An official welcome to everyone and thank you for joining me for uh our third quarter edition of anatomy of a recession. So if you are joining the webinar for the first time, uh welcome. I’m Michael Marx. I’m certified financial planner and adviser with Alliant Retirement and Investment Services or AIS for short. We’re the wealth management division of Allian Credit Union and I am as I said earlier based right here in Houston, Texas. I’ve been doing this for I don’t know more than 30 years now. Uh so today we’re going to take a look at some of the uh latest economic and market indicators and what those might be telling us. We’ll look at a little bit of historical perspective from recessions. We’ll talk a little bit about some modern stuff and I and I understand so this will be there’s a lot going on in the market. Today was even a mixed market and you know we have the UN General Assembly. Um, so if you have some just general general questions, that’s cool. I’ll try and field those the best I can here. Um, as long as it’s not too far out of the realm of of what we’re talking about today. Um, and in the interest of time, but we should have some time. We should have some a fair amount of time at the end here. So, um, just a quick, if I can get the slide to change here, just a quick housekeeping item. Uh so this session is intended for educational purposes in includes proprietary materials. So protect content and privacy. Please do not record, reproduce, distribute, screen capture or use AI based tools to capture any part of the presentation without prior written consent. Thank you for for your cooperation.
So before we turn to the economic outlook, let me just talk a little bit take a couple of minutes about talk about Aerys and how we can help. So our our goal is really full understanding of financial pictures for for the clients and and helping you educate that. But we are primarily adviserss and wealth management. As I said, I’m a certified financial planner. So that includes, you know, your income, expenses, cash flow, savings, investments, insurance coverage, retirement goals, estate planning. We’re very broad-based in what we can do. Will’s trust. Um but the important thing is that look conversations always come first. Uh and any recommendations so these are really really general right so they should be based on individual goals risk tolerance and your overall circumstance. So if you’ve joined us either through an email through us or directly on the credit union website uh this is what we do from broadbase. We’re actually going to be changing our name or so we’ve been told by the marketing department. So we don’t we don’t know what that’s going to be changed to. So stay tuned.
So webinars, we we do webinars throughout the week, different topics, different presenters. Most of us will uh do two a month. I’ve been doing one in the evening such as this and one in the afternoon. If you go to directly to our website right arisaligncreditun.com events you can see a list of our webinars uh you can also see our savvy invest savvy podcast some blog articles in there and other resources so if you haven’t looked I encourage you to take a look um also you can find us just directly on the credit union website in the upper right hand tab it’s a parent invest My next webinar will be October 1st. Sure the weather will be better by then. Uh back in the afternoon, we’re going to be talking a little bit about Roth conversions. This is actually a very effective retirement strategy. Uh a lot of our clients, we’ve actually been able to help save a lot of money in taxes over time. It’s important not to just look at it from that perspective during your lifetime, but as far as how you uh from a legacy perspective, right? If it’s going to go to your kids, grandkids, etc. We want to take a look at from the the tax planning perspective of that
one. After that, we’ll be right back in the evening, October 20th, 6:00 Central, 7:00 p.m. Eastern, and we’re going to be looking at retirement income, the fragile decade. So, and what that is is we look five years before your retirement and five years after and kind of where you should be and things you should be looking for to give you an idea of that. And actually that includes conversions, right? So, so Roth convergence as we were talking about that earlier, that’s something that depending on your situation, you might actually want to start before. And those decisions can also impact the timing of your social security um and the impact of that because it can impact your RMDs as well, required minimum distributions who are unfamiliar with that term. Uh you have take those at 73 or 75 depending on when you were born.
So let’s move into the economic outlook. There’s a great deal of information. So we’re just going to focus on some of the main messages behind each chart rather than every data point. Uh so with that, let’s jump in. So always start with the first one, right? Because that’s what that’s what everyone wants to know is our our recession dashboard. So it just gives you kind of a general headline. Uh and we’ll we’ll kind of examine the details. So this is as of August 31st. So the overall signal remains expansion territory. As you can see, green is good. uh well it’s supposed to be yellow but that looks a little burnt orange to me here uh is is a little bit of a caution and red can be a recessionary indicator. So this is always as a snapshot at any given time. Now this is one framework and it’s not really a forecasting guarantee right signals change as new data arrives. So this is as of now and some of this data will be from Q2 right as we talk about Q3. So I’ll try and give you a little bit of an update and this also gives you an idea of you know how this looked in March and then at the end of last year. So we’re seeing some improvement overall in in many of the factors out there. It might not feel it. I know prices are up. I know inflation is still quite a bear. the Fed is also dealing with it. So let me give you some context on past recessions. So comparatively when you look at current situation now obviously 2020 will have a lot of green and that was a very short period right so that was during co so that was essentially the economy was shut down uh many cities were shut down businesses oh there’s an echo if I’m having an echo let me see you might be logged in twice. Have you even You’re logged in twice. So, if if there’s an echo, I can What I can do is I can maybe you’ll want to um There you go. So, um so, sorry, back to it. So you’ll see with a lot of the historical look backs as far as recessions, there’s a lot of indicators that things went red before things actually went south there. Um 2020 was the exception to the general recession because that was just a general shutdown by the government and global shutdown. So that’s why it was relatively short-lived. It was one of the shortest recessions that we’ve had, but it was a quite the spike. So labor market. So we’re looking at this some of the labor market. So you’ll see some of those those non-form payrolls. Um labor matters. It matters a lot here in the US. And I know we’re talking about AI replacing jobs. We’re talking about well if we went through government um layoffs, things like that, reductions, what companies are doing. This does matter on on unemployment though because I will say this. So when we look at labor markets and non far form payrolls, I don’t remember if it’s in this one, but you really want to look at where the jobs are being created, right? So if the government’s creating the jobs, a lot of times that’s things like healthcare, schools, things like that. Um, and that can be a problem. And the reason why if the expansion is through education and the government spending on that, education doesn’t generate revenue in the public sector. So where we really want to see job creation, it’s over on private uh because there’s revenue that is generated and then there is taxes associated with that and less less so of a burden as far as deficit goes.
