What's the Buzz? Recent Lessons

0:00 Welcome to Something More with Chris Boyd. Chris Boyd is a certified financial planner, practitioner, and senior vice president, financial advisor at Wealth Enhancement Group, one of the nation's largest registered investment advisors. We call it Something More because we'd like to talk not only about those important dollar and cents issues, but also the quality of life issues that make the money matters matter. Here he is, your fulfillment facilitator, your partner in prosperity, advising clients on Cape Cod and across the country. Here's your host, Jay Christopher Boyd. Welcome to the program, Something More with Chris Boyd. I'm Chris Boyd here with Jeff Perry and Russ Ball, both of us, all of us from the AMR team here at Wealth Enhancement.

0:44 Thanks for being with us. And today, we're going to talk about a variety of things that we'd start off with a little bit of news and maybe some little lessons of some of the things we glean from the kind of meetings we have from one day to the next, and maybe some helpful hints that you can apply to your own thinking. So with that, guys, I don't know, maybe we can start with a little bit of news. I guess we saw the ECB, the European Central Bank, did cut rates, trying to stimulate over there. We've had a little bit of back and forth with the president and- Who wants to cut rates. Who wants to cut rates. But Chairman Powell recently indicated that that's sort of a wait and see view of things right now.

1:33 Anything more to add to either of those topics before I jump on to others? I'm torn about this rate thing. And so, I mean, the Fed's job is to watch inflation and employment, right? There's two broad categories that they are delegated with being responsible. Inflation numbers are coming down. They're pretty stable. If you believe that the tariff situation could slow the economy, which is a rational belief, that means inflation should trend down. But if you believe tariffs will cause higher prices, that's inflation.

2:15 So I get why the Fed is hesitating because we're in kind of uncharted waters with these level of tariff issues. Yeah, I think it's a real dilemma, right? And a lot of it is, I think, wait and see is reasonable because you don't know exactly what's really going to be implemented when it all shakes out. Right. If you'd expect massive tariffs, the kind of thing we're talking about in China, well, it's inevitable you'd have high inflation, at least temporarily, transitory.

3:00 Where there's no credibility, you mean? But if that was the case, I'm the one here. And then, like you say, I mean, the other thing people worry about is a slowing economy and that could be the reason to stimulate. So you've got kind of this back and forth going on that's a little bit ambiguous. I guess the question that I ask myself when this issue comes up, like, should they decrease rates, is what is the rate that they're seeking, right? And if they're waiting to see what happens, what is the rate that they want it to be at?

3:42 And if they are artificially high, just because of where they are in the cycle, right? Artificially meaning what? I'm not following you there. So the PCE they want is 2% and it's over that. I think it was 2.8 or something like that, right? Right. But what's the rate if they reach their goal that they would be at, right? And how does that correlate with where they're at now compared to the inflation trends? So if they're artificially high, meaning pausing at a higher rate because they don't know, I guess there's an argument that maybe they should be leaning towards lowering.

4:24 Yeah, I would say if they're not, if rates are inflation rates are higher than they want to keep interest rates higher is an effort to reduce the rate of inflation. Unemployment, the other mandate clearly right now is still pretty good. So now if you do have a big economic disruption, then you'd be a little bit more challenged to expect unemployment to be disrupted and to have rising unemployment. Yeah, we're not seeing that in the data yet, but the number that's below expectations.

5:05 No, no. So to your point, there's no worry on the unemployment side, but there is still a concern for inflation being elevated. And if we're worried that the tariffs could exacerbate that, it probably makes sense not to be reducing rates in that setting because you're still trying to get inflation lower. That assumes the question, that assumes, you answered the question that I posed, but that assumes that the Fed's inflation rate is actually 2 .0. I know that's what they say, but some of their target that their target is.

5:50 Yeah. So there's been a lot of posturing about that. Is that really the rate that they expect or is that really their target? Is that really reasonable? Well, and to another point that I think you made to me outside of the content of the program here, interest rates have declined, not on the short end, but on the long end of the curve. You are the further out on the curve, right? Have we seen some change there? Yeah. Actually, sorry. They've been rising. I take it back, right? Interest rates have been rising on the longer end, right?

6:32 As you've had perhaps more sellers in the bond market with treasuries causing some disruption of the yield, prices have gone down and yields have gone up. I guess it depends when we're comparing it to, right? So if you compare it to January, rates are lower. Rates of the 10-year is lower, it's like 40 or 50 basis points lower than it was. So the bond market sometimes is telling us things on their own regardless of what the Fed is doing, right? Well, I think prior to this question of why are rates rising the way they have in very recent weeks, the longer term outlook from the bond market was conveying the thought of a slowing economy due to concern that would tariffs have a slowing effect, right?

