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.
Gary Determan:
Well, it is the first Wednesday, so Dave Nelson in studio with me. Of course, we always begin things with a little small talk. Brian Peterson, of course, your nephew, big-time Division I basketball coach now. How’s he doing?
David Nelson:
He’s doing great. We’re going to see him … Dad’s turning 90, so we’re going to have a party for him on his birthday here coming up in right about a month. Brian will be back as far as for that. He’s been really busy. It’s a different world now for those that aren’t aware but, in the past, when you got a good athlete as far as recruited and they came to your school, there was a good chance they were going to stay the entire time as far as that school. Now, boy, it’s just chaos as far as people jumping from place to place. I think to drive home the point, it sounds like Deion Sanders, as far as in football, had all these guys come over and here, he took over a program that was just a doormat and now they took down, as far as three or four days ago, whatever it was, one of the big-time programs in the country. Again, the experts, for whatever it’s worth, said he was able to just pick some of these prime-time players that he was able to bring over and they made the difference as far as getting that W. Brian … I know this past season it was their best player ended up going to Nebraska. What’s … the Blue Jays?
Gary Determan:
Oh, Kansas.
David Nelson:
No.
Gary Determan:
Oh, Creighton.
David Nelson:
Creighton, Blue Jays, there you go, Creighton. That really was quite a blow as far as to lose your best player but, again, that program, as far as the amount of money … again, for those that don’t know, now, college players can get paid as far as for their likeness and all kinds of different ways to get around the rules and whatever but, bottom line, he was looking at … on the doorstep of seven figures and it’s hard to walk away from that. Up in the Dakotas, they just don’t have the appeal at this point yet as far as their program doesn’t have the … I guess from afar, as far as the companies willing to put out the money as far as for their program. Anyway, big picture, it’s a new battle that they have, but everybody has it so they have to go out, they’ve got to compete and it’s putting extra heat as far as on some of the smaller programs as far as to be able to track some of the better players and not just get whatever’s left.
Gary Determan:
Transfer portal and name, image, likeness, those are the two big things down in college sports. Certainly loyalty … you talk about that. I would imagine in your line of work, you have people that you’ve been loyal to for years.
David Nelson:
Sure. I had a conversation literally last night at 5:30. It started appointment with somebody up in Minnesota and they live in Savage, Minnesota, which is just south of the Twin Cities. We started trying to do the math and I didn’t have it in front of me but I’ve been at this 42 years and I think they’re with me, give or take, 39 to 40 years, right from the beginning. Loyalty is an important thing and it works both ways, as I discussed with them. As they’re laying compliments, the family had a pow-wow. Dad’s getting a little older and needs some help as far as some of this stuff, so a couple of kids were on as well and the compliments were coming my direction but, in return, the reality is that this was one of the early believers in me and subsequently, as I tell people, I went from looking about 10 or 12 to 40 overnight and here I’m 10, 12 years old, this guy’s looking at me and he says, “I’ll take a chance on you.” It’s been a great relationship that we’ve had.
Bottom line, loyalty is important and loyalty in the sports world … I don’t know if it exists anymore. It’s going to be a tough one. There’s so much money at stake. As I was coming in this morning, I was chatting with somebody just prior to coming up here and it was football, and how much football is demanding these days as far as the stations to show the games and what have you. The money that’s being thrown around in the football arena is just absolutely staggering, primarily college, but I guess pro is pretty significant, too, as far as what they’ve been demanding for years, but college is now demanding more and more.
Gary Determan:
The way the conferences are becoming now just super-conferences, the ACC taking on a couple more of the PAC-12 schools-
David Nelson:
Isn’t that something?
Gary Determan:
… It’s crazy.
David Nelson:
Isn’t that crazy? There was a piece in Wall Street Journal and I read it probably about two months ago, but I’ll give you the meat and potatoes as far as what came out of it. We hear about how much money the football programs generate for schools and how that then basically supports a lot of other sports. The Wall Street Journal looked at the top 20 schools and tore that concept apart. Said, “It’s not true.” The tuitions have gone up, what is it, in five years, 64%, at the top 20 schools, it’s gone up that much, and they’re saying that it’s … the sports programs are spending more than they bring in. Subsequently, we’re going after the other individuals.
It makes sense when you think about it. Your example is a good one. I talk to people in terms of the Big 10, UCLA out to Rutgers as far as in New York, for those that don’t know. Are you kidding me? This is … We’re going to send, what, a golf program, five golfers or whatever? Put them on a plane, fly them out there? Nothing against golf, I love golf, I play golf but it doesn’t generate a lot of money. There’s not a lot of revenue there. How about track? How about softball? How about a lot of these programs that really don’t generate anything?