So I will tell you just a quick uh on the on the non-farm payrolls. I know that looks great and it is still relatively strong. There is some weakening out there, but not to be confused with a weak labor market because we’re not quite there yet, but we are seeing some softening. So, this is relief at the pump. So, we love this, right? Because we know this is not correct. So, this was as of the end of June. So, when you look at oil is coming down, we know that that is not the case. Actually, oil is well, it did close under 100 today. So that’s actually good news, but it spiked over just a little over 100 as of yesterday. So it came down on hope. Um obviously diesel is part of a concern right within that oil. They generate that regular gasoline. They they generate diesel. They generate jet fuel out of all of those. Um and diesel is is the big push right now. So some folks have asked that question. We might ask that later. So I’ll just address this now. So when we’re looking at the price of diesel versus gas, why is diesel so much higher? It’s because it becomes uh the refining ability, right? It becomes a capacity. It becomes a supply versus that demand. So you are seeing a little bit of a difference there. The pump is still terrible for all of us, especially if we drive bigger vehicles or we have to drive quite a bit. But a lot of your biggest your the biggest rub right now is I would probably say diesel because that is used by everything else, right? So you’ll see those costs start permeating into other goods now. So this is kind of good. So basically higher inflation, right? Borrowing costs, interest rates are higher. So borrowing costs are a little more expensive. So this is a meaningful measure. So and this is the probability of missing a debt payment, right? So it rose over several years but you’ll see this coming down. Now if this improvement persists right then you’ll see some of the spending remains a little more resilient. So we still have a very resilient consumer. So if you’ve heard about a K-shaped economy they’re talking about maybe a C-shaped economy. I’ll kind of give you a little a little touch on that. And this is going to matter going into the fourth quarter, right? Because we go into holiday spending. Um so right now if if you break the economy into into five different income brackets. So there’s the the talk of the K-shaped economy. And what that means is if you look at a K where you have the the the vertical leg and then one going up and one going down. Basically what’s happening is is for those in the upper 40% things are improving, right? and and that’s households 100,000 and up. If you look at the lower 40% and and that’s really households of about 55,000 and below income wise. So it’s more difficult for them, right? Because if if food goes up, there’s a lot less discretionary income. So when you’re seeing travel, things like that, all those records, a lot of the consumption that’s going on, it’s actually being supported by by the upper 40%. So when we talk about this I and we say hey things are good. This is from a very high level. I I don’t want you to think that that I’m not acutely aware profoundly aware that it is difficult for some people because it very much is. Um but at least for an economic discussion that’s that’s kind of where we’re at on this. Um as far as debts go right now we still have really really low default rates. Um, so that’s so good, right? Um, hyperscaler capex. So AI, everybody talks about this. This is, oh my god, this is probably the news for the most part. So I would say this is probably one of your largest economic themes for the US right now. Like your chat GPT, you know, Muse is is the latest. Um and that spending is is construction, equipment, semiconductors, power demand, right? Other parts of of the economy. So so it is a little bit broader. Now this is what matters. So that higher investment doesn’t necessarily guarantee attractive returns for every company, right? So, we do expect to have some long-term winners, productivity gains, profitability, and this buildout, you know, that remains a little uncertain. The expectation is this buildout will still continue for a bit. Um, if you’ve watched the market, for those of you watch the market, so so for the the first quarter, maybe through April, the markets were pretty much flat. And then you see the market just kind of take off. And what that was is is when a company reinvests um it’s basically reinvesting profits. So you know if I’m a if you’re a farmer for example and I’m going to buy two more tractors uh so I should be able to produce more of whatever product I’m growing. So that more product would generate more revenue. Therefore more revenue means my stock price if I publicly traded should be worth more. Right? So when you see this money spent on hypers scaling by those bigs out there in theory they’re going to be able to do something with it. So the the trillion dollar question is what is that something right? How does this get monetized? So that drove the stock price up which drove your uh the stock market up as of pretty much April. So now you’re starting to see some questions. You’re saying okay is that stock price that was here now it’s here. Is it worth it? How long do we have to wait? So that is uh to be determined. So do I think it’s kind of like the the dot? No. There’s a lot of money behind this. So So it is a very different animal. So you’re it’s very well funded by very well profitable companies with huge cash, but there’s a lot going into AI. Um now I will tell you this when you look at I always think this is really interesting because we’re talking about AI when you’re talking about capex and capex is is capital expenditure right is how much companies will will invest in product services whatever building their infrastructure uh when you look at it as a percentage of of GDP so you go through big technology booms and I know when we think about technology we think about it in terms of of what’s going on right now right the internet or or in this case an improvement of technology which is traditional technology which is artificial intelligence but really any kind of technology. So this goes back to railroads, right? Or the electric motor or just the auto infrastructure, right? When you when you look at um the assembly lines, right, that mass production. So then you get into tech and telecom in the ’90s when you start doing internet. So all of these have been huge innovations of US technology and and really technology it improved almost every sector, right? From from even from well, I’m here in Houston. So when you’re looking at oil and gas, right, with with the new tech technology, their ability to find oil, their ability to drill at angles, their ability to frack, whether that’s good or bad, it’s definitely more production, it makes it the possibility for more revenue, right? And as a company, that’s kind of what you’re looking at at the end of the day. So when you’re looking at this as as compared to the size of this country’s GDP, you can see that AI is actually relatively small. And just as a reminder for those unfamiliar with GDP, it’s your gross domestic product. And how they calculate that is they look at the total consumption, which is usually us, right? That’s our goods and services, the stuff that we spend our money on. They look at government spending, right? Defense, schools, roads, etc. You know, infrastructure. They look at business investments from the private sector and then they add net exports which is kind of one of the things that Trump is is kind of flipping out about, right? Imports of when we look at trade deficits. Um to give you an idea, uh second quarter for 2026, our GDP was about 32.5 trillion with a T. So we have a much much even though those are large numbers that are being spent in AI, we have a large economy now. So so relatively speaking it is it is it’s just a lot bigger. So
