Announcer:
It’s time now on KROS for Financial Focus, brought to you by NelsonCorp Wealth Management. The opinions voiced in this show are for general information only and are not intended to provide specific advice or recommendations for any individual. Any indices mentioned are unmanaged and cannot be invested into directly registered representatives securities offered through Cambridge Investment Research Inc. A broker dealer, member of FINRA, SIPC. Investment advisor representative. Cambridge Investment Research Advisors Inc. A registered investment advisor. Cambridge and NelsonCorp Wealth Management are not affiliated. Cambridge does not offer tax advice. Now, here’s today’s Financial Focus program.
Gary Determan:
Oh, we have David Nelson in studio. It’s been a while. April 2nd was the last time we saw David here in the studio. We got a lot of interesting things to talk about. First of all, one of your idols, Warren Buffett, the Oracle of Omaha, is stepping aside.
David Nelson:
Big news. I think a lot of people were surprised by this. I don’t know exactly. I can’t remember his age. He’s in his nineties and he’s done a remarkable job as far as out in Omaha and made people a whole bunch of money if they were patient and disciplined and hung with him. His performance in the early years were literally off the charts. As he got older, and the portfolio size got so much bigger, returns get harder as far as to generate, but he’s up pretty significantly year to date where a lot of other stuff isn’t, it’s either down or flat for the year. So he’s quite an individual as far as… You listen to him, as far as from just a principal’s perspective as far as just what he believes and his attitude towards life, his attitude towards money, and I seriously admire the gentleman.
His family, I believe, gets 1% as far as of his net worth. The other 99 is going to charity. He’s already donated billions of dollars as far as to charity. Many other wealthy people have done similar things and will continue to do similar things, but he’s just been a good example. He’s a person that bought a house eons ago and he still lives in it, so he’s never upgraded as far as the home, and just a very simple person that is really, really smart. His partner passed away a year or two ago, a business partner. He was either 99 or a hundred years old, literally, and was managing money to the Charlie Unger, and Charlie Munger was a really, really great individual as well.
And so yeah, it’ll be a big loss. There’s a gentleman that he basically appointed, give or take five years ago, was kind of handpicked by him, and he’s been kind of running the show and Warren’s been a part of it. But anyway, this person isn’t just a newbie. He’s an Iowan, which is kind of cool too. I like that fact. But anyway, yeah, he said it’s time and he’s again just been a perfect example for many individuals out there as far as understanding the importance of investing, the importance of patience, and as far as just from a very giving type individual, it’s going to be a big loss as far as to the world, let alone as far as to our industry.
Gary Determan:
Have you ever met him?
David Nelson:
I haven’t. I’ve been at gatherings as far as that he’s spoken at, but at the end of the day, have I face-to-face met him? The answer is no. I would’ve really liked to. I’ve been very lucky as far as to spend a little time with a lot of well-known individuals as far as just through my work as far as I’ve been able to do that. Presidents, secretaries of state, but not Warren Buffett. So anyway.
Gary Determan:
I did notice that when he had that news conference, he had a couple of cans of Coke. Was that product placement or what?
David Nelson:
Yes, exactly. Yeah, for whatever it’s worth, many people don’t know, but he invests in various companies, Coca-Cola being one of his long-time holds that he bought years and years ago and still owns a ton of it. Recent times, bought some Apple stock as well and did quite well as far as that sold out. But Dairy Queen, he owns Dairy Queen, so that’s one of them. He owns a lot of companies, just literally not investing in them, he owns the company like Apple and some of these other ones that he actually invests in. So again, I’m not saying anybody should go out and buy any of this stuff. So I got to get my disclaimer in here. I start identifying names of companies and whatever. But yeah, he’s a model example of what, in my opinion, a good human being looks like.
Gary Determan:
So he didn’t have a Blizzard in front of him, he just had the Coke.
David Nelson:
Yes.
Gary Determan:
It was interesting what he had to say about tariffs being a trade war.
