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 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.

Nate Kreinbrink:
Good morning, and welcome to this week’s Financial Focus brought to you each and every Wednesday morning right here on KROS. This is Nate. James joining me again today. We’re kind of talking on the drive up today, almost mid-January and almost 30 degrees out there today. It’s kind of a 30 to 40 degree difference as opposed to just a couple days ago, which is definitely a nice change of pace compared to what we started the year with, with weather.

James Nelson:
No doubt. I’ve got a birthday coming up and I’ve had some really cold birthdays, but this year looks to be pretty nice actually.

Nate Kreinbrink:
It was, and again, we were obviously pretty fortunate up until about the end of the year, just past Christmas, as far as temperature wise. No real white stuff on the ground, but obviously, as we all say, we are in Iowa. It happens every year. It doesn’t make it any easier, but I guess we’ll deal with it, and then I usually like to look at this type of stuff optimistically. As I said, we’re kind of halfway through January, we get to February, February is a short month. Then we hit March and then, you never know what you’re going to get in March, but at least you get through that January, February lull after you turn the calendar and then springtime is almost here.

James Nelson:
Well, and the days are getting longer, too, so that always helps.

Nate Kreinbrink:
Yes, it’s that the cold and the darkness is where it kind of drag on a little bit, but again, as we flip the calendar year, obviously in the financial world, there’s a lot of changes, a lot of topics that remain prevalent throughout most of 2021, and obviously continue into 2022. One of them is debt and in dealing with some of that, and we’ve heard a lot of it over the past few years about big increases in debt, whether it be government, corporations, households even, obviously have some increasing debt on their balance sheets. Maybe talk a little bit, James, as far as something that regular investors need to be worried about with this and how it impacts them.

James Nelson:
Yeah, and we are at pretty high levels of indebtedness compared to what history has shown. There’s been a lot of things that have kind of contributed to this. Certainly, the trend prior to the pandemic that we were spending and taking on a lot of debt as a country, but that really ramped up when COVID came around and all the stimulus that followed. Now, debt’s not necessarily a bad thing. Corporations use it all the time to refinance, to reduce payments or refinance when rates go lower. So, debt’s not a bad thing. They’ll also use debt to fund a project or fund expansion or whatever the case may be. So, the thing that we really look at as far as the investing world is the debt service ratio, and that looks at U.S. household incomes and compares the total debt payments a household has compared to their disposable income.

James Nelson:
A high ratio would suggest a large part of their income is just going to service debt. They’re just making car payments. They’re just making house payments, credit card payments, whatever the case may be, but what we find here is the debt service ratio is almost at all time low levels right now, and that seems backwards. Again, with what I just talked about, the stimulus money and just in general, it seems like we’re taking on more debt, but interest rates have a huge part of this. Interest rates at very low levels right now certainly contribute to this debt service ratio being low. And then, the other thing is that with a lot of these stimulus payments, I guess the good news has been a lot of credit card debt’s been taken care of.

James Nelson:
We’re at almost all time lows in the United States for credit card debt, which is another positive development, I guess, that a lot of those stimulus checks went to pay off some credit card debt. That’s certainly a good thing. To say that things are out of hand right now, it doesn’t look like it. Yes, we’ve taken on more debt as a country. Yes, the real estate market’s gone nuts and people are taking on larger mortgages, but a lot of this debt has been at very low interest rates. Again, showing that the debt service ratio is almost an all time low and very manageable, and that bodes well for the economy. It’s good for the stock market. That means more money can be spent on other things rather than just servicing debt.

Nate Kreinbrink:
Right, and I think one of the things that goes along with that, that we saw over the past year and a half or so, is just how people manage their current debt, and one of the main reasons with that was refinancing of houses and their mortgages. Again, taking advantage of those lower rates and again, there’s some additional costs that come along with refinancing, but when you compare your old mortgage to refinancing it to a new mortgage with those lower rates, oftentimes, people can come out ahead. And then there was staggering numbers, as far as the number of people that refinance current mortgages, just to take advantage of that. Again, by doing that, they lowered their, their monthly mortgage amount that they had to pay in which then again, allowed more money then freed up in their monthly budget in order to go spend it or put towards credit card debt or other debt that maybe had higher interest rates during that time. Again, using it to your advantage has also definitely been a benefit for a lot of people during this time.

