Announcer: Would you like an opinion on a financial matter you're dealing with? Whether it's about retirement, investments, taxes, or 401(k)s, Scott Hanson and Pat McClain would like to help you by answering your call. To join Allworth's "Money Matters," call now at 833-99-WORTH. That's 833-99-W-O-R-T-H.
Scott: Welcome to Allworth's "Money Matters." I'm Scott Hanson.
Pat: I'm Pat McClain.
Scott: Glad you joined us. With myself, my co-host here, we're both financial advisors, certified financial planners, charter financial consultants, helping people plan for their future and make the most of their finances, have some financial independence in their lives, get to a point where work's an option, not an obligation.
Pat: What else? What else do we do?
Pat: What else can we do for people that listen to our show?
Scott: I want you to have great joy, love in your relationships, forgiveness.
Pat: You were going on like an infomercial. It was pretty funny. It sounded almost like an infomercial. If you listen to the show, these are all the benefits that you will receive.
Scott: Well, if they act now.
Pat: Oh, that's funny. But we're a financial talk show. We talk about money. We talk about how money affects your life, we talk about financial planning, taxes, investments, estate planning, you know, 401(k)s, IRAs, debt forgiveness, all of those things, so... Yeah.
Scott: And before we get into calls, which would love to take your call. And by the way, if you've heard other calls and think, "Hmm. I've got a question for these guys to answer," or you want a second opinion, maybe someone's recommending something, or maybe you and your spouse are talking about something and, like, maybe you don't have quite full agreement, you want another opinion, we'd love to take your call.
And the nice thing about the way we structure things now is you don't have to call and wait on hold for 45 minutes and then not have your call answered. You call the number, we schedule a time when it's convenient for everybody to have you on. And 833-99-WORTH is the number to be part of the program. 833-99-WORTH, and we'll get you on. And we'll take calls here in just a moment. But before we do, I wanna talk a bit about the housing market because there's some interesting dynamics going on that we haven't seen in other periods of time. A couple of things. One, prices are high, still high. They slipped, barely slipped lately year over year. Little. Still for most markets. And we're seeing homes on the market longer, you're seeing some price reductions, but price reduction's relative to what? Right?
Pat: I had this conversation with a friend of mine the other day. I'm like, "I would've expected with this rising interest rates a much bigger, decline in home prices."
Scott: But we have not seen that yet.
Pat: We haven't seen it yet, but will we?
Scott: Well, one interesting dynamic that we've got at play right now, interest rates are roughly double what they were a year ago. So, interest rates now are over 6% for a 30-year mortgage. So, you're sitting on a house, let's say you live in California, and you're thinking about moving to Texas like we read about every day, right?
Scott: Your house, you have a mortgage on it of 2% and 3.25%, you owe $600,000 on it still. And you're thinking, "Well, we can move, but now we have to get a new mortgage at 6%." Or maybe you're thinking about moving to even a different house in your community, buying a slightly larger house. I mean, there's a lot of people now that when they start running the numbers, what a new mortgage is gonna cost them compared to the mortgage they've got now, they can't buy nearly the house that they used to want.
Scott: So they're not moving as much. So, what'll be interesting to see is what impact this actually has on supply.
Pat: That's exactly... When I was discussing it with my friend, I said, "Do you know what we're gonna end up seeing?" I said, "You're gonna see people that would've moved two years ago or three years ago remodel their homes and addon because it won't touch the first mortgage." The first mortgage will be set. And therefore, you're likely to want to keep that mortgage, and you'll add a second mortgage onto the house in order to do an improvement at a higher interest rate rather than reset the whole thing, assuming you're in the neighborhood you want. So, the question is, is it going to... And you'd expect, as you would, the home builders are slowing down significantly in terms of new starts on housing, which will affect the supply as well, right, because they don't wanna be left out there exposed.
Scott: I was reading an article about one of the publicly-traded home villages the other day. The way they buy land is they typically will use options. So, a developer... Usually, these big companies don't develop their own property. When I say developing, getting the zoning, putting the...
Pat: That's a local. It's hard for... That is a local business.
Scott: They usually rely upon these smaller developers in the different communities that spend...they buy a big piece of raw land. They spend years with the city, county, etc., getting approvals to rezone it all for residential. Then, these publicly-traded companies, the big home builders, they won't necessarily buy the land outright until they're ready to dig immediately. Instead, they'll use options. They'll, "Okay. We'll write you a check for whatever it is to give us the option to buy it within the next year or two years, etc." And so, a lot of these big developers are now walking away. They're not...
Pat: They're letting their option expire. They're like, "Hey, I wrote you this check for a million bucks."
Scott: "We're choosing we're not gonna buy the land after all."
Pat: Yeah. And then the developer's like, "Okay. Well, I'll just sit to the next cycle."
Scott: So, again, less supply.
Pat: Yes. So, the question is, will there be...? I would expect that home prices will drop just because of death, divorce...
Pat: ...job movement. As more inventory comes onto the market, there'll be less people selling their homes voluntarily and more people because they have to than there has historically. So, there'll be less supply in the market.
Scott: I mean, I can't predict home prices any more than I can predict stock prices.
Pat: I would expect that home prices would drop, so...
Scott: I would've expected they would've declined by now this year...
Pat: No, you have a good point.
Scott: I mean, right?
Pat: Good point.
Scott: It's important.
Pat: Good point. Good point.
Scott: Nor would've I expected 'em to rise as far as they had.
Pat: Good point as well.
