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 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 on this last day of July. Hard to believe it’s already to that point of the year. Tomorrow we flip the calendar to August and that means back to school, which for a lot of people listening is either a good thing or a bad thing depending on if you’re wanting to get the kids back into a schedule for kids. Teachers maybe not so excited for that part of it.

James Nelson:
Yeah. What happened in the summer?

Nate Kreinbrink:
Oh my goodness it went by fast.

James Nelson:
Feels like it just flew by. Nice last day of July. Can’t complain about temperatures. And yeah, it’s hard to believe the kids are going to be back to school in a couple of weeks.

Nate Kreinbrink:
And you look at the weather over the last couple of weeks, it’s kind of been highs to lows, to extreme heat, to cools up and the windows back open and a little chilly in the house this morning.

Nate Kreinbrink:
Being able to adapt. James and I were talking up here on the way up to the show today is being able to adapt to the markets and adapt to changes. Adapt to the volatility that’s been out there over the past, I mean, 12 months per se in the markets. It’s swinging up, it’s swinging down. Headline comes out, adjusts and then it re-corrects itself.

Nate Kreinbrink:
Interest rates is a big thing that has been in the news a lot over the past couple of months especially, as far as what the Fed is going to do. Are they going to raise them? Are they going to continue to lower them? They do have a meeting this afternoon where they’re going to release a another statement, which I think, again listening to the talk shows this morning, that’s all what everyone’s talking about as far as what is the Fed going to do? What’s that going to be looking like this afternoon?

James Nelson:
Yeah, and I think the markets already half priced and that the rates are going down, right? I mean people can say what they want. It sounds like rates are gonna go down a quarter percent and like you said, that announcement’s this afternoon. It’s hard to believe that we’re talking about that because just six to nine months ago, the Feds taking a position where they’re going to raise interest rates two or three times this year and then in very short amount of time they turn around and now we’re going to cut interest rates probably today and maybe one more time by the end of the year.

James Nelson:
It’s just crazy how quickly things change, and this is only the fifth time in the last 20 years that the Feds cut interest rates. So this isn’t a common thing, but it’s kind of turning into a common thing and that’s kind of the scary part for a lot of people just looking at the economics of this. It used to be kind of in their arsenal as a last option. “Hey, if we have to, we can cut interest rates to keep things moving along.” But now it’s becoming more of just standard practice. Hey, we raise rates, cut rates whenever we feel like and whatever the market looks like at this point in time, we want it to go this direction so we’re going to respond accordingly.

James Nelson:
So definitely some intervention coming in there from the Fed and that’s most likely gonna happen. We bring it up because the bond market affects the stock market and vice versa. So I think a lot of this has already priced in, but we’ll see. There might be some backlash here in the next week or two just responding to the Fed’s decision. But I think, as it stands right now, the markets have priced in a cut this afternoon.

Nate Kreinbrink:
Right. And I think, like you said, how does it affect the markets in general? Which I think is what a lot of people look at it as. And the general person as far as how their account is going to do and their 401ks, IRAs, other accounts that they have. But I think it’ll will be interesting to see what the market does because if you look at how it has performed over the last couple of weeks, it touched all time highs. It kind of fell back off a little bit, kind of hit a floor, and then it’s kind of just hovered in that little narrow range over the past week or so. I mean, for example, the S&P 500 has not went back down below 3000 and that’s kind of where it’s been hitting as its floor. So again, it’s starting to stabilize a little bit. Interest rates going down.

Nate Kreinbrink:
Does that mean there going to be more participation in the market, which could maybe potentially give it another bump? Is it going to affect it negatively? Again, that’s where we want to be able to adapt your portfolio. Again, we see a lot of times where people come in, they have their 401k accounts. We ask them how they’re allocated, how it’s been doing, and their normal answer is, “I just put money into it. I don’t even look at it. I don’t even know how it’s allocated”. So these effects in the market, they don’t even know how that is going to impact their account. Whether, again, whether it’s positively, negatively, however that’s going to work. So again, understanding how some of these decisions, not necessarily in the market itself, but interest rates and some of these other things affect your account. And again, being able to adapt to that on the fly is going to help it be more successful than what it is.

James Nelson:
And I think it’s also important to just kind of put things in perspective. The 10 year government bond, which is kind of the benchmark, it is the benchmark, is right around 2% in the United States. If you look abroad at Germany, Japan, those two specifically, they have negative interest rates on their 10 year government bond, which is just nuts. You’re locking in a guaranteed loss. You’re going to give the government your money for whatever period, 10 year period of time, and you’re going to get back, you’re guaranteed to get back, less than what you deposited and people are doing it. And it’s just amazing that we’re in this ultra ultra low interest rate environment and have been for quite some time, but our 2% on the 10 year government bond looks like a high yielding bond compared to the rest of the world, Europe and Japan specifically.