It’s being reinforced now as far as with this, these massive conferences, as you said, and I think the number was … I think I have this right: that when UCLA and USC came to the Big 10, I think it was a hundred million that was promised to each one of those schools as far as coming into the conference. Staggering sums of money, but then you think about the staggering sums of money that it costs to maintain these programs and all the heads that are involved. Iowa, there was a piece on Channel Four news as far as this past week, I guess it was, and how many bodies it takes to set up as far as for a game day, as far as a home game, how many people are involved. I’m just talking about for the team, not in the stadium, just the team itself. Yikes.
I don’t know. The Journal … they tried to document everything and their conclusion was, “False.” I had heard years ago from the voice of the Hawks … I was playing golf with him and he made the point of saying, “People are on the coach’s, Kurt’s, back as far as what he’s getting paid, et cetera, et cetera,” I’m going back five years ago probably when this took place, and he said, “it brings in this much money,” and I think the number was 90 million, and he was getting paid whatever, I’m going to say three, five, I can’t remember the number now, but anyway, then all that extra money … Well, I guess there isn’t all that extra money when it’s all said and done, but that’s the top 20 programs. Iowa could be different, I don’t know, but the end result is it’s not generating what people have believed for a number of years and I was one of them.
Gary Determan:
Visiting with Dave Nelson. You brought up the Wall Street Journal. I’ve always found that to be an interesting paper because it’s not just all business. They expand to sports and other areas.
David Nelson:
They really have. They’ve done a nice job. If you go back 10 years ago, I would tell people … Nah, I’m lying, it’s probably more like 15 years ago. It was pretty much a waste of time for most individuals as far as to read. Today, as you said, there’s articles, and I would point people to IBD, Investor Business Daily, I thought that was the preferred newspaper as far as back in the day because, again, it didn’t just give you data. Anybody can say, “Well, John Deere’s stock was up a percent today.” Big deal. Is it something I should be considering as far as potentially going into this particular stock? Why? Give me some of the rationale, whatever. Now, they’re doing a much better job in that area. Investor Business Daily is very good about that.
The other thing they did that I really like is they spent a lot of time on just market direction. I think that that’s really key for many people. We call it the macro look, which is basically our approach. If you can get the macro call correct, it doesn’t really matter what you buy because, when the macro call is even close to being correct, most of the stocks are going to move in a similar direction: large, mid, small, international, domestic, doesn’t matter, they’re going to all move and sync, but it’s getting that call correct is what’s really difficult. What they did is they basically had a method that they believed was going to consistently get you in the right direction.
Again, nothing’s perfect, folks. I bring up all the time to clients as far as somebody takes a plane and they shove it into a big building again like we did in New York City years ago, all bets are off as far as that point in time. There’s nobody, there’s no system that can anticipate something like that, but throw that out of the equation, which is a rare event, and look at the facts. Again, they would look at the market, study the market and, again, find patterns that would historically work to get you in the right direction. Then, maybe you go an index, then, at that point in time and buy the Nasdaq or you buy the S&P 500, the Dow or whatever, and you can do quite well as far as with that. The Wall Street Journal has come around and they’re doing more of that type of stuff. As you said, it’s not just all business, they have a broad look at the world, share their opinions and, more often than not, it’s pretty valuable information.
Gary Determan:
Visiting with Dave Nelson. Before we take a break for the weather, you mentioned the Wall Street Journal. Is there a journalist or two that you like to read?
David Nelson:
Yeah. From the Wall Street Journal, not so much. As far as from Investor Business Daily, the answer is yes. I’ve got to be careful in how I word this too but, years ago, I had somebody wander in the door. They handed me a Money magazine and said, “Here’s what I want to do. Here, this person wrote about these particular [inaudible 00:11:20] mutual funds in that context,” and I said, “Do you understand as far as the author of this particular article that you’re referencing what their previous job was?” The answer was Popular Mechanics. They were a great writer, but they weren’t necessarily insightful as far as … Finding that combination is really difficult: somebody that gets finance but also understands how to write where people can understand and do something with it.
Gary Determan:
Popular Mechanics, very good. Check of the weather now being brought to you by Citizens First Bank.
Andrew Stutzke:
For your Wednesday. We’ll be tracking more clouds, a little bit more wind and much cooler temperatures. Highs today only in the mid to upper 70s. Tonight, partly cloudy down to the cool upper 50s and, for Thursday, mid 70s as some sunshine returns. With your WQAD Storm Track eight forecast, I’m meteorologist Andrew Stutzke.
Gary Determan:
Clear skies, west winds. We’ve made it to 73 degrees. Our update brought to you by Citizens First Bank.
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Gary Determan:
Well, it is the first Wednesday, so we’re going to go to the bottom of the hour live with Dave Nelson of NelsonCorp Wealth Management. What’s on schedule here the second act?
David Nelson:
Something really exciting.
