S1: It's usually smarter to weigh consequences rather than chase probabilities. Hi,
S1: I'm Rob West. Whether you're building a portfolio or mulling
S1: over a new job prospect, checking the odds of success matters.
S1: But what if even a low odds failure could wipe
S1: you out? Today, Mark Behler joins us to talk through
S1: how to guard against the kinds of events that can
S1: ruin a financial plan and more. And then we'll take
S1: your phone calls at 800 525 7000. This is faith
S1: and finance live. Biblical wisdom for your financial journey. Well,
S1: Mark Miller is our guest today. He's executive editor at
S1: Sound Mind Investing. He's a regular contributor to this program,
S1: Sound Mind Investing. Of course, a long time underwriter of
S1: the program. And let me just mention Mark is here.
S1: He's always gracious with his time. And once again today
S1: he will be dedicating the entire broadcast to you. So
S1: this is the day. If you have a question on
S1: your portfolio, the market, how to think about heading into retirement,
S1: maybe on this topic of what about the probabilities and
S1: even the consequences. Perhaps more importantly, that might affect your
S1: portfolio depending on the decisions you make. Call right now
S1: 800 525 7000. We'll be queuing those calls. We'll get
S1: to them in just a bit. Questions for Mark Biller
S1: today 800 525 7000. Mark always great to have you.
S1: Welcome back.
S2: Great to be here Rob. Thanks for having me back.
S1: Mark. You've got a terrific editorial called Focus on Consequences
S1: Not probabilities in the latest issue of Sound Mind Investing.
S1: So take us into this idea. What are you talking about?
S2: Yeah. Well, risk taking is inevitable when it comes to investing.
S2: It's just part of the deal. Risk taking is part
S2: of life as well. But you never want to take
S2: a risk that you don't have to take. So when
S2: we talk about probabilities versus consequences, probabilities deal with how
S2: likely something is to happen. But consequences deal with how
S2: bad it might be if that thing does happen. And
S2: that's a really important difference. You know, if somebody tells
S2: you there's a 99% chance you'll be successful at a
S2: particular thing, that's the probability. And that's great. In this case,
S2: that would be a very likely thing. But what if
S2: that 1% chance of failure means absolute ruin? Maybe you're
S2: dead if that 1% thing comes up, you know, 1%
S2: chance of ruin is still ruin. And so even though
S2: the probability may be really low, if the consequence is
S2: severe enough, that's got to weigh more heavily in our
S2: decision making than the high percentage chance of success.
S1: MM. Yeah. Well, that's pretty stark. Let's make it maybe
S1: even more practical. Um, what about crossing a busy street?
S1: I know you use that example. Walk us through that.
S2: Yeah, that's one that everybody can relate to and it
S2: makes the point pretty clear. So, you know, this is
S2: a great example of low probability but high consequence. You know,
S2: the probability of me getting run over by a truck
S2: when I cross the street is very low, but I'm
S2: still going to look both ways because the consequence of
S2: me getting run over by a truck is catastrophic. So
S2: in the same way as investors, we can't ignore a
S2: potential wipeout event, even if it's just a small probability
S2: or is statistically unlikely.
S1: MM. Yeah. Really helpful. What about from an investing standpoint?
S1: How does this apply.
S2: Yeah. Well, you know, I think that there are a
S2: lot of different applications of it. Um one example of
S2: this in history, a famous example was the failure of
S2: Long Term Capital Management, which was a famous hedge fund
S2: back in 1998. Super genius brain trust. In fact, they
S2: wrote a book about this episode after the fact that
S2: they titled When Genius Failed. And the bottom line of this,
S2: Rob was these were the smartest investing guys around. They
S2: built these amazing models, and those models would have worked
S2: almost every time. But almost every time isn't every time.
S2: And so the combination of leverage and the wrong set
S2: of circumstances ended up wiping out this hedge fund and
S2: almost taking down the whole financial system with them. So
S2: that was a classic example of low probability, high consequence.
S2: And honestly, those types of things happen too often in
S2: financial history, which has to make us humble about the
S2: actual probabilities of these types of failures.
S1: Yeah, that's exactly right. Well, there's a lot to apply
S1: here to your portfolio as you're listening to Mark Miller today.
S1: And we'll continue to do that route right around the corner.
S1: We'll talk about, among other things, something called a sequence
S1: of returns risk that is front and center for retirees.
S1: We'll also be taking your investing related questions for Mark today.
S1: Call right now. If you've got a question, we've got
S1: lines open. We'll begin taking these calls in the next segment.
