WHAT WAS COVERED
- 00:00 – Episode begins, Paul welcomes listeners.
- 01:34 – Article Breakdown: “Finds almost 80% of active fund managers are falling behind there index”
- 06:30 – Article Breakdown: “More awful news for homebuyers: Mortgage rates just made the biggest jump this century”
- 16:00 – Article Breakdown: “Women are far less financially prepared for retirement than men: TransAmerica study”
- 23:30 – Closing thoughts.
- 27:55 – Episode ends, thank you for listening.
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——————————————————————————————————————————- Paul 0:08 Cory 1:05 Paul 1:33 Cory 2:15 Paul 2:25 Cory 2:51 Paul 2:55 Cory 3:32 Paul 3:50 Cory 4:27 Paul 4:30 Cory 5:00 Paul 5:03 Cory 8:41 Paul 9:15 Unknown Speaker 9:31 Paul 9:47 Cory 10:02 Paul 11:54 Cory 15:04 Paul 15:46 Cory 15:51 Paul 15:55 Cory 16:47 Paul 16:57 Cory 17:31 Paul 17:37 Cory 17:56 Paul 18:07 Cory 18:51 Paul 19:57 Cory 20:06 Paul 20:08 Cory 21:05 Paul 21:14 Cory 21:59 Paul 22:18 Cory 22:22 Paul 22:31 Cory 22:43 Paul 23:28 Cory 26:48 Paul 27:41 This Material is Intended for General Public Use. By providing this material, we are not undertaking to provide investment advice for any specific individual or situation, or to otherwise act in a fiduciary capacity. Please contact one of our financial professionals for guidance and information specific to your individual situation. Sound Financial Inc. dba Sound Financial Group is a registered investment adviser. Information presented is for educational purposes only and does not intend to make an offer or solicitation for the sale or purchase of any specific securities, investments, or investment strategies. Investments involve risk and, unless otherwise stated, are not guaranteed. Be sure to first consult with a qualified financial adviser and/or tax professional before implementing any strategy discussed herein. Past performance is not indicative of future performance. Insurance products and services are offered and sold through Sound Financial Inc. dba Sound Financial Group and individually licensed and appointed agents in all appropriate jurisdictions. This podcast is meant for general informational purposes and is not to be construed as tax, legal, or investment advice. You should consult a financial professional regarding your individual situation. Guest speakers are not affiliated with Sound Financial Inc. dba Sound Financial Group unless otherwise stated, and their opinions are their own. Opinions, estimates, forecasts, and statements of financial market trends are based on current market conditions and are subject to change without notice. Past performance is not a guarantee of future results. Each week, the Your Business Your Wealth podcast helps you Design and Build a Good Life™. No one has a Good Life by default, only by design. Visit us here for more details: yourbusinessyourwealth.com © 2020 Sound Financial Inc. yourbusinessyourwealth.com ———————————————————————————————————————————
Full Episode Transcription
Hello, welcome to your business, your wealth. My name is Paul Adams. You know, I’m the CEO of sound financial group. And you also know, Cory, he is the president of sound financial group. And we are here today to bring you guys some, amazingly, some informative, and some fairly misleading content from the media as, as we have enjoyed doing for the last several months, and we’re getting feedback from all of you that it’s kind of interesting to you to to start seeing through some of the malaise that gets shot at us out of these informational Canons that financial institutions just feed this information into. And then you have largely I think, journalists who went for liberal arts degrees, not there’s anything wrong with liberal arts degrees, but are not as grounded in economics as they read these articles, and most appropriately, the headlines that come out with these articles. So
you know, I did, I did graduated the liberal arts degrees. So you know, for all the paparazzi that are researching us, and I’m gonna, you know, gotcha later, like that is that is true, but we’ve studied a lot of other other things. Since, yeah, I’m except for the articles that we’ve got today. And some of them are actually really, really good research and substantiation of some important topics to so what’s the, what’s up anyone had first, Paul,
why don’t we hit first, this new report finds almost 80% of active fund managers are falling behind their major indexes. So if you’re new to our podcast, and active manager is somebody who attempts to time the market, meaning they move money in and out of the market, in an attempt to beat their index, or they’re picking stocks, inside of a certain classification, say large cap growth in an attempt to do better than the market is doing. But every bit of data we get our hands on shows us over and over and over again, that they don’t do such a good job of that.
