, so it would’ve been long term. It was really good. Yeah. I’m speaking with Creative Planning Chief Market Strategist, Charlie Bilello. What do you think, Charlie, is there anything else you see potentially breaking? I mean we’ve seen with the banking crisis and some of those things. Do you think that the worst is behind us in terms of the ripple effect of inflation and then subsequent high interest rates, or do you think there may still be a few shoes to drop before we see the end of this?

Charlie:   So on the inflation front, just finishing that point, we have now for the first time after 25 months of negative real wage growth, we finally have wages outpacing inflation. So, that’s a huge factor. That’s something the Fed is looking at very closely. So, Fed policy is not going to be as aggressive here because they’re looking at that and we’re finally seeing what I say is the really the only path to prosperity. If you look at the last 100 years in the US or any country around the world, it’s really that wages outpacing inflation. That’s how your purchasing power improves. That’s how your standard of living improves. That’s why for the last two years, if you look at sentiment data in terms of consumer sentiment or pretty much anything, people have been really feeling lousy. That’s because we don’t like it when prices go up more than our incomes.

Now, finally and hopefully, this continues. We’re starting to move in the opposite direction and there’s a number of factors driving that, but the biggest factor is inflation coming down and the money supply growth is coming down. We’re actually seeing money supply down 5% over the last year. So, all the factors that pushed inflation up to the highest level since 1980 are starting to move in the opposite direction. Now, will they continue to do that? We don’t know. We just take the data as we see it, but for at least one more month when we get that June inflation print in July, it’s going to show another sharp move lower. That’s simply because looking at the year-over-year rate of change, the number from last June was a big spike higher. That drops off.

So, we’re going to see around three point something inflation when we get that June number. So, the positive sign for people that are working is finally, you’re earning more than the prices out there. Now, what is the next shoe to drop in terms of is the banking crisis over? That’s a bigger question, and that gets into I think the housing market, commercial real estate. We can definitely dig into that if you like.

John:  That’s where I wanted to go next. I think a lot of people assume that may be housing. I know a lot of listeners perk up when you talk about housing because shelter’s one of those things outside of… You start talking about stocks and bonds or derivatives and people are like, “Oh, okay, that’s in my 401K,” or “Maybe I don’t have a lot in the stock market. That doesn’t affect me.” But housing is something that all of us are thinking about. We’ve seen a huge impact on a market standstill due to rapidly rising interest rates. How do you think about home price appreciation moving forward?

I think a lot of people expected a massive drop. We saw it level off. Obviously, real estate can be very regional in terms of what happens with it. But what do you see broadly when it comes to home price appreciation now that we’ve seen these rate hikes?

Charlie:   So I did a big study on this to try to break it down, because really in the last 20 years, we’ve seen two boom and bust cycles and that can change people’s expectations in crazy ways. So, if we looked at the home price bubble that we saw in the early to mid-2000s, we had this rapid rate of appreciation where home prices really skyrocketed higher and they outpaced the rate of inflation by an enormous amount. What I look at with home prices is the relationship to incomes. When they exceed people’s incomes by a wide margin over a short period of time, well, now you know it’s going to be problematic because it’s going to become less affordable simply. The situation we’re in today is very similar to that housing bubble in terms of the lack of affordability.

The difference today is that interest rate spike in terms of mortgages doubling over the past two years. So, you have this double whammy in terms of prices ran up, they doubled over the last decade, up 40% in just the past two years, but you also now have interest rates much higher. You’re talking about 6, 7% mortgage rates. If you look at the average monthly payment for most people, it’s a doubling of that average monthly payment. Obviously, people’s incomes haven’t doubled, so something has to give. So far, John, yes, it’s been surprising we haven’t seen prices plummet, but that’s really a function of low inventory levels, but what we have seen is activity really plummet.

So, prices have come down from their peak last June in most places if we look around the country, but not significant enough to make that affordability equation change. It’s still very much unaffordable. If you ask people who bought homes in 2019 or 2020 or 2021 with these low mortgage rates, if they could have afforded the same home they’re living in today, if they had to buy that home, the answer in almost every case is no. So, the question is, well, where are those new buyers going to come from that can’t afford?

