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. Representative securities offered through Cambridge Investment Research Incorporated, a broker dealer, member of FINRA SIPC. Investment advisor, representative Cambridge Investment Research Advisors Incorporated, 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:
First Wednesday of the month. So we are going live. Good morning, Dave. How we doing?
David Nelson:
Good morning, Gary. I’m great. How about you?
Gary Determan:
Not too bad. I was waiting for the phone call. I was hoping maybe you might come in.
David Nelson:
I’m sorry about that. Yeah. I had someone walk in here and we got chatty and what have you and a couple of poor issues and I got a little carried away as far as the time. So I apologize.
Gary Determan:
That is okay. Of course. We always got to start out with a little basketball. Your nephew, of course, Brian Peterson, now an assistant at South Dakota State had a chance to be a part of the NCAA tournament. Have you talked to Brian at all?
David Nelson:
Actually, I have. I shared with him as far as just how exciting and what have you and what a nice privilege it is. For those that don’t know, we get into the NCAA tournaments pretty tough. And here we’re up in South Dakota. It’s relatively small school. He won obviously, but anyway, it was just really exciting and I shared with him, it was really unfortunate for those that know of him. Might already know, but his father passed away fairly recently. And so he was there as far as in early days, as far as working with him, as far as coaching him, what have you, and getting Brian to that level. And again, Brian went on to Kirkwood and played two years there, started, went out to Iowa State. Started as far as point guard, as far as with that team and then went on to coach back at Kirkwood and made his journey way up to South Dakota State.
David Nelson:
So it was exciting. I’m sure he felt that Dad not being there is certainly quite a loss, but his mother made, my sister, made her way over and watched him. I think it was in around New York someplace. I forget exactly. But yeah, he was excited about it and very, very great guy, just a great human being. And he cares about people. He’s pretty low keyed, relatively speaking as far as for the Nelson family. So it was just an exciting time to say the least.
Gary Determan:
Yeah. I knew his father very well. Mike was a year ahead of me in school at Clinton High School. He was a very good all around athlete and Brian was actually a lot like Mike. They were both sub 50 quarter milers, sub two minute half milers, just good all around athletes.
David Nelson:
Boy, I should say. Baseball, he liked golf, track. I mean, what sport couldn’t he excel in? And it was just terrific. Again, put it together and stuff like that. People talk about they’re blessed, a good athlete. Well, I don’t know many people that are just blessed and become an athlete by hoping for it, so he was in the trenches working hard to try to get to that level. And again, I think has pretty high expectations as far as what his future looks like. And he’s putting in the time, as far as an assistant. And again, this relationship he has with the head coach, I guess this guy is just really a wonderful individual as well.
David Nelson:
He’s very fortunate. His wife’s happy as far as up there. She works for a company down in the Cedar Rapids area. And with technology today, you can do that. I’m in the Dakotas, and yet I work for a company down here, and she does most of her work as far as via the computer. So yeah, it’s an exciting time. And I think he’s pretty pumped about next year. They’re not losing a bunch of people, so should be a successful season hopefully ahead.
Gary Determan:
That is great to hear. Yeah. It is amazing how you can just work from almost anywhere in the world today. Can’t you, David?
David Nelson:
Yes. It’s unbelievable. It’s made from our standpoint, a lot of people had to adjust to it as far as to make the shift and do the zoom meetings and things of that nature as far as these video type contact instead of a phone call. And from our standpoint, it’s been a blessing. We have clients in 40-plus states and a lot of them in the past, I mean, the agreement was that you come my way one year and I come your way the following year. With COVID, that was literally impossible as far as to do. So we got many of these people in the habit of this, and I think it’s going to make life easier for them. Certainly it’s going to make life easier for us as far as to be able to use some of that technology.
David Nelson:
Yeah, she’s doing it every single day. We’re probably doing it in the office every single day, but myself maybe every other week. I have a client that we link up with from somewhere. I’ve got one that right now as far as for some folks out in Utah, been a client for a long, long time. They used to live in the Carolinas and now they’re out there and we’re going to do a Zoom call. And again, it’s not as good as meeting face to face, but it’s pretty darn close.
Gary Determan:
That is amazing. Now, when you connect with these people, and again, as you mentioned in 40 different states, how often do you, is it just annually and what do you guys all go over, Dave?
