WEBVTT - What To Do About Your Finances.  Pat McClain Talks to Armstrong & Getty

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<v Speaker 1>Everybody's talking about your health, what about your finances? It's

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<v Speaker 1>armstrong and getting extra large, because four hours simply usn't enough.

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<v Speaker 1>This is armstrong and getty extra large. Man, if my

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<v Speaker 1>voice sounded like that, I'd never stopped talking to Pat

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<v Speaker 1>McClean is the co founder and senior partner at all

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<v Speaker 1>Worth Financial. We've actually known Pat for years and years

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<v Speaker 1>and years. So Pat, after people will worry about getting

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<v Speaker 1>the disease or not getting the disease, I think most

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<v Speaker 1>of our thoughts turned the immediately to our personal finances, UH, savings, etcetera.

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<v Speaker 1>What's the heck through this whole thing? At least through now.

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<v Speaker 1>I spend more time thinking about the financial ramifications of

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<v Speaker 1>this than I do the health right right. So what

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<v Speaker 1>are you hearing most from your clients right now? Uh?

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<v Speaker 1>Kind of a stated disbelief, a little bit of shock. Um,

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<v Speaker 1>people are focused. You know, this is different than the

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<v Speaker 1>last recession, which was all money. This is health and

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<v Speaker 1>money and lifestyle and social interaction all wrapped up in one. Um.

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<v Speaker 1>But most of the clients are actually sticking with their portfolios.

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<v Speaker 1>The vast majority. Uh. If they had a well defined

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<v Speaker 1>and well balanced portfolio going into this that they're they're

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<v Speaker 1>fine and they'll get through it. Um. But it's a

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<v Speaker 1>shock to everyone, obviously. Um, it is obviously, And we're

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<v Speaker 1>just telling people, know what you know, what you own.

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<v Speaker 1>You better know what you own. You should have known before,

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<v Speaker 1>but you better known now. Why why do you need

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<v Speaker 1>to know assuming you made the right decisions before. Can

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<v Speaker 1>you just write it out and wait for it to

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<v Speaker 1>come back or do you think sectors are going to

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<v Speaker 1>change that much that you need to to move it

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<v Speaker 1>around a little Well? Uh so, at least you know,

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<v Speaker 1>a good investment advisor knows what they own, but the

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<v Speaker 1>people that do it themselves normally don't know what they own.

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<v Speaker 1>So there are some sectors that will take a little

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<v Speaker 1>bit longer to get out of this. I would think

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<v Speaker 1>if you look at the energy and oil sector, it's

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<v Speaker 1>going to take some time to get out of this. Um. Uh,

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<v Speaker 1>you know, crew lines of sort of things. Entertainment's going

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<v Speaker 1>to take some time to get out of this. High

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<v Speaker 1>yield debt, things that were low rated bonds will struggle

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<v Speaker 1>to get out of this, But the blue chips will

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<v Speaker 1>do fine. And if people are taking income from their

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<v Speaker 1>portfolio as long as they had three to five years

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<v Speaker 1>set aside in safe assets, government bonds, corporate bonds, they'll

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<v Speaker 1>be fine as well. Now I have two million dollars

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<v Speaker 1>worth of radio shack bonds, How do you feel about

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<v Speaker 1>in my future? There you go, We'll listen, stick to

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<v Speaker 1>the radio and leave the radio shack alone. Advice. There

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<v Speaker 1>you go. Do you do you spend much world? Yeah? Yeah,

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<v Speaker 1>you mentioned the word world. That's what I was going

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<v Speaker 1>to bring up. How much time do you spend looking

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<v Speaker 1>at Because I was just reading a story that broke

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<v Speaker 1>in the New York Times on the day we're taping

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<v Speaker 1>this about how long this could impact the world financial situation.

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<v Speaker 1>How much time do you spend looking at that? So

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<v Speaker 1>we think a lot about that, um, and we think

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<v Speaker 1>a lot about the recovery, right, so you're prepping for

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<v Speaker 1>their recovery. What's different about this versus the last recession

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<v Speaker 1>is how the Federal Reserve and the Treasure are actually

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<v Speaker 1>and actually legislation is managing through this. So for bands

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<v Speaker 1>on a mortgage for sixty days, they're thinking about people

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<v Speaker 1>being displaced from their home because they can't make mortgage payments.

