Will Baby Boomers Crash the Stock Market?

00:00:00.000 | Welcome back to Portfolio Rescue. Each week, you send us a bunch of questions. We don't

00:00:21.840 | always have all the answers, because sometimes finance questions don't have black or white

00:00:25.320 | answers. So our goal here is to provide some context, analysis, data, maybe a little perspective

00:00:29.600 | to help you make better decisions. Remember, our email here is AskTheCompoundShow@gmail.com.

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00:01:17.280 | Also, ni hao to any Chinese viewers right now.

00:01:20.360 | Okay, we do have an international audience. We've got some questions today from international

00:01:23.760 | viewers. So we're getting creamed again today in the stock market. Apparently Jerome Powell

00:01:27.960 | doesn't like Santa Claus. He just ended the Santa Claus rally. It's interesting how much

00:01:33.600 | back and forth we've had. I looked at just the date, because we're down 2.8% or something

00:01:37.680 | in the S&P last time I checked. This, including today, would be the 23rd 2% or worse day this

00:01:43.840 | year. So at 8x, we've been down 3% or worse. Alternatively, we've been up 2% or more 23x,

00:01:50.960 | and we've been up 3% or more 4x. So I just think with the constant back and forth like

00:01:56.040 | this where you think everything is up and it feels great, okay, late at the end of the

00:02:00.080 | tunnel, and then, oh wait, we're down again, getting crushed, okay, now we're going to

00:02:04.320 | get creamed again. It's constant back and forth. And I think just, I just want to give

00:02:09.240 | everyone out there, if you just survived this year without making a huge mistake or blowing

00:02:12.720 | yourself up, I think you can give yourself a pat on the back. Right? That's my Christmas

00:02:17.080 | gift to everyone here.

00:02:18.800 | I can't. I can't give myself a pat on the back.

00:02:20.920 | No pat on the back for you? All right. Sorry. You've got a nice sweater though. All right,

00:02:25.560 | let's do a question.

00:02:26.600 | Okay. Up first today, we have a question from Jay. I'm 36 and based in the UK. I own my

00:02:32.040 | own home with no mortgage, max out my pension contributions, have 93,000 in cash and a tax

00:02:37.880 | advantage savings account with Vanguard called an ISA here. You can only contribute $20,000

00:02:43.000 | or 20,000, I guess, pounds a year, and 55,000 cash in a non-tax advantage savings account

00:02:50.000 | earning minimal interest. I was looking for advice on how to best invest the cash I have

00:02:54.200 | in these accounts. It seems like the market has fallen a lot, although less so in the

00:02:58.040 | UK than in the US and Europe, not to brag. My words, not theirs. And I've read that it's

00:03:03.480 | best to invest lump sum balances all at once rather than slowly over time. But that is

00:03:08.720 | quite a scary proposition in this environment. What would you suggest as the best approach?

00:03:12.720 | Should I just put it all in Vanguard index funds all at once? If not, what advice would

00:03:16.640 | you give for how much and how often to invest?

00:03:19.880 | Like I said, this is a global show. We get a lot of questions from international investors

00:03:24.200 | and viewers. Many U.S. investors might not know that the UK stock market is whipping

00:03:29.040 | the U.S. stock market this year. John, throw that up. This is just the iShares. I think

00:03:33.400 | this is as of yesterday, so it doesn't include today's losses. It was basically flat on the

00:03:38.080 | year in the UK, and the S&P down 14% or so. I think from the perspective of a UK investor

00:03:44.240 | not taking into account the moves in the dollar, you're probably doing even better. Obviously,

00:03:48.200 | the lump sum dollar cost averaging question is one we get a lot and we've touched on before.

00:03:53.360 | It's one of those things that there's no easy answer because it's a spreadsheets versus

00:03:56.160 | emotions question. The spreadsheet tells you lump sum is a higher probability event. The

00:04:00.280 | stock market is up three out of every four years on average. That's a pretty good ... If

00:04:03.600 | you had a 75% winning percentage at the casino, you'd take that every day, right? Unfortunately,

00:04:08.520 | those long-term market averages include a wide range of results. Personally, I use the

00:04:13.680 | lump sum if I get something. I don't want to invest. I know if I'm investing in stocks,

00:04:17.200 | it's going to be for 10+ years, call it. More in most cases. But I understand why so many

00:04:21.880 | people prefer dollar cost averaging. There's a higher probability of regret if you put

00:04:25.640 | that lump sum in and you're wrong. I recently helped someone this year implement a dollar

00:04:30.360 | cost averaging strategy. So, we decided, "Alright, I'm going to take this lump sum and break

00:04:34.160 | it into six parts. We're going to make one investment of those six parts every 15th of

00:04:39.960 | the month, come hell or high water." It actually worked out better than a lump sum this year

00:04:44.680 | because the stock market was so volatile. So, they were able to invest a bunch of points

00:04:47.920 | that were much lower than when we started the year. And then, we came to the last time

00:04:52.480 | that they could invest. So, they made their first five investments. They're pretty happy.

