Retire Eyes Wide Open: Season 3 Episode 2

Episode Transcript

Introduction:

Welcome to Season 3 episode 2 of Retire Eyes Wide Open.  I’m Scot Landborg –

Today we’re talking Perspective about Gratidude and about AI.  What a mish mash! 

We’ll cover the top news in our money rundown, we’ll take listener questions, Money with Murph we’ll cover the rage of artificial intelligence.  And we’ll try to bring some perspective on how you can be more present in the NOW.

This is Retire Eyes Eide Open! 

The Best Thing I Saw This Week:

Now for the The Best Thing I saw This Week

Alex Hormozi – founder of acquisition.com, YouTube star, business guru posted a piece on gratitude that really hit me.

He talks about one of the tools he uses to be grateful – is imagine he is 85 years old.  He’s only 32 by the way. Imagine himself at 85 years old – and if he had a time machine at 85 and could travel back to right now – this moment. 

How would that change his perspective?

Maybe you’re 55?  Maybe you’re 65?  Imagine for a minute you’re 85 and you travel back to view yourself right now and view yourself.  What would you think?  Wow, 60 was great!  My body was great!  Not a medical concern in the world, body felt good.  That moment with my wife, the walks, happy hour.  Time with my granddaughter.  Dinner with the family.

If you looked back at this moment – 20 years from now – what would you think and feel?  What would you be grateful for.  What would you tell yourself to do differently?

I was at home with my boys – 7 and 4.  It was dusk – sun just about to go down.  We were wrestling on the couch – we do a lot of that with two active boys – they love it, so do I.  As we were playing, a thought I saw something out of the corner of my eye.  Something outside the window. 

Do you ever get that feeling, every once in a while, somebody is watching. 

Probably was a reflection from a car passing by, but for a moment I thought- what if it was me, from the future, sneaking a peak of a special moment as my 85 year old self.  As weird as it sounds.  For a moment, that’s where my mind was.  At 85, wanting to go back to that moment, with 2 boys roughhousing, playing, wrestling. 

Be present in now.  Be mindful of small beauty. 

If you are in retirement or approaching retirement.  Know this next phase is not all about fireworks.  It’s not all about the big epic vacation. 

It’s about doing more of what you want, less of what you don’t.  It’s about making the most of those moments even the small ones.  And gratefulness and mindfulness can make that journey so much more enjoyable.

How can the perspective of an 85 year old change your mindset and your view of where you are now.  Of the challenges that you face of the beauty of day to day.  What would you tell yourself if 20 years from now you could go back in time.  What would you tell yourself to cherish, to value, to soak in.  What would you tell yourself to change, to move on from to not care about. 

Gratitude is a powerful force.

And that is the best thing I saw this week. 

Money Rundown:

Now for the Money Rundown

Our Money Rundown segment is where we cover recent news

There are a lot of media sources out there that are going to help give you updated information about the economy and the markets.

Our job is to help summarize and synthesize – help pick out a few stories that are most important for you, as a retiree or investor.

Joining us to today is financial advisor Steven Murphy – welcome Steven. 

STEVEN: Thanks, Scot. 

Story #1 – Debt ceiling resolution?

Earlier this month, the President and Republicans reached a deal to avoid a US default and resolved the debt ceiling risk. What are the biggest takeaways for investors and are there still lingering risks? 

SCOT: Oh, man, thanks, Steven. I mean, this is a huge story for a month or two going up to the
resolution, the debt ceiling and really thankful that it got resolved. It was scary at the time. But
like every time before, they fixed it, and they've resolved it.

The biggest takeaways are a few things.

Number one, there isn't going to be any more debt ceiling debate until 2025. That's
been deferred. The can's been kicked down the road. There was some small spending caps,
there was a clawback of COVID funds, some work requirements for government benefits, some
IRS cuts, and student loans are going to have to be repaid. Those are the biggest takeaways
from from the bill.

