Announcer:
It’s time now on KROS for Financial Focus, brought to you by Nelson Core Wealth Management. The opinions voiced in this show are for general information only and are not intended to provide specific advice or recommendations for any individual. Any indices mentioned are unmanaged and cannot be invested into directly. Registered representative securities offered through Cambridge Investment Research Incorporated, a broker dealer, member FINRA, SIPC, Investment Advisor Representative, Cambridge Investment Research Advisors Incorporated. A registered investment advisor, Cambridge and NelsonCorp Wealth Management are not affiliated. Cambridge does not offer tax advice. Now here’s today’s financial focus program.
Interviewer:
Well, we’re going to jump into our NelsonCorps show. Dave Nelson’s standing by with us. Good morning, Dave. We’re talking about basketball and coaching and all that stuff, so we’ll have to get into that later, but-
David Nelson:
Yeah, good stuff.
Interviewer:
You’re here to talk about investments and portfolios and all these words, terms I always get confused.
David Nelson:
Yeah, sure.
Interviewer:
Sure. So what do we need to know today? You were in a month ago.
David Nelson:
Yes.
Interviewer:
Have things changed in the last month?
David Nelson:
Yeah, it really has. When you look at it, and again, as I think many of the listeners that have listened to me chat before, there’s a lot of things I just literally can’t say as far as legally, and one of them has to do with generically, commodities. And commodities is … And again, everything that comes out of my mouth is not a recommendation, so I got to get all my stupid disclaimers in. But the meat of it is we’ve seen some just unbelievable returns as far as in some of these areas, and then we’ve seen a big collapse over the last two, three, four days as far as some of those same type of investments, and the impact of that is pretty significant and it can bleed over into other areas. And basically, what’s taken place over the last week or two is that there’s been a lot of risk off type mindset as far as in the market, and so people are now really becoming much more nervous than they were, say, a month or so ago.
Last year was a phenomenal year as far as individuals who had invested and primarily had their money in stocks had a really good year last year. Bonds didn’t do a whole lot, but again, you’re not expecting bonds to give you that great of return. But looking forward is obviously always the big question mark and people want to know as far as what should I be thinking about as far as going forward, and one of the themes we had towards mid-year last year, and it continues this year, is that individuals should be looking not just in the US, but looking abroad. When we look at emerging markets, again, generically as far as the index for that space, it had a really nice year last year.
You look at developed markets outside the US, they too had a really good year. That would be Europe and Japan and Australia, Canada, countries like that. They had a really good year last year as well. So it’ll be interesting, Dave, as far as to see this year as far as how this continues, as far as from the standpoint of will the trend of international type investing outdo the United States as far as like it did last year, will it continue this year? But keep in mind, folks, for those of you that don’t know this, it’s been pretty much about a 10-year period of time where the US overwhelmed international markets by a significant difference, and that primarily was technology. We’re big into technology and our big technology companies we have in the US. That doesn’t really exist outside the US as far as on that scale, so we smashed them for about 10 years, but last year, the shoe was certainly on the other foot.
Interviewer:
You run into people who say, “So I’m just going to stick my cash in the mattress.”
David Nelson:
Oh, yeah.
Interviewer:
Is that a good plan?
David Nelson:
It’s not a really good plan, but it sounds comforting as far as for a lot of individuals. Yeah, we’re in a world of complexity, and the average person, as far as as you brought up earlier, it’s tough to understand some of this. There’s a lot of jargon and whatever, but the reality is with inflation running at, give or take a couple of percent, two, 3%, depending on who you listen to. When you look at the tax band, the IRS, they want a little bit of your money. It’s pretty tough as far as to put my money in money markets, things of that nature. When you take the return that you’re getting, you subtract inflation and you subtract taxes from that, most years, you’re underwater, and so it doesn’t feel like that, but if you look over an extended period of time, that’s exactly what’s happening. And so as we tell people, it’s a slow death, but everybody’s concerned about the big drop as far as losing a whole bunch of money, and that obviously can happen when you own assets.
I try to parallel to owning your home, and when you own your own home, everything doesn’t always go the way that you want. Sometimes you got to replace the furnace, sometimes you got to put a new roof on, but over a period of time, most people would agree that it makes sense to own your own home versus renting that whole period of time. The same is true as far as in the world that I exist in. Stocks historically most years are going to outperform other type of investments. There’s going to be corrections, again, those drops that take place, whatever, but again, very much like owning your own home, it’s that same concept. But over a period of time, owning stocks historically has been a really good decision for people. Occasionally, you just have to close your eyes, don’t open the statements for a few months when things get a little bump in the statements for a period of time. It is a prudent move for most individuals.