John:  Yeah, I mean, we just didn’t see that 20, 30, 40% correction, which would’ve been needed to offset the higher rates for a similar mortgage. To your point, even if someone’s estimate on Zillow is down 7% from when they bought it in 2021, most of them say, “I’ll take that every day and twice on Sunday because my mortgage is at 3.75. My payment’s still lower. Even my home, if I had to sell it tomorrow, is slightly down in value, I’m still in a better situation.” So I’ve been asked by a lot of my friends and clients, what do you think is going to happen with real estate? I say, “Well, I look at my neighborhood in particular, 300 houses or so. There’s one house for sale right now.” So if you don’t have any inventory, prices are not going to drop significantly when there’s just looking to that supply and demand equation.

Charlie, let’s talk about a recession. We’ve basically been hearing for two years that a recession’s coming that we were in a recession. Okay, now, no, no, we weren’t in a recession. We maybe were, but it’s definitely coming. I’m getting a little fatigued on the recession conversation. What do you think about an upcoming impending recession, first of all, and then secondly, whether we see one or not, how should investors approach recessions and corrections in your opinion?

Charlie:   Yes, you’re right. We’ve been hearing that recession now for what seems like a very long time. There’s always predictions, but I think during that inflationary spike, it felt like a recession for a lot of people, not in the sense that they lost their job because that was definitely the missing component. We can talk about that, but in the sense that their wages weren’t keeping pace with inflation. They’re feeling poor, and they’re saying, “Well, that typically happens during a recession.” But the US economy’s a diverse economy, has many broad different sectors. If you look at them as a whole, we’re not yet seeing a downturn. Now, what are some things pointing to a potential recession, let’s say, in the next year or two? No one can guess the timing.

Well, there’s a number of factors. You can look at things like the yield curve, which is inverted, and I know that’s a word many of the listeners probably aren’t familiar with, but that simply means short-term yields. So, yields on three-month treasury bills are higher than long-term yields 10-year treasury bonds, and that’s not a typical situation. You typically have longer term yields at a higher level, and that historically has been a pretty good leading indicator for the economy. You also have sectors like manufacturing showing a pretty clear downturn if you’re looking at things like ISM manufacturing. Then you have the housing market, which we already talked about, but in any kind of metric, whether it’s sales or prices, anything related to the housing market, if you look at Home Depot in their last earnings call, they’re talking about people are not doing big projects anymore.

They’re shifted. They’re spending, not doing as many discretionary purchases. Obviously, if you’re not selling as many new homes, you don’t need as many appliances or that industry’s being affected. So, you have a number of things. To me, the most important signal that we’re seeing currently is retail sales and that’s slowing on a nominal basis, but if you adjust for inflation, it’s been negative now for a number of months. Why is that important? Because the US economy is driven over 70% of activity is due to the US consumer and the US consumer showing signs that they’re finally pulling back. So, credit card interest rates, of course, John, skyrocketing over 20%. So, hopefully, anyone who’s listening to this before you even think about investing, pay off your credit card debt.

Number one, you’re earning a 20% return just by doing that, but that’s becoming an issue. So, people are purchasing less because they have to spend more on that interest payment there. Then you look at things like auto loans. They’ve skyrocketed, and the percentage of people that are paying $1,000 a month for a car, which would’ve seemed crazy a few years ago, well, that’s jumping higher. Then of course the biggest purchase people make, their home, the cost of finance, that is going up. If you look at the percentage of your income that you need to buy a home today over 40%, which is the highest we’ve seen going back, even higher than the last housing bubble.

So, higher interest rates, and this is what the Fed has wanted by hiking interest rates from 0 to 5% is going to hurt demand. They call this demand destruction. If you have lower demand, you have fewer dollars chasing the same amount of goods, well, prices will come down and we’ve seen that. But the negative side obviously is you’re going to have a decline in economic activity.

John:  So if all that’s the case, what do you think investors should be doing to approach a recession?

Charlie:  Number one, understand that recessions are just a part of markets, they’re parts of the economy, and that every recession in the past has been followed by an economic expansion, just like every bear market in the S&P 500 has been followed by a new all-time high. So, you’re going to get it. Now the question from there is, well, don’t stocks usually go down during recessions or at least in advance of recessions? The answer is yes. So, then the follow-up to that would be, well, why don’t I just get out until the recession is over? Two problems with that.

John:  What if the recession’s already priced in, Charlie? I mean, we already saw a big drop.

