Are We Heading For a Recession?

00:00:00.000 | - Welcome back to Portfolio Rescue, our show where we take questions straight from you,

00:00:21.600 | the viewer.

00:00:22.600 | Remember, if you have a question for us, askthecompoundshow@gmail.com.

00:00:26.040 | This week we had Barry Ritholtz on the show, the namesake of our firm, and Barry had a

00:00:30.600 | lot of interesting things to say about writing and producing content and blogging, and he's

00:00:35.400 | been doing this for a couple decades now.

00:00:37.800 | And I mentioned with Barry that I answer questions, when I started my blog, my whole reason for

00:00:42.080 | doing it was answering questions for friends and family, 'cause I was sick of them asking

00:00:45.400 | me, 'cause I was the finance investment guy.

00:00:47.920 | And I typically get two questions from my high school friends especially, high school

00:00:51.440 | and college friends, on text messages.

00:00:53.600 | One is like, "Should I buy or sell this stock?

00:00:56.960 | What should I do with this here?

00:00:57.960 | Is this a good buy?

00:00:58.960 | Is this a good sell?"

00:00:59.960 | And two, "Is this gonna get worse?"

00:01:00.960 | So I hear from people way more when things are getting worse, and things right now are

00:01:04.120 | getting worse.

00:01:05.120 | So I have a question, I think our first one we're gonna do today is actually from someone

00:01:07.640 | who texted me this week, one of my friends, and so we're gonna use that, but what do we

00:01:12.000 | got here, Duncan?

00:01:13.000 | - All right, cool.

00:01:14.000 | So before we get started, I just wanna say for those who haven't watched, you have to

00:01:17.080 | watch the latest Animal Spirits, it's episode 247.

00:01:21.000 | There's a clip in there of Ben scoring a touchdown at, what was the stadium?

00:01:26.680 | - The Silverdome in Detroit, Michigan, which is not there anymore.

00:01:30.000 | I think it's been torn down, but that was the old stadium before they had it.

00:01:33.320 | So my glory days, I played there a couple times for the state championship.

00:01:36.680 | - That was like '98, '99, right?

00:01:38.560 | - Yeah.

00:01:39.560 | - Okay, so everyone needs to watch that, but first I had a football question for you, which

00:01:42.400 | is I've always wondered, I see you evading tackles in that long run, would you rather

00:01:48.880 | see someone coming to tackle you, or not know that they're coming?

00:01:52.800 | - I'll definitely see them.

00:01:54.160 | - Okay.

00:01:55.160 | Well, the reason I ask is because of the car crash thing.

00:01:56.880 | People say like, "Oh, if you tense up, that's when it hurts the most, and you get injured

00:01:59.920 | the most."

00:02:00.920 | So I didn't know if it's preferable to just be tackled and not know that they're coming.

00:02:03.960 | - Okay, yeah.

00:02:04.960 | I think preparing for one, it's kind of now unlike the stock market, right?

00:02:07.520 | You'd rather be prepared for a downturn than get hit from the side, right?

00:02:10.880 | - Okay, cool, cool.

00:02:11.880 | I ran cross country, so we don't tackle, but yeah.

00:02:15.280 | Okay, so first up, today we have a short and sweet one.

00:02:20.520 | Inflation was already out of control, now the war has made gas prices spike.

00:02:23.920 | How does this not end in recession?

00:02:25.960 | - Yeah, I think this is a question a lot of people are asking these days, and unfortunately,

00:02:29.740 | the odds of a recession are much higher now than they were, call it, two, two and a half

00:02:33.360 | weeks ago.

00:02:34.360 | I think you'd have to be pretty dense to not at least think that.

00:02:36.880 | It's obviously impossible to predict these things with 100% certainty, but I would almost

00:02:40.720 | be surprised if we didn't have some sort of minor economic contraction because of this.

00:02:45.480 | And it's not just the U.S., right?

00:02:47.000 | This thing will probably be global, and I'm guessing the U.S. will probably fare the best

00:02:50.840 | out of most developed nations.

00:02:51.840 | So, John, throw up this chart of electricity and natural gas.

00:02:54.120 | This is from Michael Sembles at J.P. Morgan, and he compares electricity prices and natural

00:02:58.860 | gas prices between some countries in Europe and then the U.S.

00:03:01.920 | And you can see the spike in Europe is just massive.