Interviewer:
What about the idea, Dave, and I’m not sure what you came in to talk about but you probably had some ideas, but you do that. Do people, is it better to … You probably can’t say better.
David Nelson:
Yeah, sure.
Interviewer:
To put your money in and shut your eyes, and I’m not sure the terminology, let the money sit there and do whatever, or the managed accounts I think is a term that they toss around.
David Nelson:
Yep.
Interviewer:
Can you explain, is one of those, especially if there’s some volatility, does that make a difference how people should look at how Dave Nelson and NelsonCorp invests their money, whether it’s just invest it and let it do or the managed account? What’s the difference there that may play a factor in that volatility?
David Nelson:
Sure. So the buy and hold is the one. I’m going to buy it and I’m going to hold this sucker, good days, bad days, et cetera, and over a long period of time, that’s been a really good strategy. to cut to the bottom line, it’s been a great strategy. If you look over a 10, 20, 30, 50 year period of time, it’s been a great strategy. The difficulty comes back to the emotional aspects of it where individuals, all of a sudden, I’m looking at my account. Yesterday, it was 100 grand and today it’s 90 grand. That’s tough for people to look at and say, “I really don’t care,” and that’s only a 10% drop. Markets correct oftentimes a lot more than that. So subsequently, I should be diversified and have a bunch of different type of things.
Now, where we come into play, which is when you’re referencing managed type portfolios, our job is to try to take that 30% drop and keep it to 10%, and 10% we can recover from. 30% gets pretty tough. And by the way, folks, a 30% correction, they happen on a fairly regular basis. History says every six to eight years, you’re going to get punched in the face and it’s going to be a pretty good punch that’s going to take place. But if you’re diversified, again, hopefully that 30% drop as far as in stocks with some bonds and cash in there, maybe it’s only a 20% drop as far as in that situation. But nevertheless, that’s pretty tough for most people to tolerate and we start thinking, “Oh my God, I can’t afford to lose it.”
So again, our role basically comes into play, and history has shown that we’ve had pretty good success as far as in this. No guarantees as far as going forward obviously, but we’re able to try to anticipate and try to navigate as far as some of those drops and keep some of those drops from a 30% drop to a 10% drop. And again, the way that we do that is we have really sophisticated tools that we use, really expensive tools that basically, I parallel to trying to anticipate as far as like an earthquake. We’ve got all these sophisticated tools and whatever that hopefully we get just a little bit of warning so we can tell people as far as to get to a safe place. The tools like that exist as far as in our line of work, and those are the tools that we use.
Sometimes, and here’s the bad side to this, is sometimes it basically says, “Get the heck out of the way,” and the market just drops a little bit and then it starts rallying again, and maybe you miss some of that uptick as far as in the market. But like I explain to people all the time is that if the market were to go up 10% and you were sitting in cash during that period of time, would that change your life at all? And the response is always, “No, that wouldn’t make any difference.” And then I go through, on the other hand, if we were asleep at the wheel, you’re asleep at the wheel, we never met and the market corrects 30 or 40%, and oh, by the way, it stays down not for six months, but for two years, three years, five years like history says oftentimes it does, would that change your life? And everybody nods their head and says, “Yes, it would.” And I said, “That’s basically our job.
Our job is to try to navigate through this, and oh, by the way, there’s a vested interest. “How do you guys get paid?” Well, it’s real simple. We get paid based on the account balance, and so the better you do, the better we do. It’s a win-win type situation, and again, it’s helped us grow to the size that we are. We oversee thousands of accounts for people as far as in this area, as well as I think it’s 48 states as far as that we’re helping individuals these days. From billionaires to the average guy in the street, we basically provide that role as far as for many individuals out there.
Interviewer:
And we got a lot more to talk about I’m sure coming up. Got a couple of more questions, but this is a good spot maybe to take a quick break for our weather forecast, and we’ll be back to talk more with Dave Nelson.
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Interviewer:
Back to our NelsonCorp Live Show, Dave Nelson with us, and talk about all the other stuff, Dave.