David Nelson:
Yes. And again, a lot of people believe that. Some don’t. This kind of goes back to what’s taken place as far as in the Catholic Church, as far as some things that have been sent out and forwarded from the White House, that there was outrage by many as far as what took place showing Trump as far as with President Trump from again, basically looking like the bishop. Not the bishop-
Gary Determan:
The Pope.
David Nelson:
The Pope. Exactly. Sorry, the bishop’s the one that sent it out as far as locally here, and it was basically condemning that. So yeah, it’s a strange thing as far as what’s taking place with the tariffs. We’re hopeful that the outcome is good, but you’ve got a lot of pushback as far as coming from all the places around the globe. And again, maybe we need to do this, maybe we don’t. I’m not smart enough to know as far as what’s the right thing to do, not the right thing to do. I don’t know if anybody quite frankly is. I mean, there’s a lot of people yapping about it, but we’ll see as far as on the backside of this. We’ve certainly lost credibility as far as in many parts of the world. There’s other parts that it’s probably been a blessing. So again, that’s smart enough to know as far as what the outcome is going to be, but right now, we really haven’t seen much in the form of results as far as new deals being created and put together that is going to make this situation better.
Gary Determan:
You’re pretty smart, Dave.
David Nelson:
Yeah, well, in certain pockets. Thank you.
Gary Determan:
We had a little conversation before we went on air. The stocks were down and then they were up for about nine days.
David Nelson:
Yes.
Gary Determan:
And you were telling me it’s computer buying.
David Nelson:
Yeah, there’s a lot of trading that takes place as far as… So in some of the big complexes, whether it be hedge funds or mutual funds, what have you, where there’s a team of people that basically are making decisions as far as how to buy, when to buy, etc, etc. And what’s taken place, and I’m going to say probably over the last 20 years, but more probably in the last five years than we’ve seen ever, and that is computer trading. So let’s pretend for a minute I’m overseeing this big block of money of a hedge fund, and if I love this stock, this particular stock, and I won’t name a stock, but let’s say it’s ABC stock that I’m really in love with. But today it’s at a hundred dollars a share, but if it gets to 90 bucks a share, I want to buy that.
So what I do is I have a program that I load in and says, if it gets to 90 bucks, I want to buy and I want to buy this much of it, a hundred shares or a thousand shares or whatever the case may be. And so what takes place when you get situations like we’ve been in… So leading up to this nine days that you referenced, the market had been pretty consistently down, down, down, down, down. And so if you look at what are called sentiment indicators, which is stuff that we use as well, which is looking at the general views of corporations and individuals as far as are they optimistic about tomorrow or are they pessimistic? Well, during this period things were dropping significantly, and so people got very pessimistic. Well, once you get a whole bunch of people and a whole bunch of corporations as far as feeling really bad about stuff, generally that’s a pretty good time to buy.
That’s the Warren Buffett type approach. Buy when other people are running and vice versa. So when they’re afraid, you be aggressive and vice versa. And so he’s done really well as far as doing that. So the computer programs basically look at this type of data. We got to a certain point and so many of these programs kicked in and so the buy started taking place and you saw not millions, but billions and billions of dollars being pumped into the system in a relatively short period of time. And that was the nine days that you referenced.
Then the last couple days, we’ve had a couple down days. Well, those down days again come from, and this isn’t scientific, but this is generally as far as probably what is taking place, and that is it got to a point because the market moved up 10% in those nine days. You had a couple days where it was some selling that took place, which to try to cool things down a little bit a lot of people are saying, hey, I’ll take my profits and run. And that’s essentially what took place. So you had more sellers the last couple of days than buyers, and over that nine-day period you had a lot of buyers and not a lot of sellers.
Gary Determan:
The New York Stock Exchange has always intrigued me. I mean people on the floor, it looks so hectic.