I would say that there is room to grow and for the cycle to continue but that also means the expectations are rising right on your return on investment. So the message is it’s balanced. It AI investment can support economic activity while investors should remain mindful of valuations and execution of of how they deploy AI and any disruption risks that might be that might be as a result of it. Um I think this is actually pretty cool, right? and it’s creative dra destruction and there’s a lot of concern that AI is going to replace a lot of jobs and it probably will at some point as every technology does at some point but what we found is that as you’ll see that oftent times this new technology even though it eliminated some jobs it created jobs that did not exist before. So, so there is a double-edged sword, right? So, if you are impacted where you lose your job to some type of technology, hopefully there’s another opportunity in some other aspect of it. But, but that I mean with this type of technology, right, it’s it’s different, right? Because there’s education, there’s retraining, um business investments, those matter. So I know that we say this and this is just a chart but we are talking about real people who will lose their job. Um and it does happen but over time you’ll find that that more jobs are created than than jobs that are removed and in theory it makes our job easier and our life better unless you’ve seen Terminator. I’m joking about that. So uh so we’ve covered an economic backdrop. Uh so let’s take a look at some of the market outlooks. So the the economy and the market are related, but they’re not necessarily directly related. So so you know the economy can go up one way and the market might not necessarily agree uh because because markets are forward-looking and they reflect expectations about earnings and interest rates, right? What’s the Fed going to do? What the Fed won’t do? uh stock valuations risk associated uh and that’s why market performance can improve or fall before the economy headlines kind of feel that impact. So right now things are okay. Um it’s a little it’s a little volatile to say the very least. I know there are some naysayers that are saying hey you know the market’s going to crash etc. We’ll talk a little bit about that. Uh but but but is a different time right now when we’re talking at tech boom. So we’re going to party like it’s not 1999.
And as I had said before, some of the differences I was around during that.com crash and and I’ll tell you a really interesting and little story. So back in the 90s, we were still talking about allocations, measuring risk, and things like that. But if you were investing in the 90s and you grabbed one of those dotcoms, right, that stock was just crazy and they were hot issues and you know, we’re trying to tell our clients and most of whom listened. They’re like, “Hey, you know, these are kind of targets. There’s really nothing that’s that is backing these new companies. It’s just out there.” Um, so we all know how that story ended, right? So there was these inflated prices and a lot of and then the bubble popped and then most of those companies ceased to exist and a lot of people lost a lot of money there. Um and really those people who lost a lot of money are the people who didn’t listen about allocating and risk management and things like that. But with that said though um it’s a cautionary tale. This a little bit different right? So yes, there there are some concerns about concentrated positions and things like that, but the difference is I had alluded to the the difference is is these are very different players. Um they’re wellunded, they’re actually profitable, and they’re taking that profit and investing it back in their infrastructure. Now, with that said, it doesn’t eliminate downside risk. So today’s market, it just has more fundamental support than a simple bubble narrative, which I’ve heard that talked about. And I can tell you as a general rule, uh, most recessions happen with some type of bubble somewhere, right? Whether it was a dot bubble, whether it was a real estate bubble. Um, but usually it happens with kind of a bubble. We don’t really have a bubble right now. So you secular bull market. So the long-term chart talked about secular bull and bear periods. So we talk about cumulative highs right there and we had a fantastic run right through the ‘9s late 80s 90s and then we’re looking at 2010 to right now. Obviously there are some difficult times when you go from 2000 to 2010. That was actually a negative decade. Um so folks who are investing and they’ve been investing relatively recently let’s say in the last 15 years when they when they say hey you know I’m really really aggressive investor that’s fine you might very well be because the belief is the stock market always goes up that is not the case you can take that period from the 2000s where it was actually a negative return over that period you can go into the 70s where where there were negative periods and you can go into the 30s where there were negative stress stretches like decades long. So be mindful. It’s always cautionary tail. I know we’re saying, “Hey, things are good, but you still want to be cautious.” So that was my precursor to this slide. Prices, a lot of prices are back to pre-conlict levels, but not all of them as we well know, right? food food issues. A lot of that is energy issues and that is probably not going to fix itself in the near term despite what Washington is telling us. Um even if something magically changed in the straight uh it would still take months to get everything back running. I can tell you so I think Goldman came out with this that they said about 80% of the oil is traveling through that. I’m not sure about that number and I would question that number because somewhere because about 20 million barrels a day roll through that you know pre-conlict and and now you look at 7 to maybe 15 or 12 million barrels a day. So it es and flows. Maybe it peaked at that point, but as far as sustainable movement on that, we do have the east west pipeline which they just redirected some of that through Saudi so they can backdoor that and load that elsewhere. But I do think at some point one of the things that we learned from that is is you don’t want to be the unreliable deliverer of energy, right? So as they build out these pipelines that impact on the straight will become less and less and less important. Uh but it isn’t going to happen tomorrow, right? That’s going to take some time.