David Nelson:
Sure.
Interviewer:
You say you talk about anything, but a couple of quick questions, and you mentioned, you alluded to this in the opening about all the disclaimers and things like this. And not to give anything away, but do people understand, your clients maybe understand some of the things you can and can’t do when it comes to discussing things and how you can present things depending upon their accounts?
David Nelson:
Yep.
Interviewer:
You alluded a little bit of that in the opening.
David Nelson:
Yep. So the biggest challenge for us, and I tell people all the time, is I don’t look good in stripes. In other words, I don’t want to be in jail. And so the way you get in jail is you start basically promising, as far as people, stuff that you can’t back up. You talk about areas of investing that is just a no-no, and commodities generically is one of them, that you just don’t go down that path and there’s certain things that you can’t bring up. Now, one-on-one with a client, I don’t have those restrictions. I can drill down as much as people want. Some of the new coin stuff, Bitcoin and stuff like that, we can have conversations with people.
Interviewer:
Are you an expert in that? Can you explain it to me?
David Nelson:
Oh my God, no. Nobody can. It’s just stunning to me, and we’re seeing now a little backlash as far as in that space. But again, it was just the hot thing, and probably, I’m not kidding you, go back about a year, maybe two years ago, and one out of probably every 10 people that would come in, “Hey, can you talk to me about this? Can you explain it? I don’t understand how this stuff works and blah, blah, blah.” I said, “Nobody does. Nobody does.” And people pretend that they do but they don’t, and the reality is we’ll see if it survives and is even an issue as far as down the road. There’s more tokens and whatever out there than you can shake a stick at these days. Again, one or two of them, people have probably heard of, and all the other ones, we haven’t. So I’m going to dream up my own token and it’s going to be a currency that people are going to use. It’s just nuts.
But anyway, there’s just things that, again, in this type of venue, we have to be very careful as far as not over promising people and talking specifics about it and people come to conclusions that, hey, they like this or they don’t like this. My goal here is to try to educate people on probably 80, 90% of the stuff that really matters. The other stuff really doesn’t matter. Some of these things that I can’t talk about in the big scheme of things really don’t matter. It’s not going to impact your retirement probably in any way. But what I do know, and I know very well and I can talk about, and that is, again, generically as far as stocks and bonds and cash and real estate, as far as the importance of those type of investments, that people own that type of stuff, and over a period of time, again, it can basically help keep your head above water as far as in periods of time where, again, inflation is nipping us at our heels and we’ve got to be able to stay ahead of that.
And again, history says the assets that will keep you ahead of taxes, inflation, historically would be ownership assets, which is a fancy way of saying real estate and stocks. And again, not saying go out, take all your money and put them into those two categories. I’m saying if you don’t understand this, find somebody that you really trust, find somebody that’s a fiduciary that will have your best interest first and align yourself with that individual, and again, over a period of time, you could do some pretty cool things together.
Our clients as a whole are probably, again, mine is 73 years old. I think throughout the office, it’s probably closer to 58, 59, 60, somewhere in there. But as a general thumb, they’re individuals that have worked really, really hard, put away money through their lifetime. They’ve got a decent pile of money, they want to retire at some point, and they’re afraid. They’re afraid of what? They’re afraid of the 30, 40, 50% drop as far as in their assets, they’re afraid that they don’t have enough cash as far as right now, they don’t know what tomorrow’s going to bring as far as inflation. And again, with a well-thought-out plan, a well-thought-out strategy and approach to things, we can take away a lot of that uncertainty and help individuals sleep better at night.
When I did my coursework out at the John Kennedy School of Government at Hartford, this goes back again 20 years ago, give or take, my last coursework, the professor made it real clear to me and basically smacked me alongside my head and said, “Don’t forget, every question, there’s always two answers. One’s the financial and one’s the emotional. And guess which one always wins out? It’s the emotional one that always wins out.” Well, our challenge sometimes is to make sure that it’s a combination of both at a minimum when we talk to clients, because the emotional one goes back to what you brought up earlier. “The mattress or in the backyard, I’m going to take all my money. I’m afraid.”
Well, again, if you live a while, you’re going to run out of money, it’s real simple, so we’ve got to have that money grow, we’ve got to have it grow faster than taxes, inflation are growing, otherwise, you’re cooked. And so it’s a process. You don’t understand this stuff overnight. We do this educational stuff that we do here. What we do on TV as well is for a reason, to try to reinforce some of the concepts that people need to understand. And none of this stuff, just like in life, you never pick stuff up quickly.
