Announcer:
It is 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 representatives, 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 NelsonCorp Wealth Management are not affiliated. Cambridge does not offer tax advice. Now, here’s today’s Financial Focus program.
Gary Determan:
Well, it is the first Wednesday so we got Dave Nelson in studio with us. We were talking just before we went on air and I wanted to talk about this.
David Nelson:
Sure.
Gary Determan:
Power ball is over a billion dollars.
David Nelson:
Yes.
Gary Determan:
I told you if I win, you’re the first person I’m calling.
David Nelson:
Happy to answer.
Gary Determan:
If you could direct people, if they would be fortunate enough to win that amount of money, what should they do?
David Nelson:
First thing I would say is to try to keep it to yourself as long as you can because everybody’s going to come out of the woodwork. We have a couple of people that we’ve worked with through the years that have won, not the massive amount like that, but millions. And very long story short, they get harassed as far as, I use the term harassed, everybody wants part of that. I’ve got this crises, please help me type thing. Not that I don’t want to help people, but you got to be realistic as far as what you can and can’t do. But with that, if it’s a billion dollars, I typically talk to people in terms that you’re going to roughly by the time you pay taxes, and by the time you take the lump sum payout, you’re talking about probably 250. So it’s roughly a quarter of that number, but $250 million at a 5% return, you’re talking about 15, $20 million a year coming in the door as far as cash flow, as far as from something like that.
So a tax issues on an ongoing basis are an issue. Does the family, do you want the kids getting that money after you’re gone? If so, how do we want them to get it? Et cetera, et cetera. But at that level, you’re limited as far as what you can in many ways invest in. In other words, like small company stocks, you probably can’t touch that because in order to move the needle, as we say, you’d have to put in a fair amount of money, that in itself could drive that stock price up artificially making you pay more money as far as for it. So we have one person in particular, a billionaire that we work with and with him, we’re pretty much investing in the big stocks or the way that we’ve handled it, we’re buying indexes. So like the S&P 500 that everybody’s familiar with out there, the Dow that people are familiar with, these are massive companies.
And when you invest in the S&P 500, you’re buying 500 stocks. So you buy it in what’s defined as an ETF form, which is a fancy way of saying it’s kind of like a mutual fund, but it’s not exactly. So if the market, the S&P goes up 1% today, you’re going to go up 1%. If it drops 1%, you’re going to drop 1%. So it gives you the market returns, which for most people, if you look over the last 10, 15 years, most people love to have the market returns. So that would be probably a decent-sized percentage of your investment portfolio. You’d probably have some bonds in there, you’d probably have some real estate in there. But again, we go back to the boring stuff, but it works over a period of time is to buy into packages. In other words, ETFs, exchange traded funds, these are the packages where I can buy a cluster of bonds.
I don’t buy a bond. I buy a whole bunch of bonds and I buy it through this type of vehicle. I buy real estate, not individual homes and whatever that people get all excited over that stuff. Just look at the history books as far as the number of visible people that have come out and said, as far as buying real estate, one comes to mind as far as a client of mine that they were going to get in the juice bars out in California. This is probably 25, 30 years ago, and what a wonderful opportunity that is, and we’re going to put X number of dollars into it. We’re going to own two or three of these stores, blah, blah, blah, blah, blah. It turned to zero, I guess the conclusion, cut to the bottom line. You wouldn’t be doing stuff like that. Again, my recommendations, you would be buying these packaged stuff.
You’re going to own the S&P, you’re going to own the Dow, you’re going to own the NASDAQ. You’re going to own a real estate pool ETF. You’re going to own a bond pool ETF. And over a period of time, you’re going to have some bumps in the road, but your returns are going to be probably pretty decent with minimal volatility as far as in that. So it’s boring stuff. Don’t get me wrong. This isn’t, hey, I know this tech stock that’s going to triple overnight. It wouldn’t be any of that stuff. You’ve already got your money. So now it’s a matter of how do we preserve this? Warren Buffett said, when you’re young and you have no money, you have to concentrate your money into smaller numbers of holdings with the hope and the expectation that you’re going to see some pretty nice returns, that your selection is going to be good.
But once you get a net worth of any substance, you now need to diversify. And he’s right. There’s so many people that swing for the fence on various things and unfortunately have high expectations and their mind this is going to work out, and the hope is that it does, but most of the time it doesn’t. And so people find out the hard way, and they had a whole bunch of money in this thing, and bottom line, now they have zero. The company went out of business. There is a company coming in town here, this is probably a little over 10 years ago, and it was kept pretty quiet. It’s going to be this factory that’s going to have something like 300 jobs and what-have-you. They’re in the business of creating, they were going to take a product from ADM and make it into basically a type of sugar substitute.
