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 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. 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. Got James joining me today. A little transition in the calendar, I guess you would say, in the weather. It’s first day of autumn, I believe and that brought with it these cooler temperatures. I’ve seen lows in the 40s, which is a reality check, I think, that fall and whatever’s coming after that is not far away.
James Nelson:
Yeah. I love it though. I love the fall temps and this time of year, but yeah, winter’s not too far behind here.
Nate Kreinbrink:
I know we put our pool cover on this past weekend and that’s always the telltale sign that-
James Nelson:
That’s it.
Nate Kreinbrink:
That it’s it. Pool and summertime is officially over. And again, like you said, I do like the fall temps, but not necessarily what comes after it.
James Nelson:
Yeah. Yep. No doubt me there.
Nate Kreinbrink:
It’s been a transitioning time in the markets as well. We’ve seen earlier this week, one of the largest drops in the per day market since back in early May and then been a little choppiness after that. There’s been a lot of factors to it. And we’ve talked and I know David has talked and done a lot of shows. Is there’s not one true factor that dictates how the markets are going to go, but they have a big input into that. And obviously over in China, one of their largest companies, there’s been a lot of in the headlines with them as far as defaulting on some loans that they have, which has led to a lot of uncertainty with it.
Nate Kreinbrink:
Obviously, the ongoing questions regarding COVID and the treatment and the different variants that are coming out with that. Inflation is another big part of it that’s led to it. The job openings and the economy, and then some questions with it. So there’s a lot of different things that are having their hand in some of this volatility that we’ve seen. But again, it’s not anything that’s not normal. I mean, we’ve seen this before. We’re going to see it again in the future, but it just goes back to our preaching as far as having a plan, knowing how you’re allocated, knowing what risk you are taking on, given some of these factors that are out there and being able to adapt accordingly.
James Nelson:
Yeah. And I think we’ve been lulled to sleep with the low volatility most of this year. It’s been pretty smooth sailing and markets have cooperated for the part up until, like you said, the last maybe month or so where we’ve seen some choppiness, but again, totally normal, totally within the realm of possibilities, as far as what markets do, but we’ve been spoiled for quite some time with almost no volatility. The markets have just slowly trended upwards where oh, this has been a shock to maybe some people, but maybe it really shouldn’t be. The China fears are certainly real and something that investors paid attention to earlier this week and what you brought up Nate, as far as knowing what you own, that was a perfect example if you look at that specific day.
James Nelson:
I lose track. I guess that was Monday where markets took a pretty good hit. And you look at some of these funds that were specific to Asia or China. Markets were down say 2%. A lot of those type of positions were down between five and 10%. So, it really took a hit if you owned all Asia or all China type positions. Those really got hit a lot harder. So again, going back to knowing what you own, knowing what the 401k balance owns, knowing what positions you’re allocated to can make a big difference. And that was just one small example, as far as, some areas taken a much bigger hit than others.
Nate Kreinbrink:
Right? And I think it goes back to, again, we talked about managing risk and understanding the risks that you are taking on with any type of account that you have. I mean, obviously money in a bank, there’s risks that you’re not keeping up with inflation as far as where interest rates are and the interest that you’d be getting on that money. Obviously money invested in the markets, you bring in some type of market risk. And obviously, I think there’s a preconceived notion out there that people want all the upside and they want none of the downside.
James Nelson:
Right.
Nate Kreinbrink:
Obviously you can mute that a little bit, but again, you can’t have some of that growth potential without bringing in a little bit of that downside risk and understanding how much of that downside risk that you have with your investments. And that’s where I think people lose track of as far as what they’re invested in and what can actually happen, because like you said, I think they do become numb to those market downturns. ’08, ’09 seems like such a long time ago where people have probably for the most part made back everything that they lost during that time and are back up into a positive. They keep seeing this account balance grow, but they don’t understand that again, we’re going to have another correction or another little downturn in the markets where, how is that going to impact your investments and your allocations that you have and are you able to handle it? And are you able to react enough to maybe get out of the way and mute some of that should the time arise?
James Nelson:
Yeah, it’s definitely going to happen. It’s just a matter of when. And we’re also living in a different environment than ’07 and ’08. Back then interest rates were a little bit more reasonable. Right now, interest rates are at all-time lows practically each day. We’ve got a stock market that’s towards all time highs or at all time highs for most of this year. So if we didn’t like stocks, we could go to bonds. Well, those bonds aren’t as attractive as they were several years ago when interest rates were at higher levels. So it’s an interesting time to be an investor. It’s getting harder to find yield outside of just the stock market. Interest rates between one and 2% aren’t very exciting. We all know what checking accounts and savings accounts and CDs are paying these days. It’s not very much. So it’s an interesting time to be an investor. And again, all the more reason to pay attention and know what you own versus just a set it and forget it approach may have worked in the past. Probably not going to work so well going forward.