S1: 800 525 7000. Mark Miller here from Sound Mind Investing.
S1: We'll be right back.
S3: The opinions offered during this program represent the personal or
S3: professional opinions of the participants given for informational purposes only.
S3: Any information provided is not intended to replace advice from
S3: a financial, medical, legal or other professional who understands your
S3: specific situation.
S1: Well, it's always a good day when Mark Biller's here.
S1: He's our go to guy on the markets and your
S1: portfolio today we're talking about focusing on consequences, not probabilities.
S1: That's right. Whether you're building a portfolio or maybe thinking
S1: about a new job prospect, checking the odds of success matters.
S1: But what if even a low odds failure could wipe
S1: you out? That was the focus of the editorial and
S1: the Sound Mind Investing newsletter from Mark Biller. You can
S1: read it. It's called focus on consequences, not probabilities. When
S1: you head to Sound Mind investing dot ORG. I know
S1: the article leans heavily on the late Peter Bernstein's work Mark.
S1: What was his key insight?
S2: Yeah. Bernstein wrote one of the definitive books on the
S2: history of financial risk, and one of his key conclusions
S2: after reviewing all this financial history was that the consequences
S2: of being wrong are more Are important than the probabilities
S2: of being right. So he urged investors to ask. If
S2: it does go wrong, just how wrong could it go
S2: and how much will that matter? And that question really
S2: helps reframe risk from kind of a math question to
S2: more of a survival question.
S1: MM. Yeah. So taking this from the theoretical to the practical,
S1: then let's talk about something called margin of safety. How
S1: can an individual investor build that into their portfolio?
S2: Yeah. Well thankfully Rob, this is where we can start
S2: to lean on the timeless biblical principles that we talk
S2: about so frequently to help keep us safe. So we
S2: start out with the financial foundation. We often discuss, which
S2: we build by getting out of debt and establishing an
S2: emergency savings reserve. Ideally before we start putting large sums
S2: of money at risk in the markets. Once we get
S2: to the investing stage, we can use diversification across asset
S2: classes to help manage risk. Um, a couple other things.
S2: We want to avoid really concentrated bets and especially leverage,
S2: which can permanently impair our capital. Um, another one that
S2: we see a lot, Rob, is just, you know, when
S2: we get into financial planning, um, using modest assumptions in
S2: our planning, you know, you may know what the historical
S2: average of stocks or different asset class has been in
S2: terms of the performance, but maybe rerun that plan with
S2: a little bit more modest assumption. Um, there are lots
S2: of applications here, but bottom line, really maintaining a margin
S2: of safety is really about having the humility to acknowledge
S2: that we're fallible. We don't know what the future holds,
S2: and leaving some room for error instead of running every
S2: scenario at full throttle.
S1: MM. Yeah, that's well said. Mark Miller is here today.
S1: We're taking your questions. We'll do that. Now. We do
S1: have some lines open. If you have an investing related question,
S1: you're wondering what to do about your portfolio call right now. Mark,
S1: would love to tackle your question today at 800 525 7000.
S1: Let's go to Tennessee. Allen. You'll be our first caller.
S1: Go ahead sir.
S4: Thank you for your time. Uh, a number of years ago,
S4: my wife and I, along with our financial planner, sat
S4: down and looked at long term care costs as far
S4: as purchasing like a policy for that. And it was
S4: just to me when I did the math, it just
S4: didn't really add up to I didn't think it was
S4: the smartest approach and our financial investor was letting us lead.
S4: But he I said, what do you think? And he said,
S4: I kind of agree. So we're self-funding that. And I
S4: guess my question is, is, um, at what point do we, uh,
S4: definitely want to these are the Lord's money. So we
S4: don't want to hoard these. We don't necessarily want to
S4: leave a whole lot, although we're going to try to
S4: set up a legacy for some different ministries if there
S4: is monies left over. But how much should we allocate
S4: knowing that these costs go up pretty substantially every year?
S1: Yeah. I mean, you know, I think you need to
S1: be looking at the today's costs, you know, which could
S1: be 10,000 a month. We just had Nathan Sarno yesterday
S1: with us, the president of Master Care and LTC consumer.com.
S1: He was saying, you know, certainly 10,000 a month, you know,
S1: skilled in home care could run 25,000 a month. And,
S1: you know, you've got everything in between. Um, so, you know,
S1: is this a risk? Yes. It will affect, you know,
S1: more than half of 65 year old and older Americans
S1: at some point in their lives. And, you know, that
S1: need could be substantial. Um, you know, long term care
S1: insurance has come a long way. The policies, the older
S1: policies were really problematic because I think they were often
S1: priced in an environment where the carriers didn't understand how
S1: many people would use them, how long would they keep them?
