Announcer:
It’s time now on KROS for Financial Focus, brought to you by NelsonCorp 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.
Nate Kreinbrink:
Good morning and welcome to this week’s Financial Focus brought to you each and every Wednesday morning right here on KROS. Well, this is Nate. I got James joining me again today. We’re kind of joking on the way up that 45-50 degree temperatures after these last couple days is kind of going to feel good. And we’re almost to the end of March here, so we’ve got to be close, right?
James Nelson:
Yeah, exactly. Spring will be here one of these days.
Nate Kreinbrink:
It’ll be here one of these days and you’re starting to see kind of the spring sports activity season get underway. Across the river, over in Illinois, you have baseball, softball starting already. On this side, the high school track, some middle school tracks and some of those, I know you with your busy schedule soccer practices and me trying to juggle in baseball practices in between rain and snow and snow squalls and cold temperatures has been definitely a challenge.
James Nelson:
Yeah, no doubt, but fun time of year. And it’s always nice getting out and about again with these spring sports.
Nate Kreinbrink:
It is. And like I said, end of March here, we get to that April, hopefully April fools doesn’t play any too crazy jokes on us. And then we start getting nicer. It’s long overdue. We had that spring break a couple weeks ago where we had a tease for about a week of 60 degree temperatures. And now back to reality. So yeah, we’re getting close.
James Nelson:
Yeah, we’re getting close.
Nate Kreinbrink:
We’re getting close. I know last week, James and I on the show, we kind of brought it back a little broader, talked kind of big picture financial planning, tax planning, how all those parts kind of intertwine together. And some things that individuals, whether they’re already in retirement or transitioning into retirement, some things for them to kind of keep an eye on and some things to look out for. We thought obviously with the headlines continue to drive a lot of what the clients that we meet with their questions. And then obviously you turn on the news. You turn on any media channel, newspaper, radio, whatever the case, it may be. You’re seeing a lot of these headlines continue to dominate. So we thought we’d spend a little bit more time.
Nate Kreinbrink:
And obviously 2022, most of the headlines has been the financial markets have been under pressure. And there’s obviously been a lot of different factors that have kind of contributed to that. But again, when you look at the markets in general, whether you’re looking at the major averages, whether you’re looking at the different sectors, it hasn’t necessarily been an all or nothing. There have been some areas that have performed obviously better than what others have.
James Nelson:
Yeah, exactly. And I think that probably the biggest standout this year has been commodities. We all know that fuel prices are up, but commodities in general, whether it’s grains or oil and gas, all of them have done really well year to date. So that’s probably been the big standout. Then when you look at stocks as a whole, they all haven’t gone down at the same time, I would say most indexes, if not all indexes are related to stock indexes, I should say are down, but not all of them are down. Like I said, the same amount, I would say the Dow and the S&P have fared better than the NASDAQ.
James Nelson:
When you look at the NASDAQ, that has a lot of growth and tech type companies that are in the NASDAQ index and they have been beat up pretty bad the last year or so. Tech hasn’t been working as well as it has in the rear view mirror, but the Dow and the S&P have fared a lot better. And a lot of those value type companies are associated with the commodities generally speaking and they fared a lot better than the tax base.
Nate Kreinbrink:
Right. And I think, again, it’s important for people to keep in mind how this impacts their investments. I was reading one article the other day, as far as just mentioning a typical 60-40 portfolio mix between your equity, your stock mix to your bond, your fixed income mix, which again is typical a lot, we see when retirement plans through work, as far as age-wise or whatever, they just get put into basically a 60-40 mix as far as their allocations inside their account. And if you look at just that mix that 60-40 mix it’s down nearly double digits so far year to date. And again, a lot of that has to do with interest rates and the performance of some of these different areas. And that’s where we’re seeing it with people that, again, these so called again, protective and safe investments that people normally can run to. We’re seeing them being pressured as well with interest rates and what some of these things are doing.
James Nelson:
I think that’s probably been the biggest surprise to a lot of clients. It’s how poorly bonds have performed this year.
Nate Kreinbrink:
Absolutely.
James Nelson:
Stocks get all the attention and we see the headlines, but the bond market has been very bad to start this year. And that’s been as big of a drag as the stock market and in many cases and sometimes worse of a drag when we’re looking at things more recently here. So yes, the interest rate discussion, the fed raise and interest rates, we all kind of knew this was coming now the path to get to where they want. There’s some nuance there as well, but interest rates have been going up and bonds have been under a tremendous amount of pressure and have not performed well at all.
