Gary Determan:
It is 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 representatives securities offered through Cambridge Investment Research. Inc. a-dealer member, FINRA SIPC, investment advisor representative Cambridge Investment Research Advisors. Inc. A registered investment advisor, Cambridge and Nelson Core Wealth Management are not affiliated. Cambridge does not offer tax advice.
Now, here’s today’s Financial Focus program.
Well, here it is October 1st.
David Nelson:
Hard to believe.
Gary Determan:
Dave Nelson, before we get into the stocks, your nephew, Brian Peterson, is getting ready to begin his first full season as a head coach at South Dakota State, where he had been an assistant. What a career he has had. I mean, junior college at Iowa State prior to coaching, a player there.
David Nelson:
Yes.
Gary Determan:
And now to get this, but you were telling me economics of Division I basketball.
David Nelson:
Yes.
Gary Determan:
That he is competing against some big money.
David Nelson:
Gosh darn. It’s stunning. So again, we’re talking South Dakota State men’s basketball. Okay, folks, kind of put it in perspective here. Certainly a DI program, but again, not one of the big gorillas that’s out there. And so we were chatting, this was a few months back and whatever. And just curious as far as what kind of money realistically do you have to dole out, as far as… For those that don’t know, college players are now getting paid in many sports and the bigger the program and the more money that comes in the door, obviously the more flexibility that you have as far as offering some of these players money. So he was just, for comparison’s sake, rattling off. And he said, “My budget’s give or take about 65 grand for my entire team.” And he said, “There’s multiple programs out there,” and the one that he rattled off was Utah, and he said that they’re a little over 3 million.
So again, how can I possibly at 65 grand compete with that 3 million? Now, there’s going to be a few individuals that are under the radar, that are going to show up and really work their tail off and be a great player for you undoubtedly. And he thinks he’s got a couple of those individuals. But the concern is that they’re there one year then and somebody else is going to pluck them away. So you’re seeing that as far as in all levels. But again, the junior colleges are becoming a feeder system for that, or not becoming, but continuing that process. But even some of the smaller schools are going to be finding themselves in that same type of position. And it’s kind of tough. And again, I guess if he had his choice as far as that, there would be more contracts and whatever in place.
Similar to the pros. People say, “Well, what’s the difference? The pros get paid.” Well, the pros get paid, but they sign a contract and I’m committing to two years or three years or 10 years or whatever the case may be. In college, you don’t have that. So the end result is I can ring the Redster here and then I can move on to another one as far as if I’m good enough and somebody offers me the money.
So it’s a complicated thing. I mean, I get in discussions with people all the time about stuff like this, and they’ll push back and say, “But they deserve to get paid.” I said, “I agree.” They get an education for free and they’re going to get paid now going forward, but shouldn’t they have to, I mean, the school’s going to commit some money to them. Shouldn’t they also have to commit as well. So I don’t know where it’s all going to end up. And it’s nice to have somebody that I guess I would say is on the inside as far as, has a better understanding of this. And so I’ve just again chatted with him and found it interesting. Because I didn’t know there was that big a disparity as far as money is concerned. I was absolutely staggered to hear that, as far as the 65 grand versus 3 million.
Gary Determan:
And really you think of Utah, not a powerhouse, and they got 3 million.
David Nelson:
Yeah, exactly, yeah.
Gary Determan:
So you wonder what an Indiana or Kentucky or somebody like that-
David Nelson:
Exactly.
Gary Determan:
… what they have as far as their budget goes. And the thing that gets me is that these coaches have enough to do with Xs and Os, and getting the team ready. But, now they’re looking at this. But you see some programs have an individual or more than an individual, that’s their job is to regulate what everybody’s getting.
David Nelson:
Yes. What they’re getting and retaining. So some of the big time coaches that have retired in the last few years as far as, and again, I’m talking specifically about basketball, but I think this probably applies elsewhere, but they’re saying “We’re no longer just recruiting from outside. We have to keep recruiting our own guys to maintain and keep them as far as for next year.”