S1: What about future costs? And so as a result, the
S1: industry has gotten a black eye because of the dramatic
S1: increases in premium. But today's policies are, you know, they
S1: know how to price them a lot better. Yes. They're expensive.
S1: I think, you know, a typical policy could be, you know,
S1: $250 a month, probably up to, you know, 7 or
S1: 800 a month and everything in between. And again, you know,
S1: you've got to buy the policy that's right for you.
S1: Typically between, you know, 55 is probably when you want
S1: to start looking at it, but you can also self-insure. Mark,
S1: I'd love for you to weigh in on how do
S1: you think about positioning your portfolio if you are going
S1: to self-insure against the risk of perhaps needing a substantial
S1: income stream down the road to be able to fund
S1: long term care?
S2: Yeah, it's it's absolutely a question that's on everybody's mind
S2: as they get into the planning process. And I would
S2: just add to what you just said, Rob, which was
S2: all excellent. We did a deep dive on on all
S2: of this about a year ago, and the SMI newsletter.
S2: And one thing that a lot of people are not
S2: aware of is there has been kind of a new, uh,
S2: part of this industry that's popped up because of all
S2: the challenges on the long term care insurance. There's a
S2: short term care insurance option now that a lot of
S2: people don't know about, with the primary difference being that
S2: those policies are targeted to a shorter period. Thus the
S2: short term care. So those typically will run out in
S2: about a year, which sounds like well, that may not
S2: be that helpful if I have a big problem. But
S2: when you look at the statistics, a lot of people
S2: end up in situations where they need that care for
S2: a shorter period of time. And by having that time
S2: limit on it, that makes them much, much more affordable. Um,
S2: but back to your original question there, Rob. You know,
S2: there isn't so much that you can do, um, with your,
S2: your overall investing portfolio planning, um, other than to recognize
S2: that there is this, this looming need and try to
S2: build that into your projection of what, uh, what kind of, um,
S2: dollar figure nest egg you're, you're likely to need. And
S2: I think that, you know, the one thing we talk
S2: about from time to time here on these programs is
S2: that some folks, you know, feel like they're in good
S2: shape when they hit retirement. And so they really hit
S2: the brakes and get really conservative with their portfolios because
S2: they don't want to take unnecessary risk. And this is
S2: one of those risks that because it's so undefined, um,
S2: you know, you kind of have to keep an eye
S2: on it. And that's a reason to keep that portfolio
S2: growing at a little bit higher clip if you can.
S1: Yeah, I think that's right. And, and not going to
S1: light on stocks for this very reason, because you can
S1: outlive your money. You could also have a major expense
S1: that enters the equation in this season of life that
S1: is unexpected. So Allen, hope that helps. If you did
S1: want to check it out, perhaps some of these other
S1: newer policies, uh, even just to shoulder a portion of
S1: this LTC consumer.com is a great resource, not only a
S1: search engine for actual policies, but a great resource for
S1: education and then sound mind investing.org as well. We'll be
S1: right back. Thanks for joining us today on Faith and
S1: Finance Live. I'm Rob West, Mark Billers here today. We're
S1: talking about focusing on not probabilities but consequences. That was
S1: the focus of his editorial in the latest Sound Mind
S1: Investing newsletter. You can check it out. Sound mind investing
S1: dot ORG. That's sound mind investing.org. While you're there, check
S1: out the SMI newsletter, you know, for more than 30 years.
S1: Do it yourself. Investors have relied on SMI for proven
S1: strategies and trustworthy guidance. They also have the private client
S1: group for those that want to delegate to Mark and
S1: his team to manage those assets directly. Mark's taking your
S1: questions today on investing. If you have a question, call
S1: right now 800 525 7000. The lines are filling up,
S1: but still a few lines open at the moment. Let's
S1: go to Ohio. Connie, how can we help you?
S5: Yes. Hi, I was wondering. Hold on. I have an
S5: annuity and I was wondering, can I use part of
S5: that as part of that, um interest as an RMD?
S1: Yeah. Is this, uh, an IRA annuity as they're often
S1: referred to? Is it pre-tax money?
S5: No.
S1: So it's a, it's not a what's called a qualified annuity.
S1: It's after tax annuity money.
S5: Um, I'm not really sure it might be. I'm not sure. Okay. Yeah.
S5: All I know is it's an annuity, and it has
S5: a lot of. It has a lot of interest in it.