Scott: But I was talking to somebody who is...he was talking about the price reductions on new homes. These new home builders, they're having pretty significant price reductions.
Pat: Well, and they're having people walk away from deposits.
Scott: Yeah. So, they're renegotiating their own deals.
Pat: Yeah. People put a $50,000 deposit on the house, but the house has dropped in value by 100 grand or...
Scott: Or they'll throw in a lot more credit...they'll throw in a lot more goodies rather than reduce the price. Let's say the home's 700,000, they'll throw in, yeah, upgrades to the...
Pat: Yeah. Carpet. They'll give you some of that gold.
Pat: You know, the gold fixtures. When I first bought my house, the guy's like, "Would you like the gold fixtures?"
Scott: You know what? I don't think the gold fixtures or fixtures are in style right now.
Pat: No, I know.
Scott: Just to let you know.
Pat: Nor is this shirt, but I'm okay with it.
Scott: Isn't funny how there's trends in home decor?
Pat: I know. I just wait through 'em. That's what I do.
Scott: It's eventually gonna come back?
Pat: I just hold on. My skinny ties, they're back. They are back. I just had to wait through.
Scott: As I watched my 15-year-old daughter trying a new pair of pants, "Hey, dad. Do you like these pants?" High wasted and flared to the bottom.
Pat: That's right.
Scott: Just like the '70s.
Pat: I still have my Members-Only jacket. In fact, I may be the last member.
Scott: Nice. All right. Let's take some calls here. 833-99-WORTH.
Pat: It's not a fashion show, by the way. My daughter's been trying to get me out to Lululemon. We went on vacation early in the summer, and my daughter's like, "Dad, you know, you look almost homeless." And I'm like, "I don't care. I just don't care." And she's like, "Can we at least bring you to, like, Lululemon and...just, I'll bring you shopping. You pay for it, obviously, but I wanna pick out some clothes." And I said, "Where is it?" She said, "Well, it's about, you know..."
Scott: Just go online.
Pat: She said, "The first time you buy a brand of clothing, you've gotta try it on."
Scott: Vuori. Have you tried any Vuori? The best active clothing on the market.
Pat: All right. Well, okay.
Scott: They're displacing Lulu in my opinion.
Pat: Let's just go to the calls. I have no idea what you're talking about. Vuori, I have no idea.
Scott: All right. I run a lot, and I started running in these running shorts about five years.
Scott: Yeah, V-U-O-R-I. I'm sure your daughter knows of them.
Pat: Okay. Will I look okay?
Scott: That's all I run in anymore.
Pat: Will I look okay?
Scott: Eh. You don't look good now.
Pat: Let's go to the calls. We're joining Sarah in Mississippi. Sarah, thanks for joining Allworth's "Money Matters."
Sarah: Thank you. Thank you.
Pat: What can we do for you?
Sarah: You talked about the prices of houses going down. We now have an empty nest in our house.
Pat: Or up. But, yeah. Okay.
Sarah: Yeah. The price of wood is going down because...
Sarah: ...that's one of the number one... Yeah, dramatically. We live in a house that's got almost 3000 square feet, and since it's an empty nest, we wanna maybe cut it in half and build an aging-in-place house. Our house is paid for, but we don't wanna move twice. We don't wanna sell it, rent, and then build a house. We'd like to build a house and move right in.
Scott: How much is your house worth?
Sarah: Well, we paid 175 for it in 2000.
Scott: What do you think it's worth today?
Sarah: Well, we spoke to a real estate agent and he thinks that we would get that much for it. You know, it just remains to be seen what somebody would be willing...
Scott: Wait, you spent...? You're in Mississippi. You spent 175,000 in the year 2000?
Sarah: Yes, sir.
Scott: And the house has not...?
Sarah: 2010. I'm sorry, 2010.
Scott: Oh, Okay. I was trying to figure that out. Yeah.
Sarah: My husband is a great editor. He figured out I said something wrong.
Pat: Okay. So, 2000, and it hasn't appreciated since 2010.
Sarah: Well, when I look online, you know, I get such a big range of price values. You know, Zillow and all those places.
Scott: But you talked to a realtor and he thought you'd get about 175 for it?
Sarah: Correct. Or maybe some more.
Scott: Okay. And what would a new house cost you with the land and everything?
Sarah: Well, we've already bought the land and...
Scott: How much did the land cost?
Sarah: Oh, way too much because it was right where we wanted it and the guy knew that it was right where we wanted it because it's adjoining some other property we own.
Pat: And did you pay cash for the land?
Pat: Okay. How much will it cost you to build the house on this particular piece of land?
Sarah: Well, we don't wanna spend more than we are selling this house for, and we wanna build a passive aging-in-place house.
Pat: Got it.
Scott: So, you think for 175 grand, you can be able to do that?
Sarah: I hope so. Yes, sir.
Pat: But you don't wanna move into a rental for a year or so?
Scott: What do you have as far as savings and retirement accounts, that sort of thing?
Sarah: Well, we have... In the IRAs, we've got over 300,000, and then other investments, it's almost 600,000. And so, we could...
Scott: What are your other investments worth 600,000?
Sarah: ...borrow. What are other...?
Scott: Is that a brokerage account or something you have with mutual funds, stocks, that sort of thing?
Sarah: Yes. Yes. A brokerage account?
Pat: Yeah. Is it like a stock account?
Scott: Is that Charles Schwab or one of those?
Pat: Fidelity or something...
Pat: Okay. And what are you living on in terms of income?