David Nelson:
Yes, it is. It is chaotic down there and I’ve been blessed as far as to be able to do that. This is probably now 20 years ago, back when it was more individuals. Today you see a fraction of the people on the floor that you saw 20 years ago because a lot of it is being driven by computers from afar. But yeah, it’s remarkable as far as when you think about the system and you look at what we have in this country and a lot of it’s come from people believing in the country and investing in the company, in the country and companies.
And the bottom line is we’ve been the beneficiary of some really wonderful things. And so again, it’s exciting. I mean, I’m in a business that there is not a day that’s the same as the prior day and it’s always what’s going to happen today type thing as far as when you come into work. And so people look at the numbers and they also let their gut make some decisions. And so that’s always a challenge for us as well is to try to help people make logical decisions, not emotional decisions.
Gary Determan:
Before we take a break for the weather, I’ve seen you on the sideline coaching basketball and I know how involved you get. How much of a rush is it for you when you’ve had a good day at the office,
David Nelson:
As good as anything. It really is. And again, it comes back to we’ve had a whole bunch of people entrusting us with their tomorrows as far as financial tomorrows. And when things work, it’s a win-win. And so we basically are a fee-based operation and when clients succeed, we succeed with them. And when clients suffer, we suffer with them. And so yes, it’s exciting. And as I think I shared last time, we have been sitting heavily on the sidelines with a whole bunch of money, and that’s good timing, but yet the timing of getting back in is also very difficult. So we got a work cut out for us as far as going forward and trying to figure that out.
Gary Determan:
Great to have you in the studio. We’re going to go to the bottom of the hour. What are we going to talk about in the second half?
David Nelson:
Well, I want to get into taxes. I know it’s kind of a boring topic, we just got through tax season and whatever, but I want to drill down, not on how to fill out a tax return, but how different products can make your tomorrows better. If we can get Uncle Sam out of your pocket a little bit, and we’ll talk about a couple of those things as we come back.
Gary Determan:
Our weather brought to you by Addington Place.
Andrew Stutzky:
A more summer-like pattern expected for your Wednesday, more clouds in our skies too. And within those clouds, especially later this afternoon, the stray shower and thunderstorm will be possible as temperatures rise to the low 80s. A little bit cooler tonight. As skies begin to clear out, we will drop to the mid-40s. With your storm tracking weather impact forecast, I’m meteorologist Andrew Stutzky.
Gary Determan:
Right now we’re in the mid-60s looking to get to the upper 70s with fair skies and light winds. Our update brought to you by Addington Place. At Addington Place at Clinton, their all-inclusive memory care means peace of mind for families. No surprise fees, just compassionate personalized care. They provide twenty-four-hour nursing daily grooming and bathing assistance, secure outdoor recreation, engaging activities, and three freshly prepared meals a day, all included. With a blend of holistic and science-based approaches, they support seniors living with Alzheimer’s and other memory challenges in a safe, enriching environment. Call 563-219-7237 or visit addingtonplaceofclinton.com to schedule a tour. Addington Place of Clinton, where every moment matters. Going to continue now to the bottom of the hour with Dave Nelson. He wants to talk taxes.
David Nelson:
Yeah, boring subject. Sorry folks. But if you listen and listen intently, I think we can learn a few things together here. So I mean, big picture, what it is is getting folks to understand there’s essentially different tax brackets, and I think most people know that, but what I don’t think a lot of people get is the difference between ordinary income and capital gains rates. So ordinary income for probably the bulk of the listeners out there is probably neighborhood of 15%. So I work at an employer and I make X number of dollars. I’m coughing up so much, give or take. Let’s say 15% of that goes Uncle Sam. Or on the other hand, I’m retired and I have CDs as far as in the bank, and I made for the year 5,000 in interest from that, well, that’s defined as ordinary income as well. Again, tax that in my example here, a 15% bracket.