And so something’s really, really gone wrong as far as with this, and I don’t know the answer, not smart enough, nobody does. And to try to turn back the dial now at this point in time, I don’t know if it’s possible. So they’re going to have to do something. But to me, probably the one that I would probably focus most on would be, yes, here’s the money, but you’re committing to me for two years or three years or whatever the case may be.
So maybe that would make a difference. Maybe it wouldn’t. I’m sure we can pick holes in that theory too. So anyway, but it’s fun, it’s exciting. I don’t know how many folks out there are excited about Iowa men’s basketball, women’s basketball as far as Iowa State is concerned. We’ve got some Illinois folks I’m sure that are listening in here. And so, kind of nice. Speaking of Illinois I follow football a fair amount too as far as the Big 10. And it’s nice to see them as far as in the rankings, but they got it stuck to them by Indiana, killed Illinois. Yes.
But again, love seeing, I guess what I would define as local schools basically suiting up and having hopefully a good start as far as to their upcoming seasons.
Gary Determan:
And along those lines, Brett Bielema’s from Prophetstown.
David Nelson:
Prophetstown. Yes.
Gary Determan:
And Shawna Green, Women’s Coach is right here from Clinton.
David Nelson:
Isn’t that wild? So those, if you don’t know Bielema’s coaching, the Illinois football team, again from Prophetstown. And then our local gal here that played many, many years at Clinton High and then moved on and she’s got the Illinois team. And they picked up one of Iowa’s players as far as… So she got a really nice player as far as, can’t come up with the name right now, but she was a point guard as far as for Iowa last year. So anyway, it’s always interesting. And again, people tuned in to listen to me talk about money, but as they know if they listen, we enjoy sports. And it’s [inaudible 00:06:54] a little competition and competing, and I think that certainly carries forward as far as in the business world.
Gary Determan:
It wasn’t Ryan Stremel’s daughter, was it?
David Nelson:
No, it wasn’t.
Gary Determan:
No, no. Oh, course Ryan from Clinton and Taylor playing for the Iowa [inaudible 00:07:09].
David Nelson:
Yes.
Gary Determan:
Well, shut down.
David Nelson:
Yes.
Gary Determan:
What’s that mean to the stock market.
David Nelson:
Yeah, we’ll hit a little bit on it now and maybe jump in a little bit later. But I think the important thing for folks to understand, and again, history repeats itself, not exactly, but oftentimes rhymes as the famous saying goes. But in the past when we’ve had shutdowns, and we’ve had several of them as far as through the years, ’18 is probably, 2018 is the one that appears to be the most similar to as far as what’s taken place here. That lasted 35 days. And again, doesn’t sound like much, but if you’re one of those individuals that was basically kicked to the side of the road for 35 days, or you’re some of the unlucky ones that had to go to work, but you’re not getting paid as far as at the present time, this is a lot of stress that all of a sudden is in your life.
So for us that are standing back just trying to analyze this thing from an investment perspective, it seems almost wrong, but at the end of the day it’s 35 days. During that period, I think every single one of the closures that took place, fortunately not many as far as in the rearview mirror, but from the date that took place to the date it ended, the bottom line is the market actually was up.
So that’s kind of a shocker as far as I’m sure to most folks. 2018, again 35 days, when it ended, the stock market was higher than when it started. Now not big time, but it wasn’t lower. And so again, at the end of the day, I think the ripple effect of this is going to be more significant. I mean Washington has become… And it’s quite sad folks, and again, I know I talk about it, I know I tick people off when I start talking about this stuff because we’ve got lefties, we’ve got righties we work for, I clearly put myself in the middle and say that there’s a bunch of idiots on the Republican side. There’s a whole bunch of idiots on the Democratic side. I’m interested in a quality individual that looks at what’s best for the country and what’s best for us long term. And those are the individuals I’d like to listen to.