And there’s this I had not actually heard of the SPIVA index before. Oh, yeah. So this is cool, cool scorecard.
In your you’re right, this, this bhiva Index is a not an index that’s invested in but rather an index of measurement for how these active managers do. And it is funny that 79% of fund managers underperform the s&p 500, the s&p last year, and that’s an 86% Jump over the past 10 years. So not only
of who has underperformed? Is that what that’s thing? Yep.
Yep. And the other thing that is a little bit less clear, we also have access to the white paper, if you guys want to click on the description, we’ve got a link to our webpage will give you the ability to link out to these actual white papers, we’re going to refer to today that these articles are based on, we talk often that when you see something to news, and they’re telling you something is a fact. But they link to the underlying data. It’s always a good idea if your opinion is going to matter for your future, to click on the underlying data and see what it says.
But it’s amazing how many times the underlying data is immediately contradicting the headline of an article like all you have to do is click for three minutes and look and it would be and they just put it there. Like it doesn’t matter, because most people don’t look.
Well. And one thing that I think is a little tough in the way you read this is it says these funds, underperform the s&p 500. Now on its face, that would that might be inaccurate or an inappropriate measure, because there’s a lot of funds out there that aren’t investing, like the Standard and Poor’s 500, which is largely large cap growth stocks. So very, very large US companies that are growth companies. And that wouldn’t be a good comparison to say a value investing fund or a small cap investing fund,
or anything with bonds in it. Right is not right.
Right. Now, what is neat when you get deeper into the actual white paper that Steve have put out, you see that they are doing apples to apples comparison. So they’re only comparing when they’re comparing to the s&p 500 funds who are attempting to mimic the performance of the s&p 500 in terms of large cap growth stocks. So that is one thing to know. The article isn’t as clear as it could be.
But they aren’t doing a good apples to apples comparison when they say that,
yep, when they give you that 86%. So this is the thing we would hope people would take away from this article, we don’t need to go super deep into it, because otherwise, it could be dangerous for those of you driving. Right now, if we went too deep into this article, you’d fade off crash into a light pole. But this, what they’re discussing is that one active managers create more cost, because the turnover and how much stock trading they do in an attempt to outperform the market, they actually create more cost. So now they have to both do better than the s&p 500 by more than the cost that they created for themselves while trying to outdo the s&p 500. So for those of you that are our clients, that’s why we use this passive structured investing approach, where we own a super wide swath of the market and with some tilts towards small cap value and profitability, we’re working to put a little bit of extra return on the portfolio. But only because of the academic research on those three tilts towards small toward value, and more profitable companies, as opposed to what many of these fund managers are doing the active front is trying to pick which stocks are going to do better, and then have your funds invested in those stocks. And then when it doesn’t work out, what you end up with most of the time is 86% of them underperforming, what they would have anyway. So let’s hit our next one, because the next one, I think, is one that’s heavy on people’s minds today. Real estate has been a big conversation for us as a country for the last couple of years, especially as people have felt locked down because of COVID. And saying this house is too small, as I’ve been locked up in it and having to go into, you know, day 400 And something of the 15 days to stop the