Unedited Script:

00:00 – Mark Struthers (Host)

Welcome to the Healthy and Wealthy Retirement, where your certified retirement counselor, mark Struthers, takes a holistic approach to retirement, going beyond finances and embracing holistic well-being. This YouTube channel will address everything you need for a healthier, a wealthier and a happier retirement. Here is your host, mark Struthers. 

00:23 – Mark Struthers (Host)

Welcome to the Healthy and Wealthy Retirement. My name is Mark Struthers. I am your host. Thank you for joining us. Excuse me as I recalibrate my outfit. Recalibration, recalibration, oh no, not again. It hurts so good, I don’t understand. Recalibration Is that from the 80s or 90s? Anyway, recalibrate was the word of the day at the Fed conference. Powell said it, I think. Nine times they lowered the Fed’s fund rate half a percent fairly big cut. They had raised it 11 times from March 2022 to July 2023, a total of 5% increases. We had been near zero. Cheap money had been the norm since the financial crisis Raised it to fight inflation. Inflation was out of control, you know. Maybe not Venezuela out of control, but it was pretty rough. You know what I think? We have a little montage. We’ll play the Powell he says it better than I do the recalibration. 

01:28 – Mark Struthers (Host)

Maintain this recalibration of our policy stance. It’s a process of recalibrating to recalibrate. We’re recalibrating policy, recalibration of our policy, and begin to recalibrate, recalibrating it. We’re recalibrating our policy over time. 

01:43 – Mark Struthers (Host)

And as we look forward, and because we want you to have a healthy and wealthy retirement, we have four things for you to recalibrate. Number one mindset. Your mindset should be changing a little bit. The fear of runaway inflation should be really over Now. We don’t know for sure, especially when you’re talking about external shocks, when you think about a 9-11, when you think about you know before my time the 70s of the oil embargo, late 60s to 70s or other geopolitical stuff. You know those, or COVID. Those are things where you really tough to plan, for we have to plan with what you know. Mindset is inflation is probably done. You could probably think about at least runaway inflation. 

02:34

Think in terms of 2% to 3%. The idea that we are at least higher for longer than we used to be, than we’re used to, kind of more longer term normal, not the last 10, 15, 20 years normal, but before that 3% is not horribly unusual, especially since we’re on-shoring. I know it’s a source of kind of political debate, but if we’re on-shoring we’re probably looking at a little bit higher inflation there as well. So think in terms of 2% or 3%. I’m glad the Fed did not wait until exactly 2%. I found that philosophy the perfect being the enemy of the good. The idea that we can’t have a healthy economy, job market and stock market and bond market with 3% inflation, especially if it’s declining some so think 2.5%. I think also a widespread recession is probably off the table. I think a slowdown is still possible. I would say if the probability I don’t think the probability is kind of towards the norm, because there’s always a possibility for recession, but I’d say it’s even a little bit higher. I don’t think it’s great, but just because it’s so tough and we’ll put up the slide here it’s so tough to have a soft landing. 

03:49

I think this graph goes back 40 years. I think it’s one time so and it makes sense Given the nature of this, there’s just no free lunch. There’s good and bad. You can’t have the good times without some bad. So the odds of a soft landing are low. But, that being said, I think if you were thinking in terms of probability, think in terms of lower inflation, lower cost of money, and that a severe recession is probably off the table. 

04:21

The idea that we maybe still have some rolling recessions you know the tech industry saw theirs. They handled it really well. They’ll downsize. You also have some rolling recessions. You know the tech industry saw theirs. They handled it really well. They’ll downsize. Not fun if you’re a tech employee, not fun at all. And that’s again that’s why financial planning is so important is that you are preparing for some of those worst case scenarios, not just to live through them but maybe even take advantage of them where you can buy some of those tech stocks when they’re done, but overall, showing us what the soft landing looks like. So overall, soft landing is probably on the table. I think you really have to plan that way. Maybe in some ways, maybe you think about planning a little bit on the margins for a harder landing, maybe a higher, depending on your industry, higher emergency fund, maybe you know, given fixed income does pay more. Maybe you overweight that, but make sure you’re in a position to take advantage of some of the growth. 

05:20

That brings me to number two, your portfolio. The biggest change is fixed income Hiding out on what they call the lower end of the curve. So the short duration cash like zero to two years where you’re getting 5%, those days are numbered. Zero to two years where you’re getting 5%, those days are numbered. I saw some short duration ETFs that are still yielding four to four and a half percent and I’m getting some clients out of those and I’m leaving before that goes away because I want to lock in some things that are maybe further down the yield curve. 