00:03:04.960 | And they're far more dependent on Russia for some of their commodities, and their prices

00:03:10.240 | there were much higher to begin with.

00:03:11.920 | It's funny.

00:03:12.920 | We're complaining about $4 gas here in the U.S., but in Europe, people have been paying

00:03:17.800 | well over that price for a long time now.

00:03:20.320 | They already have a lot more, and they do it in liters, so I can't do the actual conversion

00:03:24.960 | in my head.

00:03:25.960 | But let's just say it's higher.

00:03:28.060 | It is important to note that inflation doesn't always cause a recession, but every inflationary

00:03:33.520 | spike in history has only been alleviated by a recession, right?

00:03:36.760 | So what happens to get that inflation back down?

00:03:39.600 | Unfortunately, every time, it's a recession.

00:03:42.040 | So let's look at this next chart, John, of inflationary spikes.

00:03:44.920 | So I looked at every inflationary spike of 5% or more going back to 1940, and you can

00:03:49.960 | see the gray bars on this chart show when a recession happened.

00:03:52.960 | The little red circles I did there was every time inflation spiked above 5%.

00:03:57.600 | It's not a perfect relationship in the sense that you can gauge the timing on these things.

00:04:02.240 | Sometimes inflation fell, then we went into a recession.

00:04:05.040 | Sometimes a recession occurred during that spike in inflation, and then sometimes that

00:04:08.920 | inflationary spike probably didn't have anything to do with it, like, say, the 2008 crisis.

00:04:12.480 | That's the last time we had oil this high.

00:04:14.920 | That was probably going to happen anyway.

00:04:16.760 | But the only way inflation came down in any of these instances was because a recession

00:04:21.900 | came afterwards or a recession happened because of it.

00:04:24.560 | So I hate to be the bearer of bad news, but this is kind of where we're at.

00:04:28.880 | So if we pull up this next table, John, this just shows that the pre-inflation or the pre-recession

00:04:34.440 | inflationary spike, again, go back to the '40s and then what happened afterwards.

00:04:38.800 | We just had our inflation print this morning of 7.9%.

00:04:42.000 | That happened before all this stuff with Ukraine and Russia happened, before energy prices

00:04:47.640 | spiked, before agricultural commodities prices spiked.

00:04:51.520 | Again, it's hard to see getting out of this situation where we could, in the coming months,

00:04:56.920 | in this year especially, probably see 8, 9, I wouldn't be shocked if we saw 10% inflation

00:05:02.640 | print this year, which is really going to freak people out, I think.

00:05:06.400 | And so, unfortunately, I think that a recession is really on the table and it's probably much

00:05:12.920 | higher than 50/50 odds of happening right now.

00:05:14.960 | Again, I'd be surprised if it didn't happen.

00:05:16.840 | Now, what does this mean for the stock market?

00:05:19.080 | I mean, we could actually bottom before it happens because it seems like the scenario

00:05:23.360 | where we kind of can see it coming now, kind of not quite the same parallel as what we

00:05:28.200 | saw in the corona crash where everyone knew the day it happened.

00:05:30.760 | Like Tom Hanks got COVID, NBA shut down, we're going into recession the next day.

00:05:36.120 | And so the stock market, it's kind of who knows how hairy and volatile it gets.

00:05:40.000 | I guess a lot of that depends on how long the war lasts and how long this commodity

00:05:43.440 | spike lasts.

00:05:44.440 | Now, of course, recessions are not great because people lose their jobs.

00:05:48.440 | One of the interesting factors going on right now is there are 11.3 million job openings

00:05:53.080 | in the US.

00:05:54.080 | That's the highest number ever.

00:05:55.080 | The highest number this ever, the highest this number ever was pre-pandemic was 7.5

00:05:59.600 | million.

00:06:00.600 | So there's more jobs than ever.

00:06:01.720 | So you think a recession happens, people lose their jobs.

00:06:03.520 | And obviously, this kind of stat can change overnight if there's a slowdown.

00:06:07.680 | But consumers have repaired their balance sheets for years.

00:06:10.200 | We've paid down credit card debt, increased savings rates, home equity is through the

00:06:13.680 | roof for people who own a home.

00:06:15.240 | So if we do have a slowdown, I would expect it to be minor, depending on how all this

00:06:18.440 | shakes out.

00:06:19.440 | But I think the odds of a recession are so much higher now than they were even a month

00:06:24.440 | ago.