I use the example all the time, I talk to farmers. We’ve got a lot of farmer clients. I said, “If I followed you around for an hour as far as out in the fields or feeding the animals or whatever it is that they’re doing, do you think I could pick up as far as on what they’re doing?” The answer is obviously no. Well, what if I followed you for the whole day? The answer is still no. So it takes time as far as to get some of this stuff, and our objective with people is to have ongoing reviews on a regular basis every year, as far as it’s typically for most clients, it’s twice a year. And then beyond that, we do educational events. We do this type of a forum to try to reinforce some of this stuff.
We want people to get this stuff and we want them to have more rewards and success than they’re probably going to get on their own, and they need somebody that they can trust, they need somebody that they can lean on, and that’s basically been our role for the last 40 years.
Interviewer:
David, this may also play … You mentioned the emotional part, and somebody heard the story that people work their lifetime to save up this pile of money to retire.
David Nelson:
Yes.
Interviewer:
All of a sudden, you retire, and then your mindset comes from changes from saving this big pile of money to now I get to spend this big pile of money, and that’s a hard change for people to make. Do you find that part of your discussion with people, is that an important emotional decision?
David Nelson:
It is. It is, because again, when I first started, and keep in mind, we’re going back to the early 80s and I’m chatting with people that are significantly older than me. I looked like I was 12, but I really wasn’t, but anyway, long story short, I’m talking to people that are 60 and 70 and 80 years old back then. Back then, most people had pensions, so that was a nice base as far as their income. They had social security, but beyond that, they had some savings, and typically after tax savings. And I would say to these people, give or take, and I’m paraphrasing here real quick, and that is, “Go out and spend some of this money and enjoy it.” And they’d look at me like, “I want to punch you in the face,” because again, these were individuals that went through the Great Depression. Many of them went through the Great Depression. They were young, they were exposed to it, and they saw it, and spending is a swear word to a lot of those individuals.
It continues to be as far as for probably half our clients. They don’t like the idea of tearing down as far as what they build up. So the goal is always to hopefully have a big enough pile where the earnings from that pile generate enough cash flow for me to be able to do what I want to do. And if not, and that’s the scary part as far as I don’t have a big enough pile, number one, and/or number two, the pile gets cut in half because I wasn’t prudent as far as the way that I invested it or whatever, that’s when things can get really scary. So yeah, the emotions are a really important part of what we do, and it’s a great challenge as far as to be able to try to help people make decisions that are appropriate for them, and again, what fits for one family doesn’t necessarily fit for the other.
We use the example all the time, I don’t care what your neighbor’s doing. Don’t listen to them. When your neighbors and all your friends are saying, oh, they’re so excited about the investments that they’ve made, that’s the time you should probably be nervous. And I know this sounds almost arrogant as far as to come out of my mouth. It’s not meant to be. If the average person was right as far as in a lot of those decisions, they wouldn’t be an average person. They would have a massive net worth. So the individuals that you want to listen to are not the average people. They’re nice people, they’re trying to help you oftentimes, but the bottom line is oftentimes, it’s bad advice.
Warren Buffet, I think, said it best. Again, I’m paraphrasing. “When everybody’s excited about investing, you should be nervous, and when everybody’s nervous, you should be excited.” And that’s really an important strategy, but boy, it is really tough to implement. Again, telling people to buy when things are down 20 and 30 and 40%, people don’t want to hear that. They’re terrified at that point in time, but that’s exactly the times that people should be thinking about buying and probably buying, but it’s not easy. This is not easy. That’s why, again, most people out there aren’t really, really rich. There are average people that have an okay nest egg but they would like more, and again, our job is to help them get more and to hopefully pass on a few bucks because most people, they want the earnings off it and then they want the rest to go as far as to the kids. And again, that can be done. It’s just a matter of trying to get a good roadmap, and that roadmap is going to hopefully illustrate some good days as well as bad days, and over time, you’re going to be okay.
Interviewer:
Dave, you mentioned that convincing people to do this or that.
David Nelson:
Yeah, sure.
Interviewer:
Obviously, a lot of your training and all your advisors is nuts and bolts, financial formulas and all this kind of stuff.
