In this episode of The Tom Dupree Show, Tom Dupree, Mike Johnson, and Chad Sturgill dive deep into recent market volatility and essential retirement planning strategies. Here’s what you need to know:
1. Market Insights
Recent jitters in the tech sector, particularly affecting NASDAQ
Shift in market sentiment: Bad economic news now viewed negatively
Rotation from high-growth stocks to defensive, value-oriented options
2. Smart Investment Strategies
Importance of balanced portfolios, especially near retirement
Value of dividend-paying stocks and strong cash flow companies
Caution against chasing high yields without understanding risks
3. Retirement Planning Essentials
Transitioning from growth-focused to income-focused strategies
401(k) vs. IRA: Benefits of rollovers after leaving a job
Warning: Leaving rollover money in cash can lead to significant losses
4. Financial Education is Key
Understand your investments
Develop a clear retirement income plan
Don’t remain “ignorant” about your retirement savings
5. The Value of Professional Advice
Work with a fiduciary who provides personalized guidance
Limitations of large plan providers highlighted
6. Current Market Trends
AI-related stocks performance and sustainability questions
Recent outperformers: financials, consumer staples, utilities, real estate
7. Risk Management Tips
Dangers of over-concentration in high-yield investments
Caution on withdrawing more than 3-4% annually from retirement portfolios
Key Takeaway
Understanding your investments, having a clear retirement plan, and seeking professional advice when needed are crucial for financial success.
Need help navigating these complex financial issues? Contact Dupree Financial Group at 859-233-0400 or visit us at dupreefinancial.com to schedule an appointment.
FULL TRANSCRIPT: What lies behind the markets jitters? The market’s always jittery in a sense, whether even if it’s going up.
So you have, you evidently think something’s really behind this. Like we got to get down to it. What you’ve seen the sentiment shift. So you rewind earlier in the year and bad news on the economy. The market viewed as a positive because it viewed that as the feds going to cut rates. And so it was bad looking at bad news is bad.
And it was, so then it was bad news is good news. Good news is bad news. Now it’s actually. Bad news is bad news and good news might be bad news is how the markets view it right now when I’d be wrong They’re worried about a hard landing worried about a hard landing and the markets get like this You know from time to time that they get so bulled up Yeah in it can be macro meaning just widespread or in particular areas but this week you saw the NASDAQ, drop over 5% the S and P.
It was down a little over 4 percent for the year. The DA or for this week the Dow was off, a little over 2 percent for the week. And so you had it just generally, it was a, what you would call a risk off scenario, but where you saw it the most was in, high multiple in like the NASDAQ high, multiple tech stocks, tech heavy things.
And we’ve been talking and talking that. You’ve been in an environment since, for about 10 years, a little bit longer, but you absolutely have seen it coming out of 2022. So 2023, and then all of 2023, where you’ve had this outperformance, this massive outperformance by a very small.
subset of the market and that kind of thing will reverse over time. And that’s what we’ve been seeing. We’ve been seeing this rotation away from the high multiple into things that are, more defensive in nature, more defensive being the type of business. It is. and dividend paying stocks more.
It’s what you would generally call more value and dividend income sectors of the market. That’s where you’ve been seeing more strength. There’s the absolutely relative stronger balance sheet. Yes. And you look at something like Berkshire Hathaway which has had a massive move up. A lot of that is been flight to quality because of the balance sheet.
Valuations, they’re starting to get a little bit stretched. But, and so there, there are areas in the market where you can even have a good company that can get short term can get too expensive. And so you just. You have to be careful. Especially with retirement money, because your situation, if it hasn’t shifted, will likely be shifting where you’re starting to draw on the portfolio.
And so the idea of growth always growing and, quote unquote, harvesting the gains along the way. That may or may not work because you have to have gains to harvest. And if we’re in a period where there aren’t gains, you don’t have something to harvest. And that’s where the foundation of income comes in on the portfolio is producing a regular income stream to match up with the needs of withdrawals.
So there’s two kinds of dividend paying stocks. There’s stocks that actually pay dividends and there’s stocks like a Berkshire, that even though it isn’t a dividend paying stock, in some ways it is, because it’s got this internal cash flow machine that’s going all the time. And. They’re not paying it out directly to shareholders, but they’re paying it out in the way of share repurchases and reinvesting the money back into other things, and that’s how Berkshire works.
