0:00

Hello, and welcome to Money Centra're listening to the advisors of Kristen Wealth Management

0:03

Group, Kevin Kirsten and Brad Kirston. Happy to be with you today,

0:07

Brad. The market's kind of settling in. It seems like we we had

0:11

the great start to the year followed by approximately a five percent sell off and

0:17

the market is rallied all the way within about two percent one or two percent

0:21

of those highs that we're seeing at the end of March, and we seem

0:25

to be kind of settling into this area here where a little bit of a

0:30

Goldilock scenario. Not too hot, not too cold, because we're through earning

0:34

season. Okay, so we've we've gotten a couple couple data points for fourth

0:39

quarter of last year. Earnings were reported in January. First quarter earnings were

0:43

reported in April. We're kind of through that season, and we've gotten a

0:46

lot of data on the economy with the Fed looking like it's going to be

0:51

one or two more like one rate cut towards the end of the year,

0:56

so we're not going to get a lot of news between now and the end

0:59

of the summer that's really market moving. Do you do you see the same

1:03

thing. Well, yeah, and the Golilock scenario for market movements would be

1:07

what we've gotten, which is making some higher highs, then you pull back

1:11

a little bit, but you make a higher low, and then you make

1:14

another higher high, which for the market right now would be The highest point

1:18

of the year for the SMP was fifty two sixty four, and I don't

1:22

even think that was on a closing basis, but the all time high fifty

1:25

two sixty four. And here we sit today just fifty points below that on

1:29

mid towards the end of the day here on Thursday, and so yeah,

1:33

you're if we stayed right here, you're less than a percent away from making

1:37

a new all time high. And so what would be that Goalilock's typical scenario

1:41

for trading ranges. You know, you kind of chug along one to three

1:44

percent higher than that before you maybe pull back a little bit and you make

1:48

you know, even if you pull back, you make make a lower or

1:51

a higher low, and then you take off again. And yeah, I

1:53

don't mean the three year number on the SMP, brad is only eight point

1:57

six percent. That's the three year number. Yeah, it's not like so

2:02

two percent below the long term average. So anyone telling you that that everything

2:07

is overvalued is is thinking that everything. I'm actually kind of the opposite.

2:12

I have a hard time finding anything that to dislike, right tremendously, I

2:17

agree. I mean, if you okay, I'm looking at the three year

2:21

number, and we always like to look at longer term numbers to give give give folks a better view. Okay. The only two areas that have really

2:30

seen, you know, outsize performance compared to the SMP on a three year

2:34

basis are energy at twenty five percent per year on a three year that's great,

2:38

the three years twenty five percent a year. The ten year number is

2:40

probably still negative. Yeah, okay, Tech, we all know about tech

2:44

at sixteen point six percent on a three year fine. There's nothing else beating

2:47

the SMP. Brad, there's not one sector beating the s and P other

2:53

the energy and tech on a three year basis, and energy energy did it

2:57

with a good twenty twenty two when everything else fell up part and tech did

3:00

it with earnings that are supporting it. So there's there's not a lot of

3:04

reasons to say this or that is over valued, and you need to avoid

3:07

large four and on a three year basis is three percent annualized. Emerging markets

3:12

negative four point seven. Annualized, mid caps on a three year basis are

3:16

three percent. Annualized. Small caps are minus two annualized on a three year

3:22

basis. You look at you know, I've I heard the phrase from a

3:25

few money managers expensive defensive. We've kind of ironed that out over the last

3:31

year or so because on a one year basis, those defensive areas, Staples

3:36

utilities in particular have really pulled back. So when you look at that low

3:40

volatility category, I wouldn't say I like it, but it's going to do

3:46

what it should do on pullbacks, it's going to hold up a little bit better, and it did in the five point eight percent pullback we had even

3:53

in the last month. It held up at even in the last month. Utilities is up seven percent in the last month, Staples is up three and

3:59

a half, and the S and PS slightly down as you mentioned. So

4:02

no, I just don't even see a lot to dislike. I see a

4:06

lot of pundits trying to pick different areas and pick different stocks, And I

4:12

hate to be boring, but there's never been a better argument for a diversified

4:15

portfolio of everything. I'll give you something I don't like you ready. The

4:19

TLT the twenty year treasury, which is dominating a lot of conservative portfolios that

4:26

we take over, coming from banks, coming from traditional financial advisors who think,

4:31

well, it's it worked for the last it works since nineteen eighty one.

4:34

Why wouldn't it work now. Well, the twenty year Treasury Index year

4:39

to date is negative seven point six percent. Can you find anything that's worse

4:43

than that? Yeah, the thirty year that would be the only thing worse.

4:46

Right, the twenty and twenty three when bonds were recovering, it recovered

4:49

two point seven percent positive. The year before that it was negative thirty one

4:54

point twenty five. The year before that it was negative four point six.

4:57

Unless you thought the FED was going to surprise by cutting more times than what

5:01

is currently being priced in, which is one or two this year and maybe

5:04

three for the next twelve months, unless you think they're gonna surprise and do

5:08

more than that, then everything that's priced into this current number is correct and

5:13

maybe gonna get worse. If the FED says we don't need to cut,

5:15

and we don't need to cut more than a couple times over the next year,

5:18

then it's probably not it's probably gonna go even further negative. So if

5:23

you're wanting bonds or you're wanting conservative and you're looking anything other than two year

5:28

or less duration, and your one year t bill is five point one five,

5:31

yeah, why do you need to stretch out to the twenty year which

5:35

is I don't know, four point well, it's yielding less. Twenty year

5:40

is probably yielding four point six, ten years, four to forty five,

5:45

thirty years, four to sixty, so it's somewhere in between there. Yeah, So we're gonna we're gonna stretch to it to get less, to get

5:50

less because you think you're locking in. I've heard the argument advisors and people