05:51

The best time to do it was probably a month ago, and we started doing this two or three months ago is to do it before it happens. But it’s probably better to give up some of that 5% yield, knowing that it’s going to expire and you’re going to have reinvestment risk and that’s the key word, reinvestment risk. So you might still own. You might’ve bought a bond two years ago. A two-year bond yielding five has another year to go. Now, depending on your use for that money, it might be worth it to hang on to it for another year. But do you want to reinvest that at 1% and we don’t know, depending on how long down the yield curve, how long you want to lock up your money for that might be a good or bad thing. Or do you want to, say, buy a three to four year percent bond, maybe going out to 10 years, because that might suit? 

06:48

If you’re looking for a ballast during a recession or depression, it might be a good time to do that ballast during a recession or depression. It might be a good time to do that. You know you can’t time the top or bottom of anything, but yields are probably still going lower. You know now I know the Fed has the biggest impact on the short end of the curve, the long end. There’s lots of different factors there and the 10-year could go a little bit higher. But I think the error is on the downside. I’d rather, if I’m a retiree and I’m concerned about something that’s going to really act as a ballast and give me some income as I’m in retirement, I think I’d rather, you know, I’d rather give up a little of that short term stuff to be safer in case something does happen. And we’ll show a yield curve slide here. And we’ll show a yield curve slide here. So, as you can see, one is from recently here I think we pulled this right after the chairman spoke and one is from a year ago. 

07:47

So most people when they think about an inverted yield curve, they think about the 2 and 10. And you can see here, a year ago it was inverted, meaning you were, excuse me, inverted but you paid more to loan the government money two years than for 10 years. Normally that’s reversed, an invert, if that’s a word, and it makes sense. If you’re loaning someone money for 10 years, you’re giving up the use of your money longer. You want to be rewarded more for that longer, for giving up that money longer, not have the use of it. So that is probably changing. So definitely the short end is coming down. You know, as far as getting out in the 10 year, and you can see here that the more current curve and some of this happened in anticipation. 

08:29

The nice thing about the free markets is that people and sometimes they’re wrong. You know, sometimes people guess and they’re wrong Sometimes. If the Fed had come out with something different, or especially if they had raised, you would have seen something dramatically different happen. But the market often tries to anticipate these things for right and wrong. So right now you can see here from the 2 and 10, it’s it’s uh, uninverted slightly, but that’s still there. And then if you go out further than the 10, you can see that’s even higher. 

09:00

Now in the very short end you’re still seeing some yields that are quite high, you know, and again you can find that with some, some ETFs that invest in short, short dated maturity bonds that that are still there. You could still take advantage of those. And if it’s kind of an emergency fund and something you’re going to need right away, by all means do it. But if it’s something where you might not need it for a year or two maybe because quite often we don’t tap our emergency funds right away but especially the fixed income portion of your portfolio it might be time to give up that 4 and a half to 5% yield to lock in yields higher, because you’ll be better off longer term. Will you be better off over the next six to 12 months? Probably not, but longer periods you will. So the cash hiding out in cash, that high cash rates, the short end, short maturity stuff those high yields are probably going away. End, short of maturity stuff those high yields are probably going away. 

09:54

For equities, you could think in terms of that’s pretty good. The equity market for good and bad. It doesn’t fight the Fed. Usually the Fed always wins. It’s BFE, big Fed, energy, some best sectors that do well. 

10:10

Consumer discretionary is one that comes up. We had a blog post where that was mentioned. After we did it I kind of went in and tweaked it a little bit, saying I think the consumer is stretched, I think consumer discretionary, maybe at the very high end, could start doing well. I’m a little more concerned about consumer discretionary at the mid to low end. Just because the consumer is a lot more stretched than it was two or three years ago, people are still kind of hurting from inflation because prices haven’t come down. Decreased inflation means things just don’t go up as quickly. But the idea that one of my sons loves steak, the idea that steak is going to price cut in half I think it seems like it was just two years ago. I don’t think that’s going to happen. I hope it does knock on wood but it’s consuming. Discretionary concerns me. 

11:02

But you can think in terms of other parts of the market like, say, industrials or small or mid. They benefit from cheaper borrowing costs and those parts of the market also, from a fundamental standpoint meaning valuation and or earnings growth look a lot better. So if rates stay low and the economy stays good, those probably should do better than some of the momentum stocks and large growth often are their momentum plays. So it’s the mood of the market and as far as kind of a shorter term not even short to intermediate term, because it is tough to deny that momentum is a thing. We tend to get caught up with stuff and sometimes that momentum can last until it’s actually true in some cases, you know. So momentum I’m not knocking momentum investing but it is often more of a short term, more gambling-ish type thing. But the broadening out of the market is probably going to happen. 