Sarah: Well, the monthly income is under 5,000 or around 5,000.
Pat: And are you living comfortably on that?
Pat: Do you know what I'm gonna tell you? I'm gonna tell you you really should move into a rental for a year.
Scott: What about just having a loan on their $600,000 portfolio?
Pat: You worry about the dropping value of the property that you're sitting on in that period that the home is being built. You did the same thing, Scott.
Scott: I did do the same thing.
Pat: I remember.
Scott: Twenty years ago when we built our house...
Pat: You sold your house...
Scott: You know why? I'll tell you the reason. The first house my wife and I owned, we bought in 1992 right when we were married. We sold it three years later, and we bought it for less than the original owner had paid for it. We sold it three years later for less than we paid for it. And we had to carry a second for a period because nothing was selling. So, our first experience with home ownership was a net loss. We sold it because we moved up and got a screaming deal on the house that we bought. But we built a house 20 years ago, and you're exactly right, Pat, we sold that house and moved into a rental for six months. And Pat, it's like, I didn't know where the market was going and I know it...
Pat: You didn't want to put yourself at risk. So...
Scott: So, Pat's concern, Sarah... Like, we know you can sell the house today. Things are slowing. But what happens if you guys start building this home and the real estate market really takes a sideways turn? Because we wouldn't recommend you buying real estate unless you had five or plus more years to own it. So, the challenge of saying we're gonna hold it for a period of time...
Pat: Yeah. Well, let's just all say...let's say that all of a sudden your home drops in value.
Scott: To 140 or there's no buyers.
Pat: And the cost of construction goes up and then you're in the tight... So, my recommendation, if you don't do that, you could borrow against your brokerage account. You can take up typically up...I'm guessing you get $300,000 out of that easily.
Scott: You don't need that much,
Pat: But you don't need that much. But my first thing would be to encourage you to actually...
Scott: I'm agreeing with Pat.
Pat: ...is to move into a rental for a year and suck it up. If not, then borrow some money out of that brokerage account.
Scott: And I gotta tell you. One of the benefits, it gives you two opportunities to purge. And if you've been in the house for a long time, that can be a benefit to you. So, I don't know if that's the answer you're looking for, Sarah, but I think we gave you the answer, what you could do and what we'd recommend you do. Let's move to Florida. We're talking with Ray. Ray with Allworth's "Money Matters."
Ray: Hey, guys. Can you hear me?
Scott: Yes, sir.
Ray: All right. Hey, I love the show, love the banter, and thrilled to be able to talk to you.
Ray: Yeah. So, I'm 58, my wife is 56. We've been kind of do-it-yourselfers, listening to podcasts, yours, others, reading, and things. And I hear a lot of people say, and even on your show often, to think about a financial advisor. And many want 1%. I think for now I'm kind of not in a position for those, for one reason, most of my money is in a 401(k) and with limited options. But a lot of other financial advisors suggest that they'll do a financial plan for me or us. And I don't really know what that is and what it would do for me. You know, do I need one each year? What do you get in a financial plan from a good advisor?
Pat: So, that is a great, great question. So...
Scott: You know, before we answer that, we've both been doing this more than 30 years, right, as financial advisors. And I often state to the organization that we've got, we've 350 employees or whatever, I say one of the greatest values that we provide, I've discovered personally...maybe I'd say that some of the greatest value that I provided over the years is keeping people from making mistakes from which they cannot recover. So, there's two elements to this, really. It's the planning and then it's the ongoing guidance. And not everyone needs it.
Pat: Included in that is investment management and ongoing guidance.
Scott: Not everyone necessarily needs that, but...
Pat: And we do both, right? So, our firm does... Someone comes in and says, "I have this situation. Can you analyze this and give us an answer?" We'll say, "Yes. And this is..." And we'll quote you a price, and then that's what we charge you. And then, oftentimes, people will come in and do that, and then like, "Okay. I'm gonna retire in X, Y, Z years, and then will you manage the money?" And then we quote a price for that. So, we do both. Oftentimes, when we manage people's money, we throw the financial planning in as just part of the overall cost.
Scott: And what is it you feel you're lacking?
Ray: You know, that's a good thing. I'm not sure of anything at the moment, but I do realize that I'm not an expert, and, you know, I learn something, like, every two weeks on your show. So, that's part of it. You know, just a second set of eyes. But also, as I cognitively decline or something happens to me, someone that my wife could talk to, who's... She's much less interested in this stuff.
Pat: That is...
Scott: We had this discussion last week.
Pat: Yeah. Yeah.
Pat: It is not unusual for someone to interact with our firm on a financial planning basis for years and years, and then say, "Here, manage all our money because one, I'm tired of managing, or two, I've got some sort of cognitive impairment, or number three, I'm more likely to..." You know, the way it used to be, it's less so today, it's the managing the money. But it's less so today. So, here's what I think you should do, though. Is...
Scott: He asked the question, "What do you get from a financial plan?"
Scott: You're gonna respond. Why don't you talk to a few financial advisors?
Pat: Why don't you talk to a couple of financial advisors and see what they say? So, what they're going to do is they're gonna... Actually, I assume that you've done it yourself if you've done some financial planning yourself with some financial planning software.
Ray: Yeah. I've been using OnTrajectory. I don't know if you guys ever heard of that. This guy Tyson-something has done it. You can put in what your spend is, what your assets are, what your income is, and you know, it kind of gives you this trajectory of where you go. And you can move where you're going to retire, you know, the number of the year. And, you know, typically it goes out, pop, pop until there, and then it... You know, you want, like, a slower glide path after that.