spread. So we have this huge jump and people wanting to get in larger homes. And that’s created a glut of buyers in the marketplace without the new accompanying inventory. Builders because of COVID were building slower, and didn’t have the ability to bring as much to market as people were demanding. Now that along with our recent inflation concerns we have as a country, the Fed has also began raising interest rates. And the article title kind of speed. What Cory said a minute ago about these titles not being very effective for what’s in the content of the article. More awful news for homebuyers mortgage rates just made the biggest jump this century. Now, I’ll talk about the jump, Cory, and then I’ll let you talk about the awful news part. Okay. So when they say it’s the biggest jump in a century, what they’re referring to is the percentage increase of a 30 year fixed loan from 2.65%. On average across the country in January 2021 to 4.42 today, so they’re looking at that jump not is a amount of percentage points, which would be like 1.77%. But what how big of a jump is 1.77 on 2.65 as a percentage, which is right 70 80% off top, my head. That’s what the talking that’s the jump. So it doesn’t mean that mortgage rates are the highest they’ve ever been. It just means it’s the biggest jump over I think they used a 12 week week measurement, largest jump since 1994. So it’s
still but just think about that, like you got to watch out for when the the timescale that they’re talking about seems relatively arbitrary compared to the topic as a whole. It’s like, it’s the biggest percentage jump over a 12 week running period since like, there’s so many it’s like in the in a tennis match. Like that’s the first time that a left handed player has ever served from the right side three times. Mike, I don’t care anymore. Like there’s too many. What is this is kind of like, like that
is actually saying this century. So we’re gonna go to our I don’t know her name. I saw this once on a YouTube short I think it was originally at a tick tock. We’re going to listen to her briefly because we haven’t listened to her in a few weeks of
my country. But this is what’s wrong with America. This is why I tell y’all all the time. Think for Yourself critical thinking. Don’t believe everything the media tells you. If the media gives you information with the intent to produce an emotional response. Something’s not factual.
That’s it. Some if the media shares with you something in an attempt to get an emotional response, doesn’t mean everything is unfactual but it does mean something is unfactual and we certainly find that here.
Well, and I think that’s all factual. It’s just that they’re, they’re, they’re creating their own measuring lens to be able to make it more sensational. Mm hmm. Right. So it’s just not. And and, Paul, can we switch to the second part the like, is it bad news or not? Because the article references this chart, it references this Fred chart, and it doesn’t really know it, they don’t really know if it’s good or bad, if they’re not really anything else to say whether this is really good, or actually really bad. But here’s just one thought about rising interest rates and why it could actually be good. Because if we go back to, you know, let’s go back to 2008. On this chart, where mortgage rates were 6.46 was the average Yep, in October of 2008. So they’re, you know, roughly a little less than double what they were back in 2008. But I know houses that are way more than double the price that they were since 2008. So when you really think about how mortgage how home prices have increased over the last decade, in part because of lower interest rates, helping it’d be cheaper for folks to get money into homes and get them financed it, I think you’re paying more real dollars for a house and a mortgage today at a lower rate than you were in 2008 910. So I think I don’t think people are net really better off because of those rates. So raising rates, cooling off the home mortgage market, making it easier to buy a home, that actually could be a win for a lot of people.