00:06:25.440 | And it's probably going to happen, with the caveat that I cannot predict the future.

00:06:29.080 | Yeah, it's crazy how fast things shifted, you know.

00:06:31.680 | I mean, it was like the war on top of everything that was already going on.

00:06:35.760 | It just accelerated.

00:06:36.760 | It's like unimaginable from a year ago.

00:06:39.240 | The butterfly flapping its wings.

00:06:40.360 | I mean, this is kind of one man decided to do this, and the whole world has essentially

00:06:44.200 | changed.

00:06:45.200 | And yeah, I think we could see a slowdown.

00:06:46.200 | Again, I think it's probably worse in Europe, unfortunately, than it will be here.

00:06:50.340 | So yeah, kind of a downer.

00:06:52.880 | But I think a recession is probably coming at some point.

00:06:55.400 | Yeah, it seems like that's what people are expecting, too, right, based on the moves

00:06:58.980 | that we're seeing.

00:06:59.980 | All right, let's do the next one.

00:07:02.980 | Okay, so up next we have, "I feel like the wealthiest 10% of investors have taken profits

00:07:09.320 | during this year's massive selloff.

00:07:11.360 | Where is this money going?

00:07:12.360 | Bonds, cash, or just back into Apple, Microsoft, and Google?"

00:07:16.920 | So the reasonable assumption here is that it must be the wealthy selling stocks, because

00:07:21.800 | the top 10% own something like 90% of stocks, right?

00:07:24.600 | So it has to be the wealthy.

00:07:26.600 | I'm not so sure of this.

00:07:28.560 | It's also kind of hard to gauge these questions, because it hurts your brain to think about

00:07:32.320 | it.

00:07:33.320 | Like, what happens to the money in a selloff?

00:07:34.800 | Is it just because people are selling?

00:07:36.280 | And if you think about it, for every buyer there is a seller, and for every seller there

00:07:40.880 | has to be a buyer.

00:07:42.040 | So there can be new shares issued if a company goes public, if there's a SPAC, so you have

00:07:47.400 | an IPO, you have companies issue stock options.

00:07:50.720 | But money essentially disappears during a selloff, right?

00:07:55.120 | Just like it kind of magically appears during a bull market.

00:07:58.240 | So I'll put this chart about the tech rec from the FT on here.

00:08:02.960 | So this is from the FT this morning, actually.

00:08:04.800 | They said $5 trillion in marketable capitalization was shaved off the NASDAQ, and this is pretty

00:08:08.580 | much in the past year or so.

00:08:10.360 | If we look at two examples, the next chart of PayPal and Facebook, I refuse to call it

00:08:15.680 | meta still.

00:08:16.680 | And Duncan, I'm angry, because if I go on YCharts and I type in "Facebook," it doesn't

00:08:21.160 | come up anymore.

00:08:22.160 | I have to type in "meta."

00:08:23.160 | And I refuse to call it meta.

00:08:24.160 | You have to acknowledge it.

00:08:25.160 | Yes, I have to acknowledge it.

00:08:26.480 | So Facebook went from a high of $1.1 trillion to a little over $500 billion now.

00:08:32.480 | So that's, you know, half a trillion dollars gone.

00:08:35.320 | PayPal is even crazier, I think, from a relative perspective -- $362 billion at the top.

00:08:40.400 | And again, these numbers are from, like, last February, so not that long ago, to a little

00:08:43.520 | over $100 billion now.

00:08:44.980 | Just that it's gone.

00:08:47.020 | And so that money is just -- it's essentially evaporated, which is kind of what happened.

00:08:52.520 | So it doesn't take that much selling.

00:08:54.180 | All it is is sort of a supply-demand thing, where people were willing to pay up, and you

00:08:57.720 | have a gap up in prices, and now the gap is going down.

00:08:59.920 | And so that money is just going away.

00:09:01.320 | So we look at the flows.

00:09:02.920 | Surprisingly, in January, it was still pretty strong.

00:09:05.800 | So this is from Ed Yardeni.

00:09:06.960 | This is the equity mutual funds and ETF flows.

00:09:09.280 | It was still pretty positive.

00:09:10.280 | It would be interesting to see if this trails off a little in February, and especially in

00:09:14.720 | March.

00:09:15.720 | And then we look at the bond flows.

00:09:16.720 | Bonds are actually coming down a little bit in January.

00:09:19.320 | But the money is still pouring in.

