Jim Niedelman:
Time now for this week’s For Your Money. David Nelson, CEO of NelsonCorp Wealth Management here. Nice to see you again, David.
David Nelson:
Thank you, Jim. Appreciate it.
Jim Niedelman:
We’re starting a new year and it will be 2020. You’ve shared your thoughts about next year with us in the past and recently. How about 2021 in the long view for the rest of the decade?
David Nelson:
Yes. So my favorite tool to try to make decisions as far as looking forward centers around a professor from Yale. His name is Dr. Schiller. And Dr. Schiller does a whole bunch of research and it’s very robust, but it’s-
Jim Niedelman:
Is that the same Schiller Index I wonder?
David Nelson:
Yes, exactly. Exactly. Schiller Index, exactly. So what he basically does in comparison to what Wall Street likes to do is he looks in the rear view mirror as far as looking at the last 10 years, what it’s done and projecting that now for the next 10 years. Historically if you get really good returns for 10 years, the next 10 years aren’t going to be so good. He goes through all the rationale, but the concept is what’s important. We’ve had a good last 10 years, so the next 10 years probably aren’t going to unfold as far as at the same level.
Jim Niedelman:
So as we talk about these things, how about bonds and other assets? What are the implications for those investment portfolios overall?
David Nelson:
Sure. So we’ve got a slide that will address a couple of the items here. So we’ve got stock returns by the decade and then I’ll hit the bonds real quick here. But what I wanted to show is just on the left here, we’ve got the by decade, some returns that haven’t been that fantastic. Over here they’ve been pretty good.
Jim Niedelman:
So these are more bearish returns we’ve seen?
David Nelson:
Exactly. Then in the middle here we’ve got the five to 12 which is what most people kind of perceive it to be. That’s where we were in 2010 through 2019. Anytime he had a fairly bad year, you typically followed up with a pretty good year, et cetera. Now getting into bonds, so bonds are a little easier to predict because again, you’ve got a dividend yield or a interest that’s being paid as far as on those with interest rates, somewhere in the vicinity of 2% as far as on a 10 year bond. If we were to look over a 10 year period, if you bought it today and you held it 10 years, we know we’re going to get a 2% rate of return. So much easier to predict than this. This could be all over the park. We’ve had decades for 15 and we have decades with negative five. Again, we’re hoping that it’s going to be pretty good, but based on the last 10 years it’s probably going to be a little softer as far as the next 10 year returns.
Jim Niedelman:
What can people at home watching do to navigate in this environment?
David Nelson:
Yeah, it’s really important to, again, I sound like a broken record. We always talk about assessing …
Jim Niedelman:
Well, drive home the point. That’s good, you know?
David Nelson:
Yes, exactly. It’s risk. It’s looking at the risk as far as what are you willing to put at risk? When I talk to clients, I ask them the question, as bizarre as this sounds, how much money are you giving me permission to lose for you on your behalf? It’s never been explained to people that way, but it’s important because they need to understand as far as how much risk they’re taking. A lot of people really underestimate as far as the risk they’re taking. Again, what we want to do is not depress people, but we want educate.
Jim Niedelman:
Well, people want to make money, of course, but they also have to be willing that might now make us much or …
David Nelson:
Exactly. Exactly.
Jim Niedelman:
… maybe in some cases lose from time to time as well.
David Nelson:
And when you have a decade like this people kind of get lulled to sleep and think that it’s easy and we just don’t want that.
Jim Niedelman:
It takes planning and a good advisor as well.
David Nelson:
Exactly.
Jim Niedelman:
David Nelson, with NelsonCorp Wealth Management, always great to have you.
David Nelson:
Thank you. I appreciate it.
Jim Niedelman:
Any of the discussion, we’ve got that for you online at OurQuadCities.com.