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 representative securities offered through Cambridge Investment Research Incorporated, a broker dealer, member 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.
Announcer:
We’re on the last Wednesday of 2020. We are going to go live and do the bottom of the hour with Dave Nelson. Good morning, Dave.
David Nelson:
Good morning, Gary. How you doing today?
Gary Determan:
Real good. Thank you. A little cold out there. Did you get all your shoveling done?
David Nelson:
Oh, mercy, wasn’t that something? I mean, anybody that’s been out knows as far as the weight of that last push that we had as far as kind of a slushy type thing. So, wow, don’t break your back. Yeah, it was a lot of work. How about you? Did you get yours done?
Gary Determan:
Well, I’m going to finish it up yet this morning when I get off the air, but I got to some of it last night. Hey, we’re going to get to what 2020 was all about. What a year, Dave.
David Nelson:
Yeah, it really was. I’m sympathetic to folks out there as far as going through… Again, this program primarily is focusing on financial planning and investing, et cetera. And so in that space, I really, really feel for people as far as, because it’s been an eventful year, a lot of people nervous obviously as March, April-ish, give or take, when the coronavirus was really in the early stages. And, well, hopefully people didn’t make too many bad decisions as far as regarding that.
David Nelson:
You hear cases all the time, Gary, as far as individuals that they hit the panic button at the wrong time. And then again, these are oftentimes decisions when they make them that they can’t reverse them quickly, just emotionally, they can’t reverse that. So out of line, they took a beating on the way down, and then they didn’t get some of the push as far as on the upside.
David Nelson:
So again, what we try to do with this, and certainly my goal today, is going to be to try to talk to the masses out there and in very generic terms, but to try to give them a little bit of a heads up of what we believe. We spend an enormous amount of money on independent research. Reading the future is very difficult, if not, people argue, impossible. But I think there’s clues that people can look to as far as to try to help them make better decisions. And again, whether they work with us or not, we want to try to help individuals out there make better decisions.
David Nelson:
As you may remember, Gary, and maybe a few of the listeners out there will remember, going back to ’07, 2007, we started talking about some bad stuff, as far as our tools were telling us, that was ahead. The Lord knows that we didn’t realize that the S&P would drop 58% in ’08 and ’09, but it did. The NASDAQ dropped over 80% during that period.
David Nelson:
And what we’re looking at today is certainly nothing in that realm. But what we are focused on is that in a very short period of time, just the last three months alone, the Dow, that people look at as the kind of the benchmark for the market, is up almost 12%. And so, again, these are unusual times and we don’t want people to get too giddy and make some dumb decisions.
David Nelson:
The flows going into mutual funds, into stocks, into ETFs are hitting all time highs over the last couple of weeks. And so, again, it’s just, these are indications oftentimes as far as an individual should probably not get caught up in that. I can expand a little bit more as far as some of those. But big picture, we want people to be cautious as far as this point in time.
Gary Determan:
And visiting with Dave Nelson. And on this last Wednesday, we are going to go live to the bottom of the hour. And again, next Wednesday, the first Wednesday of 2021, we’re going to go live once more with Dave Nelson. Now, Dave, you talked a little bit about emotions, and that really seems to play a part in what some people want to do, and then you need to guide them in what maybe they need to do.
David Nelson:
Yeah. And it’s a real hard thing because we’re all wired backwards. We really are. I mean, the flight, going back to the cave man days, as far as fire, it’s just your emotions kick in. And unfortunately, they’re difficult to control. And again, people start thinking really horrible things, and this is going to last forever, or it’s going to last forever going up too. It works the other way as well. I mean, that greed kicks in.
David Nelson:
So yeah, the challenge is to coach people in advance, to coach people as far as during the good days that there’s going to be some bad days coming before too, too long. And then in the bad days, to be there to hold the hand and say, “It’s going to be okay. We planned for this type of event, and this is actually creating a nice opportunity as far as for us.