5:57

on people in business media say you're locking in this number because the Fed's gonna

6:02

go back down to zero and you won't get another chance to have four percent

6:06

for twenty years. Yeah. I guess great, I'll take my chances on

6:11

the low vole sectors or diven in paying stocks in general to beat the twenty

6:15

year treasury over the next five years. If I want to be conservative,

6:19

I'm going back to the twenty twenty two playbook of what worked and it's the

6:24

defensive sectors and or very short duration bonds. That's it. So if you

6:28

want to be conservative, there's a place to go, even one of the

6:31

morning markets that's not just cash plus a percent or two, but a money

6:36

market that's investing in basically the Fed funds, overnight Fed funds and getting more

6:42

than five or anything less than one year treasury. That's it. There's a

6:46

place to go, and it's just not that. So if you want something

6:49

to hate long duration bonds for until the Fed says, you know, until

6:57

the Fed is in a panic, but I don't think the Fed has anything

6:59

to pan about. And that's what you were mentioning earlier in the show. There's nothing to panic about, and then therefore there's no reason to cut rates,

7:06

and therefore there's no reason to buy anything long duration. Right, So

7:11

yeah, you have to be careful there. We've talked about that on a lot of shows. That your bond portfolio, although we like better for a

7:16

diversified portfolio of say sixty stock forty bonds, it's looking a lot better because

7:23

the starting point on your fixed incomes a lot better. But you don't need

7:26

to tie your money up in that fixed income for a tremendously long period of

7:29

time to get a very good level of interest, especially given the fact that

7:33

the Fed is either not cutting at all or cutting one time this year.

7:38

So it's an unusual period where you have shorter duration yielding more than longer duration.

7:44

Is it is typically if if you have an inverted yeal curve or short

7:48

is yielding more than long, it's temporary. We've had it for a long

7:51

time. Were two years of inverted yeal curve. That is unusual, but

7:58

it's a gift and you might as well take the gift while you can get

8:01

it. That's right, Brad, so our market commentary this week. We

8:05

talked about it last week. It's it's the sell and mayn go away adage.

8:11

It is the worst six months. If you look at six month periods, the worst is made October. It's still positive, by the way,

8:18

as you mentioned, Brad, one point seven percent returns on average. Recent

8:22

history hasn't been as good. Made October has been much better over the last

8:28

decade. The better rhyme would have been go away in July. Well,

8:33

looking at three month increments too, July, August, September, those those

8:37

are the three months to avoid. If you're going to look at this at

8:41

all, but certainly staying in and the time in the compounded performance of that

8:46

extra one point seven percent over twenty thirty forty years, it would never make

8:52

sense to lose out on that return. But our market commentary can be found

8:56

on our website, Kristen wealth dot com goes into this. We talked about

8:58

it last week as well. Brad political side of it, I got something

9:05

from Bespoke Research talking about investing in politics. That's another thing that we like

9:13

to really point out, especially in a presidential election year, that it doesn't

9:16

matter. I think we've talked about this on previous shows as well. The

9:20

median return for Republicans annualized seven point nine percent since nineteen hundred. It's even

9:28

better in the more recent history of more modern markets. Democrats is seven point

9:35

seven So doesn't make a difference. Okay, But what I thought was interesting

9:37

about this more than anything is we've talked about this on previous shows that you

9:41

shouldn't worry politically. How about the average returns and how it affects the sectors.

9:48

I think that maybe is something that is worth looking at because too many

9:54

people want to take a look at who's in charge and say in or out

10:00

of the market, and we often say it changes your investment. Possibly.

10:05

That's everything I've been saying for every review meeting is once we get past the

10:11

election or a risk level change maybe a little. What will change more dramatically

10:16

is which side of the asset allocation grid we're going to be leaning into.

10:22

What I mean by that is which sectors are going to be leaning into.

10:26

After the last election, perfect example of it. You know, twenty twenty

10:30

two, you've got all the value sectors out performing the gross sectors. I

10:33

think that the political side of that mattered more than anything. And the same

10:39

thing with the twenty sixteen election. The growth side and smaller and mid did

10:45

right out of the gate, did better because of the tax cuts and the anticipation of those. So this particular chart goes to sectors, and what I

10:50

found fascinating is it's not even what people think. That's the crazy thing.

10:56

So let's just look at presidents. Okay, let's just look at presidents.

11:01

Don't want to break the news to people. Democrat presidents have outperformed Republicans since

11:05

nineteen forty. Okay, so basically since World War Two, Democrats are ten

11:09

point one annualized on the SMP. Republicans are six point three. But look

11:13

at this brad energy. Okay, in all periods, energies averaged nine percent

11:20

annualized Okay under Democrats. Energies average thirteen point five percent annualized under Republicans four

11:26

But think about why though, because most people would say Biden hates energy companies,

11:33

Democrats are green energy. They hate this or they hate that. But

11:35

what do they really do? You told that to somebody say if Trump wins,

11:39

we're gonna load up on energy, and didn't know the history. Everyone

11:43

would nod their head in agreement. But why should you be nodding your what?

11:46

You're getting the story right. You're getting the investment wrong. If they

11:48

hate drilling, if they hate permitting, and they make it hard to increase

11:54

supply, what is happening to the price of oil? We're going higher,

11:58

not lower? And who likes higher oil prices? Energy stocks? Right?

12:03

So you're getting the story right, You're getting the strategy wrong, and the

12:07

same is going to be true if Biden or any Democrat wins the next time

12:11

around. We're gon we're gonna be faced with where we are or higher on

12:15

oil and you need to invest accordingly. If it's within one or two percent,

12:18

I'm gonna say it doesn't make a difference. Okay, Communication services doesn't

12:22

make a difference. Okay, that's big ones, Google and Facebook not a

12:28

recommendation to buy or sell. And then on the other side of Verizon and

12:30

AT and T that make up a different sort of long term average, and

12:33

either side of the president pretty close. Consumer discretionary within a percent doesn't make

12:39

a difference. So that's Walmart and Amazon are the two biggest. They're not

12:43

a recommendation buy or sell. A little bit of a difference. In consumer

12:48

staples, that would be the number one holding, would be Procter and Gamble.