But the biggest takeaway today from investors now, is when we look at the
past debt ceiling issues, there was a lot of volatility around the stock market around that. And
the volatility continued after there was resolution. And the biggest reason was the downgrade
of US debt. So the thing we're keeping our eye on is there was a story recently in Reuters
about there being potential risk of us downgrade still, even after they kind of reached a
resolution. So it's something to keep an eye on. Is there are a potential downgrade in US debt
and how that could impact the market, how it could impact the economy? And how could impact
impact you as an investor.

STEVEN:  Story #2 – Treasury Secretary Janet Yellen testified before Congress this week and said the odds of recession have gone down and the Fed is no longer expecting a recession in 2023. 

SCOT: I thought this was an interesting story. Because the odds of recession have been pretty, pretty
significant for quite a while. But our technical models are showing that the technical indicators
in this market they've been improving. One of our longer term indicators went positive a couple
months ago, one of our more intermediate indicators from positive a couple of weeks ago. So
the technical indicators have been consistently improving. I know, Stephen, you run a number
of technical models as well. And things have been improving. So to hear from Treasury,
Secretary Yellen, that they don't think a recession is going to happen this year, I think it's kind
of aligned with what we're seeing from the technical side. But I think what's important to
remember as an investor is often the stock market can rally in advance of the fundamentals
improving, so the economy can get worse and yet the market can get -- can improve, and
sometimes it's hard for investors to remember.

STEVEN:  Story #3 – Morgan Stanley’s Mike Wilson warns about a renewed bear market.

Mike Wilson stated earlier this month that economic pressures are still mounting & are likely to “bust” corporate earnings. He added that a fed pause can re-awaken the bear. Wilson has maintained his bearish position despite the market having a strong start to the year and entering into a bull market, which many define as a 20% rally off of lows. This commentary from Wilson came before the latest FOMC meeting where they did in fact pause rates, as he predicted. The market did not react well but a light pullback is very different from a new bear market.

https://markets.businessinsider.com/news/stocks/bull-market-stock-outlook-recession-corporate-earnings-profits-morgan-stanley-2023-6

SCOT: Yeah, Mike Wilson. He was right all of last year. He was probably the most bearish of analysts
on Wall Street at calling the decline of 2022. But this year, he hasn't been right. And he's
acknowledged that and he thinks he's been a little late to the game and the markets had a
good strong rally S&P up double digits, NASDAQ up big bonds have been pretty flat. So he's
been pretty wrong this year. And yeah, he's stuck to the bullish thesis and he thinks that
earnings are going to come in worse than expected, that the public's going to be surprised by it
and that the markets going to see a decline. So Mike Wilson maintains his bearish stance
on the market and he is one of the more bearish analysts on Wall Street.

SCOT:  Story #4 – Earnings Breadth Improving

Jurrien Timmer of Fidelity put out a chart showing improving earnings breadth of the S&P 500. What does that mean? It is a measure of percentage of companies that are revising their earnings estimates positively. Three months ago only 27% of S&P 500 companies had rising earnings estimates for the following quarter. Now, it is up to 47%. Not perfect, but a growing improvement, especially as inflation continues to decrease.

https://twitter.com/timmerfidelity/status/1668354281542410273?s=42&t=0MwBnvW_YhbA4qrJRZPPiA

SCOT: Thanks for that info, Steven. Yeah, I mean, I think it is more fundamental reasons why this
market is moving higher. naysayers like Mike Wilson had been talking about earnings coming in
about earnings misses, and we just haven't seen that we haven't seen that. We're
not seeing the same level of growth in earnings that we've seen in prior years. But we're not
seeing the level of fall off that you might expect with rates where they are now. So it makes
you more bullish on the resilience of the market and the resilience of the economy increases
that likelihood of a potential soft landing, despite the Fed raising rates. We just have seen more
companies beating earnings expectations and more than we would we'd normally perspective.
And that view is in contrast to what Mike Wilson has been saying and give some ammunition to
the bulls in this market.