S1: Yes. Okay.
S5: I don't I'm not I'm not taxed at the end
S5: of the year. So I guess when I pull it
S5: out then I'm taxed on that.
S1: Yes. Okay. Very good. Yeah. Mark, would you want to
S1: weigh in on that?
S2: Yeah. I, I think, Connie, you're going to have to
S2: probably speak with, with somebody at the annuity company to
S2: find out exactly, um, the terms of the annuity and,
S2: and exactly how that is going to be taxed and
S2: whether that would qualify as, as a, you know, required
S2: minimum distribution. Um, I'm not sure without getting that information
S2: directly from them how you would know that otherwise.
S1: Yeah. Yeah. I think that's a great point. It's always
S1: good to revisit the details. I would just say, you know,
S1: Sometimes this can be done. If the qualified annuity is
S1: held inside a traditional IRA, then that distribution from the
S1: IRA annuity could be used to satisfy, you know, RMDs
S1: for the other IRAs. Um, so you could potentially, let's
S1: say you had, you know, IRA one had a $4,000 RMD,
S1: IRA two had three, the IRA annuity had five, a
S1: total was 12. You could take the entire 12 from
S1: the IRA annuity rather than taking separate withdrawals from all
S1: three accounts. Uh, assuming the annuity contract permits the distribution, um,
S1: if you have for one KS and so forth, it
S1: gets complicated because the aggregation rules differ by account type.
S1: But you do need to Mark's point to check with the, uh,
S1: the insurance company just to find out exactly what can
S1: be done. But the direction you're headed is certainly possible. Uh,
S1: I would just do a bit more investigation. Thanks for
S1: your call today. Uh, to Chattanooga CC. How can we
S1: help you?
S6: Yes I have. I invest some of my. I do
S6: my own investments with Truist Bank. They charge me $60
S6: a year to do that, but I just. I had
S6: my son put it through an AI thing that told
S6: him that I have, um, a lot of the same
S6: stocks and mutual funds doing the same job. And so,
S6: for example, AI is a little part of a lot
S6: of the mutual funds or, and, and, and so if,
S6: if AI goes down, then I'll have a whole lot
S6: of mine. Everything will drop and I need to diversify better. Um,
S6: so I didn't know how to, if there was a
S6: class or a book or something I could that would
S6: help me with diversifying better. Um, what are your thoughts
S6: on that?
S1: Yeah. Mark your thoughts.
S2: Yeah. Um, this is, this is definitely in the wheelhouse
S2: of what SMI does and what we're all about. Um,
S2: so a really easy, um, you know, way to start
S2: on That might be to just roll around the SMI
S2: website a little bit. Our SMI handbook, um, is, uh,
S2: a good one stop, you know, guide to breaking down
S2: different types of mutual funds. Um, the strategies that we
S2: provide are designed to do a lot of exactly what
S2: you're talking about, which is to make sure that you're
S2: well diversified, not just between, say, stocks and bonds, but
S2: different types of stocks. Um, you know, generally speaking, you're
S2: going to want to divide your stock investments, uh, to
S2: diversify along two different, uh, poles so you can diversify
S2: by the size of companies so large, medium and small.
S2: And then the most general, uh, other type of diversification
S2: is between growth investments and value investments. So if you
S2: think about those two different Are poles of diversification. You
S2: can start to move away from, as you were saying, like,
S2: it sounds like you have a very growth heavy portfolio,
S2: a lot of AI investments, a lot of technology companies
S2: and that sort of thing. And so to diversify that,
S2: you wouldn't have to get rid of all of that,
S2: but you might take some of that money and look
S2: specifically for some more value oriented investments and our strategies.
S2: We have some that are clearly laid out, the specific funds. So,
S2: you know, that would be one way to kind of
S2: get the cheat sheet would be to just sign up
S2: for a month, look at the strategies and see which
S2: value funds we're currently recommending. Um, and that that would
S2: be a quick way to do it. Or you can
S2: do a little more research on your own and kind
S2: of build your own type of grid so that you
S2: have some growth, some value, some large and ideally some small.
S2: And then if you want to also add some foreign
S2: stock diversification. Um, we've talked we've had a few programs
S2: about the advantages of investing in foreign stocks. I think
S2: it's a great idea to have some of that exposure
S2: as well. So that's kind of a quick overview of
S2: how to diversify a stock portfolio.
S1: Very good. I'd love to send you a copy of
S1: that book that Mark mentioned. It's called the Sound Mind
S1: Investing Handbook. CC will send that as our gift to you.