Gary Determan:
It always is.
David Nelson:
It always is. It’s important and I want to bring it up. I’ve had numerous conversations with people in recent times. They’ve read articles talking about interest rates going up and as far as what impact that has on bonds and are we getting close? Should we be looking at buying some bonds? Like always, folks, I’m going to talk in very generic terms. I don’t want to go to jail. It’s really difficult in my line of work to have really direct conversations as far as in this type of forum. I could do that one-on-one with clients, but I got to be careful here, so bear with me. I want you to get the concept of this.
I use the term oftentimes as far as the way bonds work is like a teeter-totter. When interest rates go up, the value your bond goes down and vice versa. I started back in 1981 and, back in 1981, you could buy a bond, you could buy a CD that was paying 16%. Hard to believe, but it’s true, 16% back in the day. Then, we went for a period of time where it was pretty much a steady drop and let’s basically rewind things maybe two years ago. Two years ago, you’re pretty much looking at pretty close to zero as far as with that same money. 16% made its way down, not a straight line down, but it went down and, as interest rates went down, the value of your bond did what? It went up. It’s the other side of the teeter-totter. That was really, really good stuff. People were making all kinds of money as far as owning bonds in that environment.
Now, we’re in a different environment. This environment … basically, the Federal Reserve has intervened trying to slow down the economy. People say, “Well, why are they doing that?” Again, as simply as I can state this, the reason they’re doing that is inflation really is difficult for individuals across the board but, more specifically, it’s really hard on people on the low end as far as low-income earners, it’s really tough. The Fed’s trying to slow it down. Why did this happen in the first place, that interest rates, or that inflation took off as much as it did? That goes back to a lot of the COVID- type cures, and it goes back to ’07, ’08 cures, to that massive pullback that we had back then. If you don’t remember, the stock market, the S&P 500 dropped 58% in ’07, ’08, ’09, from peak to trough, 58%. The government intervened, put some money into the system to try to calm things down, try to keep people out spending money, keep the economy going. Probably a necessary thing. None of us know for certain, but I’ll say it was a necessary thing and it’s continued. It continued and it basically underneath created this inflation problem that we’re now dealing with.
The Federal Reserve the last couple of years has basically embarked on, “Hey, we’ve got to crush inflation,” and the way that historically that works is you raise interest rates to try to slow things down. Hopefully, by raising rates, it makes the average person out there less willing to go out and borrow money to do whatever, buy a new car, whatever, whatever, again, the goal being slowing it down. Well, it’s worked and things have slowed down a fair amount. The increases … if you don’t know, it’s north of 5%. We went from essentially zero to north of 5% as far as these increases. That’s been rough on certain asset classes.
I’ll give you a very specific number. This is a pool of long-term government bonds that, in 2022, last year, we’re down 31%. These are US guaranteed government bonds down 31% last year. The year before that, they were down five. This year, they’re down two. Again, you look at this, you’re saying, “40% of your money … if you had started say two and a half years ago, give or take, today, you’d have 40% less money than what you had.” That’s the long end, and that’s where lots of people, unfortunately, found themself and they were crushed.
Let’s go to the short end and then I’ll zip it and let you jump in here, Gary, if you want me to expand on something. If we look at the short end, so this would be one- to three-year government bonds, last year, when the long-term bonds were down 31%, short bonds were down 4%. You think there’s a difference in bonds? That’s one of the problems that we have when people generically start talking about bonds. There’s literally hundreds of thousands of different bonds that are out there today that a person could buy if they wanted to. Sorting through this mess is difficult as far as what bond do I want? What quality is it? What’s the maturity? How many more years is it out? What interest rates is it currently paying? What kind of shape is that particular county in that issued that bond? Those are really important variables as far as in making this decision.
There’s a massive difference, and I haven’t even gone to the corporate world, because the corporate bonds are now a whole different animal as well, that being that they’re not so sensitive to interest rate adjustments as they are to just the fear of this corporation not being able to pay its bills, in other words, maybe going out of business. You have that variable you have to bring in there, too. It’s a complicated world, and I think too often people generalize. It’s like, “What’d the market do today?” What market? What market are you referencing? The bond market is very much the same thing, except it’s more magnified because there’s hundreds of thousands, not just thousands, hundreds of thousands of bonds that are out there.
Gary Determan:
I did not realize that. That is information that is just mind-boggling.
David Nelson:
It is, and you just look at it locally here. How many bonds has the city of Clinton issued? Again, through the years. Most of these bonds aren’t a year or two years, they’re five-year, 20-year, 30-year type bonds. The University of Iowa, how many bonds have they issued through the years? Iowa State? Et cetera, et cetera. Just in the state of Iowa, there’s tens of thousands of bonds that are out there, cities, states, counties, et cetera, that have had bond referendums and, again, we’ve done it with schools as far as in town here. Is the city of Clinton good for the money? Should I buy this bond? Should I not buy this bond? Those are the tough decisions.