STEVEN:  Story #5 – More bullish historical data

Ryan Detrick tweeted out on June 12th a statistic showing the previous 15 times that when the S&P 500 reaches a new 52 week high after going without one for a year or more, 15 out of 15 times a year later the market was up and up more than 17% on average. We just hit that new 52 week high on June 12th.

SCOT: I saw that tweet from Ryan. And I thought it was compelling. I mean, the markets had a great
start to the year. And historically there's more and more data that's lining up that that makes
you more optimistic about the market moving forward from here the market continue to add to
gains doesn't mean there can't be some volatility in the short term. And it definitely doesn't
mean at all clear, when we look at the beginning of this year. Analysts were pretty divided on if
this market was going to go higher or lower, but really thought the market would be range
bound. And the market is pushed to the top of that range, and people have had to revise their
estimates of where the market is going from here. Why could it go higher, could go higher,
because there's still a lot of cash on the sidelines, a lot of liquidity, it could go lower if the Fed is
to keep raising interest rates to slow inflation. We saw that here this last week in the UK, they
raised interest rates as inflation they haven't been able to get a handle on it. So that's
something that we can continue to see volatility on. But there's no question there's more and
more technical data backing up the fact that we we likely are not retesting the lows of last
year, and we could potentially see new highs and and for us, it's one of the reasons why I've
been pivoting more and more to make sure we're getting exposure to that upside if the market
does recover, and for people that are that are still cautious about the market, you know, there
may be some strategies that you can employ to get some upside potential while still mitigating,
risk. And for us, you know, buffer ETFs buffered ETF strategies have been effective
for people that are cautiously wanting to get back in the market, get some exposure but still
have some volatility, risk and some risk management.

And that’s our Money Rundown for the week. 

And now…  it's time for Money with Murph.

Money with Murph:

STEVEN: Artificial intelligence is all the rage. With the hype initially created with the viral explosion of ChatGPT, it’s all we hear about and how it will change everyone’s lives in the coming years. If you follow earnings reports from various companies, seemingly every management team’s golden ticket to receiving an increase in their stock price was to simply talk about how they are utilizing AI, regardless of how the good or bad the company’s actual quarter was.

It's led many people to think that we may be in a “bubble” or a “mania” regarding stocks & AI. But does anyone ever truly know when we are within a bubble, regardless of what the topic is? Well, like many aspects of investing, history tends to be our best guide. We’ve seen plenty of bubbles & manias in the past decades, some larger than others. For example, the dot com bubble, the housing bubble, 3D printing stocks, cannabis companies, SPACs & the metaverse, just to name a few. Let’s take a look at some common characteristics that these past bubbles have had and if we may share some of those common traits now with artificial intelligence.

1.      Rapid stock price increases. Looking at some various companies that are considered leaders in the AI movement, this definitely would seem to be the case. Many have had extraordinary gains in very limited time.  

SCOT: We've seen huge gains in a number of companies tied to AI and he hit her in the head Murph. I
mean it's it is the rage people are talking about it. Companies are talking about I think there's
just no question. It's it's on everybody's mind. And CEOs have been using it to boost
stock prices by talkin about it. So, you know, the question is is, are we in an AI bubble?
Has the run up, we've seen in some of these companies been too much. And when you're
talking about common traits that you see, yeah, there's been a rapid stock price at a number of
these companies, a number of these businesses. So I think you got to be a little bit careful. The
thing to remember is sometimes that that bubble, that mania can last a while, right, it can go
on for quite a while. So you may be able to profit by some of that upside in some of these
companies, and what I think what could make sense is partnering, solid fundamental
investment analysis with companies that have exposure to AI. If you can find both of those, I
think you're in a good place. I think it's dangerous to be buying just companies just focused on
AI that don't have any other fundamentals behind that.

STEVEN: Totally agree, Scot.

2.      Speculation rather than actual methodology. Many times manias are created by what investors think may happen, rather than actual presentations of steps that companies will take and the value that will be created from those steps. 