00:09:20.880 | Now, of course, you have all these different competing investors.

00:09:24.660 | You have index funds and equity-managed funds and institutions and corporate executives

00:09:28.860 | and individual shareholders and hedge funds.

00:09:30.340 | So you have all these millions of investors who have different opinions and time horizons

00:09:33.500 | and goals and risk profiles and reasons for selling.

00:09:36.620 | So it's always kind of hard to know who's doing the selling and why and what the reason

00:09:40.100 | is and who's freaking out.

00:09:41.780 | I do want to get back to the 10% comment, because it seems to make sense, again, the

00:09:46.540 | top 10% sell.

00:09:47.980 | But William Bernstein had this piece at the beginning of the pandemic, and he used this

00:09:52.480 | quote from J.P. Morgan that said, "In bear markets, stocks return to their rightful owners."

00:09:56.400 | And a lot of people have taken that quote from way back in the early 1900s to be like,

00:10:00.960 | "Okay, in bear markets, the people who are patient and disciplined and willing to put

00:10:04.540 | money in, those are the ones who are going to make out okay."

00:10:06.860 | But Bernstein said, "Yeah, that's great.

00:10:08.560 | But guess who has the money in a downturn?

00:10:10.760 | Rich people."

00:10:11.760 | And so bear markets actually make wealth inequality worse, because rich people have the financial

00:10:16.560 | means to buy financial assets when they're at depressed prices.

00:10:21.240 | And so a lot of people were shaking their fists at the sky and saying, "Oh, the rich

00:10:24.840 | people are getting richer during the pandemic."

00:10:27.000 | That's probably going to happen in every bear market in the future as wealth inequality

00:10:29.800 | continues to have a separate, you know, between the haves and the have-nots.

00:10:33.280 | So unfortunately, downturns level the playing field for a little bit in the short run as

00:10:38.060 | those holders of financial assets see their prices fall.

00:10:41.360 | But they're also buying when they're falling.

00:10:43.560 | And so over the long run, that's a positive for rich people.

00:10:46.980 | And unfortunately, it probably makes wealth inequality even worse.

00:10:50.000 | I know this is, we're kind of on a downer here, Duncan, for the first two recessions.

00:10:53.800 | I'm feeling a little depressed now.

00:10:56.840 | But I think that's how it probably plays out.

00:10:59.560 | It'd be nice to think, like, all the wealthy people are selling and they're panicking.

00:11:02.200 | But that's probably not the case, because they have the financial means to actually

00:11:04.160 | hold on.

00:11:05.160 | Yeah, right.

00:11:06.160 | Yeah, they don't have to.

00:11:07.160 | Yeah.

00:11:08.160 | Yeah.

00:11:09.160 | Yeah.

00:11:10.160 | Okay, let's see if we can get cheered up with the next question.

00:11:12.160 | Let's do it.

00:11:13.160 | Okay.

00:11:14.160 | Do you think it's a good idea to use an S-block or a down payment on your house if you don't

00:11:17.760 | want to sell any stock?

00:11:18.760 | Can you first explain what an S-block is for newboyals like me?

00:11:21.800 | Yes.

00:11:22.800 | I just have to do the acronyms for you.

00:11:24.120 | We're gonna have to do like a sheet of all the acronyms for Duncan.

00:11:26.960 | So S-block is securities-based line of credit.

00:11:29.220 | So that's like borrowing against your portfolio, taking it, you can use that as collateral,

00:11:34.280 | borrow against it, pay a low level of interest, and then use that money for something else.

00:11:38.320 | So this is really more of a financial planning question than it is an investment question,

00:11:42.280 | I think.

00:11:43.280 | So let's bring a certified financial planner on here from our firm, Kevin Young, who's

00:11:47.600 | in the office with Duncan.

00:11:48.600 | He's in an undisclosed location because they can't be next to each other.

00:11:52.520 | So Kevin, when thinking through something like this, and this is a question we've been

00:11:55.080 | getting a lot actually, like, can I, I don't want to take taxes into account and have to

00:12:00.160 | sell something and pay taxes on it, but I have this big outlay coming up.

00:12:04.680 | When you, when you have to think through something like this from a financial planning perspective,

00:12:07.080 | like, what are the main areas of concern or what are like, what are some of the variables

00:12:11.640 | people think about when taking a loan against their portfolio?

00:12:14.680 | Yeah.