David Nelson:
It depends on the individual, but as a general thumb, it’s at least twice a year. We’ve got one right now. We’re heading down to see as far as in the quad city area, he’s a dermatologist. And he works with four different people, and he’s trying to simplify his life, and it’s substantial. This is one of the highest net worth people that we’ll be working with. And so in a situation like that, it’s pretty much quarterly that we’re going to communicate as far as specific about their situation. What’s difficult today as far as in a situation like this, there’s so many different issues that you have to talk about. And so on the surface, most people think, well, these guys are in the investment business and that’s pretty much the extent of it.
David Nelson:
But in reality, it’s so much more complex. We’re talking about tax situations, as far as with them, we’re talking about, and that’s primarily income tax. In this situation, we’re going to be talking about Illinois death tax. He lives on the Illinois side. Illinois death tax, federal death tax if the two of them were to pass away. Don’t see that happening in the foreseeable future. But we never know. So they’re typically going to be an hour to two hour type session and with a pretty normal type situation where somebody worked for somebody else. They retired, they have a 401(k). They roll it over to an IRA. We talk taxes and we talk investments as far as the primary focus, as far as with a those individuals. And that too is, that would be twice a year as far as in a situation like that.
David Nelson:
Anybody can, we have a open door policy where good grief, you got a question as far as during the year, give us a buzz. We’re here to help. But generally speaking the twice a year people through time get tired of that. And they say, “Well, you’re going to make the decisions for us anyways. We don’t need to get together, blah, blah, blah, blah, blah.” Something to that effect. We’re saying, “No, no, no, no. We want to make sure we got everything current.” So we’re always checking beneficiaries.
David Nelson:
We had a situation with a physician in Chicago. We had a very short term relationship with him. It just started in recent times here. Long story short, this individual passed away, no spouse. Bottom line, we got headaches galore as far as … He had a revocable living trust, which I think a lot of probably folks out there have these days that are listening now. But he hadn’t funded it, which is a fancy way of saying change the ownership of the assets to the trust name. That basically avoids the probate process. That now saves a whole bunch of time and expense as far as on the backside, but he hadn’t gone through that. He forgot or something and it never got done. So now we’re in the midst of working with the ultimate beneficiaries of this, trying to sort through this as far as, we’ve got to jump through this hoop, jump through this hoop. And it’s in Cook County, which is just a disaster as far as the probate process there. It’s probably going to be, the best estimate from the attorney is 18 months before this estate will be close and finalized.
Gary Determan:
Oh my goodness.
David Nelson:
Just think about that. I mean, just the pain and the aggravation, and it’s primarily liquid assets. It’s not that they have a business that we have to unload, et cetera, et cetera, because he was a retired physician. So anyway, just a mess. And so again, we spend time not dwelling on the issues that can go wrong, but we dwell on stuff that people need to make sure that they get done. And this is just one example of there was a lot of stuff that didn’t get done that need to get done, and now there’s a mess for somebody else.
Gary Determan:
All right, we’re talking with Dave Nelson. That’ll conclude to the bottom of the hour, but right now we’re taking a break for the weather, brought to you by Air Control.
Andrew Stutzke:
Another decent round of rain falling overnight. And we’ll see a break in that rain this morning before more scattered showers work in for the afternoon. Still rather mild too, and the winds will be picking up. Could see those gusts approach 30 miles an hour this afternoon with highs near 55. For tonight, an evening shower or two giving way to mostly cloudy skies and windy conditions continuing with lows in the upper 30s. Sharply colder for the end of the week. Rain and showers by Thursday afternoon with highs only in the low 40s. Those low 40s will continue, but dry conditions resume for Friday with highs near 42. Feels like temperatures both days in the 30s. With your Storm Track 8 Forecast, I’m meteorologist Andrew Stutzke.
David Nelson:
Thank you, Andrew. Right now we have sunshine out there. 47 degrees. Our southwest winds up around 20 up miles per hour. This update brought to you by Air Control.
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Gary Determan:
This is Financial Focus, presented by NelsonCorp Wealth Management. First Wednesday, so we continue to the bottom of the hour with Dave Nelson. Well, Dave, to say things are volatile in the world would be an understatement. So how are you handling all of this?