But if there was a way to define that as far as not as ordinary income, but have an investment that codes that and is able to code that in such a way that that’s a capital gain asset, the tax rate for those people that were in a 15% bracket for ordinary income, it’s a 0% rate for capital gain. If a person, married couple, 90 grand give or take and below. So let me get this straight, David. So I bought a stock, I sold the stock, I made 10 grand on it, that 10 grand put my income let’s say at 50,000 for the year. You’re telling me that gain would be taxed at 0% percent tax bracket? And that’s exactly right. So the key is, again, coming back to understanding ordinary income tax rates versus capital gain. So capital gain assets typically are something like stocks is probably the easiest example.
Capital gain could be from land. I bought land at a thousand bucks an acre and I sold it at 2000 bucks an acre and I had a capital gain of a thousand dollars per acre. That would be taxed for most individuals, again, at 90 grand and below and a married couple, that would be taxed at a 0% rate. And so again, most people just think that taxes are inevitable and tax rates are the same, blah, blah, blah. No, they’re not. And it’s important to understand as far as under current law that capital gains and ordinary income rates are different and they’re significantly different for most people that are out there listening right now. Now, if you have an income of a million dollars plus for the year, you’re not going to see as big a spread percentage wise, but if a person is give or take a hundred grand and below, you should be listening and paying attention to this because there are things that you can do as far as to shrink your tax liability, legally shrink your tax liability.
We’ve said it for years as far as people think that rich people don’t pay taxes. They do pay taxes, but oftentimes it’s at a lower rate. Warren Buffett’s a perfect example. We started out talking about him earlier. He likes to state that because his income comes from Berkshire Hathaway and it comes in the form of a capital gain or a dividend from that, that’s taxed at a much lower rate than, in his example, than his secretary is paying at an ordinary income rate. And it doesn’t seem right and it probably isn’t right, but it is legal. And at the end of the day, there’s a lot of people out there that are taking advantage of this. So we spend a lot of time talking to people about CD alternatives and saying the CD that most individuals own today is being taxed at, again, probably for many individuals out there, 15%, 20%, somewhere in that ballpark. That’s probably the bulk of the individuals out there.
But if I could convert that, have a similar type of investment as far as something safe and I don’t have to lay awake at night and worry about it, and I could have that taxed at a 0% rate or basically half what the ordinary income rate would be, I think there’d probably be a lot of people that would be interested in something like that. So it’s legal folks is I guess the point I’m trying to make. And I think we need to open up our eyes as far as to the reality of this and just not say, well, taxes are inevitable and I’m going to have to pay and whatever.
There are things that can be done to shrink your tax liability. And most people, again, are oblivious to that. And so we like to spend some time talking to people about it. I get it on the surface it’s confusing, but hang with and just realize that there’s two different levels and ordinary income is where most people find themselves. And I want to get you to understand that dividends and capital gain can be taxed at half the rate or even zero as far as for many individuals.
Gary Determan:
And visiting with Dave Nelson and NelsonCorp Wealth Management, of course you brought tax solutions on. Do they, say, refer you to somebody? Hey, maybe we can help this person out with their taxes?
David Nelson:
Yes, yes. It’s a big part of what we do and we call it… I mean, for years basically, people would come in, they work with me, okay, it’s the first time that we’ve met with them. And one of the questions that we would throw out is, how often is it that you get [inaudible 00:18:35] your financial people with your accounting people? And the response was always, they never have that I’m aware of. And I said, yeah, that’s the problem as far as with our industry. So that was the goal for the last give or take… Well, it started probably about year 10, and I finally got the job done about year 30, literally as far as to be able to bring it in-house. It was a very challenging and difficult task because of the rules and the regulations to have it under one roof. But we found a way to get the job done legally and to bring it in house was really, really important.
And now when individuals come into the accounting side, they know what to look for as far as to try to help people. And when they come into us and we go through some of this stuff, we’ve got to make sure that the accounting people know what they’re doing as far as on the back side to make sure that the pieces come together. So it’s a challenge. It’s a wonderful challenge. I love challenges and from the standpoint of helping people, in many situations, a fairly modest means have a little bit more take home pay than what they had the day before. And so again, open your eyes up to the opportunities that exist out there, folks, because there are many things that can be done legally to shrink your tax liabilities.