So, let’s talk a little bit about a one-year outlook. So, what’s going to happen? Obviously, we got midterms coming up uh very soon. I think some states have already started their mail in ballots, right? The early voting. Uh we are not quite that that early here in Texas. Uh so we’ll we’ll talk about these six themes and we’ll talk about the influence over the markets over the next year some of the fixed income midterm as I had said market concentration some of the market leadership some of the non US opportunities and maybe some of the common pitfalls out there so these things are all interconnected right so interest rates will affect valuations politics can affect settlement or sentiment sorry about that um and concentration influences right diversification currency movements and so all of this kind of matters as far as international returns and those international the global politics can impact what’s going on right here in the US so fixed income or bonds which is what most people know that now we do call so someone asked why do we call that fixed income versus bond so we call it fixed income so fixed income are bonds but Not all all bonds are fixed income, but not all fixed income or bonds, right? It might be preferred stocks or or um LLC’s, right? Or real estate investment trusts, things like that. But for the most part, we’re just going to talk about bonds and their impact because interest rates are moving. Now, if we had talked about this last year, interest rates were the belief was restrictive. So the Fed was going to lower rates but but interest but inflation has been a bit difficult. So right now you know we had our last rate hike. There will probably be another rate hike. The expectation is one more rate hike before the year end and maybe one in the first quarter of next year. So let me just point something out. So, for those of you who might remember back from economics 101 or finance 101 back in college, or if you’ve just heard this in passing, when interest rates and bond prices, they move opposite to each other. So, when interest rates go up, bond prices go down. When interest rates go down, bond prices go up. The expectation is we are in a rising interest rate market, which is a bummer if you are looking to buy a house right now. um or credit cards that you carry balances, right? So, those can be impacted. But where it matters for um why this matters for those of you who are investing, if you hold those bond funds, right? If we go into some hikes, some of those can get hit. So, there’s some some allocation changes that you might want to do. There’s some changes that we’ve done on our side, look at a different fixed income. But the other aspect when you look at bonds, the longer the bond is, the more sensitive it is to a price movement. So I’ll give you an example. So what this does, we’ll just stay on the top sector because there’s different types of bonds like high yield, corporate, right? Municiples, but a treasury is easy. Everybody knows the T bill, the Treasury bond, all that stuff. So when you look at a 2-year versus a 30-year up there, when they talk about a one-year rise or fall, how does that impact the return? So the 2-year, you see some difference on a 1% movement, but when you go down to the 30, right? So if interest rates fell 1%, that bond price would go up 22%. If it if it went the other way, you’d lose 9%.
be mindful as we move forward on that, right? Interest rates are probably going to rise and that’s the expectations. Munis are pretty nice right now if you’re in a high tax bracket and a lot of folks talk about that. They’re say hey you know what’s taxfree taxree is always nice on paper. Um and basically what this does is assumes you’re in the highest tax bracket. So the highest tax bracket in the US for those who aren’t familiar is 37%. If you make over 200,000 then they add an additional 3.8% on that. So if you you know if you’re earning something that’s tax like like a treasury is taxable. That’s your green line right in the middle. Your municipal is your blue which is right below that. You’re saying well why would I buy a municipal over a treasury? Well you don’t have to pay taxes on that income on that municipal. So, you know, if you’re in the higher tax bracket, that 4 1/2 could be close to a 7 12% return. So, there are there are times where it’s a good idea. One of the things that we look at when we allocate for people when we’re building portfolios, we’re looking at what is in your pocket, right? And that’s part of the planning wealth strategies, taxability, profit conversions, whether it should be in something tax-free, whether it should be something taxable. is it taxes long-term capital gains which are lower than income taxes. So, there’s a lot of moving parts. Um, and obviously each one’s different, right? Because you start looking at when you start getting into the munis, there’s credit quality, there’s which state, um, there’s a lot of different options in there, but it is something to consider. So, the dollar still dominates. Now, it is a little bit weaker. So, this is actually important, right? So this is the leading currency as far as reserves and international debt and global payments. So there was a time so so the US the US dollar has really been the global trade the the preferred currency for global trade since World War II. It hasn’t always been the case. It might not be at some point in the future, but it is the preferred choice probably in the near term, probably in my lifetime. Um, and you know, at some point it was the pound, some point it was a the Swiss Frank. Uh, and and the reason for this is quite simple. Now, the dollar isn’t as strong as it used to be, but it is still hook is still she’s still the best looking girl at the dance. So, she’s the dollar is still very strong. U just not as strong. And the reason for that is when you look at global currency, there’s a few things that you need to look at. So you need to look at as the scale of what it can handle. There’s really only three currencies that can do that at this point, right? It’s the Chinese one, the euro, and the US dollar. So the the case was made back in oh gosh 2008, so 20 years ago, that hey, maybe the euro should be the trading currency. And that was well that was an absolute joke. But um and the reason for it is simple is that the US is the only one that has a unified monetary