7:36 And this was before any announcement of what the actual plan was, I think some expectation of that over time would have some consequence. I think the other end of this is probably the way that things have moved is maybe some gamesmanship or pressure to try to say, hey, look, we can dump some of these bonds that are being held by foreign powers. Seems like whatever topic we're discussing, it all comes back to tariffs. Yeah, it does, I think that's a good point. So along those lines, there was an item in the Wall Street Journal that asked two economists what their expectation is for recession or not.

8:26 And the biggest caveat was, hey, the economists aren't always right. So nothing to overestimate there. Well, we've pointed that out many times. I think we've done a couple of segments called Where's the Recession that they've been predicting for years. Back with the soft landing topic, would they be able to do a soft landing? So in this case, you're just seeing a sharp rise is really the bottom line. We went from at the start of the year, maybe around 20% of economists on this survey. There were some 70-odd economists that get surveyed.

9:08 Not all participate in every survey, but in any case, 64% in the most recent. We went from somewhere around early low 20s at the start of the year, expecting a probability of recession to somewhere around 45% in April, though the survey was taken right around the time of the start of all the tariff news. So again, how this actually evolves and so forth. That's the problem with the data that we're still getting, whatever data point we're getting recently, retail sales or unemployment or surveys or...

9:53 It's kind of backward looking as opposed to... Inflation data, it's all backward looking. So when the April data comes out in a few weeks, it may be very different. And if it's not different, that'll be extremely interesting to dig into. Watching the different projections of recession from the banks has been about as volatile as the market just from one day going from 70 % chance of recession, actually 40%. I think it's kind of in tune with what happens with markets, what happens with inflation. Banks are adjusting in real time, just like everyone else.

10:34 So yeah. Well, I think one of these big picture issues is consumer sentiment and planning from businesses becomes challenging in this face of uncertainty. There's a lot of lack of clarity as to what is really going to be the plan when it comes to tariffs in particular. And so that creates an uncertainty of businesses to know what to do when it comes to their own spending and purchasing and so forth.

11:19 To the concern of consumers, should I, shouldn't I? You could, on the one hand, see consumers saying, hey, those tariffs are going up. Let's go get that car. Let's go get that TV or whatever stuff they might think. Well, before it gets worse, you could see that surge some economic impact. Or you could see people saying, you know, I'm a little worried. I'm not sure what's going to happen. Maybe we'll keep some powder dry. Maybe I'm not sure my job is as secure as I'd like it to be or whatever. And you could see that working its way into the consumer sentiment and spending.

12:00 And of course, we know that our economy is largely driven by the purchasing of consumption largely by individuals. So in any case, I wouldn't be surprised if this uncertainty has some consequence. But it may be a surge before. It's a slow. It's a fair point. That's a fair point. Well, in the midst of all this, I think, you know, one of the things that we want to talk about is what are some of the lessons that we can maybe derive from some of the experiences we've had with the way we're talking with clients?

12:46 And Jeff, you had talked about retirement plans a little bit as maybe one of the things we want to start off talking about. Well, you know, we've heard from clients over the past since Liberation Day, I guess. I actually thought, you know, just as kind of a tangent here, I actually thought we'd hear more from clients since the tariff mess and the market volatility. I was kind of gearing up for like, OK, my schedule is going to be super full. And I'm going to hear from half of my clients each day, you know. But that hasn't been the case. And I think the primary reason is because our clients are, first of all, they're well informed because we talk to them a lot in different methods, including this podcast, I guess.

13:37 But, you know, direct communication with our clients and we're telling them our thoughts and our views. So communication certainly helps people feel like they understand what we're doing and why we're doing it. But they also have a financial plan. And the financial plan, we review with them frequently, at least annually. And, you know, they have an understanding of how volatility fits in. And we do a risk assessment at the beginning of all this to make sure that hopefully make sure that they're invested in the proper allocation based on the risk tolerance. So when you put all those things together, I guess it makes sense that our clients as a whole, all of them, but maybe a little bit less concerned about market volatility.

14:24 But certainly the ones that we're hearing from, that is the topic that they're discussing. They're concerned about the tariffs and what it means for their individual investments. And I think that goes back to having the right risk assessment and having them invested in the right asset allocation. In this case, primarily talking about exposure to the stock market. Yeah, I'll just jump in and then Russ, I'm sure you want to chime in too. But we definitely do hear more from clients in times of market volatility and anxiety, so to speak. Right? Right. And that's understandable and totally reasonable.