00:04:56.160 | The sixth one comes and they say, "Well, we've had a little bit of a bear market rally here.

00:05:00.160 | What if we just pulled back and waited on this last one?" And I personally was against

00:05:04.440 | this strategy. I think the whole point of creating a plan in advance, especially with

00:05:07.960 | something like this, is that you don't know what's going to happen in the future. There's

00:05:11.720 | this great story from The Making of an American Capitalist, which is the Roger Lowenstein

00:05:15.920 | book about Buffett, where I think in 1966, the market fell like 22%, a pretty decent

00:05:20.200 | bear market. And a bunch of Buffett's investors called him after that bear market already

00:05:24.760 | happened and said, "Hey, the stock market is going lower. Don't put your cash to work

00:05:27.920 | yet." And Buffett responded with something like, "If you didn't know in February that

00:05:32.080 | the Dow was going to get crushed, then why didn't you let me in then? And if you didn't

00:05:37.080 | know what was going to happen back then, how do you know anymore now?" So, the point is,

00:05:40.640 | the future is never clear, even when it feels like it is. So, I told my dollar-cost averaging

00:05:44.880 | friend, "Stick with the strategy you chose six months prior," because that was the plan

00:05:48.440 | at the time. So, I don't think there's any amount or interval that... There's no right

00:05:53.600 | or wrong answer there. It's horseshoes and hand grenades, close enough, basically. So,

00:05:57.760 | I just think you pick an amount, you pick an interval, and you follow it hell or high

00:06:02.000 | water. And I think that's the simplest strategy, if obviously you can't handle that lump sum,

00:06:06.680 | which it sounds like this person can't. Right. And Nick Majulie has written a lot about this.

00:06:11.200 | We have kind of a legendary video of him and Josh that, if you haven't seen, you should

00:06:15.320 | check out on our channel, where they're talking about this very thing of dollar-cost averaging.

00:06:19.000 | Yeah, Nick's kind of definitively proven the lump sum makes more sense. But I think if

00:06:23.680 | you realize, "I can't handle a lump sum," then just pick a strategy you can stick with.

00:06:27.200 | Right. Alright, let's do another one. Okay, up next we have a question from Sharon. "When

00:06:32.800 | my husband and I bought our first home in 1998, our mortgage rate with a 20% down payment

00:06:37.160 | and excellent credit was about 8.5%, and that was lower than rates had been. We would have

00:06:42.320 | loved to get a 7% interest rate, which you think of as high. The opposite point of view,

00:06:47.080 | which you didn't talk about, is that we don't want 6% to 8% inflation getting entrenched.

00:06:53.400 | You're talking about the bad things from high interest rates, but what about the bad things

00:06:57.180 | from persistently high inflation? It really lowers the value of your savings. Taking a

00:07:01.720 | pause and seeing what happens, as Ben suggested, is what the Fed did in the '70s, isn't it?

00:07:07.200 | Inflation just kept going higher. Didn't Volcker have to cause a recession before inflation

00:07:10.760 | slowed down?" They sound like they're talking about a very specific comment, I guess, by

00:07:14.480 | you on Animal Spirits or something, maybe?

00:07:16.560 | I think a lot of times -- and Twitter, it's called a subtweet. This is like a sub-question,

00:07:21.640 | where they're taking some shots at me, which is fine.

00:07:23.200 | I was thinking, does this person like Ben or hate Ben, as a reading reviewer?

00:07:26.320 | I've been hearing from a lot of people who lived through the '70s, who keep saying that

00:07:29.200 | I'm nuts to think that the Fed should slow down a little bit with their rate hikes. No

00:07:32.480 | one wants a repeat of the '70s, when I think inflation averaged more than 7% for the entire

00:07:36.160 | decade. That's what the Fed official was saying, too, in the Treasury. Janet Yellen said, "I

00:07:40.200 | came of age and studied economics in the '70s. I remember what that terrible period was like.

00:07:44.160 | No one wants to see that happen again." That's the Fed's whole line of thinking right now.

00:07:47.480 | I understand that sentiment, that people who dealt with high inflation in the past don't

00:07:51.960 | want to see that again.

00:07:52.640 | Let me offer some counterpoints first. In 1998, the median single-family home price

00:07:57.160 | was around $130,000. I circled it right there. Assuming 20% down, that would be a monthly

00:08:02.520 | mortgage payment of around $800, even with those 8.5% interest rates. Today, the median

00:08:07.560 | price of a single-family existing home is like $385,000. Do the same 20% down payment

00:08:13.040 | at 8.5%, and we're talking a $2,500 a month payment. Even if you adjust that for inflation,

00:08:19.360 | that 1998 number is more like $1,400, so housing is way more expensive today. The way the housing

00:08:25.260 | market is today, we can't really handle higher interest rates like they had back then. Housing

00:08:28.800 | was just cheaper back then.

00:08:29.920 | I don't think you could get a parking spot in Brooklyn today for $800 a month.