12:50

That's defensive under Republicans eleven point five percent under Democrats seven percent for consumer

12:58

staples annualized since nineteen Okay, here's another one where it makes a pretty big

13:03

difference. Financials. Financials like the Democrat president nine percent annualized versus four under

13:11

Republicans. That's what I think even I would have gotten wrong not looking at

13:15

the chart. No difference in healthcare, No difference whatsoever in healthcares within point

13:20

two of each other. On healthcare, industrial stocks makes a little bit of

13:24

a difference stocks Industrial stocks do better under Democrats. Government spending rules the day

13:33

with industrial companies and things and things like that. So no difference in materials

13:39

seven percent on both. Big difference in real estate real estate publicly traded real

13:46

estate is nine percent annualized under Democrats minus point seven under Republicans. I don't

13:52

know if you can find a reason why. There's got to be some one off years that are really skewing that. And finally, technology outperform under Democrats

14:00

sixteen percent per year versus ten for Republicans. Utilities are exactly the same.

14:05

That would make sense because utility is pretty steady. People pay their bills.

14:09

It doesn't really matter. So really, the big areas that really stand out

14:16

brad energy energy for Democrats. The area that stands out for Republicans is just

14:20

consumer staples and maybe materials. That's about it for Republicans. How about Congress

14:30

Democrat Congress. Here's a big difference, averaging a return for Democrat controlling Congress

14:37

all of Congress six point four percent Republicans twelve to two. This goes to

14:43

if you're going to pick one, get Democrat president, Republican House, and

14:46

Senate where's the outperformance on Congress. Republicans are in control, they outperform on

14:52

consumers discretionary by quite a bit, huge outperformance on financials when Republicans control Congress

14:58

twelve six to three. Okay, you look at not much difference in industrials,

15:05

materials, but the technology script flips Democrat president. Tech wins over a

15:13

Republican president, but when it's Congress it completely flips. Republicans control Congress.

15:18

Technology is twenty percent per year annualized ten percent under a Democrat Congress. So

15:24

handicap it a little bit. We can go even further in terms of gridlock.

15:28

But looking at this upcoming presidential election, Brad, if you're saying Trump's

15:33

in the lead right now, what's the what the what do you see the

15:37

polls on for a House and Senate at the moment you looked at those lately?

15:41

I have not. I would say you're probably not gonna Denny would probably

15:45

know a little bit better about who is up for election and how much it's

15:48

going to swing. Well, Trump's in the lead at the moment. Trump's in the lead at the moment, and I think we're looking at more than

15:52

likely gridlock. Yeah, get a split. You're saying, get a split,

15:56

a split Congress and a Republican president. I don't think you're gonna see

16:00

full control either way. And if so, let's look at gridlock. Okay,

16:03

when when you have gridlock compared to all periods, you're looking at underperformance

16:11

for energy, you'd be looking at outperformance for staples. You'd be looking for

16:17

outperformance for technology, tech in general, technology, and underperformance from real estate.

16:26

So interesting to see that little bit of a barbell. If Trump does

16:29

win and we have a split Congress, it would what what what spells out

16:33

here in the historical report for the sectors is you'd want risk with technology and

16:37

you'd want safety with consumer stables. Sort Of interesting to see that. Yeah,

16:41

So if if you're looking at your defensive sectors, if it's Trump,

16:45

you'd want to be underweighting the defensiveness of energy and maybe even utilities. And

16:51

that would make sense because if you're gonna I if he's gonna allow drilling,

16:53

you're gonna increase supply, You're gonna lower energy prices. You know, energy

16:57

not a big part of the market anymore, but you're going to go from

17:00

you know, three and a half percent of your total to maybe nothing or

17:04

maybe one or two percent, versus if it's a Democrat, maybe you take

17:07

it up to five to seven percent as a way to overweight that one volat

17:12

area of the market followed over the last five years. Energy take our first

17:15

pause here, we get back from the break. We're going to talk about

17:18

a competitor, much bigger competitor than us, but Dave Ramsey's out there.

17:22

He has a lot of advice, some good, some bad. Brad,

17:26

You and I because a lot of people and I think a lot of our listeners and clients listen to him as well. We're going to talk about some

17:30

of the good, some of the bad with the advice that Dave Ramsey gives.

17:33

And we get back from the break. You're listening to Money Sents. Kevin and Brad Kurston will be right back. Welcome back to the show.

17:38

You're listening to the advisors of Kirsten Wealth Management Group. Kevin Kirsten and Brad

17:42

Kirsten happy to be with you this morning. As a reminder, we are

17:45

professional financial advisors and our offices are in Perisburg. Give us a call throughout

17:49

the week if you like to get in touch and set up a consultation.

17:52

Whether you're just getting started on your retirement journey, or you're well on your

17:56

way, or you're already in retirement, we'd have to sit down and go

18:00

over your go over your plans with you. Brad Dave Ramsey big radio show

18:07

podcast personality, been around for a long time. His big thing is being

18:11

debt free for everybody. He has a lot of more specific advice than that,

18:15

but that's the biggest thing. I think being debt free is a wonderful

18:19

goal that that people should pursue. I don't think there's anything wrong with that,

18:25

but there's a lot more to it, as we found over the years.