Charlie:   Correct, right. So, maybe last year’s decline where the S&P went down over 27%, maybe that was already anticipating economic weakness to come. It’s possible. Maybe it was just response to inflation or something else. There’s always noise in the stock market, but I think the key point that you’re getting at here is the stock market is not the economy. They’re two very different animals. The stock market’s a reflection ultimately in the long run of the aggregate of the company’s earnings over time. In the long run, they’re very highly correlated, but in the short run, you can have an economic downturn.

Do you remember 2020? We had the biggest decline in GDP since the depression. Everyone was saying, “Well, stocks have to continue to go down.” No, stock started going up and they kept going up throughout and that confused a lot of people. How could that possibly be? Well, once again, stock market, not the economy. We saw a boom in terms of corporate earnings due to the stimulus programs and many other factors there. That drove up the prices of stocks.

John:  Anytime somebody tries to time the market, prospective client, a client wants to get in or out, I used 2020 as an example, because imagine in 2019, you’re sitting there in December and you say, “Hey, I’ve got a crystal ball. Let me tell you what’s about to happen.” You explain the pandemic. All right, what do you want to do with your money? Any rational person would say, “Let’s short the market or let’s be in cash.” Then the S&P finishes up 20% for the year. This disconnect that you’re referring to, and that’s what makes it so hard, because not only do we not go to the future, but even if somehow we did know the future, the way the market would respond in the short term is so often contrary to what our logic would be.

Charlie:   Great point. Every bear market is different is what I tell people. Every recession is different. The bear market we had in 2020, boy was that different, because it was only one month. It was the shortest bear market in history. It was a painful month, 35%, but in the blink of an eye, if you closed your eyes and woke up a few months later, it was like it never happened. That’s a strange thing and no one would’ve predicted that, as you said, going, “Oh, we’re going to just shut down the entire economy for the month of April and the stock market’s going to hit a new high few months after that.” People would have said you’re crazy.

John:  Anyone actually thought that they could time the market had to at least throw their hands up that year. Okay, maybe this is more difficult than I thought. Maybe this is why people say it’s hard to time the market.

Charlie:   It’s very hard. So, stocks often peak before the start of recession. They start moving lower. So, let’s say you were sure, John, that the recession’s going to start in December of this year. Okay, we’re six months out from that. Okay, you say, “I’m going to sell today and I’ll buy back in the future.” Well, now you have to say stocks are going to go down how much during the recession and every recession is different in terms of how much they go down and when do they bottom. When do they start looking forward in terms of the eventual recovery?

If you look at early 2009, 2020 is a great example, but I love 2009 as well, because earnings on the S&P 500 gap earnings actually went negative at the fourth quarter of 2008. We’re getting that data in the first quarter of 2009, and everyone’s saying, “Gosh, this is going to be like the Great Depression. Stocks are going to go…” They were already down 50 something percent. They’re going to go down 80%, 90% because we have negative earnings.

John:  And then came March 9 of 2009, right?

Charlie:  It never looked back from there. So, when you talk about even earnings, right? In the short run, the market’s looking ahead to better earnings. So, we had an earnings decline last year. It was not a huge decline, but pretty significant. Companies had difficulty with inflation just like people had, and they made adjustments to that. You saw huge cost-cutting. You saw companies just get much more efficient. They worked their way through it to the point where earnings this year are turning positive again. That too, nobody really expected.

John:  That’s shocking.

Charlie:   Companies are able to adapt that quickly. So, I think broad point, stock market is not the economy as an investor. Even if you knew when recessions were going to start and end, you couldn’t say what the stock market is going to do, because it does something different every single time.

John:  That’s so true. I’m joined by Creative Planning’s Chief Market Strategist Charlie Bilello. I know this is probably the most boring advice and I say it basically every week on the show, but that’s why you only invest longer term monies in the stock market. You don’t have to worry about the short term noise. You’re not going to be able to predict it anyway and fill in your shorter term needs with safer, lower expected growth vehicles that are more stable.

Charlie:  I love that. Yeah, I love that advice. There hasn’t been a better time since 2007, so a pretty long time for you to earn money on that cash. You just have to do something about it. You can’t just sit there. A lot of people have this inertia and they’re forgetting that yields have gone up and they’re thinking, “Well, they still must be zero. They haven’t checked around.” But if you look around, you can get 5% now in FDIC insured savings account. Many different online banks are offering it. You can get treasury bills. You can buy that directly, one-month, three-month treasury bills over 5%. There’s really no free lunch in markets, but there is a free lunch in terms of getting a higher yield on your cash with just minimal effort.