So when you think about for fixed income investors, raising interest rates means retirees have a better chance for their fixed income or the bond side of their portfolio to give them additional cash flow. And if you are a saver, you having a more reasonable interest rate environment, as opposed to super low rates might be good. And here is the thing for consideration. For those of us who got our mortgages at these lower rates. One thing that the article points to that I think makes sense, is something that people don’t think about often that could cool the real estate market is that now if you have a home mortgage, where you got a 2.8% rate, yeah. Now, if mortgage rates later this year end up at 5% or more, then you might go gosh, you know, we do want that new home. But I really hate to give up this low mortgage rate we have, like yes, the higher payment will mean something. And the higher the debt service on these mortgages, the less it should cost for homes. Because people are buying homes. Most people are buying homes based on the cash flow they can afford on the mortgage payment. And as a result, even people that pay cash will get affected. Because the cash payer say who sells their house in the Bay Area of of California and then moves to Wyoming. The person buying their home is buying, even though they’re going to buy for cash in Wyoming, the person buying their home in California is going to be getting a mortgage. On average, over time, they will be mortgaged homes. So those increased mortgage rates will have a cooling effect on the housing market. What we don’t know is, well that just mean there’s a stagnation in home values because this increase in interest rates is offset by this 40 year high in inflation. That’s continuing to press upward on home values. But we have this slowing feature of the increased interest rates. Time yet will tell. But it does speak to that if you’re out there, you’re considering buying a home you’re considering buying a rental property. Two things you should keep in mind if it’s your home, make sure that you’re fitting that total debt service in less than 15% of your income. going much higher than that puts you at high risk of crowding out the amount of money you need to set inside invest in investments so that you in the future can live independently. Second, if you’re buying rental properties, always buy the rental properties based upon them cash flowing not based upon your hope that they will increase in value. Right because something outside of our control like an increase in interest rates even though your mortgage is not increasing because those mortgages are fixed and guaranteed for 30 years. It does mean that people that might buy your home from you do have to qualify for those mortgages and that could limit the appreciation of your home or even cause it to go down value in the current interest rate environment, especially as rates increase?
Yeah. You know, and this is why any article, you see where the headline says, because this thing happened, this other thing is happening. Just know that most of the time, they don’t actually know that, like, they don’t really have any proof they just saw thing. And another thing. I’ll give you another example, we were talking about how supply chain issues could be a huge impact on this market, like inventory of homes for sale is the lowest that a lot of realtors have ever seen it. And so part of the problem is new homes might not be getting on the market as fast as they can’t get all the supplies they need to finish building the home. So that could be a thing. That’s a bigger impact than any of these interest rates that we’re talking about. Well, so
like during COVID, shut down. They had months they couldn’t work on the homes.
And we’re probably still catching up from from all of that. Sure,
indeed. All right. Our final article today is one that is I think, Fox Business in this case. And frankly, the Transamerica study totally missed the mark. The headline, women are far less financially prepared for retirement than men. And then, you know, they got to give themselves the waiver. So in the title is Transamerica study like, we were just saying they said it. So it’s a but as we get down here, this says men have about twice as much money saved for retirement than women do have concern nearly a quarter 24% of women have less than 100,000 saved for retirement compared paired with just 14% of men. Now, we’re not going to go deep into the study
de men less than 10,000 saved for retirement. But 10,000 Sorry, which is even more well, we’ll come back to that. That’s even more. So
I think that one will deeper dive into because the actual study itself I had it pulled up here is I don’t know how many 78 pages. So we’ll pull some highlights out of that, I think for a future episode. But here’s the part that I thought was most telling. It says 79% of men are confident in their ability to fully retire with a comfortable lifestyle compared to just 64% of women. Now, here’s the thing, if I was just out in the country, with a bunch of four by four pickup trucks, with people drinking beer,
Wait, aren’t you right now, like out in the country with a bunch of like, isn’t that
except I don’t drink beer much anymore. I’m more of a Cabernet guy. But if you’re just out there with an equal number of men and women all drinking beer at the time, and somebody said, who thinks you can drunk that mudhole more men are gonna raise their hand, right in the same vehicle.
So is the second half of that sentence? Mm hmm. Both men, both men and women think they’ll need to have saved 500,000 In order to retire comfortably.
I don’t want to hit that yet. Let’s just sit on this confidence thing. Generally speaking, men are inappropriately confident about their decisions. Right? So when they’re part of the study says and what Fox Business is highlighting is that 79% of men are confident ability compared to 64% of women, I would expect that generally in life, mainly because I think women are often a better at assessing their capabilities. And studies have pointed that it’s not that men are more confident, like that’s a good thing in my terms. And then men are more men are crashing in the mud hole than women in my example. And then right now, to your point, Cory, say, hit that again.