Unfortunately, there’s not a lot of them out there anymore, but if they were out there, again, I’m saying a third party sounds like a good option. Because I think what is happening is the extremes have taken over both parties and a lot of really bad decisions are being made. And this is one of them. We had no discussion really that took place on this. We’ve got the House of Representatives that have been sent home, they’re not even in. So if the Senate was able to pull something together that we don’t have the House there to be able to vote on it. So this was pretty much a foregone conclusion. We’re going to have the shutdown.
What’s interesting is, again, you brought it up prior to coming on here as far as on live, was that the market is actually up and had a pretty good start as far as to the year to say the very least. So time will tell as far as how this is all going to unfold, but as we stand right now, we’re probably going to be in this holdout status for probably longer than what people like to see.
Gary Determan:
Let’s go ahead and take our break for the weather, more with Dave Nelson. It’s brought to you by SKelly’s Design.
Andrew Stutzky:
We’ll finally get a break from the nineties today. It’s still going to feel very summer-like though with increasing clouds, skies may go mostly cloudy for a time this afternoon as we reach up to the mid eighties. For tonight, early clouds and then clearing late. Another cool night as temperatures drop into the fifties. With your storm track eight weather impact forecast, I’m meteorologist Andrew Stutzky
Gary Determan:
Right now sunshine, 67 degrees. Our update brought to you by SKelly’s Design.
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Gary Determan:
Well, it is the first Wednesday, so we get to go to the bottom of the hour with Dave Nelson now. He’s also going to be back in October 22nd.
David Nelson:
Yes, absolutely.
Gary Determan:
For another live. Got to be somewhere on…
David Nelson:
Little travel plans. Yeah.
Gary Determan:
Yeah, that’ll be great to see you twice in one month.
David Nelson:
Yeah, and it’s an important period of time as I think people are probably aware September, October, as far as getting back to talking about stocks and stock markets, as in very general terms historically has been pretty months. Most people view October’s being the worst. In reality, it’s not. It’s September, so we made it through September and we’re up pretty significantly. Again, this doesn’t always hold true. Not every year do you see a pull back in September, October, but if you look at the averages, that happens to be the worst month. So we’ll see. Depending on what index you look at, you’re in the low double digits as far as return, most people would be thrilled as far as to have the returns that they’ve already experienced as far as this year. But again, things don’t always go straight up. And at some point here we are going to get a correction, and we’ll have to see as far as how significant it is.
A lot of things could cause it. One is a shutdown, two is tariffs, higher taxes, just overvaluations. There’s a lot of things that could go wrong, but as it stands right now, most of our tools are basically saying stay the course, which is a nice way of saying… Because we’re pretty fully invested right now. We’ve got, if a person’s cap, as far as for their allocations as far as the stocks, let’s say is 70% in stocks and the other 30 in bonds and cash, that 70% today is invested as far as in stocks. Whereas other times of the year, their cap may be 70%, but today we only have 30% in stocks because we’re much more nervous.
So we’ll see if our decisions are accurate. They have been so far this year.
But again, the game isn’t over yet. This is probably the middle innings. As far as this stock market is concerned, it’s been a pretty, I’d say pretty easy environment as far as to make money. The challenge is, I was told by I think the greatest investor of all time, who, again, I can’t say names and stuff like this because it’s compliance, but in Boston, a big big company in Boston. And that big, big company hired this guy years and years ago, and he shared with me, I was very blessed to spend a lot of time with this guy. His track record was literally north of 25% average rate of return. And he said, “It’s all about the down years.” And so again, we harp on this issue as far as the down years. And as far as if we can take a 30, 40, 50% drop and keep it to five, 10, 15%, that gives us a much better opportunity as far as going forward.
That’s exactly what took place last year as far as at the end of the year, we sold, looked like idiots for three weeks, then all of a sudden things went our direction that we thought and it set up a really, really nice buying opportunity. So at some point that’s going to happen again and we’re hoping that our tools work as well as they did the last go round. And we can help make people a couple extra percent and put a smile on their face. I think everybody’s, it’s a rare person we work with that has a coal pile that’s too big. Most people, the coal pile is what they’ve got. And if we can help protect that as far as the downside and help capture some of the upside, that’s basically what we’re paid to do.