18:27

And and he seemed even the way he says to payoffs, he's very

18:32

he's very black and white, sometimes even dismissed. If I heard a recent

18:34

show where a woman called in she was a single mom making it work,

18:41

and she said she was comfortable. She said she took home net three thousand

18:48

dollars a month and and had one child and was comfortable. And he went

18:52

off on her how how poor she was, and she's like, She's why

18:56

is he being so dismissive of this person? She even said she was maxing

18:59

out her hirement contribution. She was able to make it contribution is still make

19:03

it work, which is wonderful. I mean, you know, you talk about wealthy too. He was going off on how how she was under the

19:07

average. He was saying, with average income for one, that's household income

19:14

seventy six thousand dollars, is what he said. Yeah, yeah, that's

19:17

household not one person. And number two, what makes one person wealthy might

19:22

not make another person wealthy. And that is the wealth of what you need

19:26

and your happiness. Okay. I've seen people make three hundred thousand dollars a

19:30

year, okay, more than three times the average, and they are poorer

19:36

than someone who makes fifty because they spend too much. So what defines wealthy?

19:41

Okay, what's what one person needs? That's why when people say to

19:45

us, what do I need to retire? Well, that's I don't know.

19:47

Or how am I doing for my age? Yeah, it all depends what do you spend. I know people with less that it can retire,

19:52

and I know people very happy that can't are very I know people who retire

19:56

on very little compared to others, and they are thrilled. They're happy.

20:03

So let's start with uh, would you cool to go through a list here

20:07

of some of the things that he says. Basically, first thing he says

20:10

is all debt is destructive. He despises debt. He spreads the idea that

20:14

debt is bad. Cash is king certainly excessive debt, but it's more nuanced

20:18

than that, Brad Right, Excessive debt, especially high interest debt and credit

20:22

card debt, and maybe some high interest dued loan debt could get you into

20:26

trouble, but some debts can be beneficial, Okay, And so that puts

20:30

us into maybe another idea that he has. Certainly I believe that, yes,

20:38

you shouldn't have credit card debt, especially high interest credit card debt.

20:42

If you have a high interest home equity loan, maybe you should be looking

20:45

at paying that down. If you have a high interest car loan, But

20:49

if the car company gave you zero percent financing, yeah, and you're making

20:52

payments on more to roo percent, and you're going to pay that off aggressively,

20:56

Yeah, that certainly doesn't make sense, right, But his method would

21:00

be, no matter what you pay off the debt, well, no matter

21:03

what you pay cash, yeah, no matter even if they give you zero

21:06

percent, Yeah, even if they give you zero percent, you pay cash for the car. Even if you could take that cash and invest it in

21:11

a five percent money market and they're gonna give you zero, why wouldn't you

21:14

not? He would say, you don't because that's debt. He would don't

21:17

take never, never take debt. So if you got zero percent, he would tell you that. The other thing is on mortgages. He says,

21:22

absolutely, you should only have a mortgage you put twenty percent down, which

21:26

is pretty much the standard now anyway since the financial crisis, but also only

21:32

a fifteen year mortgage and only twenty five percent on your income. We're talking

21:37

about how unreasonable that is for people. We did some masks, especially for

21:40

like a first home. Yeah, the average home in the US is down

21:44

a little bit. It's four hundred and twenty thousand, eight hundred. Means

21:47

your downpayment wuld be eighty four thousand a year, and your monthly payment for

21:51

just principle and interest would be three thousand, little more than three thousand a

21:55

month. So if you're factoring in what the average insurance and tax as would

22:00

be for that, you'd be about forty four thousand dollars a year. So

22:03

on his method of what you could afford, you would have to have a

22:06

household income of about one hundred and seventy seven thousand a year to afford the

22:10

average house in the US. And part of that is because he's saying either

22:15

no debt or the only debt that he would approve would be a fifteen year

22:18

mortgage. Well, you could probably get away with even under some of those

22:25

factors if you were doing a thirty year mortgage, probably one hundred thousand of

22:27

income to afford the average house. If you could do a thirty year mortgage

22:32

instead of a fifteen So why would that not be okay to get into your

22:34

first house? I have no idea. Well, I've often said too,

22:37

Brad. A thirty year mortgage can always be turned into a fifteen year mortgage

22:41

with extra payments. But a fifteen year mortgage you can never take a payment

22:45

off. Yeah, and think about Let's say something happens in your life.

22:48

You either maybe you have a job with flexible income and you have a bad

22:53

year, or you lose your job, or maybe you're both employed husband and

22:57

wife and one of you loses their job. Now you've locked yourself into the

23:00

fifteen year mortgage. What would Dave say? All sell everything, and he's

23:04

always always saying eat beans and rice. Yeah, it's not realistic. Yeah,

23:08

I mean, I'm sorry, but I think he's out a touch from

23:11

the standpoint of he now is a net worth of about one hundred and fifty

23:15

million dollars. I looked up. His annual income is fifteen million a year.

23:18

So how is he lives in a twenty million dollar mansion in Nashville and

23:22

he's telling you, if you lose your job, sell everything so that you

23:25

have no no payments. It's just not realistic. Yeah, it's just like

23:30

it's I think he's on the radio and he does. He's never sat down

23:33

face to face with the real person. He takes the phone calls and he

23:37

dismisses people and tells him to you know, don't buy a second car and

23:41

all this other stuff. But when you're talking about a mortgage that is good

23:44

debt. You can do the thirty year mortgage. If you have a company

23:48

that's letting you do a little less down and you're planning on staying in the

23:52

house for seven, eight, nine, ten years, they'll if the company

23:56

will, if the bank or the credit union or the mortgage company will let

24:00

you do less than twenty down without paying extra? Am I insured? Am

24:03

I insurance? Go for it? Yeah? Okay. But to dismiss people

24:08

and say that's the only thing you could do, and then when you can't

24:11

afford it, what just rent for the rest of your life? Yeah,

24:14

I don't think is a realistic goal for anyone. And so by all means,

24:19

if you want to do the thirty year and make an extra payment,

24:22

fine, but to lock yourself into that doesn't make any sense. It's really

24:26

if we're looking at all of his advice, there's really two things that really

24:30

and one of them is on the debt. So let's we talk about it now. Two things I just think are just I could not be any dumber