S1: Stay on the line. The team will get your information
S1: and we'll get it right out to you. It's going
S1: to give you a nice primer of a lot of
S1: the things Mark was talking about and a whole lot more.
S1: And again, sound mind investing.org could be a great resource,
S1: including the Sound Mind Investing newsletter, but we'll get the
S1: handbook right out to you. Thanks for your call today. Well,
S1: when we come back, we'll continue to take your questions.
S1: We'll head to North Carolina, to Florida, to Texas, and
S1: we'll talk more about Mark's article focused on consequences, not probabilities.
S1: We'll be right back. Helping you live as a faithful steward.
S1: This is faith and finance live. I'm Rob West, he's
S1: Marc Biller. We're talking about investing today focusing on consequences,
S1: not probabilities. That was the focus of Mark's recent editorial
S1: in the Sound Mind Investing newsletter. Check out the article
S1: when you go to Sound Mind investing.org. We're going to
S1: head right back to the phones in a moment. We
S1: have room for a few more questions today. If you
S1: have a question on investing your portfolio, call right now (800) 525-7000.
S1: Mark would love to tackle those questions. First, Mark, you
S1: mentioned in the article something called sequence of returns risk.
S1: And this is particularly of interest to retirees. Tell us
S1: what that is and how we should think about it.
S2: Yeah. It's a fancy term for a very real problem
S2: that retirees face, and that is that losses early in
S2: a person's retirement, because you're also withdrawing from the account
S2: to meet your your living expenses. If you get losses
S2: early on and they're severe enough, your portfolio can get
S2: depleted so quickly that even if you have stronger market
S2: returns later on, your portfolio really has a hard time
S2: recovering from that. And that's kind of a weird idea because,
S2: you know, we learn in an early math that it
S2: doesn't matter what sequence, uh, you know, uh, numbers come
S2: in when they're multiplied. If you have one times, two
S2: times three, it's the same as three times two times one.
S2: The difference, of course, Rob, is that when you're actually
S2: taking money out of the account as you go, then
S2: the sequence does matter in terms of how that plays out.
S2: And so, you know, there are a few things that
S2: we can do to try to counteract this specific risk,
S2: which is a very big deal for retirees. One is
S2: simple diversification. We diversify so that our whole portfolio isn't
S2: exposed to that stock market risk. And then there are
S2: other strategies as well. Like, uh, one popular one is
S2: to hold a few years worth of your spending in
S2: very low risk cash or bonds specifically, so that if
S2: you're one of the unlucky few who do have a
S2: big market drawdown early on in your retirement, you can
S2: take your living expenses from the cash and the bonds,
S2: leave the stock investments alone so that they have time
S2: to recover from the downturn. And that way, a big
S2: early decline isn't going to sabotage your whole long term
S2: retirement plan.
S1: Yeah. Really helpful. Mark, thanks for sharing that. Uh, all right,
S1: let's head back to the phones. We're going to head
S1: out to North Carolina. William, thanks for your patience. Go ahead.
S7: Yes, hello. Thank you. Appreciate the wisdom that you provide
S7: on a daily basis. My question is, my wife is 68,
S7: and we found out that she has like three different
S7: retirement accounts, and we understand we'll avoid the penalty, but
S7: the taxes that come with that. So the question is
S7: what are the recommendations on when we do get ready
S7: to access that? Um what are our options? We're trying
S7: to take it and then changing our tax liability or bracket.
S1: Yeah. Mark.
S2: Yeah. Great. Well, and well, I guess the, uh, the
S2: silver lining there is finding out you have extra retirement
S2: accounts is always, always a good thing. Um, you know,
S2: I think you're wise to keep an eye on the,
S2: the tax side of this. And there are a couple
S2: of things that you can do for sure. One is to, um,
S2: find out exactly where the tax brackets, um, where the
S2: tax rates change, how where the brackets are. The limits
S2: are the dollar limits around your income level. And the
S2: reason that's so important is a lot of times, um,
S2: you know, if you have, uh, a certain amount of,
S2: of dollars available above your current income before you get
S2: up to the next tax bracket and the, the tax
S2: rate changes, you know, that can give you a little
S2: bit of leeway to potentially, uh, take a little bit
S2: larger withdrawal in a particular year. Or you might see
S2: that you're right up against the top of your current
S2: tax bracket, in which case you might take a, a
S2: lesser withdrawal in a particular year, so you can manage
S2: your tax liability that way. Um, you also have some ability.