00:08:34.200 | That sounds about right. There are some similarities for the '70s analogy. Both periods saw this

00:08:38.760 | massive increase in government spending. Obviously, for different reasons. There was no pandemic

00:08:42.040 | back then. There was this commodity shock, especially in energy and food prices back

00:08:46.240 | then. And then, we both periods saw above-trend wage growth.

00:08:49.200 | John, throw out my wage growth here. This is wage growth versus inflation by decade.

00:08:53.600 | In the '70s, you had massive wage growth, but that's because inflation was high. '80s,

00:08:59.500 | same thing. It's high and high. 2000s, we had slow inflation, slow wage growth. 2010s,

00:09:05.100 | same thing. Through the end of September, when I have my wage data through, wages were

00:09:10.460 | up 17% this decade already, which is almost as much as the whole previous decade. We're

00:09:15.820 | two years in, three years in. CPI was up just 16% then. That relationship is holding.

00:09:21.260 | This is why the Fed is worried about inflation, and why people who are concerned about the

00:09:24.820 | '70s, same thing. Here's the thing. The money supply was rising throughout the '70s. The

00:09:29.740 | Fed didn't step in as aggressively as they are now. It's currently crashing. John, throw

00:09:32.500 | out my M2 chart here. M2 money supply. This is the year-over-year change. You can see

00:09:37.460 | it's crashing. The government is not spending anymore. This is already back on trend or

00:09:41.420 | below it. Also, in the 1970s, oil prices went from $2 a barrel to $34 a barrel by 1981.

00:09:48.900 | It was a 17-fold increase. Oil started this decade at like $60 a barrel. To match that

00:09:54.980 | gain, it would have to go to $1,000 a barrel. Anything is possible. That seems highly unlikely

00:09:59.020 | to me. Workers also had way more bargaining power back then, because unions were more

00:10:02.540 | prevalent. There's no more unions these days, right? Also, things that we have today that

00:10:09.260 | didn't happen in the '70s, like technology, this huge deflationary force. Baby boomers

00:10:13.340 | were in the prime years back then, just like the millennials today. But they didn't have

00:10:17.140 | the offsetting demographic like the baby boomers now, that are kind of an offset. I just think

00:10:25.820 | that the Fed is so much further along. I'm just saying, chill out for a while. Plus,

00:10:32.380 | the thing is, the New York Fed puts this out every month, I think. Inflation expectations

00:10:37.560 | are coming down. The New York Fed said inflation expectations are like 3% for next year, for

00:10:42.140 | the next year and the next three years. The '70s was about those inflation expectations

00:10:46.140 | becoming entrenched. That's not happening right now. I still think it could be a while

00:10:51.020 | until we get 2% to 3% inflation, but I don't see a repeat of the '70s. I don't see the

00:10:55.620 | need to crash the economy if you don't have to. That's my whole stance here. Good pushback,

00:10:59.860 | though.

00:11:00.860 | Yeah, that sounds like a pretty solid, fair point. I think your time as a full-fledged

00:11:06.180 | apologist for the Fed, though, has probably hurt your take on this, in some people's eyes.

00:11:12.660 | I've changed course this year.

00:11:14.120 | Yeah, you've been critical.

00:11:15.120 | John Cain's quote? Yes. All right, let's do another one.

00:11:19.020 | Okay. Up next, we have a question from Charles. Josh Brown mentioned on a recent show that

00:11:23.540 | he is not a fan of non-traded REITs. Can you explain the difference between publicly traded

00:11:27.820 | and non-traded REITs? I'm considering an investment in the real estate space and trying to figure

00:11:32.200 | out the biggest risk for each option. Talking about risk.

00:11:35.540 | Yeah, let's ask the man himself. Let's bring Josh in. Josh Brown, downtown.

00:11:40.420 | Am I on? I can't see. Oh, there I am. Okay. I was watching for some reason on regular

00:11:46.580 | YouTube instead of watching from behind the scenes. I don't know why. All right. Hey,

00:11:51.580 | guys. Great to be with you, Duncan. I love your sweater. Ben, can I make one announcement?

00:11:55.860 | I know it's your show.

00:11:56.860 | You got it.

00:11:57.860 | Okay. Listen to me. This is the best personal finance show on all of YouTube. I'm saying

00:12:03.860 | that. And I have looked at the other shows that are covering topics like this, and they're

00:12:09.100 | just not good. They're very un-good. This is the best one. So you guys have grown this

00:12:14.500 | audience all year. It's only going to get bigger. And at a certain point, I don't even

00:12:18.860 | know how you're going to walk in public, because people are going to be like, "That's my personal

00:12:23.700 | finance, guys." So I just wanted to say it's the end of the year. I watch every episode.

00:12:27.580 | Early Christmas present from Josh. What a guy.

00:12:29.020 | I'm a huge fan of what you guys are doing every week, bringing on really smart people

00:12:33.620 | besides me, actual experts on topics, and it's awesome.

00:12:38.020 | Well, I think the first time I ever heard about non-traded REITs was your book came

00:12:41.980 | out in what, 2011, 2012?

00:12:43.840 | Yeah.

00:12:44.840 | Backstage. And you called it a murder hole. Is that right?