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<v Speaker 1>So I don't think we're going to see um, this

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<v Speaker 1>sort of foreclosure scenario that we saw last time. I

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<v Speaker 1>think that they're going to bounce back. Small businesses. Oh,

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<v Speaker 1>it breaks your heart. They're gonna struggle like no one's

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<v Speaker 1>business it is. It's awful. My guess is of small

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<v Speaker 1>businesses won't come back. Wowh whoa, whoa, whoa. What does

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<v Speaker 1>that mean for unemployment? I mean I realized that's not

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<v Speaker 1>your specific Baileywick, but that's scary. Well, so look at

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<v Speaker 1>the unemployment. So here's another thing, right, unintended consequences. So

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<v Speaker 1>you've got your state unemployment and then six hundred dollars

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<v Speaker 1>a week and federal unemployment. So someone could be effectively

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<v Speaker 1>making fifty thou dollars a year on unemployment. So the

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<v Speaker 1>job comes back, you're a waiter or a bus boy

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<v Speaker 1>in a restaurant um or your job is marginally pays

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<v Speaker 1>marginally um more than the unemployment benefits. A lot of

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<v Speaker 1>people aren't going to be racing back into the job

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<v Speaker 1>market just because the benefits are, you know, almost as

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<v Speaker 1>good staying out of the job market. So you look

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<v Speaker 1>at that in the in the recovery sense, and then

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<v Speaker 1>you look at these guys that have just you know,

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<v Speaker 1>these restaurants, small restaurants, and I know a number of

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<v Speaker 1>restaurant tours that they're just shaking their heads saying, I

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<v Speaker 1>don't know if I'm gonna if I'm gonna come back. Yeah.

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<v Speaker 1>One of my favorite Chinese places have been eating that

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<v Speaker 1>for twenty years, is out of business already. They've done. Yeah. Yeah,

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<v Speaker 1>it's rough. So I seeing some of the stuff you

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<v Speaker 1>sent our way. We've talked a little bit about reviewing

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<v Speaker 1>your ounce and you say evaluate your cash needs. What

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<v Speaker 1>do you mean by that? So if you're taking distributions

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<v Speaker 1>just to make a lot of people are living on

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<v Speaker 1>their accounts, you need to make sure that you have

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<v Speaker 1>three to five years in cash so that you can

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<v Speaker 1>actually wait for the equities of the stock portion of

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<v Speaker 1>the portfolio to recover. So the other thing you look

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<v Speaker 1>at is that people a lot of people invest for

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<v Speaker 1>yield or dividends on their stocks. Re expect that you'll

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<v Speaker 1>see dividends come down significantly as corporations try to preserve

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<v Speaker 1>their own cashhold beings. Right, So they the investment landscape

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<v Speaker 1>is changing going forward. Fortunately, Uh, they've they've stepped in

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<v Speaker 1>and they've actually started buying. If you can believe this, Uh,

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<v Speaker 1>the Federal Reserve Treasury has started buying corporate bonds in

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<v Speaker 1>the secondary market in order to keep liquidity in the system.

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<v Speaker 1>We've never seen that before. So it's que seventeen quantity easing,

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<v Speaker 1>you know, five six seven. So they stepped in. They

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<v Speaker 1>even stepped in and started buying bond exchange traded funds

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<v Speaker 1>in order to keep liquidity in the market. We've never

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<v Speaker 1>seen this before. But the government is much more aggressive

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<v Speaker 1>um this time than the last time in terms of

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<v Speaker 1>holding down UH, keeping liquidity in the marketplaces right, and

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<v Speaker 1>when liquidity means that there's a buyer for a bond,

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<v Speaker 1>if someone wants to sell it. Do you worry about inflation?

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<v Speaker 1>If we keep adding trillion dollar packages to all this? Oh, inflation,

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<v Speaker 1>No one's worried about inflation. Right now. We should worry

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<v Speaker 1>about inflation, but no one's worried about inflation. And by

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<v Speaker 1>the way, when this is done, if if we see

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<v Speaker 1>less than five trillion dollars UH in in aid, I'll

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<v Speaker 1>be surprised surprise that it's less than five trillion. My

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<v Speaker 1>guess is at six to seven trillion dollars. They're throwing

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<v Speaker 1>everything at this. How how long How long did it

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<v Speaker 1>take after a nine eleven to get back to even

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<v Speaker 1>on the debt it was. It was actually the exact numbers,

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<v Speaker 1>I don't recall. It was relatively quick, It was relatively quick.

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<v Speaker 1>It was I think it was somewhere around less than

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<v Speaker 1>eighteen months. Yeah, I was thinking a year and a half.