S2: You said you're, uh, 68 years old or your wife is, um,
S2: so you have some ability here before required minimum distributions
S2: kick in to use that same idea of eyeballing these
S2: tax brackets and how much room you have before you
S2: hit the next higher tax level, uh, to potentially do
S2: some Roth conversions if you're dealing with some traditional IRAs.
S2: That's one way that you can manage your tax liability
S2: by potentially paying a little more tax now, but with
S2: the benefit that when you're required, minimum distributions kick in, uh,
S2: several years from now, you're not going to be required
S2: to take distributions that are larger than you want. And
S2: that would potentially bump you into higher tax rates. I
S2: guess the last idea, William, that I'll leave you with
S2: is if you guys do any charitable giving, a great
S2: way to manage your tax liability is to use a
S2: qualified charitable distribution, which is a way you can take
S2: some of your required minimum distributions out of an IRA.
S2: It goes directly to the charity that you designate, which
S2: can be your local church or a different charity. And
S2: if you do that with that QCD, that qualified charitable distribution,
S2: it completely bypasses your tax return, which means you don't
S2: have to worry about the income, uh, impacting your Social
S2: Security or Medicare, uh, either. So those are a few ideas. William. Rob,
S2: I don't know if you have any others.
S1: I love those. Yeah. I mean, this idea of filling
S1: up the buckets is a big one where you fill
S1: up the lower brackets, brackets without spilling unnecessarily into a
S1: higher bracket. Uh, and this window that you have for
S1: tax planning after you retire, where you have lower earned income,
S1: where Social Security may not have started. And you certainly
S1: don't have RMDs yet, gives you a nice window to
S1: be able to go ahead and pay some tax at,
S1: you know, the ten or the 12% bracket shy of
S1: the 22%. And, you know, get some of that money
S1: out or convert it to Mark's point, to Roth. Does
S1: that make sense, though?
S7: It does. That is extremely helpful. Very much.
S1: Excellent. Well, thanks for your call today, sir, and appreciate
S1: you being on the program. Stay on the line. We'll
S1: send you a copy of Mark's book, The Handbook. The
S1: Sound Mind Investing Handbook is our gift to you quickly
S1: to Florida. Alberto, thanks for calling today. Go ahead.
S8: Long time listener. Rob. I got a question. Um, have
S8: you ever heard of this company? Um, why refi investment? Mhm.
S1: Yeah. Yes, I'm familiar with it. Essentially, it's a private
S1: investment that involves a promissory note tied to their business.
S1: Why refi? Uh, with their businesses refinancing distress or defaulted
S1: private student loans. Um, here's, here's what I would say.
S1: It's substantially higher risk than anything like a CD or
S1: a treasury, for sure. It's certainly not FDIC insured. Um,
S1: you know, essentially think about it like, you know, the 10.25%,
S1: you know, you're lending money to a private company. And
S1: with that higher rate comes the additional credit and liquidity
S1: risk because these investments are very illiquid. There's no secondary market.
S1: So although you can request an early redemption, they can
S1: approve or decline or delay it. Um there's also credit
S1: and business risk because the underlying business involves borrowers who
S1: previously have, have had distress or defaulted private student loans. Um, and,
S1: you know, there's just, uh, you know, a higher overall
S1: risk because of, uh, you know, these are not insured
S1: in any way. So I would just be careful, uh,
S1: about something like this personally, I would stay away from it.
S1: But I appreciate you asking. Alberto, thanks for your call today.
S1: Mark Miller is here today. Back with our final segment
S1: after this call with questions 805 525 7000. Mark Miller
S1: is here today. We're talking about his article that you
S1: can read it sound mind investing.org. It's called focus on Consequences,
S1: not probabilities. And it's a really insightful article. Mark, before
S1: we head back to the phones, I'd love for you
S1: to comment on what's going on in the in the
S1: Treasury market. Obviously, we've got long term yields up dramatically.
S1: I know the Treasury Secretary moving to double the buyback
S1: which temporarily provided some relief. Yields back up today. I
S1: know the secretary saying that he was just trying to
S1: provide liquidity not necessarily get involved in the yield. And
S1: he's got a big toolbox at his disposal. But just
S1: kind of give us some sense of what's going on.
S1: And is there some concern here?
S2: Yeah, I mean, there is some concern, Rob. You know,
S2: we saw a few years ago, uh, in 2022, the
S2: impact that rapidly rising interest rates can have, not just
S2: on bond prices, which are always going to go down
S2: as interest rates go up. But in 2022, when bond
S2: yields went up, the stock market really reacted poorly to
S2: that as well. Um, and so it's been an issue
S2: that investors have been watching on and off for the
S2: last probably, you know, four years or so. And whenever
S2: interest rates do climb, uh, treasury yields climb towards, you know, 5%
S2: or so on the ten year, especially, um, the stock
S2: market tends to get pretty skittish and investors get nervous. So,
S2: you know, as we look at what's happened here in
S2: the last week or two, there have actually been two interventions.