As you said, a lot of people that dismiss cash in terms of the long term, we know stocks trounce cash. There’s no comparison. Stocks have done it about 10% a year historically, the best inflation adjusted asset class by far, and cash has done around 3% on average. So, huge spread, but that peace of mind that you get knowing you have an emergency savings account and then some in case the stock market goes down, you’re saying, “Well, I have this. It cash doesn’t matter. Stock market is in a different bucket. It’s a long-term bucket.” What I always say to people is you have to look at the stock market at least 10 years out. If you need the money in the next year for a house, buy a car, stock market is not for you. But if you’re looking out 10, 20 years, great example, John, is 20 years.

There’s never been a down period for the stock market. So, learning to play the long game as an investor, when you turn on the news, it’s hard to do this because we always hear that Dow is down this much and the S&P is down this much and this particular day. In the short run, the stock market really is a coin flick. It’s better odds than if you or I went to Vegas played blackjack or roulette, but not much higher. You’re talking about a little bit higher on a daily basis.

John:  I think it’s 52. What is it like 53, 52%, something like that?

Charlie:  52, 53% of daily days are positive. That’s not great odds, but you extend that out to 20 years even during the Great Depression had you bought at the peak in 1929, which I’m sure many people did, 20 years later had they stuck with it.

John:  A lot of listeners remember that.

Charlie:  Yes. Lot of people thinking about that Great Depression. I’m sorry to bring it up too soon. Yes, I know.

John:  Well, and to your point about the buffer, I mean, I always think of that bond or cash position too as part of the value is it allows you to not have to force sales stocks when you don’t want to. So, it’s that Charlie Munger idea of not interrupting compound interest unnecessarily. I appreciate your time here. I’m looking forward to having you back on. We didn’t even get to topics that I wanted to talk about, but thanks so much, Charlie. Tell the listeners where they can find you out on Twitter.

Charlie:   Yeah, just Charlie Bilello on Twitter, also find me on YouTube. We put out a lot of good content on the Creative Planning website as well. So, take a look there for sure. The goal, John, for everyone is just to help investors achieve better outcomes. I’m not immune to everything that people are feeling in terms of emotions, right? Controlling your emotions, that’s the key. Through education, through knowing some history, putting things in context, hopefully, we’re going to help investors achieve better outcomes. I think we’re doing that and we’ll just continue to fight the good fight.

John:  You are making an incredible impact. I love having you on the team. You put out some of the best content of anyone in the financial industry, so really appreciate your time today and look forward to speaking with you again soon.

Charlie:  Absolutely. Thanks, John.

John:  That was JD, MBA, CPA and market technician, Charlie Bilello, our Chief Market Strategist here at Creative Planning. If you’d like to meet with one of our local financial advisors just like myself here at Creative Planning, visit creativeplanning.com/radio. There’s no obligation to become a client. There is no cost, so why not give your wealth a second look to ensure that you are not missing anything? We manage or advise on a combined $210 billion for families in all 50 states and over 75 countries around the world, 100 CPAs, 75 attorneys, 300 certified financial planners coordinating your strategies, because we believe your money works harder when it works together. Don’t wait any longer. Visit creativeplanning.com/radio now to meet virtually or in person.

Well, it’s time for listener questions, and one of my producers, Lauren, is going to read those for us. Hey, Lauren, what do we have for today?

Lauren:  Hi, John. It’s a pleasure to be here again. So, we’ve got two listener questions today. The first one comes from Greg in Seattle, Washington. He says, “I’m a big fan of your show, especially the Seattle Connection. Go Hawks. I’m curious about how you invest your money. What is your strategy when it comes to growth, especially over the last couple of years?”

John:  Well, I will start Greg by saying, go Hawks right back at you. Surprise season last year. Nobody believed in Gino and John Schneider and Pete Carroll looked pretty smart moving on from Russell, but of course, no one listening cares about that. So, great question. Let me walk you through how I invest and I’ll begin by saying broadly, I invest my money at Creative Planning and with the exact same strategies that our clients do here at Creative Planning. With seven kids and over 1,100 households that I oversee as a Managing Director here at Creative Planning, my ultimate goal is to optimize for simplicity.