When we get in the bond arena periodically, again, people read articles that’ll talk about, “Well, when you buy a cluster like that, again, you’ve got less control and the bottom line is you could see the value of that investment go down,” and my response is, “Well, it owns bonds, so the bottom line is, at some point, those bonds are going to come due and we’ll see this ratcheting up.” It’s an illogical argument. On the surface, people try to back it up but I said, “Let’s say you’re even right. How do you make the decision on what bonds to own?” Again, a lot of these investment entities that are out there, they’ve got PhDs coming out their ears. I’m not saying these people make … every decision they make is right, but I’m saying they’ve got the time and they have the research and the resources as far as to try to investigate. I guarantee you one thing: they’re going to be right more than the average person on the street.
Again, it just comes back to a little common sense comes into play with buying any type of investment and we have to have a rational hat on, not our irrational hat or emotional hat on. It’s got to be a very thoughtful process that we go through as far as what we want to put in our portfolio because again, I’m dependent upon that decision basically yielding me some type of return during retirement and, if they go kaputsy, I’m in probably deep trouble at that point in time. The average person, my opinion, probably shouldn’t take that risk of buying a lot of individual issues on their own.
Gary Determan:
You mentioned portfolio and you always talk about diversity in that portfolio. How do you put together something like that?
David Nelson:
It’s tough and it’s not … You hear people talk about all the time that the benchmark for most individuals is 60/40: 60% stocks, 40% bonds and cash. That’s the starting spot as far as for most advisors. I don’t buy into that. It’s like individuals saying, “As I get older, I should own bonds.” I don’t quite get that. Again, understanding the risk with bonds and understanding the potential for return with bonds is pretty low. Again, when you lose 30%, as I described earlier, in one year in a long-term government bond, the yield on that, Gary, is 4%. 4%, 4%, 4%. Do the math. How long is it going to take as far as for me to get close to getting my money back? That’s what people don’t understand.
When you invest in bonds, and I’m saying for most individuals, they probably should have some bonds in their portfolio, it’s just a question of how much. Assembling that is tough. We have all the tools as far as that the industry basically brings to the table. I’ll use the one through the CFP board. It’s six … CFP, certified financial planner, so this is the crème la crème, folks, the best of the best, and it’s a six-question questionnaire. We slide it in front of you and you check the box as far as on what type of risk-taker you are. Those questions lead me to the exact answer that’s going to make you happy for the rest of your life. It’s just ridiculous as far as to think about that.
What we do is we start with how much pain can a person take? I take my arm and I put it behind my back and like somebody, the uncle, used to do, when do you say, “Uncle? At what point?” For most people, it’s 10 or 15%. Well, that questionnaire doesn’t give me that answer as far as to that. Oh, by the way, the other thing: if I hand you that questionnaire today and the market is exploding on the upside, you’re probably going to answer that questionnaire a little more aggressively than you probably would’ve otherwise. Vice versa, the market’s down 58%, I slide that sucker in front of you, you look at me and you say something like, “What, are you stupid or something? I want to bury my money in the backyard,” both of which is the exact wrong time.
We’ve got to get the emotion out of it, and that’s why it’s an ongoing relationship with people because today, you may feel good about investing and tomorrow, something happened and you may feel rotten about it. You have to have that coach that’s there to get you from A to B safely, to be there to hold your hand when needed and basically, to slap your hand at times and say, “No, you’re not going to do that.”
Gary Determan:
Here we are. Of course, it is September, so we’re getting into the last quarter of the year. Bring out the crystal ball. What do you think?
David Nelson:
We’re still cautious as far as this year. We have been. Again, for part of the year we’ve been wrong. Just put that out there. After last year, it’s a rough year, markets oftentimes rally back in an environment like that, but it’s a tough call. Generically, I’ll say as far as the market, if we hold on to what we have so far this year, I would be pretty happy as far as with that. I don’t know if everybody else would be, but I think that that’s reasonable as far as where we are today.
Looking outside the US is where most of the opportunities really lie. It’s just a question of at what point and what’s the dollar going to do? We’re big fans of certain investments globally. Again, I can’t go into any great detail here, I apologize, but I will say, generically speaking, look outside the US as well as the US. Don’t walk away from the US, I’m not saying that, I’m just saying that, in the rearview mirror, the US has been the exact place to be with almost no international exposure, which has basically been our position for six, seven years now. It’s starting to change in that regard, opportunities are starting to arise as far as globally. They’re not quite there yet, but we’re getting closer.
Gary Determan:
Always great to have you in studio. Thanks so much, Dave.
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 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. For more information, visit our website at www.NelsonCorp.com.