Scott: And how are your investments managed? Just ballpark? Are you an index guy? Do you pick individual securities?
Ray: Index with like 90%. We've got a couple of stocks companies we really like that maybe comes to another 10%.
Pat: And what's your allocation in stock to bond right now?
Ray: Probably 70 stock, and then 30... My 401(k) has these stable value funds, which I'm not sure it's a bond fund necessarily, but it's... I don't know. They say it should pay us, like, 4% a year or something like that. I think it does something with insurance companies or something. I'm not 100%.
Scott: So, based on what you've said thus far, I don't know if OnTrajectory encompasses tax, but I would think that the biggest value for yourself going over the next decade, it's gonna be managing your tax situation along with your other assets and your income.
Pat: So, what is your income today?
Ray: Combined with my wife, around 200.
Pat: Yeah, so there's no Roth erosion right now.
Scott: And how much money do you have saved and invested outside of retirement accounts?
Ray: Maybe half a million, 400,000, 500,000.
Scott: And what are you doing as far as tax loss harvesting or any of that stuff?
Ray: Nothing. I haven't really lost any. I've been lucky. Besides the IRAs, you know, the 401(k), I haven't really lost.
Pat: Are you reinvesting dividends?
Pat: Okay. Well, you've lost money. You just didn't know it. Because when you pay a dividend out, you turn around and reinvest it, saving the same mutual fund, you've bought it and that has dropped over [cosstalk 00:21:48].
Scott: A financial plan... I don't know if just a static fee for plan is going to do much different than what he's doing today.
Pat: Yeah. Yeah.
Scott: I mean...
Pat: I wouldn't worry about it.
Scott: There may be some holes I'm not seeing. Look, I think, actually go talk to...or just set up some Zoom calls with some financial advisors. "Here's my situation, What would you do differently?"
Pat: And if they say nothing, you're pretty good. Then say, "All right. Check." Move on.
Ray: Should I get someone on a retainer, though? And pay him a certain amount of money just to be aware of roughly what we're doing?
Scott: If you were 78, I'd say yes.
Pat: Look, there isn't a ton that you could do with what your situation is right now. Look, there's no lost conversations.
Scott: Based on what you just told us. You're doing a better job than a lot of financial advisors would do.
Pat: But there's nothing... What are you gonna do? Put more money in your 401(k)? I assume you're doing a backdoor Roth, right? You're doing...
Scott: Maximizing all these things.
Pat: You're doing non-qualified contributions to Roth and converting it to an IRA and then converting it to a Roth IRA. I assume you're doing that?
Ray: Yeah. I maxed out to I Bonds for the last few years, you know?
Pat: Yeah. Okay. All right.
Ray: [crosstalk 23:04] to 401(k). Yeah.
Pat: There you go. Yeah.
Ray: All the stuff you guys tell us...
Pat: There you go. All right. You're good.
Scott: How many hours a week do you...? Seriously, how many hours a week do you spend studying financial issues?
Ray: You know, I commute, like, 20 minutes each day to work. So, that's about it. And maybe reading, you know, 30 minutes twice a week.
Pat: When you just add up there, it's 130 minutes, two hours a week. If you came into my office and asked all the questions, just like, there's not a lot to do right now. There's not a lot of moving parts because your income is consistent, you know, just the Roth conversions.
Scott: If you were suddenly disabled and then forced to retire tomorrow, then there's some kind of planning opportunity.
Pat: But there's nothing really now here you could do. The one thing I would like you to do. You did mention that you listen to our podcast. If you would be so kind is to give us a review, that would be nice. Because I'm trying...
Ray: You know, I haven't done that yet. I will.
Scott: And share with some friends.
Pat: Look, I'm trying to make a living here, too, okay?
Ray: You guys don't have ads, though. How are you gonna...?
Pat: Huh? I know. But what happens, we're hoping to make it big as an influencer someday, right? We're just gonna pop out one day and be a big influencer.
Scott: We need to start being on TikTok.
Pat: Yeah. We could take, like, a financial TikTok.
Scott: Yeah. We're missing that.
Pat: We do math.
Ray: Instagram. Yeah. Yeah.
Pat: Thank you. Well, appreciate it. You're doing a great job. No need for an advisor at this point in time.
Scott: Yeah. And seriously, unless you have some health issues you're facing today, assuming you don't, and maybe six months before you retire.
Ray: Okay. That's good.
Scott: That would make sense. Because it sounds like you're doing all... I don't know what you'd be doing differently unless there's something weird that you haven't told us about, but I kinda doubt it.
Pat: Yeah. And I assume you have a living trust in place or a will.
Ray: Yeah, yeah, yeah, all those.
Pat: Okay. You're, like, all right.
Scott: By the way, if you want a job as a financial advisor when you retire, come call us.
Pat: He'd actually be a good one.
Scott: I know he would be because he's... Yeah. By the way, and if you don't use an advisor and you don't, like... That's the kind of person who doesn't need an advisor. Maybe, what, 5% of the population fits that?
Scott: Maybe less.
Pat: Probably. Yeah. He knew what the allocation was.
Scott: If you're doing it yourself...you better be a do-it-yourselfer.
Pat: Yeah. He knew what the allocation was. Yeah. Everything, he was like boom, boom, boom, kinda like, "What are you asking me for?"
Scott: That's why we quit asking questions because, you know, like, "I'm assuming you're doing this?" "Oh, Yeah." Like, even the backdoor Roth, "Yeah. I'm doing that."