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<v Speaker 1>But see, you have any guests how long this one

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<v Speaker 1>will be? Oh, so there's a big so big talk

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<v Speaker 1>about V recovery or l recovery. Uh, it depends on

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<v Speaker 1>how much the government throws at this in order to

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<v Speaker 1>keep people from losing homes and businesses. Um, that is

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<v Speaker 1>what is going to determine the recovery in this and

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<v Speaker 1>how we interact together. I know my business will never

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<v Speaker 1>be the same, right, My business will never be the

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<v Speaker 1>same in terms of how we interact as co workers

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<v Speaker 1>and associates and how we interact with our clients. So

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<v Speaker 1>I have two D and ten employees and uh, no

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<v Speaker 1>one comes through an office. Virtually no one comes to

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<v Speaker 1>an office. But our interaction with our clients is primarily

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<v Speaker 1>by zoom, meetings and phone And we're adapting to the

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<v Speaker 1>clients are adapting to it. And you think it will

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<v Speaker 1>just be this way no matter what, even when the

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<v Speaker 1>pandemic is over, yes. Education. You know, I know you

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<v Speaker 1>both have kids, Uh, your college students. My kids every

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<v Speaker 1>every night, every day they go into a room and

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<v Speaker 1>they take college classes. Um. It will it will change

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<v Speaker 1>the way we deliver good products and services, so much

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<v Speaker 1>like Amazon changed the retail environment. Uh, this will change

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<v Speaker 1>the education and the delivery of financial services and UH

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<v Speaker 1>non products to uh the consumer. And as we've been

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<v Speaker 1>talking about, if it is enough of that going on,

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<v Speaker 1>well then I there's no reason I need to live

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<v Speaker 1>within fifteen miles of downtown if I don't have to

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<v Speaker 1>drive downtown anymore. So real estate could change a lot,

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<v Speaker 1>as you can live in different areas. Now your commute

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<v Speaker 1>doesn't isn't a factor as much. This will be good

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<v Speaker 1>for some bedroom communities most certainly. Yeah, well there will

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<v Speaker 1>be a thousand changes, some good, some bad. I think. Hey, Pat,

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<v Speaker 1>I wanted to ask you about if people get furloughed

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<v Speaker 1>or laid off for their job disappears, and and they're

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<v Speaker 1>they're tempted, say to dip into their four oh one

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<v Speaker 1>k what are alternatives or in general, what would you

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<v Speaker 1>suggest that folks going through that think about so they

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<v Speaker 1>change the rules around four oh one k s. Last

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<v Speaker 1>week where you can withdraw a hundred thousand dollars out

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<v Speaker 1>of your four oh one K without penalty. You still

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<v Speaker 1>have to pay taxes on it, but you can pay

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<v Speaker 1>the taxes over a three year period, or you can

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<v Speaker 1>pay it back into your four oh one K over

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<v Speaker 1>three years, which is complete change, uh in in the

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<v Speaker 1>rules they've they've changed many things. They suspended required minimum distributions. Um,

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<v Speaker 1>So we would caution people to if you're going to

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<v Speaker 1>use retirement savings, do it with a plan in mind. Right,

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<v Speaker 1>Sometimes you just have to because you have other needs.

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<v Speaker 1>But if you're gonna do it, do it with a

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<v Speaker 1>plan in mind. Am I going to pay it back?

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<v Speaker 1>If I'm not going to pay it back, how am

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<v Speaker 1>I gonna pay taxes? Well, your plan might be I

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<v Speaker 1>don't want to get booted out of my apartment this month,

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<v Speaker 1>that's right, that's right, So then you don't really have

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<v Speaker 1>a choice. Yeah, yeah, Well, I'm glad to hear that

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<v Speaker 1>there's been that adaptive an approach by the federal government.

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<v Speaker 1>Normally it takes years or generations of howling to get

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<v Speaker 1>some of these rules changed. But do you personally have

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<v Speaker 1>like a gold bar buried in your backyard or anything

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<v Speaker 1>like that. He's not gonna tell you. I just wondered.

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<v Speaker 1>I mean, like, if you have a real this is

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<v Speaker 1>a podcast, real ship hit the fans, sort of like

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<v Speaker 1>super backup at a zombie apocalypse sort of thing where

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<v Speaker 1>there's like gold bars in the garage and coffee can

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<v Speaker 1>or anything like that. Well, if you've got to get

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<v Speaker 1>gold bars, they're not going to help you. You need

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<v Speaker 1>guns and ammunition. You need a stockpile of food and water,

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<v Speaker 1>because your gold is useless. If if you don't have

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<v Speaker 1>those other things, if I'm gonna come and take it

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<v Speaker 1>from you. But you know what, my son keeps saying,

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<v Speaker 1>plant food, because that's what kills zombies. He keeps telling

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<v Speaker 1>me that over over again. Really, yeah, I didn't know that.