11:59

It’s not that these tech companies are bad. It’s just that they’ve been kind of priced to perfection to some degree, meaning the earnings growth there relative to the price you’re paying for those earnings and earnings growth just aren’t as attractive as these other parts of the market. Now that’s been going on for some time and if we have another AI boom or AI frenzy, you know, and that’s where even the market was kind of punishing some of these firms because it’s concerned, it’s concerned about, you know, when are we going to see a profit for all this AI investment, you know? And so I think you’re going to see that. I think that a couple of main takeaways are you really do need to think in terms of rebalancing and your asset allocation relative to your goals and your risk return profile If you have all your money in a few handful in the BitMAX 7, big tech and you’re planning on those funds for a long retirement, I’d be a little concerned, not that they would do bad, but we’ve seen cases where some asset classes have had lost decades, not because they did anything, even like companies like Walmart, not because they did anything wrong. People got excited about them. They bid up the price of them to where it could take a decade for Walmart to grow into what was already priced in. And Walmart executed. They did what they were supposed to, but the stock could not grow very much. It would be flat. So in the shorter term, the market is often a voting mechanism. Longer term, it’s a weighing mechanism and I think you definitely need to. 

13:31

It’s a good time, with the markets being near all-time highs for most asset classes. It’s a good time to rebalance. Say you know what? I’m going to take some of that profit. I’m going to look at international emerging markets and diversify. So rebalance, diversify, revisit your asset allocation. Also, it might be a good time to look at your income sources. Ideally, income, especially retirement, should be total return, but often it’s some combination of having dividend or interest payments. So, looking at your fixed income, looking to see if dividend-paying stocks are attractive. Some were hurt because some of these dividend stocks were bid up, meaning they got expensive because yields were so low years ago, years ago. Well, if those were beaten down because why would I buy a risky stock that pays two or three percent when I can buy a five-year risk-free treasury, two-year treasury at five percent? So that might change. I mean, I don’t think the dividend yield should wag the investing dog, but now might be a good time to revisit some of those dividend sectors and, as I mentioned, some sectors might benefit from the cost of capital. 

14:39

Lastly, we’re going to talk about mortgage use of debt. So mortgage rates dropped kind of in anticipation of this. Mortgage rates are more tied to the 10-year treasury than they are where the Fed has most impact in the short term, but they went down. I think the error is probably on the downside. I think you could argue that there is some. There is some decent argument that the 10-year treasury should be at least a little bit higher, but you’re seeing the cost of debt to go down. 

15:07

If you were thinking about moving and refinancing, now might be a good time. At least get your ducks in a row buying a home. Most of the time people move and we have a slide up when it’s either diamonds, diapers, degrees, divorce and death. So the five D’s. And that’s why people weren’t moving or they, they wouldn’t move unless they had to, because they didn’t want to give up a 4% mortgage for an 8% mortgage. But I think that might be changing and you saw, you’ve seen refinances really tick up. 

15:42

So, part of that mindset, more certainty means if you’re not going to refinance or make that move on a home, or look at your debt, look at credit cards, look at HELOCs, home equity line of credit start to negotiate with the credit card companies. That rate usually takes longer to come down. Maybe if you were thinking about using your HELOC, those rates usually tend to prime, which are more directly affected by the Fed. Those might look good. So there we have it. It’s time to recalibrate, recalibrate, recalibrate and it’s time for you to recalibrate your mindset, your portfolio, your emergency fund and your use of debt. If you do those things, you’re going to have a healthier, a wealthier and a happier retirement. Don’t forget to hit subscribe right there. You can do it. You got this, thank you. 

Disclosure-

Investment advisory services are offered through Sona Financial LLC (DBA Sona Wealth Advisors, Sona Wealth, Sona Wealth Management), an investment adviser registered in the state of MN. Sona Financial only offers investment advisory services where it is appropriately registered or exempt from registration and only after clients have entered into an investment advisory agreement confirming the terms of engagement and have been provided a copy of the firm’s ADV Part 2A brochure and document. 

This video or article is for educational purposes only and is not exhaustive. Nothing discussed during this show/episode should be viewed as investment advice. Diversification and/or any strategy that may be discussed does not guarantee against investment losses but is intended to help manage risk and return. If applicable, historical discussions and/or opinions are not predictive of future events. The content is presented in good faith and has been drawn from sources believed to be reliable. The content is not intended to be legal, tax, or financial advice. Please consult a legal, tax, or financial professional for information specific to your individual situation.

This content has not been reviewed by FINRA