Pat: Like, "Yeah, like, come on. What do you think, I'm a moron?"
Scott: All right. We're taking a quick break. Stick around for Allworth's "Money Matters."
Announcer: Can't get enough of Allworth's "Money Matters"? Visit allworthfinancial.com/radio to listen to the "Money Matters" podcast.
Scott: Welcome back to Allworth's "Money Matters." Scott Hanson.
Pat: Pat McClain.
Scott: Hey, before we can hit back into this, I wanna let people know. I mentioned this last week, but I'll also mention it this week. Our virtual workshop on the healthcare financial factor preparing for the transition from workplace to retirement. So, you're thinking about how do I deal with my medical coverage when I'm no longer working. Most people get their medical coverage through their employer. What happens if you wanna retire? What happens if you wanna do that before you reach 65? What happens when you are 65 or older? How does that work? What are the different types of options? What's the difference between a Medigap Plan and a Medicare Advantage Plan? All those sorts of things.
Pat: Which by the way, most advisors don't know, including yours truly.
Scott: That's correct.
Pat: I mean, this stuff changes relatively quickly.
Scott: So, anyway, yeah, it's a big deal for all of us because we have medical expenses. So, this is a great workshop. You're gonna learn quite a bit. That's on October 11th, 12th, 13th, and 15th. So, that's when it's airing, those four times, 11th, 12th, 13th, and 15th. And you can sign up at allworthfinancial.com/workshops. By the way, if you're on our website, if you do not receive our weekly newsletter, I'd highly recommend you sign up for it. Sometimes, we just talk about financial planning-related topics, but...
Pat: These last couple of weeks has been focused on market.
Scott: Three weeks in a row. Last week was interviewing with our chief investment officer. Did a little video interview that you can click on. So, it's a weekly newsletter, but the week before, I think was all written piece on the financial markets.
Pat: Markets. Last week, I think it was on the financial markets. So, whatever we believe is the most relevant to you at the time is what we write about. And how do we know that? Because technology tells us what people are reading.
Scott: Yes, that's right. That's exactly right. But we don't have headlines like, "Wanna know the best place to...?"
Pat: Yeah. No, it's not that. And it's free. Comes to your inbox.
Scott: So, the Fed...
Pat: Just like the thousand other emails that you get on a daily basis. This one's different. You should open it.
Scott: I had a long fight a couple of weeks ago. I had 50 new emails drop in during the flight.
Pat: That's fine. Yeah. Apparently, people think that somehow I was in the service and served in Camp Lejeune and...
Pat: Camp Lejeune. I've been getting emails about Camp Lejeune. There's a class action suit against Camp Lejeune, and apparently, people...
Scott: What is Camp Lejeune? I missed out.
Pat: Camp Lejeune was... If you were in the military, you would go for basic training and they had some water issues and people drank it and got sick and now there's class actions. And somehow, I must be in that...
Scott: They just figured something happened to you?
Pat: Okay. That's not...
Scott: "Pat wouldn't have gotten like this on his own."
Pat: That's not...
Scott: "Maybe it was in the water."
Pat: That's not nice.
Scott: All right.
Pat: That's mean. Okay.
Scott: The Fed. Let's go back to Fed for a bit because...
Pat: Soft landing.
Scott: We're gonna have a soft landing?
Pat: I don't know. I'd say, at first...I mean, that seems like such a relative term, "Soft landing." Soft compared to what? I mean, there's going to be breakage. There is absolutely going to be a breakage in the economy.
Scott: What the Fed is deliberately attempting to do is slow down the economy, make it so that there's not as much demand for goods and services.
Pat: That's right. And so, whatever the term... I keep reading in the press, "Soft landing." I'm like, "I mean, what does that mean?" Does it mean that unemployment numbers don't go over 5%? Does it mean, you know, that there's all kinds of economic damage in certain industries? I don't know what it means.
Scott: And part of the challenge is, we're not gonna see that. It's gonna lag.
Pat: Scott, but the thing that's really frustrating to me is the federal government and the Federal Reserve, they're doing things that are contrary to each other. One is actually putting fire...
Scott: You mean the Inflation Reduction Act?
Pat: Yeah. Yeah. One's putting...
Scott: Which had nothing to do with inflation reduction?
Pat: One is putting gasoline on...
Scott: That's right.
Pat: ...the fire, and the other one is spraying water on it all at the same time simultaneously, which is..it just... Anyway, but I guess that's politics.
Scott: I guess so.
Pat: So, you know, the worry is that we're gonna move interest rates so fast that they're gonna overshoot, right?
Pat: They're gonna overshoot. And it's a moving target. Because we've seen oil prices come down in the last few weeks, which hasn't rippled through the economy yet, but it will. But it will.
Scott: Oil prices are down dramatically, as are a lot of most commodities.
Pat: Yeah. But it hasn't rippled through to the consumer yet.
Scott: Yes. Correct. So, it might be that inflation's gonna take care of itself. It might be that the Feds don't need to raise rates anymore at all.
Pat: We don't know, right? And so, if they raise rates, right, they're gonna overshoot, and then all of a sudden, you're gonna see businesses pull back, and then it's gonna... Right? I mean there's a danger of you can move from inflation to deflation in a relatively quick period of time. And that's, I guess what soft landing is. And, you know, I'm just glad I'm not in those meetings. Can you imagine?
Pat: Because there's a lot of guessing going on.