Gary Determan:
Well, we’re here in May. It’s not going to be long. It’s going to be summertime. How do you see summer of 2025?
David Nelson:
Yeah, well, from a market perspective, which is probably again where you’re going with this, this is always what people are interested in trying to decipher and break things down. What’s interesting, and we brought this up probably now a solid year ago, we start talking about the gap between the markets in the US versus the markets abroad. And we had charts that we show people, and it shows the US market over the last 15, 20 years, and it’s almost straight up. And then you look at the global market excluding the US in that, and you see a line pretty much moving sideways. And so the gap between investing in the US and abroad for the last, again, 15, 20 years has been an enormous spread between the two. Historically, that’s not [inaudible 00:20:51].
Well, part of it can be explained by technology stocks in the US. We have huge technology companies that have carried the market where if you look outside the US you don’t really have that. So that explains part of it. The other part of it that can be explained pretty easily is the dollar. The dollar’s been quite strong historically. Again, if you look over the last 15, 20 years, it’s been pretty strong and it’s been moving pretty much with an uptrend, not dramatic, but an uptrend. What’s happened over the last year or so when we start talking about this, that the dollar weakness is starting to show up here. And oh, by the way, we’re starting to see as far as international opportunities that look much more… The possibility of success is probably greater there than it is in the US and that’s certainly what’s unfolded.
So just an example, if you look at the global landscape year to date, you’re looking at plus 15% return. So if I had my money, I’m a US citizen, I’ve invested abroad, the dollar has dropped pretty significantly, and corporations around the globe are now being viewed as an opportunity. You put the two together and you find yourself up 15% give or take for the year. Whereas if you look in the US and we look at the major indexes in the US, what you see typically, whether it be the NASDAQ, the S&P or the Dow is either negative returns or very low returns.
And so it’s a big difference and an important difference that we’ve spoken about for a while, and I don’t think this thing’s going to turn on a dime tomorrow. I think that this is probably a sustainable thing. US stocks by pretty much all measurements are overvalued in comparison to a lot of the other opportunities, whether it be in emerging markets, whether it be in Europe, Japan, Australia, Canada, you name it outside the US. The dollar dropping in value translates into just immediate returns as far as abroad if you have your money abroad. So anyway, again, it’s looking for opportunities and being open-minded to them. And the last 20 years, it really hasn’t made a big difference. You want to keep your money in the states. Today, not so much. The opportunities outside the US are pretty amazing.
Gary Determan:
Always interesting to have you in studio. So how’s the rest of your day look?
David Nelson:
Real busy. I’ll be on TV a little later. I’ve got I think three, four meetings. Yeah, the Fed is going to telegraph as far as what’s taken place. So anytime the Fed talks we’re on CBS, and we’ll be chatting about that. And again, I think it’s a non-factor this time. My prediction is, we’ll see, it’s going to take place in a few hours here, but our prediction is no change. The Fed will just sit quietly on the sidelines. There’s just a lot of uncertainty, whether we’re going to go into a recession or whether we have inflation. I mean, try that on for size as far as if you’re the decision maker there. So we think they’ll be very quiet and not say much.
Gary Determan:
Thank you very much for coming in.
David Nelson:
Thanks, Gary.
Announcer:
Financial Focus is a production of NelsonCorp Wealth Management in Clinton and Davenport. The opinions voiced in the show are for general information only and are not intended to provide specific advice or recommendations for any individual. Any indices mentioned are unmanaged and cannot be invested into directly. Registered representatives securities offered through Cambridge Investment Research Inc. A broker dealer, member of FINRA, SIPC. Investment advisor representative. Cambridge Investment Research Advisors Inc. A registered investment advisor. Cambridge and NelsonCorp Wealth Management are not affiliated. Cambridge does not offer tax advice. For more information, visit our website at www.nelsoncorp.com.