David Nelson:
Yep.
Interviewer:
Do you always have to have some counseling training in there a little bit maybe that you never planned on, you never really thought about? When you started out when you were 12, or looked like you were 12, did you think about that part, that emotional part, that again, you’re almost like a counselor?
David Nelson:
Yes. You very much are. I tell people I feel like a priest oftentimes, a minister, whatever, whatever. We’re talking about all kinds of things outside it, but it is really important. Again, the other phrase that came out of his mouth as far as in some of the coursework is an extra half a percent rate of return means nothing if people can’t sleep at night. So I want people to be able to go home at night and not think about this stuff, and if I’m doing my job, that’s what’s taking place. If they want to think about it, if they want to have the peaks and the troughs of the investing, “Oh, look at today what we did. Look at today what we did.” If they want to go through that, they don’t need to pay somebody as far as to basically hold their hand. They’re going to do it on their own, they don’t need that extra expense.
But most people, that’s not what they want. Most people, they want to go out, they want to enjoy retirement, they want to travel. They want to garden, they want to golf, they want to do stuff, and they don’t want to be thinking about this and looking at computer screens 24 hours a day. So again, our role with those type of relationships is basically to do the handholding when appropriate, and also to have the expertise as far as to know what type of mix of investments are appropriate today versus five years ago versus 10 years ago, what’s going to be a good mix as far as today?
Interviewer:
And sometimes, you have to tell people no?
David Nelson:
We do, yeah. It’s probably the most common one is, “You don’t have enough money to retire.” That’s the hard one. People come in, “Hey, we’re thinking about retiring in a year or so.” And you start crunching the numbers, and the big one that usually, again, kicks people is health insurance. And the health insurance as far as, “Hey, I’m 62 and I want to retire.” And from 62 to 65, before they get on Medicare, when you look at the premium that they’re going to have to pay, oftentimes, that’s a killer. That number there, it’s just too big, and they don’t have a big enough coal pile as far as to be able to offset that additional health insurance premium.
Interviewer:
Can you address that? Can you help somebody if you say, “You don’t have enough, but here’s what we can do to help you”? It may have to push it off a couple of years.
David Nelson:
Yes, that’s typically the case. Probably the earliest ones where it was on a big, big scale of people coming in was the crisis in ’07, ’08, ’09. Maybe people remember it, maybe they don’t. The market dropped give or take 50%, and we had a flood of people coming from Equistar, Camplex, you know what I’m talking about as far as out there, and individuals that had their mindset that they’re going to retire, and then they got blasted in their 401k plan. And the bottom line, they’re coming in and we’re meeting them for the first time and they’re putting this thing in front of us, and here’s what the account balance was and here’s what it is now, and it was a much lower number. And we’re looking at it saying, “Hey, sorry. There’s really nothing we can do.” And you’re right, it was an extra year, two years, three years that they’re going to have to work, which is not something we enjoy telling people.
Interviewer:
One quick question and we’ll wrap things up. Can somebody do all this stuff on their own?
David Nelson:
Personally, I don’t think so, no. I can’t do it on my own as far as to help a client. We’ve got a big team that we’ve assembled. Tax issues are important, estate planning issues are important, investment issues are important, and blending all that together. Now Medicare as far as for many of our clients, blending all that stuff together takes a really good team, and fortunately, we’ve got a good team.
Interviewer:
Well, Dave, thanks for coming in today. Dave, I’m sure you’ll be back in the first Wednesday of next month, and maybe I’ll give a hint. Of course, I was going to ask some things about tax season and how that impacts your work, but we didn’t even get to it.
David Nelson:
Yeah, we didn’t get to it.
Interviewer:
Maybe next month.
David Nelson:
Sounds great.
Announcer:
Financial Focus is a production of NelsonCorp Wealth Management in Clinton and Davenport. The opinions voiced in the show are for general information only and are not intended to provide specific advice or recommendations for any individual. Any indices mentioned are unmanaged and cannot be invested into directly. Registered representative securities offered through Cambridge Investment Research Incorporated, a broker dealer, member of FINRA SIPC. Investment Advisor Representative, Cambridge Investment Research Advisors Incorporated, a registered investment advisor. Cambridge and NelsonCorp Wealth Management are not affiliated. Cambridge does not offer tax advice. For more information, visit our website at www.nelsoncorp.com.