James Nelson:
So people want to complain about how low interest rates are. They are low. They’ve been low. But again, we still look pretty doggone good compared to the rest of the world. I think Italy is kind of in our ballpark too. They’re about one and a half on their 10 year, which again sounds like a high yielding bond compared to the rest of the world. So I think that really puts things in perspective and people need to understand when they own fixed income positions, just like stock positions, are they government bonds, are they corporate bonds? What do you own and where are they at? And that makes a huge difference when we’re talking about two and three percent spreads between our 10 year and a lot of the rest of the world.

Nate Kreinbrink:
Right. And I think too looking at the environment that we’re in. I mean you just mentioned the interest rates and that they are right now in the US, compared to what they were maybe five years ago as far as what they were paying, 10 years ago what they were paying. You look at stocks. We’re at all time highs. The market is overbought and so I mean they’re at overpriced prices to get into there. So again, where do we look at to get to returns? So I think a lot of times it’s just talking with people, understanding what ideal expectations should be as far as what returns are, given the hand that we’re dealt and the environment that we’re in right now.

Nate Kreinbrink:
It’s been a unique situation over the last couple of years as far as interest rates low, markets at all time highs. It’s just, okay, now where do we go as far as what risks do we want to take on and how greedy do you really want to get? Knowing that the riskier we get the more downside potential we’re going to bring into this. And I think people have gotten accustomed to looking at their 401k statement or their IRA statement, that’s on cruise control, where they’re getting eight to ten percent rate of returns year after year after year. And they’re coming to expect that and we’re not in that environment anymore. Where again, three, four, five percent, if we can hit that let’s just take it and move on to the next day. And realize that the risk reward and may be not necessarily what we want to do as far as what our accounts are at.

James Nelson:
Well and that’s a really good point and I think that goes hand in hand with the bond market. Nobody really has been too concerned about what their bonds are paying because stock market’s done so well the last 10 years. Once the stock market stops working, that’s where we really want to rely on those bonds. And now instead of paying three, four, or five percent, a lot of these bonds are paying between one and two. That’s where the rubber’s going to hit the road and people are going to start paying attention. Because again, if the stock market continues to work, continues to go up, so what if bonds are paying two or three percent but when the stock market eventually stops working, which it will at some point, we’re over 10 years into this bull market, the thing can’t run forever. Then I think are gonna start paying more attention to what markets are doing in general rather than just, “Oh yeah, the stock market’s up today.” Well it’s more than just the stock market, we’ve got the bond market and international markets, and a lot of other things to consider as well.

Nate Kreinbrink:
Right. And then all important things, and again, this is all just one part as far as the overall process that goes into it. I mean we’re specifically talking about allocation, bond, stocks, going into that one. It affects taxes a little bit as well, as far as capital gains, things along those lines, as far as where you’re going to go with your money, how that is going to be taxed with you. But again, it’s just big picture stuff that, if you’re not having these discussions, are we expecting everyone to be able to go out there and understand all these things?

Nate Kreinbrink:
Absolutely not, but I think people that have their 401ks, they’re putting money into it. They’re nearing retirement. It’s probably one of the biggest assets that they’re going to have next to cumulative social security benefits, things along those lines. But again, if we’ve been putting money into our 401k and again, it takes a big hit down, how is that going to impact you? Are you going to be able to to stomach that and to get through it or are you going to have to work another extra couple of years to get that built back up? And again, how these headlines, how the interest rates, how all this comes into play and how it’s going to affect your account.

James Nelson:
Yeah. If nothing else, the autopilot allocation is not going to work probably for much longer. It’s been great, if you’ve kind of just set it and forget it in recent years. But again, I think the biggest takeaway for us is people need to know what they own and need to be proactive about it because at some point you do need to be nimble and you’re going to have to get out of some positions and hide if you want to keep your portfolio in check.

Nate Kreinbrink:
Right. And I think, like you said, knowing that the autopilot that’s been getting great returns, where people come in and say, “Yeah, mine’s done really well and everything.” Well, what happens when it doesn’t? What happens when it turns over and it comes down. Or understanding that, “Hey, I’ve got an account over here that hasn’t done very well. I have my 401k account or whatever, that’s pretty much held solid.” But understanding that they’re not comparing apples to apples. The 401k account, you’re putting money into it constantly so it could lose a little bit. You put money into it. It’s still gonna look like it’s the account balance is staying the same compared to one over there. So again, when people are looking at accounts, understanding what we’re comparing, what they own, and how it’s going to adapt to it will help know what you have and how it’s going to move to the future.

James Nelson:
Yup, absolutely. Give us a call. If you have any questions we’d be happy to sit down with you.

Nate Kreinbrink:
Again, Nate and James with NelsonCorp Wealth Management bringing you this week’s Financial Focus. Thanks again 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 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 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.

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