24:37

advice, in my opinion. One of those is if you're paying off your

24:40

debt. He wants the what he calls the debt snowball. Well and Brad,

24:44

this goes, in my opinion, to the the disrespected disdain he has

24:49

for his listeners. He assumes everyone is stupid, and this is the way

24:52

I have to dumb it down for you. And to dumb it down for

24:55

you eyes you're so dumb, You're so dumb. This is the only thing that you can understand and his debt. What snowball method is, let's pay

25:00

off the smallest balance first, so you get a little momentum and the smallest

25:06

balance regardless of what that debt is, we're gonna pay off. So you

25:08

feel like, oh, I got one thing paid off, now I get

25:11

another thing paid off. Not even looking at what is the highest percentage debt.

25:17

There is only one way to pay off debt in my opinion, and it is your highest highest percentage a debt, regardless of bout, regardless of

25:25

balance. If you have a twenty five percent credit card debt and you have

25:30

a three percent auto loan that has one year left, why would we be

25:34

paying off the three percent auto loan because the balance is one thousand dollars when

25:38

you might have ten thousand on a credit card charging you twenty five. Give

25:42

me one reason why the credit card debt wouldn't get paid off. So you

25:47

can't come up with one, only because you'll feel good. I mean,

25:51

we have to dumb it down to feeling good. It's it's like what a

25:56

what you would tell an eight year old to do to pay off debt.

26:00

I mean, that's how little listen, it's a simple it's simple math,

26:03

Brad, pay off the highest interest You'll number one, you'll get it paid

26:07

off. You'll get all your debt paid off. Quicker, Yeah, because

26:10

you're saving money. And the second, if you're itemizing your taxes and you're

26:15

writing off mortgage mortgage debt, that should be last you ever never, Well,

26:19

you have to reduce the effective rate in your mind of what that is.

26:23

If you're in the twenty two percent bracket, you need to reduce that

26:30

interest rate and make that calculation. We're all grown ups here. You can

26:33

take twenty two percent off your six percent mortgage and do the math. Furthermore,

26:37

you really have a a on a first mortgage with reversed amorization, you

26:41

have to figure out what your effective rate is for the rest of your term.

26:45

If you only have five years left on a thirty year and you started

26:48

with a four percent mortgage, you don't have four percent. You might have

26:52

one and a half left and so and if you're writing off that one and

26:56

a half, now we're down to what you know, something closer to one.

27:00

There is going to be a lot of debt that you're paying off before

27:03

that morgage. So what's better than debt snowball? Interest snowball. Yes,

27:07

get rid of the high interest first. It's very simple and so and so

27:11

that that to me is a very big thing to pay attention to when when

27:17

you're trying to get your debt under control. He says, absolutely positively.

27:19

No credit cards at all, Brad, financial irresponsibility. Don't worry about fraud

27:26

protection, fraud liable. How many people you see get get hurt with their

27:30

debit cards? All debit cards. Your credit card is there to protect you.

27:34

And fifty percent of all credit cards, it was forty eight percent last

27:40

year, So it's not I don't even need to exaggerate. Forty eight percent of all credit card owners carried a balance for even one month last year.

27:48

Okay eight percent, I mean fifty two percent paid off their entire balance every

27:52

single month for the entire year. And if you do that, So,

27:56

if you do that, it's costing you nothing. But maybe if you have

27:59

a credit card fee, but you don't have to, you get all the

28:02

protection of every purchase without having to risk your bank account. And if you

28:07

have one that has some sort of annual fee, you're getting something for it,

28:11

some some If you travel you get no charge to do a conversion on

28:15

your currency, taking away all the other benefits and perchs you should get.

28:22

You're at least getting one and a half percent cash back at a minimum equivalent.

28:26

So if you spent five thousand dollars a month, Okay, you spent

28:32

five thousand dollars a month, Let's say you've spent, you spent because you put everything on there. Yeah, let's know you spent fifty thousand dollars on

28:37

a credit card. If you're paying it all off, you could put your utility bills on there, put you put your health insurance on. You put

28:41

your health insurance, your utility bills, every expense you have. For fifty

28:45

thousand dollars, you're getting seven hundred and fifty dollars cash right in your pocket.

28:49

Yeah. If you're paying it off every month, it's it's costing you

28:53

nothing. So I don't understand that the fraud protection, I said, another

28:57

one of these. We can't you can't be trusted. You are so irresponsible,

29:00

you can't be trusted. I say, no credit card, that's right.

29:03

Once again, he treats his listeners like eight year olds instead of grown

29:07

adults. And I can't tell you, Brad, how many times if you

29:11

see someone ever have a fraud issue with a credit card, it is fixed

29:17

instantly, the charges are gone, they send you a new credit card,

29:21

and you're responsible for nothing. When people get their debit cards hacked, it

29:25

is months before they get that money back, if at all, if at

29:29

all back in their checking. Yeah, so that's a big thing. We

29:33

talked about the mortgages already. He fixates on don't do anything in life unless

29:37

you have a thousand dollars emergency. So he's terribly aggressive on certain things and

29:41

terribly conservative on others. Okay, everyone I believe should have an emergency fund.

29:48

I think people have more emergency money than they realize, whether it's non

29:52

retirement investment account or money in the bank or money in a checking You know,

29:56

what do you label the emergency fund? What good does a thousand dollars

30:00

emergency fund do anyone? Yeah? What emergency is less than a thousand?

30:04

Yeah? Yeah? I mean? And what emergency can we not jet?