00:12:47.700 | They still are. Don't buy non-traded REITs. All right. So just let's invert. What is the

00:12:56.500 | advantage of a non-traded REIT over a public REIT? Historically, you may have been able

00:13:02.140 | to make the argument that, "Well, I can invest in niche real estate that doesn't have a publicly

00:13:07.460 | traded version." That's no longer true. In fact, there are so many REITs, they have their

00:13:12.780 | own sector in the S&P today. I think that's a change that happened five or six years ago.

00:13:17.860 | There used to be 10 S&P sectors and they threw the REITs under financials. Now there's actually

00:13:24.120 | a real estate sector. So throw that out. You got plenty of choices.

00:13:28.340 | The second argument is, "Well, private real estate is cheaper. You're getting better valuations."

00:13:34.940 | That's also completely false. The only way it can be true is if they are late to mark

00:13:41.540 | the actual values of the property to match with what reality is saying. And I think if

00:13:46.620 | you ever have to choose between who's right, the public markets or the private markets,

00:13:51.580 | like 99 times out of 100, trust the public markets. They'll be more volatile, but they're

00:13:58.260 | going to get to the truth faster because they can, because there are transactions.

00:14:03.180 | So do the people who create the non-traded REITs just not want to go through the process

00:14:06.340 | of going public? Is that the whole deal?

00:14:07.980 | No, no, no. They want to create something that's exclusive. So when they sell it to

00:14:12.380 | wealth management clients or they sell it to family offices, it's got this mystique

00:14:18.420 | to it. Like, "Oh, no one else can get in on this." Or, "I'm bringing this to you today

00:14:24.700 | and you can't access it somewhere away from me."

00:14:27.220 | It's like developing a group at a nice club kind of thing.

00:14:29.820 | Yeah. And then there's really high fees. There's very little transparency. And it's not that

00:14:36.020 | they're all bad. There are obviously good versions of it, but how would you know? And

00:14:41.260 | there have been so many scandals with non-traded REITs. There have been so many frauds, so

00:14:47.620 | many situations of people getting income distributions that are actually just the person getting

00:14:52.420 | their own money back. It's almost like a crime wave over the last 20 years. It's all I've

00:14:58.020 | ever seen is every time real estate comes down, yeah, the public REITs go down in price,

00:15:04.740 | but the private ones go to zero and they end up in court.

00:15:08.060 | So it's no disrespect. If you're in the private REIT space, I'm not saying everything you're

00:15:13.300 | doing is bad or it can't ever be good. I'm saying from an investor's perspective, if

00:15:18.700 | you're not getting a discount on the real estate, which we know now private markets

00:15:23.540 | if anything are more frothy than public markets. Just look at tech. You could buy publicly

00:15:28.740 | traded technology companies now at 25 times earnings. What people were paying for startups

00:15:35.340 | over the last five years is outrageous. So I think that the same dynamic exists in private

00:15:41.100 | real estate. There's not discounts. So I think there's a lot of reasons not to do it. I can't

00:15:48.140 | think of any to do it. So I would always be biased toward publicly traded, liquid, New

00:15:53.620 | York Stock Exchange listed REITs.

00:15:55.700 | And I've heard you talk in the past about thinking about making private transactions

00:15:59.740 | yourself and you thought like, "It's not worth the headache. I'm just going to buy REITs."

00:16:02.740 | Talk a little about that, why you think that way.

00:16:05.200 | So I was talking to a friend of mine who buys property. He builds million dollar, multi-million

00:16:11.100 | dollar homes. He doesn't renovate houses. This is all he does. He knocks down 50-year-old

00:16:17.940 | homes and builds brand new, really beautiful homes. And he got involved with strip malls

00:16:25.380 | and he's a real estate guy. His father was a real estate guy. This is all they do. And

00:16:33.500 | I was like, "I have some money. I have a lot of exposure to the stock market and the bond

00:16:38.320 | market because of my job. Most of my net worth is tied up in Ritholtz Wealth. And I don't

00:16:44.420 | need more stocks. I'm good on stocks. I want to do real estate." And he's just like, "I

00:16:50.860 | don't think that's a good idea." I'm like, "No, I just want to give you money and you

00:16:55.620 | do what you do and I share the returns with you. I just want to be the capital." He's

00:16:59.100 | like, "I don't need your money and it's a bad idea." Because real estate, you're either

00:17:04.680 | doing it or you're not doing it. It should not be a side hustle.

00:17:07.860 | Right. It's a full-time thing.

00:17:10.020 | If you're doing it well. And especially for me, my side hustles have side hustles. So

00:17:20.240 | I'm not going to pay any attention to it. So I love publicly traded REITs. I own them

00:17:24.840 | in my IRA. I try to own them in a tax-deferred account because the income on a REIT is not

00:17:31.640 | like an equity dividend. You're paying ordinary income taxes, REIT for your taxes. So you

00:17:41.600 | want to own REITs in an IRA. And the second thing that I think you want to do, don't take

00:17:46.500 | the money. Reinvest. You want those distributions to go right back into buying more shares if

00:17:57.680 | you're not taking the money anyway. So those are the two things that I tend to do with

00:18:03.620 | publicly traded REITs.