David Nelson:
So again, not easy to do. I mean, the concept is simple. You hear people all the time, “Buy low, sell high.” Well, go out and try to do it. You got Apple up year-to-date, I mean, enormous percentage. I think it’s up over 80%. Again, not saying buy it. I’m just saying it’s an example of a company that’s gone up a lot. Has it gone up too much? And maybe it has. And you can go right down the whole list as far as all the companies out there that are up just massively as far as this year. And most of those are tied to the ability to use the technology to try to navigate through this coronavirus period that we find ourselves in.
David Nelson:
And so, again, I look at those type of situations, and I’m saying most individuals out there probably had some exposure to that via a mutual fund that they own, via an ETF that they own. So you don’t have to necessarily back up the truck and load up more. You probably already had exposure to that.
David Nelson:
And again, I go back to, I think one of the most basic things, Gary, that people struggle with is to try to find kind of the starting point and say, “What is it that you’re trying to accomplish?” And again, most people have never been challenged on that. We used to talk to people in terms of what rate of return would make you happy? And everybody would kind of jokingly say, “12% with very little downside.” And we’d have a really good chuckle and say, “Okay, let’s look at the facts.” And the facts are that stocks historically go up this percent, which again, depending on what period of time you’re looking at, it’s eight to twelve percent. Bonds historically paid three, four, five, six percent. And so you mush it together, and here’s what you’re going to get as far as an average.
David Nelson:
The problem is that nobody ever gets to the average because there is no average year. You have years where things are up substantially, then you have years that things are down substantially. And so, what people need to be able to do is to have that person in the corner with them, in my opinion.= At least, and you can say, “Well, it’s biased because this is what you do, and this is how you make your living,” But I truly believe it that most individuals, their emotions will at some point kick in, and they will make a costly decision that will take them years to recover from. And we don’t want that for individuals.
David Nelson:
And so the bottom line is, again, we use expensive tools to help us navigate through this. They’re not perfect, but they help people make better decisions, not great decisions necessarily, but better decisions.
Gary Determan:
I know, Dave, you’ve spent a lot of time in learning your trade. As a business manager, do you think sometimes you need a psychology minor to help these people out?
David Nelson:
Yeah, you really do. There’s just absolutely no getting around that as far as the reality. We actually have various people as far as in our company that have taken advanced courses in many of these different areas. I, last coursework that I did at the John Kennedy School of Government at Harvard was exactly what you just brought up, and that is capitalizing on other people’s mistakes.
David Nelson:
When you look at the stock market, what people forget is it’s just a big auction. You have buyers and you have sellers, and stock prices go up when you have more buyers, obviously, and they go down and when you have more sellers. So the whole concept behind this class, this is 20-some years ago, Gary, when I took this was to, again, capitalize on those mistakes. Because the masses, unfortunately, unfortunately, and I want to emphasize that, are going to let their emotions get in the way of making good decisions, good financial decisions.
David Nelson:
And so, what we need to do is we need to, again, prepare people in advance, and it can’t be a one-time thing. The ongoing education, is what’s so key. We do a lot of letters that we send out to people. We do this medium. We are on TV as far as on a regular basis. We do call ins as far as with people. When things get back to normal, whatever that is and whenever that is, we’re going to be doing more workshops as far as for individuals. Why? Because they have nothing better to do? No. They’ve got all kinds of things to do. But what people need is a refresher course on an ongoing basis to try to keep them current.
David Nelson:
So within our staff, yeah, we’ve got the CPA, the CFPs, we’ve got all of the technical people, but we also have individuals, one in particular from St. Ambrose that’s the retired professor down there. And this is his gig as far as coaching people and helping them make better decisions, not just relating to money, but better decisions. And he’s been so valuable as far as to many of our business clients, we actually have used him. A PhD, really, really great guy, and a great communicator as far as helping people grasp some of these concepts and be able to apply them.