So are we in a market that’s going to abandon growth forever? Now growth, your growth type of mindset is usually focused on the future. It’s focused on what things may happen in the future. And when the market gets. worried and gets the jitters, people start not thinking about the future. They think about what’s going on now and oh, I’m losing money now.
And I’m not in any I’m not in any mood. To think about investing for the future. I’m wanting to take care of my money now, and that’s a risk off scenario Are we there or are we just headed there? I? Think it looks like we’re heading there, but we’re not you know it’s too Early to call it. What’s going on is you’ve seen some of the luster come off the A.
I. Trade. I think that’s part of what’s driving it. You’ve seen NVIDIA really drop a lot here in the last really a couple of weeks is down about 5%. I don’t know where it closed down, but it’s about 5 percent today. Friday. Afternoon here, but as far as 4. 09 down 4. 09 is where it is. And it’s been down a lot more than that this week.
You saw, I keep wanting to call it a Vago, but it’s a Broadcom and that’s the Broadcom bought a Vago and changed its name or are they are Vago bought Broadcom and changed his name to Broadcom kept the ticker symbol though. But the. they had disappointing guidance. So that stock was off like 9 percent earlier and it probably has come back some because the market’s come back some towards the end of the day.
But but you’re seeing that happen where the, this all in total faith, blind faith in the AI trade, people are starting to question that. So I think that’s a factor what this, Article from the journal said is that the focus had been on inflation. Yes, we got to get inflation under control And now I think that the market participants are believing that The inflation is well under control and we need to be more worried about economic growth So they want to see stocks that actually can either not be lose ground or grow in a slower growth environment.
So I think that’s a factor in what’s causing people to shift out of some of these high growth names. And specifically some of the sectors that have been outperforming, you mentioned Nvidia since Nvidia is high, which was Juneteenth you’ve had financials. consumer staples, utilities and real estate.
Those have been the sectors that have been the outperformers. And because, some of these, they benefit when interest rates go down. Some of them, it was just the valuations were so attractive. Utilities was a kind of a combination. Utilities was interesting because it was a combination of that and demand for electricity from, AI, which also has benefited natural gas pipeline companies because of that extra, need for electricity generation.
So a lot of that is Bitcoin mining, a lot of what’s driving the demand here for the, it’s going to get nutty here because As it gets closer to the end of where it is, which is gonna be a while off, it’s gonna become infinitely harder to mine the Bitcoin. It’s gonna take more computing power, and the whole expectation is that by then Bitcoin will be at 200,000 a coin.
What I found is you can never predicate, something on that. That’s right. And if you’re a quote unquote minor of it and you’re, you got all these sunk costs into something that’s a volatile it’s, it, the price, it’s actually a business plan for a lot of people. Yeah. And you, yeah there’s a lot to bet on.
Meaning there’s a lot that can go wrong in something like that. Yeah. There’s a lot of what ifs. I have found that it a lot of times does. So Yeah. But in this environment too there was a Jason Zweig article goes right along with this talking about high yield, the demand for high yield right now.
And there were, there are a few high yield ETF. So high yield means. It pays a high percentage dividend. That’s what it’s talking about. When it says high yield, what they’re specifically talking about here are high yield products. ETFs closed in funds would also fall into this, which are types of mutual funds like a closed end fund.
Basically, you can have borrowed money inside of a closed end fund. And so there are closed end funds that have borrowed money on companies that have a lot of debt. What he’s talking about here isn’t quite that. He’s talking about high income ETFs. Which they lists a couple of them, but they’re highly concentrated in just a few sectors.
And with small market caps to the companies aren’t huge, right? And these we’re talking, outsides yields in the, 10 to 15 percent range on some of these things. And so investors say interest rates are going down. And I’m needing income. These things look attractive.
Be very careful on something that pays an outsize yield. There’s a reason because it with these, it’s highly concentrated. Now there are times when you can find something that pays a high yield that has a high yield and it can be a part of a portfolio, but. You have to be, you have to understand it and know what you’re buying because high yield is also a relative term.