SCOT: I think you got to be careful about companies with AI in the name that are rallying, but there's
no real fundamentals behind why that's, you know why that's the case. I think if they're, you
know, some of the big the biggest companies on Wall Street that have rallied some of the big
Fang names have rallied for good reason, because they have legit earnings. They have legit
growth capabilities and their price to earnings ratios may sit still seem reasonable. I think one
of the things to remember about P E ratios is sometimes it can get really stretched with
companies that have potential for growth. So what you're looking for, and companies like that
are not the same p e ratios you're going to see in an energy stock or a dividend stock. That's
not necessarily the metric that you're looking for. But I think I think what's different today than
what has been different in past bubbles, is you can find companies that have AI exposure and
have good fundamentals, and good prospects to grow legit existing businesses.

STEVEN:

3.      Media attention. Bubbles & manias need fuel for their fires and that fuel comes in the form of the media. They know that the next hot topic will draw viewer attention and in turn, it creates a self-fulfilling prophecy. More investors are drawn towards the topic and because of the influx of attention, it incentives the media companies to continue to promote it.

SCOT: I think one of the craziest things we see in media is the companies that CNBC and Fox Business
choose to cover. They cover the ones that are sexy, that are gonna get eyeballs, and not
always the ones that are necessarily the best investment companies. If you look at some of the
best companies over the past couple decades, as far as growth, you know, a well known little
pizza shop has way outperformed Amazon over the past 15 years. You know, there's an energy
drink company has been the best performer over the past two decades relative to some of
these tech firms. So definitely, you have to be careful. I'm usually really cautious and
pessimistic. Whenever the media gets a hold of something. Usually it's too late. I do think the AI
thing could have some further legs though. But you have to be careful with how much the
NASDAQ has run up. I mean, the NASDAQ's had a big year. So far, we're still off all time highs
for the NASDAQ for the S&P. So there's still room for potential growth. But I think if you can be a
great companies with that have exposure to AI growth potential, that might be your best
opportunity.

STEVEN:

4.      Herd mentality. This is in my opinion, the biggest one, this is the overarching 1000 foot view of mania and bubbles. This is where FOMO comes in a fear of missing out. Investors do not want to be the one that missed out on the next big thing. There is a lot of psychology when it comes to investing and many people would experience more pain by being left behind than the loss that the entire “herd” itself suffers. 

SCOT: Yeah, I think definitely FOMO is a real thing we see it with with people that bring us ideas all the
time, anytime there's been an investing mania, you've got people that are knocking on our
door talking about how they want to get into it. And a lot of times you're too late to the party,
what I would encourage you to think about is what are those best companies that are part of
this mania. And if you see ups and downs of the market, is there a better entry point to get into
some of those businesses. If they're great companies and great businesses like some of
those Fang stocks, you might not have an opportunity for a pullback. You might need to have a
longer term view but just know that what goes up quick can come down quick and well with any
one of these mania companies that I've seen over 20 years in this business in this industry, you
often have a better entry point. You think about the shift from to to non meat meat products,
you think about it A pot stocks, you think about crypto, you know, a lot of times you get this
mania and then there's been a much better buying opportunity down the road. And so that may
be the case here and keep your eyes open for opportunities, those great companies that you
like, there may be other better entry points along the way,

STEVEN: Perfectly said. So only time will tell if we are in a bubble regarding artificial intelligence. If you are considering investing into companies you believe will benefit from AI, do so with caution and understand that there is a huge amount of risk and can be significant volatility down the road.

…

SCOT: Great. And that's our Money with Murph segment. Steven, thank you so much. Great job.

Listener Questions:

And now for our listener questions –

if you want your questions answered during the show.  Go to our website retireEWO.com and click on ask a question. Steven, you got our first question?

STEVEN:  I do. Charlie in Huntington Beach asks - Is international investing more appealing now?  I’ve been mostly a US market kind of guy but wondering if I should have some international exposure.