Gary Determan:
Very interesting. We’re going to be taking our break here for the weather. But you had mentioned to me that interest rates is what we want to talk about, especially here now as we get into the second half of the program, right?
David Nelson:
Absolutely.
Gary Determan:
All right. Thank you very much. We’re going to take a break for the weather brought to you by Petersen Hagge Furniture, and then more with Dave Nelson.
Eric Sorenson:
A slushy concoction of ice and snow outside here for this morning. Now, the accumulation is pretty much done. A little drizzle to start the day, otherwise partly cloudy. Temperature is actually going to be falling as we head through the day. So if anything, we’ll get icier as the day goes on, so make sure you take care of the sidewalks, the driveways, that sort of thing.
Eric Sorenson:
As we head through the remainder of the day, falling into the 20s tonight, down to the teens. Pretty decent day tomorrow, partly cloudy. Setting the stage on Friday, though, for an ice and snow combo. Again, could be quite slick, especially as we ring in the new year. Our weather continues now, wqad.com. I’m StormTrack 8 meteorologist, Eric Sorenson.
Gary Determan:
Skies are overcast, temperature 29 degrees, west winds averaging better than 20 miles-per-hour. Our update brought to you by Petersen Hagge Furniture.
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Gary Determan:
Final Wednesday of 2020, and we are going live to the bottom of the hour with Dave Nelson. Interest rates, Dave, talk about that.
David Nelson:
Yeah. I’ve been asked as far as in looking in the rear-view mirror, it’s one of the most significant if not the most significant thing that’s happened as far as in 2020. Again, I’m getting out of the emotional side of it as far as the… and just the medical side, as far as the coronavirus because the impact that that has certainly had is just massive.
David Nelson:
But where I help people and try to bring value to the table is in the financial world. So I want to make that distinction, and I’m not trivializing anything as far as on the other side. I’m just trying to help people make better decisions. And when we look in the rear-view mirror, and we look at where we started the year as far as on the 10 year government bonds, what we see is that interest rates were roughly 2%. at the peak of this crisis that we went through, and we’re talking about roughly in the middle/end of March, that same 2% yield on that 10 year government bond was paying 0.3%. It had dropped 1.7%.
David Nelson:
And people say, again, “What’s the big deal?” The big deal is there’s been periods of time throughout history, look at the ’30s, the ’40s, and into the ’50s where we’ve had periods of time like now where interest rates were very low. And then you weigh in as far as inflation, and notice, I didn’t say taxes. I just said only inflation. If we factor in taxes, this news is even worse, folks. But when we look at the ’30s, the ’40s, the ’50s, if you started with a dollar as far as at the beginning of the ’30s, the middle of the ’50s, your dollar in a money market CD type investment, when you factor in inflation and the interest rate that you got, you were down significantly during that period.
David Nelson:
In other words, like today, today we’re just a hair under 1% on that 10 year bond, and you have inflation that’s running a little over 2%. This is a problem. This is a big problem. And it’s easy to ignore, and it’s easy to not even acknowledge as far as that it’s taking place.
David Nelson:
I want to give you an example. I’m going to bring everybody back to the year 2000, and then I’m going to fast forward to today. So during that 20 year period of time, if you put in a dollar, you factor in the interest rate that you got, then you take inflation out of the equation, you’re down 14% on safe investments. This is a big concern because the bulk of the listeners out there, I’m guessing, Gary, are very similar to the people that I work with, and they’re not big risk takers. In other words, they don’t want to put all their money into the stock market and hope that things work out. So they have a high percentage of their portfolio, of their investments, of their money, in these safe investments, whether they be money markets, CDs, short term government bonds, et cetera. All of which, if you started in 2000, today you have, what’s called real return, after inflation, you’re down 14%.