00:12:15.680 | So, you know, these lines of credit have become really popular the last couple of years.

00:12:21.080 | And I think partially people are seeing what's going on with the ultra wealthy.

00:12:27.760 | And there was an article in the New York Times, the Wall Street Journal, maybe a year, 18

00:12:31.280 | months ago, talking about, well, how did these people that have so much money pay zero tax,

00:12:35.800 | but they're still managing to pull money out of their portfolios?

00:12:39.160 | S blocks are high.

00:12:41.060 | And the reason you might use one is if you're sitting on some large appreciated portfolio,

00:12:46.800 | the idea is you take the line of credit at call it 3% and use the money for a down payment,

00:12:53.200 | as opposed to selling out of the stocks that you own and getting yourself hit with a capital

00:12:59.140 | gains tax somewhere between, you know, 18 to could be as high as 30% with state and

00:13:04.200 | federal depending on where you live.

00:13:06.420 | So that's ultimately why you might do it.

00:13:09.360 | I think it can make a lot of sense in the right scenario.

00:13:13.920 | You just got to be very careful about how you use the leverage.

00:13:17.360 | This seems to me like it would be a decent scenario for this.

00:13:19.480 | So you want to have a down payment on the house.

00:13:20.940 | You don't want to have to get out of your investments to do it.

00:13:23.080 | You're borrowing against your portfolio.

00:13:24.620 | You're paying probably a low interest rate.

00:13:26.400 | Does this kind of thing make sense?

00:13:27.400 | And like, does the reason for the loan, obviously, if you're leveraging up to buy other stocks

00:13:33.560 | or some other risky asset, that might not make a lot of sense for a lot of people.

00:13:37.120 | But for a down payment where you have, you know, the house as collateral, it seems to

00:13:40.480 | make more sense.

00:13:41.480 | Right?

00:13:42.480 | Yeah, it definitely can.

00:13:43.480 | And again, it's really you're looking at just the spread between the interest rate that

00:13:46.800 | you're paying and the returns on the assets that you potentially make, as well as the

00:13:51.720 | taxes coming into play.

00:13:53.040 | So yeah, I think for a down payment for a house, certainly if you're sitting on a large

00:13:56.880 | portfolio, it can make a lot of sense to leave those assets in the portfolio and let them

00:14:02.860 | continue to grow.

00:14:06.080 | Where you made a great point, it's got to make sense for what you're actually using

00:14:10.120 | the money for.

00:14:11.120 | Right?

00:14:12.120 | If you're taking money out and putting on an eight leg parlay on DraftKings, maybe not

00:14:16.200 | the best idea.

00:14:17.800 | But certainly for a home purchase, it can be very useful.

00:14:22.240 | Again, using leverage in the right way can be a good tool.

00:14:26.320 | The other thing I want to think about there is the way these loans work is like any other

00:14:32.000 | asset you're borrowing against, there's a loan to value ratio that the lender wants

00:14:37.640 | to stay below.

00:14:38.640 | What's like the ceiling there that you'd want to borrow against?

00:14:42.320 | I would say average is probably around 50%.

00:14:46.080 | Depending on the lender, depending on the assets, I've seen some as high as 70%, right?

00:14:50.760 | So if you have a million dollar portfolio, most places, they'll say, "We will give you

00:14:55.640 | half a million dollars at 3%," or whatever the interest rate is going to be.

00:15:01.700 | The danger then becomes, and what the lender is trying to prevent and protect against,

00:15:06.560 | is that the value of your securities fall, forcing effectively a margin call.

00:15:11.200 | What they'll do is they'll either liquidate positions without needing to ask you to pay

00:15:15.280 | themselves back to keep that value the same, or they'll say, "Hey, you need to put 10

00:15:21.600 | grand, 20 grand, 30 grand into the portfolio to keep that ratio correct."

00:15:26.640 | By the way-

00:15:27.640 | Go ahead.

00:15:28.640 | Parker in the comments says that Kelvin Ridley did not appreciate the Parlay comment.

00:15:35.460 | That's a good point.

00:15:36.460 | Yeah.

00:15:37.460 | That was a rough trade for him, however many millions of dollars he is for a year's salary.

00:15:43.460 | But the last point I wanted to make on this is, with that loan to value, if you set something

00:15:53.300 | like this up last year and your collateral securities that we're using were Facebook

00:15:58.540 | and the Ark Complex or tech-heavy names-

00:16:03.420 | Anything that's gotten crushed.