SCOT: I've been getting this question a lot lately. Thanks, Charlie, for the question. I think
international investing for us is more appealing than it's been in a decade. If you look
historically, us investing versus international developed economy investing, US has
outperformed for the past 14 years. The last time international outperformed it was 2001
to 2008 and international did significantly better. So I think now may be a time again for
international International has been lagging significantly. And there may be a period of
outperformance so I think it does make sense to consider some of those developed
international markets again. Another driving force is the value of the dollar, which is fluctuated,
but it's about as high as it's been over the past 15 plus years, so that can be a driving force
helping international investing as well. So I think you want to reevaluate in your overall
portfolio over the past decade it has, it's made sense to really underweight your international
segment. But now it may make sense to have a more typical weight to international
investing and maybe even overweight to get some more upside potential if markets have
continued to improve.

SCOT: Alright, next question comes from Brian from Anaheim, Brian writes – I’m a teacher and part of CalSTRS. I’ve heard of windfall elimination provision – what does it mean and will it affect me?

STEVEN: Great question, Brian. Yep, so Windfall Elimination Provision commonly referred to as WEP,
that's what you'll hear it as it is a reduction in your own social security benefit due to non
covered pension work. So what does that mean in in plain English, so being a part of CalSTERS,
you will receive a pension. During your time as a teacher paying into CalSTERS, you did not
pay into Social Security. So Windfall Elimination will affect your own benefit. If you have at least
10 years of covered work. So covered work, meaning you worked in the private sector you paid
into Social Security, any employment that you've accumulated throughout your life, that adds
up to 10 years worth will give you a benefit at retirement, Windfall Elimination, will reduce that
amount. So keep in mind, when you get your Social Security statements in the mail, when you
start hitting age 60, they will say an amount, hypothetically, let's just say that amount is $700.
Now, keep in mind, that is not reflected of a WEP reduction. So don't necessarily bank on
getting that $700, Windfall Elimination Provision will lower that amount. So make sure if if
you're doing your financial plan yourself, or if you have a planner that's doing it, make sure
they're aware of this provision, and that the amount on your Social Security statement likely is
not going to be the amount that actually hits your bank account.

STEVEN:  Jim in Los Angeles asks - What about regular bonds?  Is it time to get out of short-term bonds for longer term? What happens if rates get cut in the future? 

SCOT: Jim, thanks for the question. Yeah, I think bonds are really interesting, safe money investing is
more appealing today than it's been in 20 years because interest rates are much higher than
they were a year ago. If you look at CDs and savings accounts, you're getting four to 5% versus
a year ago, you're getting paid less than 1%. So there's a lot more opportunities for a Safe Money
investor and bonds are one of them. A lot of people have piled into short duration bonds. But as
the Fed gets closer to saying enough is enough with raising rates intermediate and longer term
could become more appealing. You're not going to get a higher rate but you could get
potentially more appreciation potential, and I think the thing to remember as a short term, Safe
Money investor is what is your reinvestment risk. If you buy a one year CD, if you buy short
duration treasuries, and if the Fed cuts rates a year from now or two years from now, and
now you can only reinvest that at 2% or 1% how does that change your investment thesis?
And how does that play into your long term picture? So I think you need to start thinking about
having a more intermediate to longer term view about your bonds, you're not going to actually
make more money in yield. But you might get some appreciation potential if the Fed cuts rates
in the future, some appreciation potential and get some of those higher yielding instruments.

SCOT: Alright our next question comes from Terrance from San Juan Capistrano, Terrance writes – My 401K at work is invested in a target date fund for the year I plan to retire but I keep hearing negative things about them, are they bad?  