So, in short, when my wife, Brittany and I are strategizing our money, the question we are attempting to answer is, how can we accomplish our goals with the least amount of complexity and friction possible? From a financial planning standpoint, I have myself retiring in our plan at 65 years old, although I plan to never retire. Who knows? Maybe that’ll change down the road or a health event will force me to slow down, but that’s what I have in there for the base facts of my plan. I have all of our current expenses indexing with inflation and never dropping in retirement. I don’t plan on spending less money in retirement than I spend while I’m working. I think that’s a big mistake that traditionally people have done within their financial plans.

We’re going to spend in retirement 75% or 85% of what we spent when we were working. No, I’ve never seen that to be true. You have more time to travel, more time to spend on the golf course, more time to pick up other hobbies. I mean, shoot, you’ve got time on a Wednesday afternoon to go see a movie because you’re not working. If anything, I think people spend more money certainly in the go-go years, which represent the first decade or so of retirement. From a risk management standpoint, I have all insurance that you would expect, including an umbrella policy. In case one of my kids’ friends is over and hurts himself on our trampoline or jumping into the swimming pool, I want to make sure that we’re covered.

All of our tax and estate planning strategies are in place for gifting, giving. If one or both of us were to pass, things would be organized. I’ve actually named Creative Planning Trust Company as the executor if something were in fact to happen. So, that my beneficiaries are not depending upon a family member, but rather have great continuity with an institution that handles estates each and every day. All of that is the setup to say the overall financial plan is what dictates the investment allocation. That’s what informs when we need the money. That’s the most important question to answer when determining how to invest. When do we need it? Once that’s figured out, every dollar in our plan has a stated purpose.

If that purpose is a decade or longer from now, it’s in the stock market. If it’s two years from now, we’re in bonds. So, in light of that, we are almost entirely in stocks, small amount in alternatives, small amount in fixed income for those unknown and shorter term needs. I carry a mortgage on my primary residence because it’s fixed at less than 4% and inflation alone is higher than that. Meaning that payment’s getting easier and easier every year. So, I see no strategic reason to try to pay it off early. Diving a bit deeper into the investments, I use a mix of ETFs, exchange traded funds, as well as direct indexing where you essentially open up an index fund or an ETF and own each security individually, which provides for significantly more tax flexibility in non-retirement accounts.

The last 12 months is a perfect example of why you do that. Over 300 of the 500 stocks within the S&P 500 are down in value, but the index overall is up. By having individual tax lots, we’re able to realize some of those losses to offset gains. Greg, I don’t trade. I don’t buy concentrated positions of individual stocks. I don’t have any outside accounts that are “play accounts”. All of my money is professionally managed at Creative Planning. I review it on a periodic basis with a fantastic wealth manager. He’s a CFP just like myself. He’s also a CPA, like so many of our wealth managers are here at Creative Planning. We double check that our plan still aligns with Brittany and my objectives. I certainly don’t spend time and energy focusing on short-term movements and values of my accounts.

I max out my retirement accounts. Those dollars are 100% in stocks because I have more than 10 years on those monies and they’re in low cost index funds. One last little tip from a family planning standpoint, we did open Roth IRAs for our older children. They both have earned income, and that is an easy way to gift them money and have it be tax-exempt for them moving forward. So, that’s it. I have a client binder just like every other Creative Planning client does. It has all my insurance deck pages, my tax returns, my estate planning docs, and my estate planning diagram, my asset allocation, my personal balance sheet, everything in one spot, organized, because again, I see freedom, flexibility, and simplicity as the greatest value of what I’m saving.

So, thank you for that question, Greg. We do have an office there in Bellevue, Washington. If you’d like to meet with one of our local advisors, you can do so by requesting it at creativeplanning.com/radio. If you’re listening and you think you’d benefit from having a detailed financial plan, a second opinion on your life savings, visit creativeplanning.com/radio now to speak with a local financial advisor. All right. Lauren, what do we have next?

Lauren:  Our next listener question comes from Christina in Chicago. Christina says, “I’ve been struggling with my credit card debt for a while and I’m looking for a good approach to pay it off. Keeping in mind, it will need to be done over a period of time and not all at once. I won’t say the full amount, but it is above 5,000. What’s the best approach to pay this off? Thanks, John.”