00:16:05.880 | Those are down 30%, 40%, 50%, 60%.

00:16:09.380 | If you're in a broad-based, globally diversified equity portfolio, you're probably down 8%

00:16:14.900 | or 9% year to date.

00:16:17.020 | So make sure what you are going to put up as collateral is not going to be something

00:16:22.620 | that could potentially draw down 50% in short order.

00:16:25.860 | Right.

00:16:26.860 | Okay.

00:16:27.860 | Dunkels, the next one.

00:16:30.260 | Okay.

00:16:31.820 | So up next we have, here's a challenge question for you.

00:16:34.740 | This is fun.

00:16:35.740 | We all like a challenge, right?

00:16:36.740 | So I'm 53, and as of January 2022, I had a net worth of $600,000, which was composed

00:16:43.020 | of cash, IRA, stocks, and home value minus mortgage.

00:16:46.580 | No debt.

00:16:47.940 | After the sale of my company, I now find myself with $2 million in cash.

00:16:51.620 | A year ago, I would have gone Warren Buffett and put 90% in S&P and 10% in bonds.

00:16:57.380 | I love to work, but I have the goal of retiring by 60 with at least 5 million in net worth.

00:17:02.300 | What in God's name should I do with $2 million in this new economy full of uncertainty?

00:17:08.100 | Great question.

00:17:09.220 | And obviously the value here doesn't matter as much as the thought process of investing

00:17:13.100 | in windfall when things seem scary and uncertain.

00:17:15.940 | And my one rule of thumb for this is obviously you have to take into account what's going

00:17:19.940 | on in the world and where the stock market is and interest rates and all these things.

00:17:24.160 | But it's far down the list in terms of setting up a financial investment plan, right?

00:17:29.060 | Like when it's not the first variable, it might not even be in the top five in terms

00:17:32.980 | of what's going on in the macro right now and how should this impact what I do with

00:17:35.900 | my portfolio.

00:17:36.900 | So Kevin, you have a client come to you and they say, listen, here's a certain time horizon.

00:17:42.340 | So this person says, you know, in seven years, I want to go from A to B. They're telling

00:17:47.140 | you I want to retire at 60, I want to have this much money.

00:17:49.980 | How do you handle a situation like that where they give you like the outcomes that they

00:17:54.380 | want to get?

00:17:55.380 | And then they say, okay, create a portfolio from your financial plan that gets me there.

00:17:58.700 | Right.

00:17:59.700 | Yeah.

00:18:00.700 | And I love this question because it allows us to touch on a lot of different concepts

00:18:03.140 | in financial planning.

00:18:05.740 | You know, ultimately this is just a math problem, right?

00:18:07.700 | This is just a question of assumed rates of returns and what you have and what you're

00:18:14.580 | going to contribute to it.

00:18:16.860 | If you took the simple math and let's say, let's say that this person, again, wants to

00:18:22.300 | get to $5 million in seven years, currently has about $2.6 million in net worth.

00:18:29.140 | If they're a regular W-2 worker contributing, you know, the max to their 401k, they're going

00:18:35.260 | to need around a 9% annualized rate of return to get to $5 million.

00:18:42.740 | That's obviously the tricky part in that we don't know for sure what those rates of return

00:18:47.100 | are going to be.

00:18:48.280 | So ultimately, you know, you end up with a situation that you have something that is

00:18:55.020 | true on a piece of paper in your plan or on a spreadsheet, but the real world obviously

00:19:00.460 | comes into play here.

00:19:01.460 | So that's where the variables can be tough to figure out.

00:19:04.180 | Right.

00:19:05.180 | And I guess if you have that end goal, you can use it to set expectations, right?

00:19:07.820 | Like here's what you need.

00:19:09.620 | Here's how this could, here's like your range of outcomes.

00:19:12.480 | And then as you get closer and you build a financial plan, you kind of say, all right,

00:19:16.060 | we're getting a little closer.

00:19:17.060 | Here's what the actual returns are going to be.

00:19:18.260 | Here's what you wanted.

00:19:19.580 | And sometimes I guess the good thing is you can tell someone, listen, your expectations

00:19:23.520 | are so far out of whack with reality in the current situation that you're never going

00:19:26.340 | to get there.

00:19:27.340 | And so you can use that as a conversation starter.