STEVEN: Terrance, great question. This target date funds in general are gonna be a little bit more
applicable no matter what account you have, in Tarrant his case, it's a 401k I think it'd be a 403
b 457, an IRA, a Roth IRA. It's just an investment selection, like, like any other stock or ETF. But
to your question of, are they bad, it's going to be relative to you. You're probably hearing
about a lot of the negativity about target date funds is that they probably are gonna be a little
bit too conservative as you approach retirement and go into retirement. So when you're, you
know, when you're 35-40 years old, a target date fund might have the equity exposure you
need to meet to meet your goals for your portfolio. But target the funds are notorious for
getting way too conservative, way too quickly. It's a common misconception, you know, I'm
approaching retirement. I'm not 25. I'm not 35 anymore, I need to be conservative, which there
is an element of truth to that. But you have to keep in mind, hypothetically, let's say you retire
at age 65, you still can have, there's a 50% chance you're gonna live till 90-95 years old, you
still have 30 more years of investment ahead of you. So you need to make sure that your
allocation, even though you're retired, is still going to meet your goals as you live to
90-95 years old. So that's probably where you're coming and hearing from some negativity
about target date funds, is they get way too conservative, way too quickly when you still have a
long time ahead of you for your investing journey.

SCOT: Steven, Let me chime in on that. You know, one of the other challenges with target funds, is
you have this more passive allocation that is not necessarily reflective of what's happening in
the market of economy today, they've been set up with giving you more equity exposure and
dialing down as you get older, increasing your bond exposure. But the question is in an
environment where interest rates went up last year, target funds got hit because you didn't
pivot to more short term bond allocation, you had a more passive bond allocation intermediate
and longer term was in there, even though we know the Fed was telling us they were going to
raise interest rates and bonds were going to get hit hard. Last year bonds down 15% worst year
for bonds in four years, that wasn't helpful. So you know, target date funds are really a blunt
instrument. And with anyone, there may be a more precise way of investing other than target
date, you could put together a list of those available strategies. Maybe you want to have more
exposure, exposure to US, more exposure to NASDAQ more exposure to international, maybe
the type of bonds you have, could be more laser focused to help optimize long term
performance. So I think the challenge with target date funds if you if you've got a little bit of
money, and you don't want to take the time to look at it. They can be an interesting
instrument, but they're really a blunt instrument. And there can be some ways to optimize
inside of those asset classes if you're willing to take the time.

STEVEN: Yep. Great point, Scot, and our final question is Angela from Minneapolis – Do you have any investing tips for this market?  Nice run up this year but will it last?

SCOT: That's a good question. I think this market is interesting. We have had a really good run up
already. And how much further can we go? We'll see we're still off the highs for all the major
indices, S&P, NASDAQ, we've seen the lion's share of the move in this market has been the top
10 stocks in the S&P, the bottom 490 have been kind of flat. Now we've seen some movement
in those bottom 490 stocks that makes us a little bit more optimistic. But strategies for
investing. I think number one, you want to look at buffered ETF strategies that could give you
upside potential with mitigating risk. You want to look at barrier ETF strategies that might be
able to give you a higher yield if you're willing to take on a little bit of risk. I think you want to
look at some of your individual stocks and individual sector selection to see where there might
be some opportunities to grow and some opera opportunities to catch up with the market as it's
gone higher. And then finally, you want to think about how does your investment philosophy fit
in the longer term and fit into your overall plan. If you're a younger investor with a lot of time
ahead of you, it might make sense to pile on some more risk and think for the long term. But if
you a retiree or close to retirement, it might make sense to evaluate some of
those more conservative strategies, considering that they're paying a higher, much higher yield
than they were likely paying a year ago. And there's more opportunities in that space for a
conservative investor. So those are some of my top tips for this environment.

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That’s our show for this week. If you want your questions answered during the show.  Go to our website: RetireEWO.com and click on “Ask a Question”. 

If you want to sit down and talk more about your situation one on one – go to our website and click on schedule a consult. We're happy to help. 

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We’ll see you next time where I’ll show you more how to retire with your eyes with open. 

Don’t go into retirement with your eyes closed, go in with your eyes wide open. I’m Scot Landborg, here with Steven Murphy – we'll see you soon!