S2: One of them just flew right past most people's radar
S2: because it involved the Japanese yen. And if you look
S2: at that one closely. Our intervention in the. The yen
S2: carry trade, which gets very technical, was largely considered to
S2: be an effort by the U.S. Treasury to keep Japan
S2: from selling their U.S. treasuries in order to raise dollars
S2: to protect the value of their currency. And so we
S2: intervene to try to keep them from selling U.S. Treasury bonds.
S2: Then yesterday, as you mentioned, Rob, the Treasury intervened again
S2: in the Treasury market by increasing the size of this
S2: buyback of older treasuries. Now, there's some technical things around
S2: that that make that probably a good move, because what
S2: can happen is old treasuries can become kind of a liquid.
S2: So treasury bonds, longer term bonds that were issued back
S2: in 20 2021 when rates were much lower. Nobody wants those.
S2: And so they're largely a liquid. They're stuck on balance
S2: sheets of institutions and banks and things. So the Treasury
S2: coming in and saying, hey, we're going to issue some
S2: new short term bonds to to create money to buy
S2: back some of those illiquid long term bonds. That's probably
S2: a good thing. But behind all of this, Rob, I
S2: think you have to keep your eye on the ball
S2: here and not get lost in the technical forest. And
S2: the big picture here is that we're trying to wallpaper
S2: over a much bigger problem. The much bigger problem is
S2: we're six years out from Covid, and the federal government
S2: is still running annual deficits that are 6% of GDP.
S2: So these are huge deficits. We're issuing massive amounts of
S2: debt year after year after year, really at a level
S2: that historically we would only run this type of deficit
S2: if we were in the middle of a deep recession. Um,
S2: and so just like a household goes through different phases where,
S2: you know, things are going really well, so most reasonable
S2: people would pay down their debt, you know, would save
S2: some extra to get ready for a rainy day down
S2: the road. Well, that's what we should be doing right now.
S2: We've got a good economy. Unemployment is low. We know
S2: that someday those conditions will change. We'll have a recession,
S2: and the government will need to spend more and borrow
S2: more to help us get through and out of that recession.
S2: But we don't have that today, and we're still borrowing
S2: all this and creating all this new debt. So that's
S2: really the the problem that the bond market and investors
S2: are kind of looking through these actions, these interventions and saying,
S2: you know, that's all great. That might help today, tomorrow,
S2: next month. But, you know, longer term, we want to
S2: be paid more if we're going to take the risk
S2: of lending this government money, lending the U.S. government money
S2: at these longer terms, you know, ten years, 20 years,
S2: 30 years. We don't trust that they're going to be responsible. And,
S2: you know, there's there's more risk. That's really what it
S2: boils down to. More risk equals higher rates. And that's
S2: what we're seeing in the bond market. These rates pushing
S2: up on the long end. Now I would say the
S2: biggest takeaway from what's happened here in the last couple
S2: of weeks in this action yesterday is the Treasury, if
S2: you read between the lines, is basically saying we're not
S2: comfortable letting interest, long term interest rates go higher than
S2: they are right now. And if they're going to play
S2: that game of trying to kind of artificially cap rates here, well,
S2: it's kind of like when you squeeze a water balloon,
S2: you know, you can put pressure on one part of
S2: the balloon, but it's just going to bulge out somewhere else.
S2: And so what we saw yesterday was what are the
S2: bond alternatives? If you're going to cap the interest rates
S2: on the bonds, investors immediately say to themselves, well, where
S2: where else can I go? And what we saw yesterday
S2: was gold shot up by like 4%. So that's kind
S2: of your insurance against these types of policy actions. Um,
S2: so we're kind of circling back to some of that
S2: dollar debasement trade stuff that we were talking about at
S2: the beginning of the year on those programs where if
S2: we can't trust the interest rates on the bonds, maybe
S2: we take some of that money and put it into
S2: things like gold and other precious metals as an alternative. Um,
S2: and so I think you saw a big response to
S2: that yesterday there, you know, the dollar fell quite a
S2: bit against foreign currencies. Um, another thing we've talked about in,
S2: in the last year or two, uh, with a falling
S2: dollar is international stocks tend to do really well when
S2: the U.S. dollar is falling. Uh, commodities, things that are
S2: priced in dollars tend to go up in price, like
S2: with gold. So commodities, foreign stocks, gold, all those things
S2: get a bid in this type of environment.