00:18:05.020 | It makes sense. All right, Duncan, let's do another one.

00:18:09.680 | Okay. The one thing, that's called qualified versus non-qualified dividend, right? That's

00:18:14.140 | the terminology?

00:18:15.140 | I don't know. It's your show. What do you think?

00:18:18.300 | I've just heard that thrown around a lot. That's why I was...

00:18:22.020 | It sounded smart, Duncan.

00:18:23.700 | Okay. I think that's what it is. I have no idea.

00:18:26.220 | Are you challenging me?

00:18:28.680 | I was just wondering if that's what that means. I hear people talk about qualified versus

00:18:32.040 | non-qualified dividends.

00:18:33.040 | Yes.

00:18:34.040 | Okay. Got you. Got you. All right. So up next, we have a question from Eric. "What industries

00:18:40.800 | or sectors will perform best coming out of this market downturn? My best guess is that

00:18:45.560 | risk assets, tech stocks with smaller market caps, will perform the strongest. I'm wondering

00:18:50.440 | if I should start buying these risk assets given the current economic environment. I'm

00:18:55.000 | young and I don't mind catching a falling knife." Famous last words. "I want to position

00:19:00.300 | myself best to capture the most return on the eventual upswing in our future. Do you

00:19:04.600 | think I should wait for the Fed to stop raising rates before I start buying?" So it sounds

00:19:07.920 | like they already have in mind what they want to do, right?

00:19:09.720 | I have thoughts on the Fed thing here, but let's start with the winners coming out of

00:19:12.720 | a crisis. My only rule of thumb here is that the winners going into it are basically never

00:19:17.280 | the winners coming out of it, right? I think a recession is like a pivot point. You saw

00:19:20.840 | this from the pandemic. Tech stocks going in, anything long duration, and then coming

00:19:25.960 | out of it after that whole transition period, we have value stocks and cash flow producers,

00:19:31.400 | and it wasn't the same stocks. It was energy stocks that were getting crushed before. So

00:19:34.360 | that's my only rule of thumb, is that if you think the thing that was doing well going

00:19:37.480 | into it is going to be the same coming out of it, you're probably going to be wrong.

00:19:40.800 | 100%. And the classic example is to look at the leaders of the '90s. And some of them,

00:19:48.340 | it took 15 years. The companies are still relevant today. It took until 2017 before

00:19:54.220 | they were eclipsing those year 2000 highs.

00:19:57.480 | Microsoft was like 14 years to go back to peak.

00:20:00.680 | And here's what's important about that. Let's separate the stock from the business. A lot

00:20:05.680 | of people don't understand this. Microsoft actually grew earnings all that time. Steve

00:20:11.600 | Ballmer gets ridiculed. He's a billionaire. People are laughing at him. OK, fine. But

00:20:16.520 | he gets ridiculed.

00:20:17.520 | It's because of his dance moves.

00:20:20.140 | Sure. He is hilarious. A lot of aspects of him are hilarious. But think about the worst

00:20:27.240 | timing in history to become the CEO of Microsoft. I think Bill Gates handed him the reins in

00:20:31.960 | the year 2000. So then he runs this company, and he does dumb stuff, of course, like everybody.

00:20:37.960 | The Zune is an obvious example. He mocks the iPhone. OK, fine. But still, I think Microsoft's

00:20:44.680 | earnings doubled or tripled under his leadership.

00:20:48.840 | But it was time for a change, and it made sense. But it's not like he didn't run the

00:20:53.080 | business well. He might have missed some opportunities. But Microsoft's fundamentals were fine. It's

00:20:58.160 | the stock price, the valuation. That was the problem.

00:21:02.700 | Another example is Cisco. The valuation that you were paying for Cisco in 2000 was so outrageous

00:21:08.940 | that the company actually has grown in size substantially since then, and it's been steady,

00:21:14.900 | and they buy back stock, and it pays a dividend, and like everything you would want a company

00:21:19.380 | to do, and it still hasn't retaken that old valuation. It's 22 years ago we're talking

00:21:27.100 | about.

00:21:28.100 | That is a big reason why the leaders of the prior bull market aren't usually—because

00:21:35.460 | the fact that they were leaders led to this huge valuation overhang that almost no matter

00:21:41.500 | what these companies do, they're going to underperform. I'm giving you one example,

00:21:47.220 | but there's 50 examples of this documented.

00:21:49.820 | So I don't love the idea of let me buy some small market cap tech. The other thing with

00:21:56.660 | that is like 70% of all companies that have ever been publicly traded disappeared. Is

00:22:00.620 | that the number? You know this information, right?

00:22:05.460 | That's a terrifying stat.

00:22:08.520 | It's 60, 70%?

00:22:09.520 | I don't know.

00:22:10.520 | It's a lot.

00:22:11.520 | So get out of here. What are you doing here?