David Nelson:
Now, that’s looking in the rear-view mirror, so what’s the big deal? The big deal is the Federal Reserve has been very outspoken that they’re going to keep interest rates at these low levels for a long time. So translation, again, if inflation ticks up just a little bit, let’s say it just goes up to 3%, and you’re getting 0.1, 0.2, 0.3% on your money market type accounts, CDs pay maybe a half-a-percent, maybe 1% if you’re lucky, you’re losing ground. You’re losing purchasing power. And again, to put it in context, if you had a dollar at the beginning of the year, at the end of the year, you have less than a dollar. I mean, you just can’t afford to let this happen.
David Nelson:
The challenge becomes, in the old days, those portfolios that many of these people would have, let’s say again, just to keep it very simple, we put 50% in stocks and you put 50% in bonds and cash. So again, that would be fairly normal, as far as probably out there, Gary, a lot of individuals having that mix. So the stocks, we don’t know what they’re going to do. I mean, you could have years like now that you’re up north of 10%, and you can have years you’re down 20% or 30% or whatever.
David Nelson:
And then we go to the other 50% of the money that’s sitting in the money market accounts and things of this nature, those are paying individuals what? We just talked about it, point something, not one point something or two point something, but point something.
David Nelson:
So the challenge is is where are you going to get your returns as far as going forward? We spend a lot of time talking to people about risk and the risks day-by-day are increasing. The stock market has had a nice rally. Fortunately, we’ve been able to enjoy it, and I’m hoping most people out there have been able to enjoy it.
David Nelson:
But again, let’s not get ridiculous. Let’s not close her eyes and hope and pray that things work out. We need to strategically look at this and make sound financial decisions that will help preserve the money you have, and yet grow it incrementally. And the challenge is, again, in the olden days, you take the money out of stocks, and you put it into bonds and cash, and those bonds and cash today are paying basically nothing. So that’s the real challenge that folks face today, Gary.
David Nelson:
Again, my goal isn’t today to depress everybody, it’s just to hopefully open their eyes to reality that this is the world we’re in, and we’re probably going to be in for quite some time, so what are you going to do about that as far as your investments? And so, again, I don’t want people to come to the conclusion, “Well, I guess I won’t buy any bonds or cash. I’ll put it all into stock.” Not recommending that at all. What I am saying to people generically is that you need to understand what you own, and you need to understand as far as the environment we’re in and what is appropriate at this point in time.
Gary Determan:
Again, visiting with Dave Nelson. We’ve got about six, seven minutes left in the program. Dave will be live with us again next week, the first Wednesday of 2021. Dave, just quickly, what was your take on the year 2020? I mean, we had the pandemic that struck in March. As you pointed, the stock market is up, but what a year.
David Nelson:
What a year is right, Gary. When you look in the rear-view mirror, and you look at that event that took place from peak to the trough, so the top to the bottom intra year. So we’re talking about mostly in the tail end of February, March, April-ish that we had this substantial drop. So from the peak to the bottom, it was a 38% drop that took place as far as intra year this year.
David Nelson:
Now, if we fell asleep, and we ignored it, the bottom line is those individuals today, if they had it in just the stock market, if you will, those individuals are up double digits as far as year-to-date, so that’s the good news. The bad news is that, again, to live through that and the uncertainty of what was going to happen… I mean, if people try to pick themselves up and put them back in March, you had a lot of fear, not only at what’s taking place in the world as far as this event, as far as the pandemic, but you also had individuals looking at account balances and sweating big time. And so, it was a very challenging time.
David Nelson:
Now, again, we came out of it, and I keep going back to, and I know I sound like I’m 100 years old when I make this comment, but it is true, is had the federal government not intervened, and the Federal Reserve not intervened, where would we be today? Don’t have the exact numbers, but we’re talking about north of $10 trillion that has been pumped into our system. Then you look around the globe, as far as the trillions of dollars that other governments have put in the system, bottom line, it’s a lot of money.