S1: Yeah, really helpful analysis, Mark. Thanks for that. All right.
S1: Let's try to sneak in 1 to 2 more phone
S1: calls here before we close out for the day. Rachel
S1: in Texas, thanks for your patience. How can we help you?
S9: Well, I just wanted to find out how I could
S9: invest some of my money. I have I have no
S9: investments or anything like that. I don't have a debt.
S9: So I just wanted to find out about that. Yes.
S9: Thinking about it lately.
S1: Okay. Yeah. Very good. Can I ask a couple of questions?
S9: Sure.
S1: Okay. Uh, approximately what amount of money do you have
S1: available that you would consider investing?
S9: Well, maybe, uh, 150,000.
S1: Okay. And would that be in addition to what I
S1: call an emergency fund, the savings that you need for
S1: the unexpected?
S9: Uh, no. No it doesn't.
S1: So this, the 150 includes your emergency fund?
S9: No.
S1: No. You have that separate.
S9: I have, I have yes.
S1: Okay. Very good. And what are your income sources? What
S1: are you living on?
S9: Social security.
S1: Okay. Social security alone?
S9: Yes.
S1: All right. And is that enough to cover your bills?
S9: Yes. Okay. I have an arrangement right now that I don't.
S9: I don't pay taxes because I didn't work. It was
S9: so secure. Came from my husband.
S1: I see.
S9: Uh. Yes, ma'am. About three years. A little bit at
S9: a time. I've been able to make this little nest
S9: egg for myself.
S1: Yeah. Excellent. Well done. And the 150 or so thousand.
S1: Is that just in a savings account right now?
S9: Yes.
S1: Okay. And if you don't mind me asking last question,
S1: what is your age?
S9: 80. I'm going to be 89.
S1: Wow. Incredible. Uh, Mark, uh, thoughts on, uh, how Rachel
S1: can think about this 150,000?
S2: Yeah. So, Rachel, you know, the biggest question, uh, that
S2: you'll have to, to deal with in making this decision
S2: is how much risk do you want to take with
S2: that money? So you've got it in a savings account
S2: right now. So the, the smallest step up in risk
S2: would be to go to something like, uh, CD, uh,
S2: maybe a little bit longer term CD that's going to
S2: pay you a little bit more interest. Uh, beyond that,
S2: you could go into some very low risk, um, bond
S2: type investments. And then at the very farthest end of
S2: the risk spectrum, you'd be talking about like stock market
S2: type investments. Um, but, you know, with stock market investments.
S2: We typically say, if you don't have at least a
S2: five year time horizon, you probably want to steer clear
S2: of stocks. So that may incline you towards, you know,
S2: looking at some of the, the different bond investment type
S2: options that are out there. They're all different types of
S2: bond funds, um, and ways to invest in bonds. Um,
S2: so that could be a conversation that you could even
S2: start at your local bank to see what kind of
S2: options they have. Um, otherwise, you know, you can certainly
S2: open a brokerage account with a company like Schwab or
S2: fidelity or there are many others. And just look for, um,
S2: you know, low risk bond fund investments as an option. Um,
S2: but that would probably be where to start.
S1: Yeah. I think that's great advice, Rachel. The other option,
S1: in addition to what Mark shared, and I would agree wholeheartedly,
S1: is to connect with a certified Kingdom advisor there in Texas.
S1: Somebody who could help you think about how to build
S1: the kind of portfolio Mark was describing, where maybe and
S1: this would be entirely up to you. Maybe you have
S1: 10 or 20%. So 15 to 30 000 that goes
S1: into stocks to give you a little bit of growth.
S1: And then the rest nine, you know, 80 to 90%
S1: of that 150,000 is in those CDs and money market
S1: and bonds that Mark was talking about, where you're still
S1: on the more conservative end of the spectrum, but you
S1: have the ability to earn a little bit more on
S1: this nest egg that you've been so diligent to save.
S1: I'm going to ask you to hold the line. My
S1: team will get your information. I'll have somebody from Kingdom
S1: Advisors call you in the event you want to connect
S1: with the Certified Kingdom Advisor, they can find one for
S1: you in your area. Just hold the line. Mark, thanks
S1: for being here today.
S10: Always my pleasure. Rob.
S1: Folks, check out Sound Mind Investing, the newsletter, the private
S1: client group, and the article we've been talking about at
S1: Sound Mind investing.org.