James Nelson:
No doubt, and I think that’s really, the big story is, coming out of COVID here as far as the economy anyway, since 2020 is the consumer spending. Consumer spending’s driven all of this advance or a lot of this advance that we’ve seen the last year and a half, two years. Again, that just goes back to wages are up and interest rates being down. You talked about it being able to refinance and now free up a little bit more cash flow on a monthly basis to buy something else or to spend it elsewhere. Consumer spending, I think, has been phenomenal and a lot of that has to do with the low interest rates we’re dealing with.

Nate Kreinbrink:
And the planning aspect that we talk about all the time is, and the main question that we get from people when we sit down and say, “Hey, am I able to retire?” is well, how much do I need to have saved? Well, the whole flip side dynamic of that is, well, how much do you need? Again, if people are getting closer to retirement and able to knock off some of that debt that they thought they were maybe going to have to carry into retirement, taking advantage of some of these things, getting it knocked off before they even get to retirement is just putting them in a much better position as far as being able to make the decision, am I able to retire or not? And can I retire when I want to, or maybe even a little earlier?

James Nelson:
No doubt, no doubt. The other thing we wanted to touch on, too, is just maybe again, wrapping up 2021 and looking at 2022, has there been anything that really stands out to you, Nate, this year or this past year, that maybe hasn’t been touched on in the news as much as you would think?

Nate Kreinbrink:
I think one of the things that we see come up is just how people invest, and then again, you sit down with the common investor, they think it’s investing in stocks, individual positions, things like that. Obviously, the investing world has transitioned to mutual funds, which just kind of allow people to diversify a little bit, have a pool of specific areas where they have exposure to, but what we’ve seen this year is ETFs, and they’re Exchange Traded Funds, become a lot more popular for some of the benefits that they add above and beyond mutual funds is allowing investors to be able to trade intra day, intra day pricing. Whereas, mutual funds usually just trade at the end of the day at the close, so you can tie it into a little bit more specific price and allows people to trade a little bit easier with some of those things while still getting that diversification and still getting some of that spread out as far as, not necessarily an individual stock, and I think that will probably continue.

James Nelson:
Yeah, and ETFs, are very similar to the way that mutual funds are structured, where it’s a basket of investments where you’re not just buying one or two or five individual companies. You’re maybe getting exposure to a hundred, 200, 300 different investments. The trend has certainly been moving that way. ETFs have been around for 20 years, but the last five to 10 years, that’s really ramped up and just to see the amount of money that’s flown to ETFs has just been staggering. Anywhere on a given month, anywhere between 45 and a hundred billion dollars of new money going to ETFs is just staggering. That’s certainly the trend, and if it wasn’t for retirement plans, 401k plans specifically, ETFs would probably even a bigger piece of the share. Although, 401ks are still playing by the old rules where it’s primarily mutual funds, but outside of that world, ETFs have really gained a ton of traction.

Nate Kreinbrink:
Right, and I think it’s just people getting familiar with what options are available to you. Again, you mentioned that they’re not available inside of the majority of 401k plans, outside of it. If you have IRAs, just normal non-qualified investment accounts, Roth IRAs, you can actually have access to them if you’re able to do that, but again, understanding that again, it’s not changing necessarily how your money’s invested, it’s just the platform in which that money is invested in there, and the ability that you’re able to trade in that a little bit easier, and given the volatility that we’ve seen over the past year and a half, it’s been a good thing as far as the people that use active management and not buy and hold where they can actually look at it and be a little bit more specific on when they make those movements inside positions.

James Nelson:
Yeah. Nearly a trillion dollars of new money last year, that gets your attention.

Nate Kreinbrink:
That definitely gets your attention there as far as where it’s coming from, but all good things. Again, you have questions on any of this that we went over today, by all means, give us a call. I’d be happy to sit down with you and see what works. Did want to mention though, real quick, before we run out of time that every Friday NelsonCorp Wealth Management is wearing jeans for charity. Money raised in the month of January will be donated to the Synergy class murals project. As always, James, appreciate you joining me this morning.

James Nelson:
Absolutely.

Nate Kreinbrink:
Again, Nate and James with NelsonCorp Wealth Management, bringing you this week’s Financial Focus. Thanks for tuning in and have a great rest of your week.

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 representative securities offered through Cambridge Investment Research, Incorporated, 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.