Scott: I mean, it didn't help with the Fed reducing... We have a pandemic, government shuts everything down, Fed lowers the rate to nothing.
Pat: Well, I mean, that's done now. There's no sense talking about it now.
Scott: Well, no, what I'm... The Fed created these...they create their own problems.
Pat: Thank you. I will 100% agree on that.
Scott: So, I don't know why you have confidence that they're gonna be able to solve the problems they created.
Pat: Did I say confident?
Scott: No, you didn't. You did not say confidence.
Pat: I said I'm glad I'm not in the room. I would just think it's difficult in...
Scott: It's another outside factor we have no control over. That's right.
Pat: And quite frankly, you know, we may have seen the top of the inflation.
Scott: And let's assume for a moment that there is no soft landing, that we end up through a pretty significant recession after this, which there's some predicting that, that could happen. And that'll be short-lived as well and will pass.
Pat: And that, too, shall pass.
Scott: And there'll be more growth.
Pat: And by the way, the stock market doesn't...
Scott: The healthy thing about times like this, it weeds out the companies that shouldn't be out there to begin with.
Pat: Yeah. Yeah. It shakes out the garbage.
Scott: When things are all go-go, the companies waste money. They've invested in certain areas, they don't really think that much about it because they're making all kinds of money, or they got all this free capital, like...
Pat: Yeah. They get fat and happy.
Scott: "Our company got valued at 15 billion when we went public. So who cares? And it's got these great parties. We're gonna take the whole crew down to Central America and go to some fancy resort." Right? Right? Now it happens.
Pat: Like, we do it at "Allworth."
Scott: No, we don't go...
Pat: We don't. I joke. In fact, we don't...
Scott: You know what else I think has really been interesting this year.
Pat: We don't do any of the junk things.
Scott: So, Pat, how many times have you heard that gold is a good hedge for inflation?
Pat: On commercials. I don't think I've read it anywhere.
Scott: Well, people have told you that?
Pat: Well, I've heard that, but I don't, you know...I dismiss it.
Scott: Let me just go with the premise that many people have heard.
Pat: I was supposed to say I've heard it a lot.
Scott: That's what I was waiting for, kinda leading into the conversation. Gold is down about 8% this year. We got inflation running 8% and the price of gold's been going backward.
Pat: So, do you think it's...?
Scott: The last few years, it's been not a good place to be at all.
Pat: Do you think it's because all of a sudden now it's tied to other assets? Any idea why?
Scott: What happened...?
Pat: Is it because the cost of taking it out of the ground more expensive? Could that actually cause the price of gold to actually drop? Or would it drive it up? It would drive it up.
Scott: One would expect
Pat: Yes, because it cost more to actually get out and refine. So, therefore... So, why did they tie this? Any idea why? Any thesis as to why the...
Scott: There's all kinds of thesis we can make up, but who cares?
Pat: That's right. Why is crypto down?
Scott: I mean, like, if you're gonna give me two options, I could either buy gold or buy crypto? I'd buy gold.
Pat: Oh, I'd buy gold. If those are the last two options on earth...
Scott: In a heartbeat. I'd buy gold in a heartbeat. And I think gold went up dramatically in price during the late '70s, early '80s, during a really high inflationary period. And a lot of people point to that and say, "Oh, this is why you went gold for inflationary periods." And here we are in an inflationary period. I mean, gold was high earlier in the year, and then it really took a downward trend.
Pat: I just don't like the fact that it has no factor of production.
Scott: Doesn't produce anything. Yeah.
Pat: It is not leveraged to produce anything. Gold company stocks are...
Scott: There's no interest paid.
Scott: Unlike cryptocurrency.
Pat: Well those aren't... Someone keeps asking me to be on their podcast about crypto. I'm like... He sent me two emails, "You need to be on my podcast about..."
Scott: I don't think he would like you as a guest.
Pat: I'm pretty sure it would not air. I'm pretty sure it would not air. I got into an argument with a guy last week about crypto. He's like, "How could crypto...?"
Pat: Well, I don't know, argument. Discussion. He's like, "How could crypto go wrong?" I said, "Well, you don't know where the genesis of crypto was." The first crypto coin was created...
Scott: "How could it go wrong?"
Pat: And so, I said to him, "How could it go right?" Not how could it go wrong, how could it go right? I said, "The genesis of crypto coin was so that people could exchange on Silk Road, which was a black website where you could buy and sell illegal substances, credit card numbers, all kinds of garbage, and they needed a currency in order to...
Scott: It was called Silk Road? That was the website?
Pat: Silk Road that's the website. Silk Road.
Scott: And how do you know about this?
Pat: Because I watch an incredible amount of television.
Scott: Oh. Anyway.
Pat: I saw a documentary on it. All right.
Scott: All right. We better take calls because it's important that we do that. 833-99-WORTH is the number. Let's talk to Alexis in Florida. Alexis, you're with Allworth's "Money Matters."
Alexis: Hi. Thanks for taking my call. I appreciate it.
Scott: Oh, thank you.
Alexis: To make a long story short...
Scott: Thank you. I'm sorry.
Alexis: [crosstalk 00:37:55].
Pat: It's talk about time.
Scott: I'm sorry. You laid it up there for me. I couldn't help myself.
Alexis: I had to leave my job unexpectedly suddenly due to medical reasons. And I'm waiting on either disability or a healing, that would be fine, too, and need to access my equity in my home to live. And I'm running into issues, because of the no income, getting access to my equity. So my question is, do you know of any way to access the equity in my home without having an income stream?