Well, that’s the thing, we’re saying the same thing. Like they’re, they have this rating of how confident they are. But they’re both pointing at the same marker. And that marker is woefully low. Because like all men and women, all of society, most people think they need a lot less money to retire than they actually do. Because they haven’t done the calculation of how much they’re actually spending and what all the, you know what that cash flow is, and or just the simple rule of thumb of, you know, 4% of whatever you saved is what’s going to get you is what’s going to produce your income stream. So 20,000 a year on $500,000 Cool, even if they’re also thinking of Social Security, and that’s another let’s call it 30. Well, so now they’re living off of $50,000 a year but that’s still like half of the country or less is gonna keep the same income if that’s the number. So if, if everybody in the study like that the the title could have easily been for this article.
Both men and women are woefully under prepared for retirement, they don’t even know how much it will take transmitted.
Women are more aware of what it’s going to take. Yeah,
yes. And because 500,000 is $20,000 a year of income in a dependable way for your lifetime. Like, even if it’s a Korea’s point, even if you take the average household income in the country, you’re not close to replacing that. So what what we’re seeing here is that, when you read an article like this number one is to notice how much of it is just a bunch of opinions of people, they they sometimes talk about these financial polls and studies as if they were, say, a medical study of the amount of carbs people ate every day. And people had their meal shipped to them, and did these blood tests and all that. Like though they’re just asking people do you expect to rely on social security and retirement? Now 27% of women said they do and 17% of men. And
we have no idea how fit those people in the study were to make that assessment in a grounded way in the first place. Yeah, I have a
pretty good idea. If they said 500,000 was enough to retire. I’m pretty sure they’re unfit to answer this question too. And, and this is not a dig on the people that participate in the poll. What I mean this to be as a dig on all of us, who create an interpretation of whether or not we’re okay, or not financially, without a maybe working with an advisor to see if our math made sense, and be understanding the math ourselves well enough to be able to do it. Like I think there should be like required things that you know, before you participate in a 401k plan, like the 4% distribution rate. And there’s simple way to do that math on how much money will take to replace your income.
And here’s why I feel like trans America may have also sponsored this article, because you get to how women can prepare better for retirement. Oh, yeah. Right. Maximize your retirement contributions, anticipate periods of reduced income, reach out to a financial advisor,
and allocate your assets
and allocate your investments, right? Like, that’s what anyone would need to do to get it, right. And so
if you could be a man or a woman or somewhere in between, and all three of those things are probably still a really good idea, especially if you think $500,000 is enough for you to be able to retire now.
And this is what I’m getting. I’m getting kind of fired up here. Because there are, you know, there’s lots of the financial industry is doing the research on demographics, watching all the baby boomer men die, and the women take over the assets. And they’re saying, shoot, we have not, like we’ve been talking to the husbands, not the wives for 30 years, we got no relationship with them, we got to do something to change this. And now all of a sudden, they’re building these financial planning resources for women that come along side. But they’re not giving them anything actually useful for they’re like trying to understand where they’re coming from, they’re just slapping a different label on the same old box, and calling it specialized.