Nate Kreinbrink:
Right. And I think again, when the fed met there the other week, and it was not the surprise that they decided to go ahead and raise interest rates. I think that was, they’ve done a really poor job, if they wanted to keep that a secret, because that’s been pretty well known and everything that’s been coming out that surprise that came out of it was again, the amount of some of those increases where it was kind of expected where, whether they do 5, 6, 7 increases yet this year, probably about at a quarter percent each time. But what came out from that was, again, they’re looking at again, these next couple ones of probably raising that maybe a half a percent or 50 basis points each time. And that was a little bit think shocking as far as their expectations of where they want to get some of these rates and by what timeframe they want to do that.
James Nelson:
Yeah, exactly. And I guess the big point here is going back to what Nate said, knowing what you own and in retirement plans at work and whatnot. I think our industry as a whole is kind have kind of brainwashed people into thinking bonds are safe and they are safe if interest rates are flat or if interest rates are falling. Now we’re in this rising interest rate environment and people who may have thought they had a conservative portfolio, it doesn’t look so conservative right now. So that’s the big message is just again, knowing what you own and the so-called moderate type allocation and 50-50 or 60-40 type allocation looks entirely different when we’re going into a rising interest rate environment.
Nate Kreinbrink:
And I think it’s pretty standard people kind of, for the most part, understand stocks and they understand the pricing of it and how that shows on their account. They buy it for this. It’s now worth this. That’s the value of my account. Bonds work kind of a little bit differently than that. And that’s where I don’t think a lot of people understand where again, bonds in the value of your bond basically perform like a teeter totter. And again, as James said, as interest rates stay flat or if they fall, okay, think of a teeter totter interest rates fall, the value of your bond grows. Whereas on the flip side and the environment that we find ourselves now is again, as interest rates start to rise, the value of your bond actually goes down. And that’s where we’re seeing the biggest kind of hit with people with these accounts. And as you alluded to the so-called safe investments, they don’t know where to go anymore. So they start panicking and making kind of irrational decisions.
James Nelson:
That’s right. And I want to go back to just what you brought up, the asset allocation funds and a lot of retirement plans. I think it’s tough for people to see if they’re in a target date fund through their 401k at work, which is again, pretty typical unless you’re going in and making those trades, that’s kind of the default option. It’s really tough to see what exposure you have in those target date funds, whether that be on the bond side, knowing what to types of bonds you own, are they short term bonds, intermediate term or long term bonds, but then on the stock side as well, just the regional exposure. Is it US? Is it emerging markets? Is it international?
James Nelson:
What are the underlying investments there? So again, we harp on this all the time, but I think it’s more and more important these days, especially this year, we’re getting a taste of it, knowing what you own, because again, whether it’s bonds or the stock exposure, not everything is created equally and there’s been some winners and there’s been some big losers so far. And I think that dynamic probably continues.
Nate Kreinbrink:
Yeah. And I think kind of that’s gone hand in hand with interest rates has been the term inflation and in how that has really saw an impact on again, people see it as far as when they go out and purchase the normal goods that they’re doing, whether it’s fuel, whether it’s food, shelter, those type of items or whatever, you’re seeing inflation continuing to stay at these upper levels, it’s really going to become an issue. And more just straightforward is the spending power that those dollars people have, whether it’s sitting in the bank or in a checking, savings account or whatever, that dollar’s not being able to go as far anymore. And that’s going to really become an issue again, as far as when you start looking at transitioning to retirement and do I have enough to be able to make it. Well in this inflation environment, we’ve got to really kind of revamp how we look at things. And realistically have those conversations with individuals to say how you’re invested is not going to be able to keep up with what you want to look at throughout your retirement.
James Nelson:
Yeah, no doubt. And the way that the CPIs calculated you look at, I think people forget that real estate plays a pretty good percentage of how that CPI is calculated. And we just see real estate numbers month after month just hit record high. So obviously inflation’s been trending up and probably continues at least in the near term.
Nate Kreinbrink:
So again, questions on all this, how it affects you. If you’re still on track of you’re looking at making that decision, give us a call. We’d be more than happy to sit down and kind of direct some of these discussion points directly to your situation. Did want to mention real quick before we run out of time that every Friday Nelson Corp Wealth Management is wearing jeans for charity. Money raised in the month of March will be donated to the Northeast Elementary PTO, all inclusive playground project, James, as always appreciate you joining me.
James Nelson:
Absolutely.
Nate Kreinbrink:
Nate and James with NelsonCorp Wealth Management, bringing you this week’s Financial Focus. Thanks again for tuning in, and have a great rest of your week.
Announcer:
Financial Focus is a production of NelsonCorp Wealth Management in Clinton and Davenport. 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. For more information, visit our website at www.nelsoncorp.com.