That’s right. So high yield compared to 1 percent might be 3%. High yield compared to 5 percent could be 10. Where are they generating the revenue? What’s it coming from? We own some things in our portfolio that are definitely high yield, but we’re somewhat comfortable. And I say somewhat because it means we have to always keep our eyes on what they’re doing.
We’re somewhat comfortable with how the money’s being generated. So one of these that he’s talking about it. It buys one 100 of the highest yielding stocks worldwide, which tend to be small and mid-size companies buys stocks that yield no less than 6% and no more than 20%. So what you’re getting on something like this is it’s a shotgun blast to high yield you that with high yield.
The last thing you want to do is a shotgun blast because out of a lot of these. There might be one or two that are okay, but then the other ones, you’re going to have problems with, because there’s a reason generally want to know what you own and with that shotgun blast, you definitely don’t know what you own, right?
And a lot of times what you get, and you’ve seen it with these is that yes, it’s paid a dividend. It’s had the high yield, but the price has gone down. more than what the dividend has been. So the dividend has essentially been a return of principle. Oh, that’s bad. Yeah. You might as well just put it in a bank with zero percent interest and just draw it down.
That’s the same as take a withdrawal of 25%. Hey, I made 25. No, you didn’t. And it’s the same principle. Orange, So just be careful out there understand what you own or have someone that can explain to you what you own that you trust and that understands and the way to tell if somebody understands something.
Ask questions. And it doesn’t have to be confrontational. Just how does this help me understand this? What’s this company do? What’s their balance sheet look like? Yeah. Where’s the, how are they paying this dividend? Why are they paying this dividend or, Just simple questions, but you just keep asking.
I still remember the book Thomas Solra. I read it back in college and I believe the exact number was seven, it was seven or nine questions to ask before you actually really understand something you have to ask why about seven times, and then you can actually get an understanding of something.
So if you don’t know what you own, we would be happy to shed some light on that. Give us a call at Dupree Financial Group at 859 233 0400. You can also schedule an appointment directly on the homepage of our website at dupreefinancial. com. You’ve been listening to the Tom Dupree Show, brought to you by Dupree Financial Group, where we make your money work for you.
We’ll be back in just a few minutes with more of the financial hour. Stay tuned.
My name is Tom Dupree. Rarely in my time in the investment business have I seen the kind of opportunity I see today. I’m talking about interest rates, which I believe will be going significantly lower in the next 18 months. I believe it’s time to lock in longer term rates now. Short term rates on money market funds, bank accounts and CDs can drop dramatically when rates begin to decline.
Don’t be lulled into complacency. It’s time to invest to establish your yields for the long haul. At Dupree Financial Group, we specialize in retirement investing. Let us help you by calling 859 233 0400 and setting up a complimentary meeting with us to examine your investment portfolio. Listen to the Tom Dupree Show Saturday mornings at News Radio, 630 WLAP.
And w.com
We’re not in your face. You need to buy an annuity. We’re not doing that kind of thing. Or gold. Gold. You’re getting ready. Yeah. Oh, gold dollars going to zero. Yeah. Get your gold. While you’re getting your beans and your pepper stuff for, and you’re going to be able to buy lots of stuff with that gold and the world falls apart.
Yeah. You’d shave some off and there’ll be a medium of exchange for it. Yeah, that’s right. Yeah. Yeah. You can hear the sarcasm, right? I hope a little coins. Yeah. Yeah. Don’t worry. I don’t think anybody’s taking you seriously. Anyway, go ahead. No. You look at what’s been going on in the market.
So most people out there, you have 401ks, employer plans, and you look at what’s gone on the market the last several years. So you’ve had growth has done well and you’ve been contributing. Now if you’re starting to switch from the contribution phase to the distribution phase, the 401ks, you can do rollovers to IRAs.
Now, IRA, there’s no tax consequences. It’s dangerous. Something might get lost or I, no, this is absolutely fact. I have talked to some people who said my, my 401k has done really well. I don’t want to take it out of my 401k. And these are people that haven’t worked in that company for five years.