15:07 That's when you want advice from your advisor. And that's fine. That's where we're coming from. To have that opportunity, right? Absolutely. So rather people talk to us and get input rather than maybe go rogue and make some decisions without some counsel. Yeah, an emotional decision. In our case, I think our clients do know that we're actively managing their investments and that may offer them some additional comfort. I think there's a lot of people right now who, after a couple of years, really good years, kind of have the mindset, well, this is the way markets work and we understand.

15:53 And to some extent, maybe just trying to turn a blind eye for a time, thinking that there's ups and downs. I know it's a long term thing, that kind of mindset. Those clients who are at a stage of life where they're drawing from their investments may feel a little more anxiety. And maybe, Russ, you can talk a little bit about some of the things that we've been talking about that help people when they're thinking that way as well. Yeah. So I think what you just mentioned, Chris, is that sometimes taking a step back and not looking at the market every single day can be helpful.

16:34 I think most of the clients who are particularly nervous or concerned about the portfolios are the ones that are looking at the stock market every day. They're seeing the ups and downs. When they come and meet with us, we show them their plan, we stress test their plan, and I think that gives a certain level of comfort that big picture, things are probably going to be OK. And in the meantime, it's a bumpy ride, but there's a lot. By having a financial plan like Jeff was talking about, you can see, all right, what's going to happen if the market goes down by X percent tomorrow? We can model that out and show what that looks like. The other thing that we're doing is we aspire to create this bucket approach where we have liquidity reserves in one piece.

17:21 So whether that's cash in a bank account, in a high yield savings account, a money market fund, you have that reserve to get over the hump. So rather if the market's down one year, two years, we try to prepare for that, have that excess spending money set aside. And then the second bucket would be a little bit more of a bond focused, more conservative portfolio. And the longer term could be a little bit more equity focused and growth oriented. So having the buckets is a good piece of it. Reviewing the risk assessment, to your point, Jeff, is a good piece of it. And, you know, what do you do today if you find that, yeah, my risk appetite has changed?

18:09 I'm not as tolerant of volatility as I was the last time I did my risk assessment questionnaire a couple of years ago. Life has evolved. I'm closer to spending, whatever it might be, right? And I think that's the challenge. But that's usually why we do try to have gradations of risk in your portfolio so that you have a place for the near term, a place for some longer term, you know, that kind of thing in the way you're structured. But when there are multiple accounts, I think that gives you the opportunity to say, well, maybe we can make an incremental adjustment.

18:51 Let's not do an all or nothing. Let's not do anything extreme. But maybe there's a place for modifying your risk tolerance, your implementation of your plan a little bit. Markets are not at their highs. That's clear. But we've had a bit of, you know, it's been back and forth. So there is a little bit of periodically there's an opportunity to say, well, maybe now's a good time, you know, for an incremental, modest adjustment, if it helps you to sleep better. Big picture, though, you really want to think long term.

19:34 You want to not look at it day to day, as Russ was saying. And we tend to have that mindset that over time things will perform well. It's just equities do tend to outperform. But there is volatility that we have to endure. So that's why we want this mix of investments. Something we've been talking about is people who have maybe some investments but don't have a lot of cash reserve or they're trying to tidy up their debt picture and clean up some of those kind of things. And that's a good practice as well to try to ease up their cash flow without trying to pay off some debts, maybe to have fewer kinds of costs can help them save up and add to their cash again, you know, rebuild that cash.

20:35 But we want to kind of have a combination of liquidity for the unexpected, because that can help us to get through the volatility that we know in periods is going to happen. What else, Jeff? You look like you were ready to comment on one of those things. It's not exactly on point, but it is related. And some of the clients I've spoken to in the past few weeks and they have assets that we manage for them, but a lot of them also have 401ks, they're still working. And I find the level of concern about investments and their level of understanding of what they have, it's like kind of night and day that I think so many people, whether they're clients of ours, this is irrelevant, this is just a general statement.

21:32 It's amazing the lack of knowledge, information and consideration that's given to people when they have a 401k. So many people, you know, they have a 401k and they just don't know how it's invested. It could have started when they got the job out of college or if they got a new job and they go to HR, they fill out the forms. They got so much paperwork to do when you start off and it's just one of many things, right? Here's the form, we sign up, we max 3%, it's a good deal, do it. And then if they're lucky, they get another form that says, here are your choices. And they're making these decisions either, you know, sitting in a small chair with a clipboard at the HR office, or maybe they go home and do it, but they're making these decisions without all the things that we're talking about.