Gary Determan:
Again, visiting with Dave Nelson of Nelson Corp Wealth Management. I know you’ve spent a lot of time learning about the stock market, educating yourself. You’ve got the tools as you point out, the models and different things like that. How much satisfaction do you and does Nelson Corp get when you’re able to perform like this for your clients?
David Nelson:
It’s a great feeling. Because again, we’ve got a couple big gorillas that we work for that have big, big sums of money. But the average person that we’re working with is the average person out there that’s listening to this program right now. And again, they’ve got X number of dollars and they’ve worked their tail off to get that, and they’ve saved and penny pinched and whatever. And now it’s a matter of, “Hey, I need to live off this sucker the rest of my life. I can’t have the big mistake.” So that’s the responsibility that we have as far as to them.
I don’t buy into this. And again, some of you may want to just turn down the volume as far as what I am about to say, but this idea that you can just chuck money in and over time you’re going to be okay. It’s just one of the most ridiculous things I’ve ever heard. Markets go up and markets go down.
Just a small little snippet period of time, 2000 through 2010. We had two big drops during that ten-year period of almost 50% as far as each one of them. And most people, when you’re retired and you’re living off that money and to have a whole bunch of money as far as in stocks and then to experience two periods of time of 50%, give or take drawdowns, you’re now working at the Super Wash. Not because you want to, but because you need to. You’re now a greeter at Walmart, not because you want to but because you need to. So yes, we have great satisfaction and accomplishing what it is our goal and helping the clients basically accomplish their goals. And their goals typically are, “Hey, I need to live off this the rest of my life. And number two, I don’t want to think about this a whole bunch. I want somebody to do the worrying for me.” And to be able to do that for folks and then to have great success like we’ve had is terrific. As far as the performance for those accounts has been really, really fantastic this year.
Gary Determan:
Nobody likes uncertainty.
David Nelson:
Yes.
Gary Determan:
There’s no doubt about that. And it seems like you folks deal with it all the time.
David Nelson:
Every day, every day. And as we tell people as far as the uncertainty that’s out there is one of the secrets as far as to making money because again, fear is a wonderful thing as far as to take the other side, as far as of that trade. Some coursework that I did out at the John Kennedy School of Government at Harvard, this is going back, give or take 20 years ago. And the course was built around exploiting other people’s mistakes. In a nutshell, it’s fear and people react to that fear, “I better sell now I’m down 30%, but this thing’s going to go down probably another 50% and I better sell now.” And oftentimes, again, when that person pulls the trigger and makes that change as far as in their allocations, in other words they sell as far as typically it’s going to be stocks, it’s at about the perfect time as far as to make a massive mistake.
What we want is we want logic, we want objective type tools and whatever, and with that, we can make better decisions. As I brought up earlier, and I think I made it clear, a 30, 40, 50% drawdown, it doesn’t mean that we’re breaking even as far as with our client portfolios. It’s the expectation and the hope is that we take that 30% drawdown and we keep it to 10 to 15%. Again, giving them the opportunity to exploit it then when things turn around.
So it’s a tough business and there’s tremendous amount of uncertainty. And again, we just have to deal with it. That’s what people pay us to do. We basically tell people when they come in the door and they’re trying to decide is this a good decision for them? And some of them that will say silly stuff like this, that, “I kind of enjoy this.”
And my response is always, “You’re lying to yourself,” is basically it. Nobody really enjoys it. You basically think you need to do this. And so we tell people if they enjoy it, don’t come to us. Because again, if you could do it yourself, there’s no sense of paying somebody. But it’s a tough business. It’s 24 hours a day, it’s no longer a eight hour day type thing where you’re pondering some of these decisions. So yeah, it’s complicated. But as you said, it’s very rewarding when things come together and they’ve come together for us more often than they don’t. And this year’s a great example.