Nate Kreinbrink:
And again, all good stuff. And if you have questions on it, let us know. Another topic that I did want to squeeze in here real quick in the last couple of minutes of the show is a social security system. There’s been a lot of talk as far as news articles and headlines, as far as the trust fund running out of money and so on, and so on. Wanted to give just a quick background, as far as what that is and what people need to know about it. Understanding how the social security system works. Essentially the workers today are paying into the social security trust fund. The retirees are pulling out of that trust fund, as far as their benefits, whenever they claim them. So workers paying in, retirees paying out and so on and so on. So the current workers, whenever you get to retirement, the younger generation, your kids, your grandkids, or whatever are going to be the ones paying in.
Nate Kreinbrink:
That’s going to be the benefit coming out. Now for years and years, it was enough where there was more people paying in versus people taking out. So the trust fund was able to grow a little bit in order to fund all those retirement benefits down the road. Well, obviously with the transition, as far as the baby boomer generation transitioning into retirement, less people working, obviously people in retirement working longer, you have a slow trend over the last few years, as far as less people paying into the system versus more people paying out or taking benefits. And then those people that are taking benefits are taking benefits for a longer period of time. So if you look at it from that simple thing, less money coming in, more money coming out, it’s a simple math thing that the trust fund is going to start depleting a little bit as it goes on. Where are the issues coming into it is that there was a projection that always came out that said, Hey, the trust fund has enough funds to pay 100% of the benefits up until this year.
Nate Kreinbrink:
At that point in time, we were only going to be able to pay out roughly 76% of your monthly benefit. So if you are entitled to get $1,000 a month, you are only going to get 760 of the benefit at that time whenever the trust fund does that. Now that’s been a trend that isn’t anything new. We’ve seen that coming. Obviously this past year with the pandemic has sped that up a little bit because you had more people that were on the edge of retiring that all of a sudden said, you know what? I’m not going to deal with this. I’m just staying at home. I’m going to retire and take my benefit. So we had more Americans that retired last year than what we had in average over the past, however many years.
Nate Kreinbrink:
So now all of a sudden you have more people taking out, less people paying into it. People were unemployed for long periods of time last summer because of the pandemic. So you had less people paying in during that time. So essentially what the trust fund said is that it may get to that lower payout amount a year or so earlier than what they had normally anticipated. And again, if you look at how to fix this situation, there’s a couple of different ways that have been thrown around. And that’s either one increase the social security tax that you and your employer are paying into it. It’s raising the full retirement age or raising the cap as far as the earnings that are able to be paid into that.
Nate Kreinbrink:
Now all three of those is going to have some impact on people where they’re not going to either be able to get their benefit to a little bit later, they’re going to have to pay more into the social security system. So that’s why it’s been kicked down the road a little bit because no one wants to tackle it because it’s not going to be favorable to people to vote for them, knowing that these options are out there. But again, social security in and of itself is not going away. It’s not going to end during that time. It’s just going to be a reduced payout, just simply because of that straight math, where you have less people paying in more people paying out. It just simply can’t sustain it during that time.
James Nelson:
Right. Right. And that’s always the argument. Oh, social security is going broke. Well, they’re not going broke. It may be a lesser amount, but it’s not 100% of your benefit evaporates and you get nothing. If there’s not some changes here, it could be a lesser number, but I’m guessing we’re going to have to come together in some form to tackle this issue. And like you said, Nate, they’ve already made some adjustments as far as claiming strategies and whatnot over the last several years, increasing these thresholds on workers and whatnot. They’re going to address this to some degree and try to keep social security as solvent as possible.
Nate Kreinbrink:
Again, all good stuff. And again, wanting to hit some of the top headlines we have. If you have questions on the market, your allocations, your social security benefit, how some of this may impact you, give us a call. We’d be happy to sit down with you. Did want to mention real quick that every Friday NelsonCorp Wealth Management is wearing jeans for charity. Money raised in the month of September will be donated to the Gateway Area Community Center in Clinton. Again, James, appreciate you joining me today.
James Nelson:
Absolutely.
Nate Kreinbrink:
Again, 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 representatives, 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.