22:20 They haven't likely, I'm sure there's exceptions, but they haven't done a risk assessment. They probably don't have a financial plan and they're just at the end of the day, seeing either a rate of return on one of the investments that looks really good, so they'll pick that one or they say, oh, capital preservation. I don't want to lose my money. And they check capital preservation or whatever they do. Or these days, often it's just done by a target date. This is my retirement objective. I'll plug it in there, which is, I mean, not bad, but it doesn't necessarily help you to understand what you own. You know what I mean? How it's going to react. Well, I actually talked to someone who, it's not a client of ours, but I talked to someone, I had lunch with someone who may be a client of ours one of these days, and he was talking about the target fund that he has.

23:08 And he asked me, he's in this target fund and he asked me what the date meant. Like target fund 2030. And so he said, what's that? What's the date? I said, it's the year 2030. It's designed to be a prediction of when you might be using those funds. And he said, oh, okay. So it just, I guess I'm hearing a lot about it in the last few weeks about either people being really nervous because they don't understand what they have or however you want to frame it. They just don't have a good understanding of what they have, which leads to being more nervous and more concerned and having more angst about having the 401k.

23:49 You don't know what it's invested in. You see it go down, but you don't know really if it's temporary or permanent. So it just adds to the whole feeling that I have working with an advisor where you can ask these questions, have this information. If you have an investment that they're managing, hopefully they've done this risk assessment. It's part of a financial plan. So it's all one picture. And when you feel this way, you have these questions rather than wake up at three in the morning and go down a rabbit hole. You can just call your advisor and say, my account's down a few percent. But I had this call yesterday. My account's on 3%. I'm nervous. It's never gone down. This person started investing a couple of years ago and they had two years of 20 % returns and they're just new to investing.

24:36 So it's like, this is what happens. I like this thing. And it's down 3%. So she was nervous. So what's going on? Yeah, it's supposed to go up. Right. So she understands now, but this was just somebody who hadn't had that experience. So you mentioned target dates and those kinds of funds. And Russ, I know you're a fan of Christine Venn's Morningstar. I think you follow her too. I am too. Yeah. I met her as a guest, in fact. We have. I know she's done a number of reports on how there's these big differences in how some of these target date funds work. Is it a target date for retirement where then you have a 20 year time horizon?

25:22 Or is it, this is the date I want it to be without risk. You know, essentially, you can have these widely varying. Definitionally, right? Yeah. Structures for these target date type of portfolios. So understanding how that works. You know, as we kind of wrap up, I was thinking for those people who are particularly anxious right now. It's this, our episode is going to air on Good Friday. So and for all those who celebrated Passover last week, happy Passover.

26:02 And for those who celebrate Easter, wishing you a happy Easter. But I thought I'd make a little analogy here that, you know, you may be in the depths of despair when you're feeling about your portfolio. The Good Friday experience of, you know, all the despair that comes with that. But ultimately, after that comes new life, right? And eventually, that's the way investing works as well. It can take time, might not be three days, sorry. But, you know, there's the ultimate eventuality that we have better outcomes given time and new beginnings.

26:44 And as much as we may go through some disruption with tariffs and the economic consequence that may shake out from now, there may be some disruption. Eventually, it will lead to greater profitability of, you know, companies tend to find a way to be profitable. And that will eventually lead to higher values in your portfolio. So maybe that's a little bit of a seasonal takeaway as we head towards spring and all that comes with it. Thanks, everyone, for being here. And guys, good input. Take a little bit of help from us. We'd be happy to give you an analysis of your portfolio, evaluate how it's positioned relative to your risk tolerance.

27:30 We'll give you a risk questionnaire to help navigate that and maybe identify some things you might want to consider if there's need for change. We do run into occasions where people are doing great and there's not a need for change. But if you'd like to take us up, reach out to us and we're happy to be a resource to you. 866-771-8901. And until next time, keep striving for something more. For those quality of life issues that make the money matters, matter.

28:11 Whatever's on your mind. Visit us at somethingmorewithchrisboyd.com or call us toll free at 866-771-8901. Or send us your questions to amr-info at wealthenhancement.com. You're listening to Something More with Chris Boyd Financial Talk Show. Wealth Enhancement Advisory Services and Jay Christopher Boyd provide investment advice on an individual basis to clients only. Proper advice depends on a complete analysis of all facts and circumstances. The information given on this program is general financial comments and cannot be relied upon as pertaining to your specific situation. Wealth Enhancement Group cannot guarantee that using the information from this show will generate profits or ensure freedom from loss. Listeners should consult their own financial advisors or conduct their own due diligence before making any financial decisions.