Pat: Yeah. How old are you?
Pat: And do you have any money in your 401(k)s or IRAs or any money in the bank?
Alexis: I took the money out of my 401(k) when I left the job because it was either roll over or take it out, and I needed to live off of. So, I have a little bit left, but not much.
Scott: And are you on Social Security Disability at this time?
Alexis: No. I've applied, but, you know, it takes a while.
Scott: Are you on any short-term plan through the state or through your employer?
Alexis No, the short term, I had, and that worked out just fine, and the long term for some reason, same company, they denied the long term. So, that's being taken up with a lawyer and I'm waiting on that.
Scott: Okay. Now you're running out of cash, and to bridge the gap between now and the time you'll get your long-term disability and Social Security benefits.
Alexis: You got it.
Pat: And how much is the home value?
Alexis: It's worth about 325,000.
Pat: And what do you owe on it?
Alexis: One hundred and forty-nine.
Pat: Here's the problem you're running into, right? So, there's already...you've got a mortgage on it, 149,000. And when you got that, they looked at it and said, "All right. Can Alexis pay this thing back? Because we don't want the house" Right?
Pat: They don't want the house, they want the loan paid back. So, now, you wanna get some additional capital, like, through a home equity line of credit or something like that. And the challenge is, someone's gonna look at and say, "Wait a minute. There's already a bank in first position on this house. We're gonna come behind them if Alexis doesn't pay her bills. The first mortgage has the ability to foreclose, we don't have the ability to foreclose." So, when you talk about tapping the equity, it's not... And that's what the marketing people tell you, "We're unleashing the equity in your house." It's not really the truth. It's having a loan that you pledge your home as collateral in the event that you can't repay the mortgage. So, your long-term disability, how much would it pay you a month if you were to receive the long-term disability?
Alexis: I don't know. I guess it would be the same as my Social Security benefits, I would guess.
Pat: Okay. It may or may not, right?
Scott: [inaudible 00:41:00].
Pat: So, sometimes, they wrap with Social Security benefits, and sometimes you can't get the long-term disability until you get the Social Security benefit. So, each one of 'em is written differently. Normally, if you can get Social Security benefits, you can get long-term disability. They won't fight you too much. And sometimes, they say, "Okay, we're gonna pay you up to $3,000 a month, including your Social Security benefit." So, the answer to this is you need to have an attorney work on both your Social Security benefit and your disability claim all at the same time. Right? So, go back to whatever attorney. How many months has it been that, had you applied for the long-term disability, you would've received it?
Alexis: I've applied six months ago.
Pat: Okay. And let's assume it's $2,000 a month, so it's $12,000. Do you have any credit cards?
Alexis: I don't.
Pat: You have no credit cards?
Alexis: I don't have any other debt besides my house.
Scott: You have a credit card. Do you have any access to credit?
Pat: Do you have any credit cards? Do you have access to credit? Not do you have credit card debt, but do you have credit cards?
Alexis: Small things like care credits and little cards like that, but I don't have a major big credit card, like with the 25,000 line of credit.
Pat: Are people sending you applications for credit cards?
Alexis: Not for large amounts. Like, for, like, maybe $2,000.
Pat: Yeah. No, that's what you need. So, that's what you need.
Scott: Because you're gonna need to keep making your mortgage payment, right?
Pat: You need to keep making your mortgage payment.
Scott: And if we can get to 62, you're probably a good candidate for a reverse mortgage on this, to pay your mortgage off.
Pat: That's right. That's right. So, you wanna do everything in your power to keep this mortgage up to date? So, you need to lean on your attorneys fast. Like, "I need help. I need help." And unfortunately, you're gonna end up going to a lender of last resort
Scott: And you might find somebody willing to be a second on this house at the right interest rate. It's not your typical lender, though.
Pat: Yeah. Right.
Alexis: I'm okay with that.
Pat: Yeah. Of course. Of course, you are.
Scott: You don't have a lot of options.
Pat: So, it's like, we're in the predatory neighborhood now, right? Seriously. Anyway, if you had a relative that could lend you the money, that's the direction you wanna go. Otherwise, you put it on credit cards, you do these quick loans, you do whatever you can in order to get to either age 62 or sell the house.
Scott: Or sell the house. You don't wanna go into default on the house.
Pat: That's right. Or sell the home.
Scott: And you don't wanna have a fire sale on the house either.
Pat: That's right. So, yeah, I know that's not what she wants to do. You know, if she was my sister, I'd actually lend her the money. But if I didn't have the money, I would probably either say sell the house and...
Scott: Now, you say if it was sister you might... You don't know the whole story, you know, this...
Pat: It's a bit right. There you go.
Scott: We are in Dallas, Texas talking with John. John, you're with Allworth's "Money Matters."
John: Hi. Good afternoon down here. I guess it's morning probably where you are. Anyway, just a quick question. You may have already covered this. With this situation we're in right now with the high inflation, high-interest rates for the foreseeable future, which direction do you think the portfolio is going? What kind of investments are we getting into?
Pat: I'm not quite sure how to answer that.
Scott: Other than, I don't know... I mean, we've made tweaks to our investment management, but we've clearly not have said, like, "I don't know where inflation's going. All I know where it is today."
Pat: So, are you asking what is going to perform...in our opinion, what's going to perform the best if we continue down the same road?
Scott: It's those industries that can pass along the inflationary costs to their customers because the demand for their product is very inelastic. There's not a lot of other options.
Pat: Yeah. But in saying that, right, when you look at consumer good...