Gary Determan:
Visiting with Dave Nelson. One thing I want to bring up as well is how you have diversified so much at Nelson Corp. I mean, it’s just not investments anymore. You’re doing taxes, Medicare or Medicaid. Why did you want to go in this direction?
David Nelson:
So we just literally did four gatherings to the public as far as talking about Medicare, a couple up at Rastarelli’s and a couple down in the Quad cities. And I led into every one of them basically telling people that I started back in 1981. And so in 1981 it was pretty simple and we did investments and it was mutual funds and pretty straight forward. But it didn’t take long to realize that every decision that we’re making on the investment side is reflected on the tax return either today or tomorrow. So we had to incorporate that and it was much more difficult than what we thought as far as to bring that in-house as far as the complexities, the rules, the regulations. We brought in estate planning. So we’ve got attorneys that come into our office and work with clients as far as the important estate planning stuff.
But just this, and you brought it up, the most recent addition certainly centers around as far as Medicare, which is now, give or take, three years, four years we’ve been doing that. And the reason for that is because all this stuff works together. If you make a bad decision as far as an investment, in other words, you made a whole bunch of money and you decided to sell it, let’s say, in that given year and you’re on Medicare. The bottom line is your Medicare yesterday, your premium was 170 bucks or whatever the low end is now. But because you made this extra money, you now went to the next bracket and now your 170 bucks, it looks like 250 bucks. Or even worse, it goes up to three, four or $500 as far as depending on how much ended up on your tax return that year.
So all this stuff needs to work together. We knew we needed to do it, it’s just, we didn’t have the personnel as far as to be able to pull it off, one. And number two, it demands a lot of expertise because Medicare to most people is a pretty simple decision. It’s either I do A, or I do B as far as a Medicare supplement or I go to the other one, which is basically where you’re going to pay almost no premium, but you’re going to have a much bigger tab if you go to the doc. And so it’s I’m going to buy either or.
Well, there’s a lot more to it than that. And it depends on, again, are you healthy today? Do you think you’re going to be healthy in 10 years? The decisions are very, very important to incorporate all this stuff together.
So we did four gatherings, we had 250 people probably total that came out to listen to us. I’d say probably a third were existing client relationships that we have. Two thirds were probably strangers as far as to us. I think we added a lot of value as far as to the community, as far as to talk about this stuff. Unfortunately, the bulk of the people that today are in the Medicare supplement business, that’s pretty much all they do. And so they just focus only on that.
This premium is this much, this premium is this much, and decision made. It’s as simple as that. Well, it isn’t that simple and you need to factor in a whole bunch of other variables. And now we’re able to do that because we have the wealth management side, knowing the decisions they’re making on the investments, the taxes, what your current tax state or your return look like. Could we add a little bit more on and still keep your premium on your Medicare supplement or your Medicare a part of it, as far as at the current level.
So really important as far as to pull all this stuff together.
Gary Determan:
As we wrap things up. Again, you’re going to be back in just three weeks, so we’ll see if the shutdown is still going.
David Nelson:
Hopefully we’re back to work then.
Gary Determan:
What is all taking place. What are you going to be looking at here in the next couple of days?
David Nelson:
The big thing is how’s the market reacting to it. And looking at things overnight as far as abroad over in Asia, which is again kind of a precursor as far as oftentimes to what’s taken place here. Look at Europe. And everybody was selling off. The good news is it wasn’t selling off very much. So percentage-wise, not too terribly bad. So again, most of our life revolves around the decisions that we make as far as an investment, and that’ll be front and center as far as when you and I get together again.
Gary Determan:
All right, always appreciate it. We’ll see you on the 22nd, Dave.
David Nelson:
Thanks, Gary.
Gary Determan:
Financial Focus is a production of Nelson Core 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. Inc. A broker-dealer member, FINRA SIPC, investment advisor representative Cambridge Investment Research Advisors, Inc. A registered investment advisor. Cambridge and Nelson Core Wealth Management are not affiliated. Cambridge does not offer tax advice. For more information, visit our website at www.NelsonCorp.com.