30:08

Well, I guess if you don't have a credit if you don't need to

30:11

have a credit card, you really do need to have maybe cash under the match. I got to fix my car. What car repairs less than a

30:17

thousand. Yeah, my hot water heater goes out. What hot water heater

30:21

is less than a thousand, My furnace goes out. What furnace is less

30:23

than a thousand? So yeah, everyone should have money in checking and savings

30:27

for an emergency. A thousand is terribly short. Yeah, I wonder how

30:30

long he's been recommending a thousand forty years. I don't understand that number.

30:34

It's the most pointless number. It's a nice round number, though round numbers

30:38

are always better for the dumb people that we gave the example of someone making

30:42

what fifty to one hundred thousand, You know that person should have twenty or

30:48

twenty five thousand in an emergency fund. Yeah. Now, if that emergency

30:51

fund is invested, but you can get your hands on it less than a week, you might feel like you have all of your non retirement funds in

30:56

an emergency fund, especially in the day and age Brad with money markets paying

31:02

north of five percent, So certainly that'd be a great place for your emergency

31:07

fund. Right now we get back from the break, let's talk about his

31:11

investment advice, which where he's terribly conservative on something like an emergency fund being

31:17

one thousand dollars. Some of the invis off the charts, aggressive with how

31:21

much you should be taking out for in retirement and the risk you should be

31:23

taking it, and also misleading on the investment returns you can achieve. You're

31:27

listening to Money Cents Kevin and Brad Kirsten will be right back. Welcome back

31:32

to the show. You're listening to the advisors of Kirsten Wealth Manager Group, Kevin Kirsten and Brad Kirsten. Brad, we were talking about some of the

31:41

advice Dave Ramsey one of the biggest podcasters and financial radio show hosts out there.

31:47

Some good, some bad, but with a lot of caveats, right,

31:49

I mean, payoff debt? Is that bad? That's one of his

31:52

big things. No, is it more nuanced than that with mortgages and car

31:57

loans and things like that. Of course it is. There's certainly more specific

32:00

circumstances than just saying all that at all costs. How about on investment returns?

32:06

He is known for his twelve percent rule. He advises people to expect

32:10

a twelve percent annualized investment return. He also advises people to go to do

32:15

upfront loaded a share mutual funds. I don't know how you're gonna get to

32:20

twelve percent investment return when you got five and a quarter coming off the top.

32:22

Yeah, so what happens to the I mean, he's been around for

32:28

a long time. Was he advising people in the year two thousand? Right?

32:31

Because since two thousand, there's no chance you got twelve percent. You

32:36

haven't done bad. Actually, after going through a lost decade from two thousand

32:38

and twenty ten, you still have gotten to almost a six percent annualized gain

32:43

on the S and P five hundred. But that is not a realistic percentage

32:50

that people should expect on their stock investments. Right, Well, and go

32:53

online and just google the top recommended funds. Now, Dave's not actually recommending

32:59

funds. His his his advisors that are in his network are recommending funds.

33:04

But you can find out there where people are trying to follow the advisors are

33:07

trying to follow Dave's advice on how a portfolio should look. And these a

33:13

share upfront funds that people will post out there that their advisor gave them.

33:17

Not a single one has a twelve percent return for the last ten years.

33:21

Right, even though the S and P five hundred or even the MidCap index

33:24

has averaged that these funds haven't. Why it's you've got a big upfront charge

33:30

to start with, and your advisor's not a fiduciary in that case. Yeah

33:35

no, right, right, No, they're just buying something and holding and

33:37

hoping and hoping everything works out. The other thing is on this this weird

33:44

bit of advice where he says you only need four things. You need you

33:49

need aggressive growth, growth, growth with income, and international, as if

33:53

those categories are the definition of diversification. I mean, you could have aggressive

34:00

growth and growth. It's the same fund. I mean, it's not the right description. It is not the asset classes that you're talking about. If

34:07

you go to mording star and try to search those categories, you're not gonna

34:10

find aggressive growth as an asset class. You'll find large cap growth, you'll

34:15

find MidCap growth. You're not going to find growth with income as a category.

34:21

You can find large value, mid value. I mean, you might find balance funds in the growth with income category, but balance fund would be

34:28

a better category because that's an actual category. International is a category. So

34:31

now we're mixing in one asset class with an investment object. The rest of

34:36

our investment objective. There's styles well and dismissing and saying mutual funds only and

34:43

not looking at exchange traded portfolios when many mutual funds are fine, but many

34:49

underperformed and you don't get the benefit of the ultra low cost of ETFs and

34:53

the index well, and just saying, if all you do is put together

34:57

aggressive growth, growth, growth with income and international, how could you go

35:00

wrong? You're gonna get twelve percent. Let's look at a couple of things. One morning Star list seven hundred and fifty four growth funds. How many

35:07

of them do you think are gonna average twelve percent? You know, not

35:10

all of them. So now we're just flipping the coin that your advisor gets

35:14

the right one. If that's the plan. How about aggressive growth They're not

35:16

quite as many, but pretty easily. I found an article from morning Star

35:21

that said three great aggressive growth funds. This article is six months old,

35:25

the twenty twenty two return. If you start in twenty twenty two, this

35:30

is the hole you're getting out of. For these three funds. They recommend negative sixty three point three nine, negative thirty and negative twenty two point five.

35:37

Okay, so how are you gonna get to twelve percent if that's your

35:39

shit. If that's your starting point, if you retire in a year where

35:43

you're a neat income out and now you're in that big a hole, it'll

35:46

never work. You're gonna run on money quickly. The ten year return on

35:50

these three that are three the title of this article, Three great aggressive growth

35:53

funds. The ten year on the first one plus eight, the next one's

35:58

eight point seven to six, and the other one's ten point that's pretty good. The index, however, fourteen percent over that period. So here are

36:05

three great aggressive growth funds according to the Morning Star, and Dave Ramsey says,

36:07

all you need is a good aggressive growth fund, and none of them

36:12

have achieved twelve percent over the last ten years, and the index is fourteen.