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<v Speaker 1>I guess that kill zombies. Listen, I've got a whole

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<v Speaker 1>stock of a miracle grow here, so you should be saying,

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<v Speaker 1>so hey, listen, go ahead. Before we go, let's let's

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<v Speaker 1>talk about what this is going to change in state

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<v Speaker 1>governments in terms of pensions. Yes, please, because these you know,

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<v Speaker 1>many states, many municipalities are their pensions were underfunded to

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<v Speaker 1>begin with. I am hoping that the backside of this

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<v Speaker 1>that it really forces state government municipalities to actually do

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<v Speaker 1>some pension reform because they were underfunded going into this

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<v Speaker 1>um and they assume breaks a return that many of

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<v Speaker 1>these pension funds actually expect. You know, by the way,

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<v Speaker 1>if you ask them how UM they determine their internal

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<v Speaker 1>rate of return, that their their goal is not what

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<v Speaker 1>they return, but what the goal is. They just make

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<v Speaker 1>it up vote on it um. So we're hoping on

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<v Speaker 1>the back side of this we actually see some pension

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<v Speaker 1>reform warm because we've yield this low and the stock

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<v Speaker 1>market where it's at today, there's no way that these

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<v Speaker 1>pensions are going to make it through three, five, ten

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<v Speaker 1>years from now. There's not a chance in the world. Yeah,

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<v Speaker 1>and not to get too political about this, Pat, but

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<v Speaker 1>we both know that a lot of those fanciful, just

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<v Speaker 1>utterly fictional plans and formulas for the pensions. They're designed

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<v Speaker 1>to do one thing, to get union members to vote

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<v Speaker 1>a certain way. And the union members were lied to

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<v Speaker 1>everybody as much as the general populace, the taxpayers were

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<v Speaker 1>in that this stuff is unsustainable. But maybe that's a

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<v Speaker 1>discussion for another day. And hey, listen, Pat, as this

0:12:38.679 --> 0:12:41.280
<v Speaker 1>thing evolves, and lord knows how long it's gonna last.

0:12:41.320 --> 0:12:44.440
<v Speaker 1>I hope we can keep in touch. Yeah, and listen.

0:12:44.480 --> 0:12:48.280
<v Speaker 1>I'm gonna plug since this is a podcast. Plug our

0:12:48.600 --> 0:12:52.760
<v Speaker 1>podcast if you go to All word financial dot com.

0:12:52.840 --> 0:12:57.000
<v Speaker 1>We do UM a weekly radio show that's on the podcast,

0:12:57.120 --> 0:13:01.080
<v Speaker 1>and we do Right now, we've been doing covid uh

0:13:01.320 --> 0:13:04.040
<v Speaker 1>market updates of what you should be thinking about in

0:13:04.080 --> 0:13:06.400
<v Speaker 1>your own portfolio. One question just popped into my head.

0:13:06.520 --> 0:13:09.080
<v Speaker 1>What's the stupidest thing somebody could do right now? Like

0:13:09.200 --> 0:13:12.240
<v Speaker 1>you think, like the people that are reacting out of emotion,

0:13:12.320 --> 0:13:14.080
<v Speaker 1>fair and stuff like that, What's a really stupid thing

0:13:14.080 --> 0:13:19.440
<v Speaker 1>they should not do? Uh? So, probably go a percent

0:13:19.480 --> 0:13:23.920
<v Speaker 1>to cash in their portfolio. Um. Going a hundred percent

0:13:24.000 --> 0:13:27.280
<v Speaker 1>to cash is a dangerous, dangerous thing because this too

0:13:27.320 --> 0:13:30.280
<v Speaker 1>shall pass and it will recover. I remember in the

0:13:30.360 --> 0:13:32.480
<v Speaker 1>last recession, I had clients saying I want to go

0:13:32.520 --> 0:13:35.560
<v Speaker 1>to cash, and I was buying on the same day

0:13:35.559 --> 0:13:40.800
<v Speaker 1>in my portfolios. UM, in my own personal portfolios. UM.

0:13:40.880 --> 0:13:42.880
<v Speaker 1>So the worst thing you could do is go to cash.

0:13:43.480 --> 0:13:48.000
<v Speaker 1>If you're worried about it, you can move down risk. UM.

0:13:48.040 --> 0:13:51.080
<v Speaker 1>If you're excited about the opportunities, you can move up risk.

0:13:51.120 --> 0:13:54.200
<v Speaker 1>But you shouldn't make a wholesale move to cash because

0:13:54.679 --> 0:13:58.600
<v Speaker 1>well balanced portfolio normally has some bonds or some fixed

0:13:58.640 --> 0:14:02.439
<v Speaker 1>incomes in it. Good Pat McClain. Always interesting, Pat, and

0:14:02.480 --> 0:14:05.880
<v Speaker 1>always a pleasure. Thanks, let's talk again soon. You got it.

0:14:07.360 --> 0:14:08.280
<v Speaker 1>Extra large