David Nelson:
And again, I don’t want to sound like an old fuddy-duddy, but I’m a realist. And the realist says you can’t just print money and throw it into the system and expect there to be no ramifications on the backside. The example I use is going out and getting drunk and expecting not to have a hangover the next day. There’s going to be issues that we’re going to have to deal with.
David Nelson:
And that’s the coaching that I believe that’s imperative, as far as preparing people for the foreseeable future here to say there’s going to be the hangover, and the hangover is not going to be pleasant, and we’ve got to be prepared for that, and to try to, again, if anything, capitalize on that opportunity that’s going to come around the corner. Don’t know when exactly at this point, but bottom line, it’s going to happen. It always has, and it always will, and this is part of the price tag as far as investing where you’re going to look for higher rate of return than, say, a half-percent interest that I can get on a money market account and I don’t have to think about it.
David Nelson:
In the olden days, you could depend upon that. You could put your money in and get a CD at five, seven, ten percent, depending on the period of time we’re talking about, and you could do okay. But that’s not the world we’re in today. The world we’re in today, interest rates are a quarter to a half-percent as far as for the safe type stuff. And as I explained earlier, that safe stuff feels safe, but in reality, you’re losing purchasing power. You’re losing money over a period of time.
Gary Determan:
We just have a couple of minutes left, but this thought occurred to me. You talked about how things were in March and April when this first came about, but now you’re hearing about a surge upon a surge with the holidays. Sure, there is a vaccine, but it’s not getting out there as quickly as people had thought it would. So, I mean, how is this going to play into things as we go into 2021?
David Nelson:
Yeah, that’s the big guess at this point. All individuals today are feeling better because we know that there’s a vaccine coming. Our hope was that at this point… We have 20 million plus vials that have been sent out as far as within the United States, of which I think that most current numbers are more in two-and-a-half to 3 million range that’s been actually given to individuals. So there’s quite a gap there. And again, I’m not pointing fingers. I’m not smart enough to understand the system, but we’ve got to get it out there, and we’ve got to get it out there quickly to try to slow this down.
David Nelson:
But the uncertainty that you’re bringing up is real. And that uncertainty, depending on how people view that, will dictate as far as what the markets are going to do. The markets shockingly have basically looked past most of the bad news out there and anticipating and looking forward six to nine months, saying that things are going to be a lot better.
David Nelson:
I hope the stock market is right. But again, I wouldn’t be betting the ranch as far as on that, because as you say, we’ve got a different strain, which we hope the current vaccines will address and be able to handle. But at the end of the day, one of these things is if it can’t handle or doesn’t handle, all of a sudden, you’re going to see the stock market that was anticipating great news, turn upside-down in a minute. What we just went through in March and April will probably be surpassed the next go-around if that were the case.
David Nelson:
So we’re just old fuddy-duddies basically telling people, “Protect your capital to some degree. Have a game plan that you’ve assembled and put together.” And I’m going to talk about that next week, creating a financial plan and making sure that you stick to that. And that will help get you from A to B as safely as possible.
Gary Determan:
Very good. I know patience is a virtue, but with what we have been putting up for so long, patience may be for many starting to wear a little thin when you think.
David Nelson:
No question about it, Gary. Individuals out there, and again, we see it as far as just in our conversations with clients, but I just, I’m cautioning everybody as far as, again, from a dollars and cents standpoint, don’t assume the best case scenario. I don’t think you need to assume the worst case scenario. But certainly, the best case scenario is probably not going to happen, and if it doesn’t happen, as far as that way, we could see this thing turn sideways to down, and we want to protect the capital that people have enjoyed over the last probably three, four months. It’s been a big, big push.
Gary Determan:
As always, very interesting. Looking forward to visiting with you in the new year. Happy new year to you, Dave.
David Nelson:
You too, Gary, thank you very much, and all the listeners out there as well.
Announcer:
Financial Focus is a production of NelsonCorp Wealth Management in Clinton and Davenport. 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 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.