and fiscal policy which means the Fed makes decisions on rates and the federal government and they’re still in lock step. They might disagree with things but they’re still one and the same right we fought a civil war for that. So when you go to Europe, right, they all use, not all, most use the same currency, the euro. However, Germany can do what Germany wants, France can do what France wants, Greece can do what Greece wants. And we saw that problem happen in 2008, so and 2000. So that’s where we say the euro would probably be a difficult a difficult global currency at this point, but things might change later. And as far as China goes, there’s there’s really just a lack of transparency. They certainly have the scale, right? That’s a big economy, but but at this point, they don’t fully float to the US dollar. There’s there’s a a peg. I mean, they stopped pegging, but it’s still kind of along that. So, the US is still the greenback’s still it. H midterms. What a circus this could be. So, but exciting to watch. So, look, it the election cycle, it can certainly influence the sentiment and increase the volatility in the market, right? But you don’t want to use it as a standalone on on market timing signals or anything like that, right? So, so we’ll talk a little bit about some of the historical patterns on the earnings as far as, you know, back like for 2026. So when we look at the second year of the president’s cycle, right, you probably have some of the lower cycles as far as returns go, you know, amongst that four-year term for the presidency. And that’s actually pretty it’s pretty normal. It’s very normal for the incumbent party to lose seats. So if the Republicans lose seats, it wouldn’t be unheard of. It’s probably more in line with history. I think it’s only happened twice where the incumbent has actually gained seats. So it’s not a big deal. What usually happens though is that because you lose seats, cuz somebody’s always mad about something at this point, right? Someone’s messing up somewhere. You’ll see a lot a lot less delivery of things, right? because they might actually have to negotiate, which would be a would be a fantastic thing if they work together, but I don’t see that happening. Um,
we usually have a lot more volatility, right? So, that’s pretty normal. So, don’t be too concerned about that because again, that’s normal. We kind of look at those in the midterms, turns, movements, things like that. Um, so we normally show some pretty strong recoveries after one year after these corrections happen. So it’s it’s those lows are only obvious in hindsight, right? When you’re in the middle of that storm, it is a rough go. So hopefully with whomever you’re working with, and if not, ARIS is a great choice to work with or even review where you’re currently positioned. U the expectation is volatility is going to increase. it’s certainly not going to go down as we go into the midterm. So instead of attempting to like identify that exact bottom in the market, right? Um it’s really more disciplined allocation and positioning, rebalancing, things like that. Uh we’ll talk a little bit more about that. Um I love this chart because one party always blames the other and I think and and although don’t get me wrong, policy influences things, right? It it definitely matters, but businesses are in business, will always be in business. So, the long-term trend on the market is up. It is there’s been some volatility and and some difficult periods for certain. Uh but you really want to look at a portfolio built for outcome, right? not not necessarily, you know, you don’t want to create like this unnecessary concentration or timing risk. Speaking of market concentrations, so I think this is actually pretty cool. So, you know, probably the S&P is probably the most popular and well-known index here in the US for investors. Hey, buy the S&P 500. And for those unfamiliar with what that is, the S&P 500 is the largest 500 US companies. Uh so you would think, hey, you know, that’s really really well allocated. I’m in 500 different companies. But they are weighted. So not all companies are equal. So the bigger the companies the bigger companies control more movement both up and down um within that index. And that’s not necessarily bad. It’s just it’s just something that you should know because it could definitely impact your positions. When people say, “Hey, you know, I want to invest in AI,” you’re invested in AI. If you own anything like any large cap, anything, those companies are big players before they were being held. They’re still held now. The S&P um to give you an idea, this was what is this? How many stocks? 10, I think. So, yeah, this is the 10 largest companies. They control 38% of the movement of the S&P. So, as a general general general rule, your top five companies run anywhere between 20% to 25 26% of that S&P. So, you might not be as diversified as you think. Again, not bad. Just more cautionary. Uh ah trees don’t go to the sky. Okay. So speaking of that concentration, right, how they’ve outperformed the index before reaching that position, what you’ll find is that larger companies remain successful, but over time it’s really hard to sustain that that same rate of growth. And an easy example that I would give you is Coca-Cola, right? So Coca-Cola, half of the world drinks Coca-Cola. So Coke can’t just say, “Ah, you know what? We want the whole world to drink Coke. We’re going to try and grow that way.” They really can’t do it. There’s too much competition obviously there’s Pepsi. So the way they go about that is through different types of beverages right they might do monster energy drinking they might do water through Dani so they they diversify that other companies will diversify in sense that they just go into completely different models altogether right a completely different business line uh so this supports diversification right beyond just the the concentrated positions where you’re like yeah I want Nvidia yeah I want Apple, etc. And and Apple’s had really a rough go, so most people probably wouldn’t do that, so that’s not the best example, but Nvidia would be one. Um, and Meta, etc. So, know that there’s a lot more opportunity as as those bigger companies become more concentrated and more and more expensive, then there looks at opportunity there, you look at opportunities elsewhere. Um, so this