Scott: Rice is expensive, I can buy wheat. Wheat's expensive, I can buy rice.
Pat: Right? Right?
Scott: I mean, the varying bottom things.
Pat: Pork is expensive, I buy chicken. Chicken... Actually, in fact, some of the discount stores have said, "Look, the live animal-based protein has fallen off significantly in terms of sales that it has moved to plant-based protein, beans." That sort of thing is actually picked up in sales. But if you own the thing that causes the thing that participates in the thing, then you'll have a protection against the thing, right?
Scott: That's right.
Pat: So, equities...
Scott: I mean, you don't get higher prices unless producers raise the prices.
Pat: Which is what you're seeing right now, oil companies, like, unbelievable profits, right? And so, if you think oil prices are gonna continue to go up, then buy oil.
John: Right. Oil's a good thing to be in, obviously.
Scott: We're in Dallas, Texas.
John: It's not just gasoline, it's all the other products.
Pat: No, no, no. Understand oil was a good thing to be in. Was. It doesn't mean it will be a good thing to be in the future. But if you believe oil prices will continue to rise, then buy oil stocks, right? If you believe that...
Scott: Well, that's based upon an investment and management approach that you're gonna go on your intuition and what you think may or may not happen in the future.
Pat: That's what I just said. If he believes...
Scott: I understand that.
Pat: That's correct. Correct.
Scott: But that's not how you invest.
Pat: No, absolutely not.
Scott: Nor how would you invest your clients' invest.
Pat: That's correct. Okay. So, how...?
Scott: So, I think his question... The question was what are we doing?
Pat: Was that what the question was?
John: Yeah, that's pretty... Yeah. An idea.
Scott: Here's basic premise. I don't believe I can predict the future. I don't believe anyone can predict the future. You flip on "CNBC "or "Fox Business News," whatever, you watch all the talking heads. They're gonna be all over the map. One out of a hundred is gonna be right and it's probably just a random sample. It's just random, right? So, the challenge with building a portfolio based on what you believe may or may not happen in the future is, what if you are wrong? What if you build a portfolio all designed on rising inflation because you believe inflation's gonna go to 11%, 12%, 14%, and suddenly we find ourselves inflation at 6%, 4%, 3%, which could very well happen in a relatively short period of time.
John: Right. Okay.
Scott: Right? All of a sudden the only...
John: [crosstalk 00:46:57] diversify.
Pat: So, I mean...
Scott: That's why...
Scott: Well, that's why it's boring, right? And so, not an exciting answer. And the reason you don't hear a lot of, like... The majority of financial advisors, the majority of retirees take a much more diversified long-term approach to their portfolio. But the news, if you listen to the news cycle, it certainly wouldn't sound that way because look, no one's gonna want to...the news people are not gonna have you on as a financial advisor if you give the same old story of, "Don't predict the markets. Why don't you just invest for all the different cycles?" That's boring. No one wants to listen to that. So, they find the guy at the Gala, whatever's got these grandiose ideas. "Oh, here's what's gonna happen. Oh, man, like, this guy is crazy." It's because a lot of people are gonna tune in. Their job is to deliver an audience. Their job is not to make sure you're a good investor. They don't care. I mean, that's...
Pat: It's amazing we have an audience at all, you and I with our podcast because our investment advice is boring as heck.
Scott: Which is why sometimes we talk about issues like our families and all that stuff.
Pat: Right? We're like, "Look, talking about these investment portfolios is like watching paint dry." But, really, a good portfolio is the one that will get you through every market.
Scott: Whatever cycle. The things that you're not expecting, right?
Pat: And so, we have not changed our investment philosophy.
Scott: We've tweaked around the edges with our fixed income. It's all based upon risk and return issues.
Pat: Yeah. And at some point in time when the markets were lower, we increased our equity exposure, right, because the further markets the equity markets fall, the more attractive they actually become, not less attractive. So, I wouldn't make any... If you have a well-diversified balanced portfolio going into this, I wouldn't...you know, tweak it around the edges, maybe shorten the bond maturities a little bit.
Scott: Or lengthen them a little bit.
Pat: Yeah, depending on where you're at.
Scott: Or it depends what you think's gonna happen.
Pat: Or Where you're at. So, anyway, appreciate the call.
Scott: Yeah. Thanks, John. And that's pretty normal, right, to have this kind of...what should I be investing in right now? Look, if investment advisors can figure out where you should be investing right now, you would have one position in your portfolio and they would just move it periodically. "And this particular company, it's in this particular bond."
Pat: Well, if an investment advisor actually was able to do that, they wouldn't really have any clients now, would they?
Pat: It would attract so much capital that they wouldn't...
Scott: Well, they would move the entire markets just by the people following them. Well, it's all the time we got for you this week. Hope you've enjoyed the program. Glad you are a listener. If you'd like this, let some of your friends know. Forward this on to a friend or two. Or if you didn't like this program... Some resonate, some don't.
Pat: I shared it with both my friends, this show, both of them.
Pat: Like, and if you like it, share it. And if you would do us the kind favor, review it.
Scott: We'd appreciate that as well.
Pat: We would appreciate it. We're trying to get our rankings up as our marketing people have told us that at some point in time we will hit the tipping point.
Scott: Enjoy the rest of your weekend.
Announcer: This program has been brought to you by Allworth Financial, a registered investment advisory firm. Any ideas presented during this program are not intended to provide specific financial advice. You should consult your own financial advisor, tax consultant, or estate planning attorney to conduct your own due diligence.