00:22:12.740 | The other thing, this is a young person. I don't like the idea of using the Fed to time

00:22:16.740 | your purchases as a young person. You're buying in a down market.

00:22:19.900 | That's a whole other thing.

00:22:21.260 | In 30 or 40 years, you're not going to be mad at yourself for buying a little early.

00:22:25.220 | If markets keep going down from here and you bought now and then you buy again later, you're

00:22:29.420 | not going to kick yourself for buying in a bear market.

00:22:31.820 | So trying to time in the market, guess what? The market is not going to wait around for

00:22:35.020 | the Fed.

00:22:36.020 | The market is going to move before the Fed does and it's already been trying to.

00:22:38.900 | So I think using the Fed to try, I know it seems like the Fed has their tentacles and

00:22:42.540 | everything these days and they kind of do, but using them to time your purchases just

00:22:45.540 | makes no sense to me.

00:22:46.780 | Last thing on this, I highly recommend going to Verdad Capital and finding, I know they've

00:22:53.900 | written about this a bunch of times, but there was something they did specifically six months

00:22:57.760 | ago about where to be into the next recovery, like the first sectors to react and the biggest

00:23:06.180 | reaction on the way out and it's small cap value.

00:23:10.960 | And actually I think they just raised a fund that they're planning to hold in cash and

00:23:15.900 | they're waiting for like high yield bonds to blow up and they're going to start looking

00:23:23.400 | at either the equities of those issuers or the bonds themselves.

00:23:27.340 | But that is where you get the most bang for your buck if you're playing for a recovery

00:23:31.700 | historically.

00:23:32.700 | It may not work this time.

00:23:35.140 | Things that have never happened before happen all the time, but that mentality, like what's

00:23:40.020 | going to lead us out or what's going to give you the best chance to optimize a portfolio

00:23:45.260 | coming out of a recession, it's almost never going to be small cap speculative stocks.

00:23:53.220 | It's just not what people are looking for in that moment.

00:23:55.900 | - And my biggest advice to people that are trying to do this, just don't do it with your

00:24:00.100 | whole portfolio.

00:24:01.100 | If you want to take a piece and try to time the next winner, that's fine, but don't do

00:24:04.500 | it with your whole portfolio, because if you're wrong, you're going to kick yourself, because

00:24:07.180 | the whole market's going to take off without you potentially.

00:24:10.380 | - John Carlo is asking, he always thought that this TV set was my house.

00:24:14.820 | It is not my house.

00:24:16.660 | It is one of my many offices, shout to John Carlo.

00:24:20.700 | Tom Lowry said I'm taking over the show, I apologize, I'm going to talk less.

00:24:27.460 | - We've got another question anyway, let's do it, Duncan.

00:24:31.020 | - Okay, so last but not least we have a question from Jeff.

00:24:34.980 | Collective wisdom is that markets go up over the long term.

00:24:37.600 | While this may have been the case in the past, it's the baby boomers who control the vast

00:24:40.980 | majority of the equity market on a generational basis, and they are in the process of selling

00:24:45.620 | out in mass due to financing retirement over the next decade.

00:24:50.940 | Is there a real cause for concern that could trigger endless selling pressure and keep

00:24:54.280 | returns down for decades to come?

00:24:56.580 | I'm coming at this question as a 30-something, thanks.

00:24:59.260 | I like this question, it's like philosophical.

00:25:01.400 | - I was at a holiday party last week, and my dad is still known as the finance guy in

00:25:04.660 | the family beyond me.

00:25:05.660 | People go to him with finance questions before they come to me, and one of the like younger

00:25:08.900 | Gen Z- - What did your dad do for a living?

00:25:11.260 | - He was a CFO at a hospital, so he's still like the tax finance guy.

00:25:15.060 | - Makes sense.

00:25:16.060 | - But one of the Gen Z cousins' husbands kind of said, "Is Social Security actually going

00:25:21.660 | to be here for me when I get older, or are the baby boomers just going to take it all?"

00:25:24.300 | I think there is, and we tried to set him straight on that, but there is this idea that

00:25:28.980 | the cupboards are going to be left bare by the baby boomers, and I think there's a few

00:25:33.300 | reasons that this is wrong.

00:25:35.780 | First, the biggest thing is just that 10% of the households own 90% of the stocks.

00:25:40.860 | Most of these people are going to pass the money down and not going to have to sell it.

00:25:43.900 | It's not like there's this huge cohort of people that are going to be force sellers

00:25:46.980 | in the next 10 years, and I think most of it's just going to go to the Millennials and

00:25:51.020 | Gen X and Gen Z anyway, right?

00:25:54.580 | John, throw up the chart here on the demographics.

00:25:57.980 | Gen Z and Millennials are going to be there to step in and buy those shares from the baby

00:26:02.540 | boomers.

00:26:03.540 | Look at, I mean, the biggest demographic right now is 20 to 34, 35 to 49 is just as large

00:26:07.980 | as 50 to 64.

00:26:10.420 | There's plenty of young people coming up to step in and Millennials are, I know people

00:26:15.020 | complain the Millennials say we don't have any money, but they went to college more than

00:26:18.260 | any other demographic.