00:19:29.740 | Maybe you're going to have to put more money in, or maybe you're going to have to work

00:19:32.780 | longer, or maybe you're just not going to have as much at retirement as you think.

00:19:35.700 | So you can use those all as sort of signposts along the way to help them understand their

00:19:40.020 | goals.

00:19:41.700 | But I like the idea of managing a financial plan when we have this target.

00:19:44.580 | And then I guess the other thing is, is that, right?

00:19:46.820 | I'm sure you have this conversation a lot.

00:19:48.380 | Like when you turn 60 and retire, that doesn't mean your financial plan is done.

00:19:51.640 | And then that's like when the hard work begins.

00:19:53.860 | Right?

00:19:54.860 | Yeah, exactly.

00:19:55.860 | And, you know, one other point on kind of the math side of this is that 9% rate of return.

00:20:02.860 | If this guy is saying that, you know, he's really uncomfortable right now, 13% off the

00:20:09.140 | all time highs.

00:20:11.460 | If he had put this money in a year ago, if he can't stick with that 90/10, that might

00:20:17.820 | not be the portfolio for him.

00:20:20.260 | And so that's where the behavioral coaching comes in that I think we can help a lot of

00:20:24.380 | people with is, yes, you might need 9%, but if the volatility that we're experiencing

00:20:30.340 | now is making you really uncomfortable and it's going to cause you to do something silly

00:20:34.940 | like panic sell or something like that, then we need to kind of marry the rational, right?

00:20:43.620 | Which is, okay, you need a 9% rate of return with the reasonable, which is what portfolio

00:20:48.960 | and plan can we develop for you that you'll stick with?

00:20:52.200 | Because ultimately that's going to be what the biggest driver of success is.

00:20:55.940 | And to your point, if we've got, we don't have seven years to make this work.

00:20:59.980 | We've got seven years until potentially he's going to start drawing the money.

00:21:02.880 | Then we've got another 30 years that this money needs to keep up with things like inflation

00:21:06.740 | and spending and things like that.

00:21:09.260 | Yeah.

00:21:10.260 | And I always like to remind people too that this is by far one of the craziest macro environments

00:21:14.660 | I've ever seen, especially just with all the really cross trends going on.

00:21:19.060 | But you're never 100% certain what's going to go on.

00:21:22.420 | Uncertainty is always at an all time high, I guess.

00:21:24.260 | It hits a new high every single day.

00:21:26.020 | So it's really hard to know.

00:21:27.580 | So that was a great question.

00:21:30.200 | So thanks.

00:21:31.200 | Thanks for coming on, Kevin.

00:21:32.200 | Yeah.

00:21:33.200 | Thank you for having me.

00:21:34.200 | This, this is a really crazy macro environment.

00:21:35.620 | I see we've got a bunch of questions here on the side, a lot of people asking about

00:21:39.860 | inflation hedges and can housing help there.

00:21:42.620 | So keep those comments and questions coming.

00:21:44.500 | We're always looking for more.

00:21:45.500 | Remember, askthecompoundshow@gmail.com.

00:21:46.500 | On that note too, I wanted to mention, if we pull your question from the chat and you

00:21:52.500 | see it on a future show, just email us and we'll send you a sticker.

00:21:56.300 | Usually we can't like track you down just from a comment though.

00:21:58.820 | So if you want a sticker.

00:21:59.820 | What's the sticker look like Duncan?

00:22:00.820 | Did I even get one of these yet?

00:22:02.060 | I think you got one.

00:22:03.060 | The compound sticker?

00:22:04.060 | It's this one back here.

00:22:05.060 | Okay.

00:22:06.060 | Yeah.

00:22:07.060 | And we're not even selling those, right?

00:22:08.060 | We're just giving them away.

00:22:09.060 | The only way you get it is from having a question selected.

00:22:10.060 | It's exclusive.

00:22:11.060 | That might be an inflation hedge.

00:22:12.060 | Turn it into an NFT, Duncan.

00:22:13.060 | It's true.

00:22:14.060 | All right.

00:22:15.060 | Remember, askthecompoundshow@gmail.com.

00:22:16.900 | Thanks to Duncan and Kevin for joining me and we will see you next time.

00:22:20.100 | See ya.

00:22:20.380 | Bye.

00:22:25.380 | Bye.

00:22:30.380 | Bye.

Are We Heading For a Recession? | Portfolio Rescue

Chapters