Exactly right. And and here’s the thing I would love to just kind of, say to our audience, as we wrap up today is for all of you out there, if you’re listening this podcast, you’re probably getting better informed than the average person. We know from this study, the average person thinks it’s half a million dollars, what’s going to take to be able to retire. Now, one thing you can do to help other people make better decisions like like this video, subscribe to the channel, make a comment below all of those things, the more interactions you have with our content, the greater likelihood that somebody else is going to see this, you could take hit that share button and you can text the episode to a friend of yours gives copy the link to it on Youtube and send it to them and say, Hey, I thought you might get a kick out of this because frankly, if this is how people are thinking on average, then odds are the people that you most care about that you’d like to be able to retire with everything else. They’re not seeing this kind of stuff either. And this doesn’t mean that they need to be a client of ours we do this podcast because we know it makes a difference for our existing clients. And we know it can make a difference for people that we may never otherwise get a chance to meet. And we’d love your help in that mission to be part of this. Like the financial education in practical matters around money, allowing people to actually live the rest of their lives independently because you know, I had a I don’t think I’ve ever told the story before that longtime friend of the family that I grew up I mean, I knew this man since I was like four. And I was in the industry for like seven years before. He was kind of getting ready to retire. And he was just misinformed about money. I see I need rolled money out of my retirement plans get it invested. And Corey came to me and he said, Yeah, you know, I got $700,000 and just figure out take out $70,000 a year. And I said, What do you think it’s 70 pieces. So 10% rate of return, I take out 10% a year. And I had to break it to him. That’s like you, you can’t take 70,000 out a year, you could take 35. And I had to break the bad news to him that his money was not going to last based upon what he had been thinking for the last 10 or 15 years as he confidently went along with his existing knowledge because nobody had ever told him about the 4% rule. And so it’s our hope me and Cory, every week we do this, we’re thinking of all of you and the difference that might make for you or make a difference for somebody you share our content with. So that hopefully those people can reach financial independence. Like, we hope you’re on the path of being able to do that without some bit of knowledge or something disrupting some of this common sense narrative, which is common sense leads to comment performance. And what we need to do, according to all the retirement data is we need to perform well above average, as households to be able to retire effectively, to be able to have financial independence, because the advice that’s being given the things that people access every day, things that aren’t like this podcast, are leading people to different versions of financial failure. That was that didn’t feel like I ended on a very high note, Cory. That was some inspirational
well, it doesn’t, it doesn’t matter if you are fifth, you know, 3040 5060 70 you’re hearing this now for the first time, you’ve now got an opportunity to do something with it. And movement with money is not a linear thing. Our brains think very much in a linear way. But improvements can compound rapidly and there’s all kinds of different strategy outside of just what I put in my portfolio, what kind of rate of return that it got. So the good news is, even if you’re not sure what to do with this information, if you feel like you might have missed something, like now’s you know, it’s like the old The old adage like when’s the best time to plant a tree? Well, 30 years ago, what’s the second best time to plant a tree today? And so start planning that tree today. If you haven’t planted it before it you can still start to make a make a difference.
I think that’s a perfect way to wrap us up Corey. Everybody out there. From all of us here sound financial group, we and at your business, your wealth podcast. We hope that this has been a contribution you being able to design and build a good Life
Unknown Speaker 9:31
This Material is Intended for General Public Use. By providing this material, we are not undertaking to provide investment advice for any specific individual or situation, or to otherwise act in a fiduciary capacity. Please contact one of our financial professionals for guidance and information specific to your individual situation.
Sound Financial Inc. dba Sound Financial Group is a registered investment adviser. Information presented is for educational purposes only and does not intend to make an offer or solicitation for the sale or purchase of any specific securities, investments, or investment strategies. Investments involve risk and, unless otherwise stated, are not guaranteed. Be sure to first consult with a qualified financial adviser and/or tax professional before implementing any strategy discussed herein. Past performance is not indicative of future performance. Insurance products and services are offered and sold through Sound Financial Inc. dba Sound Financial Group and individually licensed and appointed agents in all appropriate jurisdictions.
This podcast is meant for general informational purposes and is not to be construed as tax, legal, or investment advice. You should consult a financial professional regarding your individual situation. Guest speakers are not affiliated with Sound Financial Inc. dba Sound Financial Group unless otherwise stated, and their opinions are their own. Opinions, estimates, forecasts, and statements of financial market trends are based on current market conditions and are subject to change without notice. Past performance is not a guarantee of future results.
Each week, the Your Business Your Wealth podcast helps you Design and Build a Good Life™. No one has a Good Life by default, only by design. Visit us here for more details:
© 2020 Sound Financial Inc. yourbusinessyourwealth.com
Podcast production and show notes by Greater North Productions LLC