00:26:19.260 | They're going to be making money eventually.

00:26:20.500 | They're going to be in their primary years to buy the stocks from the baby boomers.

00:26:23.820 | Josh, are you going to talk about your own witless bid?

00:26:26.380 | No.

00:26:27.380 | I'm going to try to remain calm.

00:26:28.380 | I was going to bring that up to him.

00:26:29.380 | We'll throw that out.

00:26:30.380 | I'm going to remain calm, but when I hear this demographic cliff stuff, this is when

00:26:35.620 | I wrap barbed wire around a baseball bat and start busting heads like this has been the

00:26:41.540 | stupidest argument to not be invested that has persisted the longest that like of any

00:26:49.140 | of the arguments I can think of, this is the worst, most persistent one is so dumb.

00:26:54.460 | First of all, people were worried about this in the nineties.

00:26:57.540 | Okay.

00:26:58.860 | Like second of all, Harry Dent, who is a level three charlatan, he has been, he's been

00:27:06.460 | using this as a reason to scare people into buying his books or investing in his piece

00:27:12.940 | of shit ETF.

00:27:14.840 | This has been something that he, and it's been wrong all the time because it's, it doesn't

00:27:20.660 | reflect real life.

00:27:21.980 | I've been in the wealth management industry for 20 years.

00:27:24.140 | I have never once seen a baby boomer or older.

00:27:29.280 | What do we call them?

00:27:30.280 | The greatest generation.

00:27:31.280 | I have never in the wild actually seen somebody spend down their portfolio and die.

00:27:37.020 | I don't think any, it's true.

00:27:39.060 | If there's a financial advice, if there's a financial advisor in the chat who would

00:27:43.320 | like to share an anecdote of actually watching a client, a wealth management client spend

00:27:49.080 | down their money, sell all their stocks and then die, please inform me.

00:27:53.180 | I've never seen it.

00:27:54.580 | I've never seen it.

00:27:55.580 | And I know thousands of financial advisors.

00:27:57.540 | Like for middle class people who are going to have to sell down their financial assets,

00:28:01.020 | they have more of their money in their house than they do in the stock market.

00:28:03.460 | So you could probably make the case that it's going to impact the housing market more.

00:28:06.300 | But even then those houses are going to get passed on to the next generation.

00:28:09.240 | This is just what happens.

00:28:10.980 | My whole block, my whole block where I live turned over.

00:28:13.780 | It's all people with babies.

00:28:14.780 | It's amazing.

00:28:15.780 | It's awesome.

00:28:16.780 | I'm like the old parent on the block.

00:28:17.780 | Now I moved in with a two year old daughter in a stroller and my wife pregnant.

00:28:21.780 | And now my kids are babysitting and it's all because life goes on.

00:28:26.380 | And by the way, Generation X was smaller than the baby boomers.

00:28:30.140 | And this is where this nonsense all got started.

00:28:34.620 | Generation X is like there's like 66 million of us and the boomers I think at their peak

00:28:38.700 | were like 78 million.

00:28:40.420 | So that's where all this stuff really started.

00:28:42.980 | The thing is though the millennials are 73 million.

00:28:47.140 | There are more millennials now alive than there are baby boomers.

00:28:51.940 | That's the circle of life Simba, right?

00:28:54.980 | So that's who's buying the stocks.

00:28:57.420 | There's no cliff.

00:28:58.780 | And Gen Y, Gen Z is in the workforce.

00:29:03.500 | They all work at Facebook.

00:29:04.500 | They're making TikToks about the coffee bar at Meta.

00:29:07.780 | Wake up.

00:29:08.780 | That's not an issue.

00:29:09.940 | And the housing thing I could see.

00:29:11.580 | But that's going to be regional.

00:29:12.580 | That's not going to be national.

00:29:14.060 | And the other thing is you made the point before that people's retirement plans in the

00:29:18.700 | past where they just died.

00:29:20.260 | Yes, it's not relevant.

00:29:22.300 | They're going to live so much longer than people did in the past that their retirements

00:29:25.540 | are going to last so much longer.

00:29:26.540 | It's not like it's this end date that we have a cliff coming where everyone's going to sell

00:29:29.620 | in one day.

00:29:30.620 | They're going to live for 20, 30 years in retirement.

00:29:32.380 | Listen to me.

00:29:33.380 | Listen to me.

00:29:34.380 | Not only do they not sell down their stocks en masse all at once, the newest innovation

00:29:40.420 | in wealth management, and it hasn't blown up yet, maybe it never will, is securities

00:29:45.680 | based loans.

00:29:47.400 | So now they get to live the lifestyle as though they were liquidating their equity portfolio

00:29:52.280 | without even selling anything.

00:29:53.820 | I think they get a 50% borrow against their bonds, treasuries, and munis, and like a 30%

00:30:02.000 | borrow against their stocks.

00:30:04.180 | So like the market has to really collapse for any of those loans to require a capital

00:30:09.900 | call.

00:30:10.900 | So now, thanks to innovations on Wall Street, and this has been going on for a long time.