John:  It’s interesting, Creative Planning President Peter Mallouk tweeted about this recently with a chart showing US credit card balances year over year, the percentage change. This is a real debt crisis. Americans right now are carrying more on their credit card balance than they have in decades. The biggest spike since 2007 and the average credit card rate right now is over 20%, which is a record high. So, all that to say, Christina, you’re not alone, but basically, there are two primary approaches to paying off debt. One is called the debt snowball and this is the one that Dave Ramsey has popularized, which is where you start with the smallest balance. Regardless of the interest rate, pay that off first, then roll that payment into your next smallest balance until your final card is paid off.

Now, the alternative approach is called the debt avalanche. This is similar, but instead of starting with your smallest balance, you start with your highest interest rate card. This strategy from a numerical standpoint is the most effective at paying the least amount of interest. But some people would argue that the debt snowball has a better psychological advantage because you’re making progress and fully paying off cards potentially quicker. Either strategy will work. I would encourage you, if possible, try to consolidate your cards into a promotional 0% interest credit card if that’s available to you. Best of luck, Christina. Thank you for that question. We do have an office there in Chicago if you’d like to speak with us here at Creative Planning.

Well, thank you for those questions, Greg, Christina. If you have questions just as they did, submit those to radio@creativeplanning.com. Well, as we come to the end of today’s show, I want to take a moment to reflect on the greater purpose that money has in our lives. We spend a lot of time discussing lowering taxes, lowering costs, investing efficiently, having a great financial plan and an estate plan, all of which are important, but not in and of themselves. They’re important and valuable because of the implications planning can have on important parts of our lives.

The reality is that when you use your money in a way that is aligned with your priorities and with your values, it can be an incredible tool that enables you to accomplish great things, not just in your life, but to also make a positive impact on the world around you. Throughout history, there have been individuals who recognized that profound impact that money could have on others’ lives, and I’m consistently inspired by those people. One such inspiring example is Andrew Carnegie, a legendary industrialist and philanthropist who amassed great wealth during the Gilded Age, devoted the latter part of his life to giving back to society. He had this deep-rooted belief that it was the duty of the wealthy to use their resources to improve the wellbeing of others.

You may be familiar with some of Carnegie’s philanthropy, but it was transformative and it was far-reaching. He funded the construction of over 2,500 libraries, providing access to education and knowledge for countless communities. His endowments established universities, research institutions, and cultural landmarks that continue to enrich society today. While you and I aren’t going to likely amass the wealth that Andrew Carnegie had, we can learn from that example of the incredible power money holds. If there’s one takeaway you have listening to Rethink Your Money, I hope is that it’s not merely about accumulating wealth for our personal comfort and indulgence.

It’s great that it helps us have more freedom and peace of mind, but true contentment with our money is found in recognizing that our resources can be a catalyst for change. It can uplift others in need and be a vehicle to create a lasting legacy of compassion and of generosity. So, I want encourage you, regardless of the size of your bank account, you have the ability to make a difference. Whether it’s supporting the local charity, maybe it’s investing in sustainable businesses or using your financial influence to advocate for causes that are close to your heart, your money has the potential to bless others in remarkable ways. This is important because we are the wealthiest society in the history of planet Earth. Together, let’s make our money matter.

Announcer: Thank you for listening to Rethink Your Money, presented by Creative Planning. To hear past episodes or learn more about the topics and articles discussed on the show, go to creativeplanning.com/radio. To make sure you never miss an episode, you can subscribe to Rethink Your Money wherever you get your podcasts.

Disclaimer:  The proceeding program is furnished by Creative Planning, an SEC registered investment advisory firm that manages or advises on a combined $210 billion in assets as of December 31st, 2022. John Hagensen works for Creative Planning and all opinions expressed by John or his guests are solely their own and do not represent the opinion of Creative Planning or this station. This commentary is provided for general information purposes only, should not be construed as investment, tax or legal advice, and does not constitute an attorney-client relationship.

Past performance of any market results is no assurance of future performance. The information contained herein has been obtained from sources deemed reliable but is not guaranteed. If you would like our help, request to speak to an advisor by going to creativeplanning.com. Creative Planning tax and legal are separate entities that must be engaged independently.

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