Sometimes they won’t take the money out of their 401k. I had one lady swear to me that a 401k was better than an IRA. It’s better. Why is it better? Because it’s better and it’s way better than an IRA. Yeah. Like three, 400, 000 still in her 401k. I said, what’s it in inside the 401k? She says. It’s in the 401k.
The 401k is generating the returns. Yeah, it’s, yeah. He was convinced that the 401k was a type of investment. Now, when, so first off, the 401k, it’s invested in things. The IRA, You reinvested in things. This is something that actually a lot of people don’t know. So it was a Vanguard study. So one in four investors.
So this is people who have self directed money. So you’ve moved from a 401k, you open an IRA and your thought is I will self direct money inside the IRA. I will invest it myself. One in four investors who rolled money into an IRA. left it in cash for at least seven years. This was a Vanguard study. So two, two things, part of it could be a misunderstanding.
They think I’ve in my 401k, I put money in it automatically went into. Funds X, Y, and Z. That was per the plan. You made that election. It went into something. In an IRA, it’s self directed and not knowing how the shelter works can make a big difference. So the money, it, the default into an IRA typically is just money market.
And then from there is reinvested into other things. That’s what. What we do for a lot of people is they, after they retire, it rolls to an IRA. No tax consequences goes in as cash. And then we gradually invest it depending on their circumstances, depending on the market circumstances. But I thought that statistic though, just blew my mind that.
One in four investors just leave it in money market for seven years. And they figured on average, it’s cost the person between 67 and 164, 000 over time in lost gains. And so
retirement planning, retirement. Investment. It is a, it’s not something you can fall asleep at the wheel on. It’s something that has to be watched. Because when you’re working and you’re contributing, you can almost put something on autopilot because you’re contributing dollar cost averaging, the stakes are higher when you’re getting to retirement because you’re not contributing because you’re at a certain age and you have afforded down market.
It’s now time for the cash you’ve accumulated to perform, right? And by perform, what’s it going to throw off? Throw off means produce. That’s not principle. Yeah. Dividends interest. It’s throwing off a stream of income, not by liquidating itself. See, people don’t see this. You have to think in terms of turning.
Your property your 401k into something similar to a rental property. When you get rent on the rental property, it doesn’t diminish the value of the rental property. See, people have a hard time telling the principal from the income. Yeah they tend to think of them as being. Co mingled. In fact, they never even have the conversation with themselves.
I could talk to people until I’m blue in the face. We’ve had seminars that we’ve done where I ask, does anybody in here have a plan, an income plan for their retirement money? The whole thing would raise their hand. And then sometimes very few of those people would sign up for an appointment with us because They didn’t feel like it was that important or they, I guess they just, it wasn’t something they wanted to really learn more about here.
You’ve been putting money away and you just going to stay ignorant because that’s what it is. Let’s face it. You’re just choosing to remain ignorant about it. So the 401k. I was going, wouldn’t have said that, but I would have maybe, I would have maybe said not educated. Let me check. No, it by using the word ignorant, I’m not using it to mean dumb ass.
I’m using it to mean uninformed, right? Much better. So which is a dumb ass thing to do just to clarify, go ahead. So I’ve seen people that have done this over time and then you know, they stop Their retirement plan literally is they have X dollars in their 401k And they call whoever it is, the large provider and they call on a monthly basis or, whenever they need money and they request something be liquidated and send the fund that is the extent of a retirement plan.
So they have X dollars invested in something that they have to call somebody to sell something. A lot of times that’s somebody who’s going to be withdrawing. More than say three or four percent a year, which is what could what the plan could be reasonably expected To generate in terms of dividend. This is somebody who’s maybe spending eight ten twelve Percent a year of their principal and the sad thing though The plan is not a fiduciary for you the investor It’s a fiduciary to the plan Not to you, the person.
So if you call in and you’re requesting, and let’s say you’re starting and you’re taking a 7 or 8 percent withdrawal rate. You may not know any better than to do that. Now that will cause you problems down, without question, that will cause you problems. But you might not know any better.
They more than likely won’t raise a red flag to you. Really? It’s because their job is to take an order and to execute the order that you’re giving them because they’re under the assumption that you know what you’re doing, but that’s their job. And so they don’t function as advisors.