36:15

But the other thing, too, Brad, is what it sets up.

36:19

People would would say to us, well, what do you use and

36:21

we say, well, for stocks, I would say eight percent. Well, isn't that terribly conservative? That's the only way to plan. Yeah,

36:28

okay, that's the only way to plan is for the bad stuff, the

36:34

negative right, Because you want a retirement plan that would say, oh,

36:39

my retirement plan works best if I retire in nineteen ninety and go through the

36:44

best decade of performance ever. Huh No, you know what everyone should base

36:49

their retirement plan on. If you're going to do back testing retiring in the

36:52

year two thousand, I'm gona retired the worst year. If you retired in the year two thousand and based on how much money you have in your withdrawal

36:59

rate, you're still okay, then you're gonna be okay. Then you're gonna

37:02

be okay. That's how you plan. You're planning for the worst of more

37:06

than a generation and it still works. That's what you should be doing,

37:10

not have have have gross stocks has the SMB five hundred average twelve percent over

37:15

a long period of time? It has in certain periods of time. But

37:19

why are you planning for the best period of time to see if it's gonna

37:22

work? I mean, if you were you're going to go back to work when you're eighty five and run out of money. If you're rebuilding a house

37:29

in Fort Myers after the big hurricane came through, are you gonna be like,

37:34

Eh, I'm not gonna rebuild for another bad hurricane. Why would I

37:37

bother? Yeah, of course you're gonna build for a bad hurricane, because

37:42

one just happened. Yeah, but these portfolios that he recommends aren't built for

37:45

that. He recommends that that's one hundred percent stock, by the way,

37:49

right, that's one hundred percent stock. You're going to do twelve percent a

37:52

year. And he also recommends an eight percent withdrawal rate. Right now,

37:54

we've talked on previous shows. We're not gonna get into it on this show

37:57

about sequence of returns. But let me just tell you, Okay, an

38:01

eight percent withdraw rate, regardless of time period will run out of money.

38:07

Well, I have it here, well eighty ninety percent of the time. Okay, twenty five year retirement. So I found a couple of good calculators.

38:13

Now, the first couple I came to, there's you know everyone has them. Where you can do these what we would call money Carlo simulation.

38:20

Now, if I do eight percent withdrawal rate on any of these, and

38:24

I say I want my retirement to even be twenty years, and I if

38:29

I said that I wanted my worst year to be the first year, it won't even run. It says you run out of money in all scenarios.

38:34

If I say I want it to be in the In the first five years,

38:37

I couldn't get them to run because it says you're gonna run out of money. So I had to go down to seven percent withdrawal rate to get

38:44

anything to run. Because if I do an eight percent withdraw rate, it says in twenty years, one hundred percent of scenarios run out of money because

38:50

of the sequence or returns. So here, I'm gonna give you two different ones on one hundred percent stock with one hundred percent stock and a seven percent

38:58

withdrawal rate over a twenty year period. So I guess this is a scenario

39:01

where you're going to say I'm gonna retire at eight seventy and I want to

39:06

plan to age ninety. Okay, it says success rate here seven percent withdrawal

39:10

rate is forty one point nine percent of the time, So fifty eight point

39:15

one we run out of money before the twenty years is up. Now that's

39:19

just a twenty year rates. That's a twenty What what about a thirty year

39:22

What if you're gonna retire it sixty or sixty five and you're gonna want to make sure you're gonna not outlive your money. Well, a seven percent withdrawal

39:30

rate by the way, he recommends eight, but a seven percent withdraw rate

39:32

one hundred percent stock portfolio in thirty years twenty two point six percent success rate

39:37

seventy seven point four failure eight out out of money. Eight out of ten

39:43

people with a thirty year retirement invested one hundred percent stocks like Dave Ramsey recommends.

39:49

And this is not a guess. This is based on historical performance of

39:52

markets. Eight out of ten. If you follow Dave Ramsey's advice and take

40:00

out and you're not even I'm doing seven because I couldn't get eight to run. It wouldn't even it was one hundred percent. You run out of money,

40:05

okay, even at seven percent withdrawals, So that's seventy thousand per million.

40:09

Eight out of ten people who are invested one hundred percent stocks like he

40:13

recommends will run out of money prior to thirty years. So then, real

40:16

quick, let me do an eighty twenty, so eighty twenty on the same

40:20

thing, seven percent, not eight. A withdrawal rate for thirty years success

40:23

is seventeen point three, so eighty three percent run out of money eight out

40:27

of ten. Yeah, and on a twenty year with an eighty twenty percent

40:31

in Bond's portfolio, you're about a sixty forty forty success sixty failure. So

40:37

is it a high recommended withdrawal rate? Yeah, oddly high, since you

40:42

can't find a twenty year period where it even works. And why even if

40:46

you average ten and take out eight, it doesn't work because of the sequence

40:51

of returns, and if any of those negative years come in the first couple

40:54

of years and you don't adjust your withdrawal rate, it is it isn't an

40:59

ever, So whereas his advice on debt is pretty pretty cautious and conservative,

41:04

and it's mostly you know, the approach of plan for the worst, hope

41:07

for the best. Right, you don't want to have debt because if you

41:10

lose your job, it's hard to keep things going. So I agree with

41:14

that plan for the worst, hope for the best. But on his investments

41:19

here, on his investments here, Brad, he's not even close to plan

41:23

for the worst or hope for the best. He's the exact opposite. Right,

41:27

to take our next pause, you're listening to money sents, Kevin and

41:30

Brad. Kirsten will be right back and welcome back to the show. You're

41:32

listening to the advisors of Kirsten Wealth Manager Group, Kevin Kirsten and Brad Kirsten.