is just some of that com mania, right? when you look at at some of those top companies back then where they were now or where their return is right so that S&P uh equal weight this goes back from March 2000 so actually this is a pretty fun one obviously Microsoft did well exon did well IBM Intel Cisco etc you know less so less so but then you look at like group right it’s absolutely smashed Lucen technologies which is pretty much non-existent So, so this is one of those things. Now, for those of you who are not familiar with the other indexes, so your big ones out there, and there’s many, many, um, how are we doing on time? Okay, we’ll probably want to speed this up. So, the Dow Jones Industrial Average, the S&P 500, the NASDAQ, um, are probably your big three that everybody sees on the news, uh, when they’re looking at news feeds. So, this is not your father’s S&P. And the reason why I bring this up is a general rule, right? It’s the 500 largest companies where where the NASDAQ uh and that’s exposure, you know, if you buy QQQ, right, as an ETF, you’re buying that NASDAQ. Well, before that was like, hey, we’re buying technology and and it tends to be more volatile. Well, what’s happened is those technology companies that were on the NASDAQ before have become these behemoths. So, now they’re part of the S&P 500. So, you’re seeing a lot more overlap. uh where the where the NASDAQ used to be very very different than the S&P 500, not so much. Uh it’s it’s still different but less so. So just be mindful of that. You’re like, “Hey, I love the NASDAQ.” You probably have a lot of exposure to NASDAQ companies as it is right now. Um market leadership. So again, not the com. And I think we want to focus on that because there’s really a lot of talk about AI and concerns and I think some of those concerns are safety concerns um you know going rogue hacking things like that. Um, so, so there are still some lower valuations, right? When you’re looking at at the S&P 500, I mean, yeah, when you’re looking at the technology side, when you’re looking at some of those earnings and you compare them to like the ‘9s or even in the last 12 months, you’re you’re seeing not as as inflated of a price. So, so we’re not saying, hey, we did say earlier that look, it’s becoming more and more expensive, but we’re not like talking.com or anything like that. So, diversification is a key, but there’s still opportunity, and we think there’s still going to be some opportunity for for a little bit at least, probably maybe through next year, but we’re going to have to see how that goes, right? The Fed might have something to say on that. So, uh, the Russell, so this is just some of the small caps, right? So, you know, you have the bigger companies, the Metas, Nvidas, etc., etc., Walmarts, Home Depots, but you have those small companies where they’re looking for the next Bill Gates, right? They’re looking for the next Zuckerberg, um, next Warren Buffett. So, as those bigger companies are becoming more expensive, you’re starting to see some of the opportunity in small companies where they’re a little more nimble, they can make some adjustments. Uh, historically, they they’ve really underperformed some of your bigger companies since well, certainly since COVID, right? because the bigger the big got bigger and wealthier. But we are we are seeing some of the small companies and the small and midsize their price is actually looking pretty good relatively speaking.
Let’s go overseas. Right now we have the UN General Assembly going on. Uh so
we’ll talk a little about this. Now there is a home country bias, right? And I don’t think there’s anything necessarily wrong with that. So, so the US of our investments, it it it’s a percentage, it’s the vast majority of percentage of in people’s investment portfolios. But when you look at like market capitalization, we still are, you know, almost 2/3 of the global economy. But when you look at like GDP, it’s different, right? We’re we’re about a quarter of it. So there’s a whole world out there that’s still doing stuff. So we do think there’s some opportunity going into this year um and maybe into next year. So a little bit broader base on some of the international plays uh global leadership cycles. So I can tell you there’s always an eb and a flow between US and international plays. Lately some of the international plays have outperformed the US. Uh, we’ll see if that continues on or if that if that cycle will shift. Weaker dollars. Supercharge is a non US stock. So, here’s the cool thing about weaker dollars, right? If you’re traveling overseas, it’s a bummer. If you’re buying stuff, it’s from overseas. That’s a bummer, right? Because you can’t buy as much. But if you’re selling stuff overseas, which helps us on our exports, uh, they can buy more stuff. So, um, also with with a better exchange, people come to the United States. I know there’s a little bit of a, uh, tourism push back, but, you know, when you’re looking at trade deficits and things like that, so this could this could help a little bit. So emerging markets they are very much relevant to the AI theme and and emerging markets are are non US but not just non US right they’re um I want to say they’re smaller countries but not necessarily because China and India are are considered emerging markets but generally generally speaking you know it’ be like Brazil or Chile or or some place like that um there’s a lot of there’s a lot of energy development down like Guyana so this can matter Uh so what will happen is that that IT weight in the emerging markets as as those countries start adopting this you can start seeing some movement there. So that could be some opportunity. Now when that happens right you’re looking at like the currency geopolitical concentration risk. You still have to look at that. You can’t just say hey there’s money down there. I should start investing overseas especially in emerging markets because things can change a lot. Um, so final final contact. We’re going into the u into the home stretch here. So I would say this, right? So there’s always a reason to panic when it comes to the market, and this is not the reason to panic, and I don’t think anybody is, but there are some folks that are talking about these really big big pullbacks, market’s going to crash, etc., etc., um, some severe declines. Now I would tell you that when we