They’re not. They’re not. Make sure it’s legal. What they’re doing is not illegal. That exactly. And as long as they are not going to break any laws, they’ll let you do it. Exactly. And what, and this is the importance of having somebody, like an actual person that you know, that you have a relationship, a group of people that you trust.
It’s because if somebody calls in and is doing something that we view as damaging to the portfolio we’ll sit down and we’ll talk to them and we’ll have, okay this is the reality of the situation and we discuss it you’re damaging your portfolio again. The math doesn’t work.
Something needs to change in the equation. People are strange about money and they can be very belligerent and uninformed. And if you go, let’s say you go down a river. Whitewater River. I used to do a lot of paddling. Water, flowing water has laws. Things that it will do and it won’t do. And so what you’re looking at on a river that’s moving over rocks and things, you’re looking at where the water is moving and where it’s not moving.
Like in an Eddie behind a rock, it won’t be moving and you respect the laws of physics as it applies to that water. Money has its own laws and if you disrespect the laws of money, it will disrespect you. It will not be there when you need it. You’ve got to respect what money can do and what it can’t do.
And if you ask too much of the money. And you require it to happen. The money will do exactly the opposite thing when you need it to do it the most, because that’s how money can be capricious, meaning that it appears to desire your destruction or your hurt, when you’re relying on it the most, no, that’s not the way it is.
It’s just due to the volatile nature of the thing. And the water can be like that too, it is a flowing resource. It’s better when it is flowing, but you have to learn about the flow of it. And see, that’s the thing that people choose not to understand. And I don’t blame them in some ways because it takes a lot of practice.
And if you can’t do it, you need to have somebody that does and that will respect what the money can or can’t do. It’s something that has to be intentional. It doesn’t. It has to be a priority as well. Yeah, absolutely. But you’ve got to respect how it operates. The way you learn about how money operates is by studying it for a long period of time.
And you learn how money people think. Yeah. I’m just trying to learn from some of these people that are really good at it, and in small steps. You’re doing it. Chad’s doing it. Absolutely. You have to do it personally. The other thing is go ahead and ask your advisor. Do you do this same thing you’re trying to get me to do?
If they say no, be really careful. Yeah. Yeah. And you ask, yeah, ask yourself this question too. When you think about where your money is, think about, okay, who is working for you? And who is working in your best interest? Because, okay, you have the market at play. The market isn’t working for you. The market doesn’t care about you.
The market’s the market. That’s rough. It is. The market just is. If you look at a large plan provider, They’re not working for you. They’re in the business of gathering assets and taking orders. When you think of that large plan provider, can you think of a person there, or do you just think of the name of the company?
What are their incentives? That’s what you have to ask yourself. Yeah. The incentives of the market is to be the market. The incentives of the big print plan provider is to simply get assets under management and answer as few phone calls as necessary from participants. So with us, our incentive is to keep you happy.
So if you’re going to look at all these financial providers and think they’re all the same, You’re wrong if you’re not looking at how they’re incentivized. Exactly. And one other piece this goes to people that are still working or, Beneficiaries, grandkids, kids having guidance on what type of, the investment is the key part of it.
The investment approach. What goes hand in hand with that is what type of. type of account to make the contributions to, you have Roth IRAs, you have Roth 401ks, you have questions on 529 plans, you have questions on all these things and how to direct cash flow. So if you’re in your working age and you’re looking Making contributions you’re trying to plan, lay the foundation for a long term plan.
That’s also where guidance is needed because that alone can help add. It’s maximizing the dollars and the efficiency of those dollars that you have long term. So it’s making small, wise decisions over time and letting those decisions compound. Alright, that sounds like a good place for me to jump in.
If you don’t know what you own, we would be happy to shed some light on that situation and give you an impartial opinion and educate you. You can give us a call at 859 233 0400. You can also schedule an appointment directly on the homepage of our website. I may also add we’re going to have an educational workshop.
that’s going to occur the end of September. It will be posted on our website in the next few days if you’d like to register for that. Go to our website, dupree financial.com, and click on the events tab. We appreciate you listening to The Financial Hour with Mike Johnson, Chad Sturgill, and our host Tom Dupree, brought to you by Dupree Financial Group, where we make your money work for you.
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