David Nelson:
Well, it’s really sad, isn’t it? We did three different events recently as far as for clients and other people that again have some interest as far as that have shown some interest in possibly learning more of what we do. One was over the phone. We had, I forget we had people calling from … We’ve got a branch office as far as out in the Hawaii. So we had a few folks as far as calling from there. Most the people were from the basically the 48th phase as far as here. But anyway, long story short, that call went really, really well. And then we followed up as far as the next night. We had a little gathering up at Pastorelli, and we had one down at Biaggi’s down in Davenport. And I opened all of them with, unfortunately, our job is to focus on the financial impact that this can have as far as on the individuals that were in attendance, their net worth, their futures.
David Nelson:
And so I made it real clear up front that I recognized the pain that these people are going through and I’m so sympathetic as far as to what they’re going through. And again, I don’t know the answer. It’s way over my pay grade, but the bottom line is we wanted to focus on what impact is this going to have as far as on individuals. So we talked a lot about inflation. We talked a lot about the war that this horrible individual over in Russia has basically started. And again, at the end of the day, what’s it going to mean as far as to the individuals out there? And summarizing, I guess, an hour type presentation into the time we have remaining, basically centers around inflation is a much bigger issue than what people think.
David Nelson:
And as far as what’s taking place. So as far as markets are concerned is probably minimal as far as what’s about to take place. It was interesting yesterday late. One of the fed governors of the Federal Reserve, he’s no longer on that the committee, but he was for years. The last name is Dudley, and he was very vocal yesterday, which you rarely see as far as come out of individuals in that position that are now retired. They back off and they just quietly disappear, but he’s been pretty vocal as far as that we need to take this inflation issue more seriously in his opinion than what the politicians are doing and what the Federal Reserve is doing. His comment was and I’ll try to paraphrase here, but in a nutshell, he’s saying the Fed is going to have to get much more serious as far as raising rates and much quicker and much higher than what people believe, and subsequently what that’s going to mean as far as to the bond market, into the stock market.
David Nelson:
And he’s saying, we just basically touched the surface of the damage that’s going to be done as far as to the market. So if he’s right and I’m not saying he is. None of us know for certain what tomorrow’s going to look like. We’ve been advocating for quite some time that individuals need to be more aware and what impact this can have. And people we talk about a lot as far as it’s the late 70s, early 80s, since the last time we really had inflation. And again, the inflation back then, for those that don’t remember, you could waltz into the bank as far as when I started in 1981, and you could get 16% on a CD in the bank. You could get a long maturity CD for 16%. You could get a one year CD for 16%. Inflation was running.
David Nelson:
And we have clients that say those were in the good old days. But what they forget is inflation was that 13.5% back then. So you got 16 to the goods. So you made 16%. You throw 13 and a half back away because inflation is biting at your heels. Oh, and we forgot about taxes. So the taxes have to be factored in because the 16%, if you had it in a regular CD, you’re paying taxes on it. So these weren’t necessarily the great days that oftentimes people will referred to. But you look at today, Gary, it’s quite shocking. I mean, depending on what data you listen to, we’re somewhere north of 6% to 7%, maybe as high as 10% inflation today. Yet people, again, looking at CD type investments are looking at in the neighborhood of 1%, maybe one and a half percent, something like that.
David Nelson:
You’re digging yourself a hole. But as we shared with individuals there, a typical client that we work with today is sitting on probably no less than 35% as far as in cash type investments. So in other words, money market type investments. And the balance is going to be in some other type of stuff, some stocks, real estate, et cetera, et cetera. And you say, well, if cash is so bad, and it is, why do you have so much of your client’s money as far as in it? Because the cash doesn’t go down. Other than inflation, it doesn’t go down. As if we look at bond market as far as here today, and then I’m talking very generically. Again, talk about long term government bonds. If you had a dollar at the beginning of the year, today, you’re somewhere in the neighborhood of 90 cents. So in other words, 10% of your money has disappeared if you own long term government bonds generically.
David Nelson:
If you own intermediate terms for like a 10 year government bond, you’re only down 6% to 7% in that scenario. Now everybody I talk to that’s ever invested in government bonds, they don’t buy them to get rich. They buy them to preserve capital. In other words, the perception is and the belief is that again, these things don’t fall in front, but they do. And the reason I think people believe that, Gary, is if you think about it, since 1981, up until about two, three months ago, you had interest rates go from 16% to pretty close to zero. So the trend has been pretty much down. So we explained to people, bonds are not as complicated as people think, but the way they work is very similar, if you think of a teeter-totter.