look it through these things right whether it was a tech bubble or liberation day which was in 2025. So what normally happens is you’ll see these pullbacks and then you’ll see new highs in a relatively short-term period. Obviously some of them have lasted longer but almost every year you can come up with something bad that is going to happen. Um right now we have a war and we have tariffs. So, so that is not helping. And we have the Fed that is looking to raise rates because we have an inflationary we have an inflation concern. Um, but the long story short is, hey, if you’re invested long-term, good quality stuff, long-term, hedge some downside. We can help that if you’ve never done that. Uh, but you don’t want to fall victim to panic attacks. And this goes back 2006, 2025, so 20 years. And basically what it is, it looks at what stocks have done and real estate has done and some international equities and investor returns. And generally speaking, the investor return is usually about half of what the market is because the market will go up and people love that. And then when it falls, they exit out. Um, and they’re waiting for things to get better before before they go back in, which is when you think about it is ridiculous, right? if if you wouldn’t sell your house if your market fell, right? If the if the stock market if the housing market fell for a little bit, you’d probably sit there and hold it for a bit. Um or if you wanted a pair of jeans or something and the price fell. You wouldn’t wait for the price to go back up if you think that’s quality that you’re owning. Quality is the key. And and I and I would say this, right? So, I don’t want to be so flippant or cavalier about this, but if you’re freaking out about the market, that might say something about your risk. And maybe that is a reason to work with the wealth management side. So, you can say, “Hey, look, you know, are you even in the right thing to begin with? If you are concerned about that, this is how we hedge some downside.” Uh, so this is actually kind of cool, right? So, this goes back. It’s the S&P 500. And what they do is they say um so this goes back to 1983 and basically the gray bars are the return for the S&P for that year. So December 31st, right? January 1st to December 31st. So as you can see most years are up years as a general rule. It’s about 3/4 of the time. Now the other part of that are the blue dots. And those blue dots are how much of a pullback the market had during that period from January 1st to December 31st. So people invest knowing that the market is up most of the time. 3/4 of the time I win if I hold it long term. The problem is is what they don’t know is that those blue dots happen every year. So there is always some difficult thing that happens. So it causes a little bit of heartburn. So I think this is a really good chart to talk to people who are brand new to investing or a little worried about markets to say hey look this is really normal this is a really normal cycle we just want to be positioned accordingly.
So can you time the market shortterm maybe a few here or there historically not so much. So they just did a h 100red bucks buy and hold since 1945 versus selling 12 months prior to the peak and buying it back 12 months after that trough. Uh you can see there’s a really big difference on that. Uh and look, I hear great stories are like, “Oh, I bought this. I timed it perfectly.” But but usually and and you might have that, right? You might very well have that happen, but consistently doing it over time is pretty difficult. and you certainly don’t want to concentrate a position in that. So this is what I always think is great because it’s always context, right? This goes back to 1928. If you look at this one over here, how many times the market since 1928 has a market lost over 20%. Right? Six times between 10 and 20. Another six times between 0 and 10, 14. Nobody loves losing money at all ever, right? But when you talk about the upside 14 times, 22 times between 10 and 20 and 36 times that the market closed out over 20%. So, there’s a really, really good case for long-term market investing, but again, you want to match your risk tolerance. You want to match your timeline depending on where you are in that. Um
I would say we’re probably near the end. So this is what we can do. Look is before we close I want to just bring this back to financial planning allocation because that’s always what this is about. We want you to become smarter investors or if you need some help with something we can help. So we can help evaluate not just your asset allocation, right? how social security, how Medicare, how pensions, cash flows, taxes, that retirement income, how you build that structure, how you build that plan, right? Your estate planning after you pass away. So, we do more than just the allocation out there. Um, we can help you build that coordinated plan. Uh, whether you’re dealing with whomever out there, right? Aerys Aerys is a very a very much underutilized resource to the members here. There’s a lot that we can do. Uh if this did raise questions about how you’re allocated or your retirement plan, look, we’d be happy to do that. Uh what we’re going to do is we’re going to go to the Q&A. Oh, this is just one quick one that we added um trust and wills. So, some of your basic planning, trust, wills, power of attorney, living wills, HIPPA, which is your advanced medical directives, etc. Um, I want to thank everyone for attending. We still have a few minutes. So, we’re going to go to the Q&A. Uh, so whether that market’s up or down, uh, you know, you’re uncertain about your risk, we’d be happy to help you. So, if you have any questions, go ahead and put those in the Q&A or in the chat. And during that period, what I’m going to do is I’ll put up a poll. So, that’s my Q&R code and my contact information. If you want to schedule some time for us to look at what you’re doing specifically, double check what you’re doing, uh, see how we can compliment, send me some of the things that you’re already doing out there, uh, go ahead, schedule time with that QR code or give me a call. I will actually put up a poll if you want me to give you a call to do that. Uh, we can look at this from a financial planning perspective, Roth conversions, impact for social security, etc.
and let’s see what questions we might have out there.