00:30:15.940 | It's not last year.

00:30:17.740 | Now you've got people living a retirement lifestyle and then dying and then passing

00:30:22.860 | on an entire portfolio of equities to the next generation.

00:30:28.100 | So if that's your reason to be worried about the markets, all you have to do is think one

00:30:34.960 | step beyond demographics, which I'm not an expert in demographics.

00:30:39.140 | I know the numbers.

00:30:40.140 | You know the numbers.

00:30:41.140 | You just have to think, how do people actually live?

00:30:43.340 | They don't live that way.

00:30:45.060 | They don't say, "Oh, I'm 70, better sell my stocks."

00:30:48.600 | That's just not, life expectancy, there's a whole other thing we could go into.

00:30:54.100 | So it's, please, don't pay attention to that stuff.

00:30:58.260 | - The other thing is, literally everyone who pays attention to this stuff knows this is

00:31:01.060 | coming.

00:31:02.060 | It's not like the market couldn't get ahead of this and see it coming, right?

00:31:04.900 | It's pretty easy to look at the census data and know what the demographics are going to

00:31:07.780 | be.

00:31:08.780 | If this is that big of a threat, don't you think on some level, the equity market has

00:31:13.820 | priced in the potential impact of it?

00:31:16.220 | - Okay, so the stock market is not going to die from the baby boomers dying off.

00:31:19.500 | You know what's going to die?

00:31:20.500 | I've used this joke before, I'm sorry.

00:31:22.060 | Woody tighties with the blue and yellow waistband, when the baby boomers die, those are never

00:31:26.100 | coming back.

00:31:27.100 | - What a classic.

00:31:28.140 | - That's the last generation to wear those.

00:31:30.340 | - I don't even understand how that hasn't happened already.

00:31:32.980 | Oh, you know what else is going to die?

00:31:35.300 | Locker rooms at fitness clubs.

00:31:38.340 | It's enough already.

00:31:39.660 | It's enough.

00:31:41.460 | That's the last generation.

00:31:42.460 | - Wait, you're not a fan of aggressive nudity?

00:31:45.060 | - Just wandering around naked with a chest full of gray hair.

00:31:49.580 | - Towel on the shoulder.

00:31:50.580 | Towel on the shoulder.

00:31:51.580 | Use the towel.

00:31:52.580 | - So my generation doesn't do that shit and there's no way yours and Duncan.

00:31:57.260 | That's never coming back.

00:31:58.980 | We're all never nudes.

00:32:02.140 | From my age on down, we're in jean shorts under the towel.

00:32:06.580 | We're not doing group showers.

00:32:08.820 | So that's another thing that will die with the boomers.

00:32:10.820 | - Oh God.

00:32:11.820 | - Thank God.

00:32:12.820 | - All right.

00:32:13.820 | New Compound and Friends tomorrow, correct?

00:32:16.140 | - New Compound and Friends, yeah, tomorrow night.

00:32:18.740 | - It's dropping Saturday.

00:32:20.140 | - The audio will go up Saturday because we're doing it live.

00:32:22.540 | - Oh, it's a live show.

00:32:23.540 | That's right.

00:32:24.540 | It's a live show.

00:32:25.540 | - Yeah.

00:32:26.540 | By the way, Duncan and John and Nicole, they're all going to be working on this stuff on a

00:32:27.540 | Saturday.

00:32:28.540 | That's how much we love our audience.

00:32:30.180 | And it's going to be great.

00:32:32.100 | And I want to reiterate, you guys have done an amazing job on the show all year.

00:32:35.580 | Radio Rescue is the bomb.

00:32:37.420 | If you haven't told your friends about it, that's all I would ask you to do today.

00:32:42.900 | Shoot this link out.

00:32:43.900 | Let them know what we're doing here.

00:32:45.540 | - Much appreciated.

00:32:46.540 | We got one more next year.

00:32:47.540 | We got Bill Sweet answering your end of the year tax questions.

00:32:49.780 | Get those in.

00:32:50.780 | Send us an email.

00:32:51.780 | Askthecompoundshow@gmail.com.

00:32:52.780 | We will see you then.

00:32:54.300 | - One other quick thing.

00:32:55.300 | - Nah, that's it.

00:32:56.300 | - If you listen on Spotify, do the Spotify wrapped.

00:32:59.540 | We like seeing how much you've been listening to us.

00:33:02.940 | It's fun to see.

00:33:03.940 | - Show us on there.

00:33:04.940 | - Yeah.

00:33:05.940 | - Thank you.

00:33:06.940 | - Thank you.

00:33:07.440 | - Thank you.

00:33:08.440 | - Thank you.

00:33:09.440 | - Thank you.

00:33:11.440 | - Thank you.

00:33:13.440 | - Thank you.

00:33:15.440 | - Thank you.

00:33:16.440 | - Thank you.

00:33:17.440 | - Thank you.

00:33:22.440 | (gentle music)

00:33:25.020 | you

Will Baby Boomers Crash the Stock Market? | Portfolio Rescue 56

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