David Nelson:
So when interest rates were dropping, one of the sides of the teeter-totter went down, the other side went up, and that’s what we’ve had. That’s what people have experienced since 1981. Interest rates have been trending down. The bonds that you owned not only did you get the interest rate that they quoted you, so 10%, 8%, 5%, 16% back in the day. On top of that, you were also getting capital appreciation because rates were dropping, but rates aren’t dropping anymore. And they’re probably not going to drop for quite some time. They’re probably trending up for quite some time. Translation, give or take for every 1%, move up, that interest rates go up, you’re going to lose roughly, and again, I’m talking very generically, somewhere between 7% and 10% of your principle in that environment.
David Nelson:
As we have shared with people for the last several years, interest rates are not going to continue trending down. And when they turned, there’s going to be a lot of shock. People out there, as far as the value their bonds are going to be going down. And people are going to be quite surprised as far as about it, because most people don’t believe that’s possible. If you look at your statement from say three months ago, and you look at it today, if you own government bonds, you’re going to see that those bonds are down and they’re down a lot more than you thought was possible. So that’s the bonds side. The other side. I mean, if you look at stocks, the stocks are impacted by interest rate as well. Initially when rates go up, people say, well, is it good news for the stock market when rates go up or is it bad news? And again, none of this stuff works exactly the same every go around.
David Nelson:
But again, as a broad base statement, that’s generally going to be the case when interest rates start, just start going up as far as … the theory is that you’re in a new cycle and things are pretty good, so we have to raise interest rates because the economy’s really working. And that type of environment, generally speaking is good for stocks. And I want to emphasize in the very early stages, if that continues and raise, get pushed up again and again and again, you’re going to see the stock market roll over in a big, big way.
David Nelson:
One last thing, Gary, and I’ll shut up here and let you jump in, but this is a really important point. The NASDAQ, if you go back and look say about a month ago now and this happened in about a month. So go back two months ago, take a shot a month later. And you saw that the NASDAQ which is primarily technology company, not exclusively, but primarily. That had dropped roughly 20% from peak to trough. And you had a lot of individual stocks that were down even greater amounts. Household names that were down even higher than that. But the index itself had dropped roughly 20%. Now, it’s rallied back a fair percentage of that, but we’re in the again, very early stages of these type of events.
David Nelson:
I go back to 07, 08, 09. That’s probably the one that’s the most vivid for most of the listeners out there, 2007, 2008, 2009. The S&P 500, which are 500 big companies in the U.S. Those 500 companies, that index went down almost 50% as far as an in 07, 08, and 09. It’s painful decline. Most of it took place in 08, the summit in early 09, and then the Mar market is basically rallied pretty significantly since. People need to be aware this isn’t just theory stuff. This is real stuff that can happen. And when we talk about one’s retirement and you’re taking distributions from your account and your account balance rolls over 10, 20, 30, 40%, that’s really going to be horrible. And that’s really going to be very difficult to ever recover from.
David Nelson:
So when we talked to a typical person that comes in the door, they say, “Well, what are your suggestions as far as in a situation like this?” We said you can got to understand what you own. That’s number one. And most people don’t. Then number two, you got to understand what the benefits are of that, because that’s typically all people dwell on, what can go right? But we like to dwell on what can go wrong.
David Nelson:
And I know that sounds crazy, but it’s true because nobody dislikes really good surprises. You know, oh, geez, I made 20% this year instead of 5%, I was expecting five. I made 20. Nobody’s unhappy with that. But when things roll over 20 and 30 and 40%, and they were expecting positive returns, those are really, really difficult to deal with. So we spent a lot of time talking about that. And again, my gut tells me one thing right now. We’re in the early stages of some really potentially really rough stuff. And when I say rough stuff, I don’t mean that in a positive way. I’m talking about this could get really, really ugly. And again, we just want people to be aware of it as far as that potentially exists. And it’s not a situation if it’s a 5% probability. We’re talking about high probabilities of a lot of additional downside momentum in the bond market and in the stock market.
Gary Determan:
Dave, we are out of time. We appreciate it so much. You take care now, okay?
David Nelson:
You as well. 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 Incorporated, a broker dealer, member of FINRA, SIPC. Investment advisor representative Cambridge Investment Research Advisors Incorporated, 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.