41:37

We're kind of going through a little bit what Dave Ramsey recommends. Some good, some bad. He's one of the biggest financial radio show hosts out

41:44

there and podcasters. A couple things because we only got a couple of minutes

41:47

left in the show. Brad, first of all, one of his piece

41:51

of advice, I can almost laugh. Never buy a new car unless you're

41:54

a millionaire. Your car will lose value, will lose ten percent in the

41:59

first month after purchase, more than twenty percent within the first year. Buying

42:01

a new car is stupid. So you must buy used cars only and pay

42:06

cash. So basically says because a new car depreciates. So does that mean

42:10

never buy anything to appreciates that sweater you're wearing bread, Yeah, only buy

42:15

second hand clothes. Shoes, what's the difference. Shoes depreciate? Yeah,

42:20

wan, A car is a necessity, yeah okay. If you have a

42:22

job, yeah, you probably need a car. Yeah. Okay. Now,

42:25

if you live in a city and you can take Uber and lyft in

42:29

public transportation, great, How do you live in the suburb if the goal

42:34

is to never have any depreciating assets, think about how many things in your

42:37

life are depreciating assets that you buy new and you could buy second. And

42:40

is that what we're doing. I mean, it's not a very good existence

42:44

if that's all we're shopping for. I mean, it is just unbelievable.

42:47

You said you heard him. Recently, had a gentleman call into the show.

42:52

His wife and he only had one car. They both now have a

42:55

job. She has a job, but she just got her job, and

42:59

they were making like grand it wasn't a lot. And he said, we're

43:01

thinking about buying another car and not sharing it. He's absolutely not. You

43:06

can't afford it. You can't afford a car, so just share one.

43:08

That's ridiculous. It's so ridiculous. Let me get another one here before we

43:14

run out of time. Putting all retirement funds on hold until you're debt free.

43:19

So regardless of the fact that your four to one K is such a

43:22

big tax advantage to you, and if some of the debt is low debt

43:27

instead of high debt, if your tax bracket is higher than the debt,

43:32

you're paying off every dollar going into the retirement contribution is more important. It's

43:37

just a math problem. It is not a psychological experiment. It is a

43:40

math problem, and that's what advisors should be there to help you with.

43:45

Well, not only that, Brad, but we've often talked on this show, what is the most important part in terms of when you're investing for retirement,

43:53

picking picking stocks, picking funds, picking index Nope, the time of

44:00

that money. Time, yeah, starting early and time yeah. Yeah.

44:04

It's not just yeah, I'm talking about the tax advantage, but the compounded

44:07

return of forty years instead of thirty years, it's exponential. So how long

44:13

is it going to take somebody to be debt free? Most most of these

44:15

people that I've seen that call on his show, it takes them till they're

44:17

in their forties or even early fifties, and now they have not a single

44:21

dollar saved. Now, if you saved it when you were twenty five and

44:24

then slowly paid off the debt, when you're forty and fifty in debt free,

44:29

the dollar that you put into the four to one K when you're twenty five is worth ten times as much. And each year that it grows,

44:36

it's growing by ten times more So. The extreme nature of his vice,

44:42

if we're going to sum up what we're talking about, is really the thing

44:44

I would push back against. And that gets us to the last piece of

44:47

advice you give, which is extreme frugality. Okay, he's a big advocate

44:52

of frugal living, although he lives in a twenty month go look at his

44:55

house. I don't think he's a huge advocate of frugal living. Living below

44:59

your that means as a fundamental aspect of financial stability and building wealth, but

45:02

it has its downsides. Cutting back on essentials can harm your long term financial

45:07

well being and your emotional well being. Okay, you can still enjoy life

45:10

while being mindful of expenses. But life is about balance anything, whether it's

45:16

what health your health, what's health about moderation, eating in moderation, exercising

45:22

and moderation your financial life is the same. You cannot sacrifice everything. What

45:28

would be the point of working, what would be the point of living?

45:30

Yes, I would put this type of advice, of this extreme frugality the

45:35

same as the Davos people telling you you need to never fly and never drive

45:39

a car and never do anything that's going to harm the environment. And oh,

45:43

by the way, they flew there on a private jet. Dave's live in a sixteen twenty million dollar house and telling you just rent until you're a

45:50

millionaire, what do you and don't buy any new cars. Yes, we

45:52

we're financial advisors. We want people to save. We want to start early.

45:57

Do your wraw irase, do your four oh one ks, save for

45:59

the college fun. But am I really gonna tell a family with young children

46:05

to say, don't take that trip to Disney with your young kids? Yeah?

46:08

Also when you're sixty you have no memory of ever going on vacation with

46:13

them. But you're debt free. You're debt free. This does it.

46:15

You have to find the balance like all things in life. And I guess

46:19

my biggest biggest complain of the advice he gives is, you know, he

46:24

sells all this stuff and sells all these ideas and makes millions of dollars per

46:29

year. But rules for rules for thee and not for me. Right,

46:32

you should live your life. It's a fine line. And you don't want

46:37

to live in excess, but you also don't want to live in poverty because

46:42

that middle part of your life when you have a family, Yeah, that's

46:45

the best part. Yes, the trail is the thing, not the end

46:47

of the trail talk. I see somebody online and he interviews older people and

46:52

he talks about, you know, what are some of your regrets. I've seen this person on Instagram, Brad, and go talk to someone who's eighty

46:59

years old and see what they would have done differently. I bet you they

47:02

wouldn't say, pay off your debt earlier, or I'm glad I didn't take

47:06

that family trip that I remember right, Okay, they would never say that.

47:09

So thanks for listening everyone. We'll talk to you next week. You've

47:16

been listening to Money since brought to you each week by Kirsten Wealth Management Group.

47:21

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47:24

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47:30

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