First question,
how safe are bonds? Can you lose money in them? The short answer is yes, you can. Uh in in bond funds uh especially, they are there’s no really end date, right? uh bond has a a start date and a maturity date and they come back to what’s called par. Uh but bond funds don’t really have a maturity date. So those turn over. So that can be you want to be careful on what type of bonds you own, what type of we’re in a rising invent uh interest rate market. So you want to be more cautious than ever. Um but there is still a case for fixed income. Uh is 401k good or bad to retire? Um that’s a loaded question. So the question is a 401k good or bad to retire? Uh in general it is a great we’re huge advocates of 401ks, right? It’s pre-tax dollars. It you pay yourself first. You usually get a match. Um but there are some downsides to it. It’s the whether it’s a traditional or a 401k or a or a Roth 401k. What we normally do is when we look at when we’re working with the members, when we do the planning side of it, we look at how it’s positioned. We look at how much of it is positioned. If you have a large 401k, that can come back to bite you a little bit later from a tax side uh during your retirement through required minimum distributions or through a legacy perspective because they changed some of those tax laws uh not too long ago. Um, what I would do is if you haven’t if you’re not one of the yeses, go ahead and schedule some time or just hit the QR code and we can look at where you’re at and percentage of assets and things like that and you want to look at your cash flows and then we can say, hey, you know what, you maybe don’t want to contribute as much here. Maybe you should do a Roth. That’s an option. Maybe you should dial back on that and do some things that are non 401k uh because that’s taxed differently. But as a general rule, I think 401ks are are really a good thing. Great question. Thank you so much. Uh are you a fee or hourly CFP? So we are not hourly. Uh I’d ask about that. We don’t do that. So we are we do both. We do a uh percentage of assets under management uh or we do some transactional but there’s a lot of things that we can actually do from an investment side that actually don’t carry commission or and we don’t have to charge you a fee. We are cognizant of costs um cuz you know we’re part of the credit union. So so that just depends on what you’re trying to do. But we are very transparent. And I can tell you from a fee structure, from the uh from just the traditional managed money where it’s a percentage of assets, we’re actually pretty we’re pretty much in line with everybody else or actually maybe even a little bit, but we can probably save you some money because there’s a lot of your portfolio that I would argue that you don’t even have to do uh as managed money. We can do some things without having to charge you on that. Uh great question. Thank you so much. Uh next question. I know we’re bumping up against the time, but I want to make sure we answer everyone’s question. Uh overvalued with the recent highs. So, so the short answer is I don’t think the market is overvalued with recent highs. I do think uh I do think you’ll every high even if it pulls back, you’ll see another high. There’s no bubble out there. But you still you you still want to be aware of how you’re invested. you you don’t want to take the market as as just a that’s high I shouldn’t invest anymore, right? Because it depends how you’re invested. Some things uh function independently of the market.
Yes, I am a fiduciary. Oh, should we invest in gold and Bitcoin? So to to a certain percentage, right? Um there’s some cryptocurrency in most allocation models right now. I would probably caution against a huge percentage or concentrated allocation for for just a litany of reasons that I don’t have to cover I don’t have time to cover here. As far as gold goes, you’re seeing some of that pullback. Um if you if you view gold as kind of a currency, right? That’s a better way of viewing gold, not as a precious metal. Um so weaker dollar, some some un unrest or or or a lack of confidence in the dollar. You’ll see you’ll see some of that uh that gold up. But but as as the dollar strengthens and things, you’ll see some of that gold pull back. Gold had a great run. If you look at the historical run, gold’s pretty flat, but it had a beautiful run for a while there. But precious metals, yeah, we hold some of that in there anyway. Um, if you’re nearing retirement,
if you’re nearing retirement, is there a general guideline how you should be invested? Um, that’s a good question, but that’s a tough question because that’s a very specific question. And so I’m going to give you some general general general general as a rule. As you get close to retirement, your portfolio becomes a little more conservative, but that depends where you start. Like if you start way up here super super aggressive, then you’ll back it down some, right? You might even back it down quite a bit depending on your allocation. If you’re already super conservative, you don’t want to, and I’m going to jokingly say this, you don’t want to become recklessly conservative because you still want to outpace inflation. Uh should you invest in startups? Well, those can be I guess it depends how much in which startup right so the thing about startup is there’s usually a high payout potential uh but because they are startups the risk uh the evaluation on the risk it just kind of depends on that uh depending on your age and depending on what percentage if you’re close to retirement I would maybe caution against doing really really big percentages in into something like that just because of the risk modeling. Um, but if you have some questions, just give me a call on that and we can talk about it in specifics.
Maybe time for one or two more questions because we’re 2 minutes over. My apologies. Uh, do you see any potential risks going forward? Um, well, there’s no bubbles. So, so I would say this, um, obviously the caution is technology, right? That’s the big one, but we don’t consider that a bubble at this point. debt is one of those other things. Um, but the economy is still pretty strong and the consumer is really strong. So, I still want to be cognizant and respectful of everybody’s time. We’ve run a couple of minutes over.
Let’s see. Maybe maybe I think there’s one more question.
Read that. Are there ways to earn income other than CDs or bonds? Hey, that’s a good question. Okay, so if you’re in bonds, right, and you know interest rates are going up and your bonds might actually take a hit, what are the other ways that you can earn income? Um, you know, like dividend payers, preferred, things like that, real estate investment trust, unit trust, uh, some structured notes, things like that. Um, but if there’s any questions you want us to look at that, by all means, give me a call. Interest rates, it’s a really good time to enter some of the interest rate market right now. like we have some guaranteed things that are over five. So, um it’s fantastic. Um so I think that is all of the questions. Thank you so much for everyone’s participation. Thank you for those great questions. It’s always good to see everybody. Um with that said, I wish everybody a wonderful evening. Um and we will see you on future webinars. Thank you so much. Take care. or have a good night.