And Purdue University basically developed it in their foundation, and this entity bought the rights to it. So we’re going to put up this factory, we’re going to produce this product. We’re basically going to make sugar a thing of the past. People are going to be healthier. This is going to be great. And slowly this thing started falling apart as far as locally here. Never did happen. The factory obviously didn’t happen as far as in our community. Now it’s going to be in Washington state because Washington state, the electricity prices are so much less. We’ve got this great building, we’re going to put it in there. Blab, blab, blab. Very long story short, many people in town, me being one of them. So this is full disclosure, put a few bucks into this thing and now 10, 12, 15 years later, I don’t even, I just lost track of it, but bottom line, the way it looks right now, it’s a goose egg.
It’s just a freaking goose egg. So again, if somebody says, it’s like people go into the casino, they always win. They’re liars because you don’t always win. And in the investing world, I was told years and years and years ago by professional money managers, these people oversaw lots and lots of money in mutual funds that if they can get 40% of their transactions correct, they can make a whole bunch of money. So it’s a tough business out there. And again, I’m saying don’t try to reinvent the wheel. Buy indexes. Again, fancy way of saying the S&P, the Dow, etc, etc. And diversify through that. Buy some bonds, buy some real estate, buy some commodities, put all this stuff together, and you can probably live a very happy life going forward if you can keep people away from you, because there’s going to be a lot of hands that are going to be out looking for some of that cash. You’re probably going to have to move too, Gary, by the way. Oh, okay.
Gary Determan:
It’s kind of interesting. It’s like being a baseball player. If you fail seven out of 10 times you’re hitting 300, you’re a Hall of Famer.
David Nelson:
Yes, exactly. It’s strange but true. Exactly. Yeah, very much the same way. And again, it’s just being honest. Again, I’ve been at this forty-plus years and you hopefully have learned a few things and being humble is one of them. And to try to perform and outperform consistently, the market is just pie in the sky. You’re not going to but buying the market, you better accept certain things and the certain things are, there’s going to be some volatility. So essentially what we do as far as with our clients is we pretty much buy the market and we overlay it, and as we put it, we put up guardrails around the money so that the catastrophic 30, 40, 50, 60% collapses that do happen, not on a very regular basis, but on a regular basis that can wipe you out. Again, it’s an expensive proposition to try to get into. We did years ago, and again, we’ve helped a whole bunch of people retire and as we put it, stay retired. And that’s not easy to do.
Gary Determan:
One final thing before we do break for the weather, most of the people that are playing this power ball or the lottery are just average people out there. And to me to win this amount of money, I think would be terrifying.
David Nelson:
Yes, it is. Again, not knowing as far as where do you even put it, as far as, I mean at the end of the day, does the check show up in my bank account one day? Just how do I get those?
Gary Determan:
You get one of those really big checks.
David Nelson:
Yeah, exactly. Yes. So it is interesting. Again, we work with some people with some really nice net worths, and that’s not average by any means. Like I said, one billionaire that we’re currently working with, that’s a male, a couple that’s out in Wyoming. Wyoming, California and Iowa, they’ve got three different residences. We have a woman that’s a Florida resident that now has over a hundred million as far as in assets, as far as in we’re working with her and what have you. Their problems are big problems. But at the end of the day, again, they’re very similar in the type of problem that the average person on the street has.
And that’s understanding estate planning rules and regulations and how do I hold onto my money as best possible as far as for maybe a generation or two. Income tax. Boy, I hate paying taxes. What can I do as far as in that area? So it’s the same type of questions that we get. They’re just a little bigger checks. But you’re right, as far as again, it can be terrifying. And again, we are happy again to help people in a situation like that. And at the end of the day, most of those individuals, what do they want? They want cash flow from that, and they would like to be able to help people. So yeah, it’s hopefully somebody from our area wins it and has a wonderful impact as far as in our community.
Gary Determan:
All very interesting. More with Dave Nelson, our weather update, brought to you by SKelly’s Design.
Andrew Stutzky:
More clouds and a few scattered showers, perhaps even an isolated thunderstorm on track for your Wednesday. The best coverage of this will be later in the morning into the early afternoon. Temperatures in the low seventies today. Skies will clear out late tonight, it will be cooler, overnight lows than the upper forties. With your Storm Track eight weather impact forecast, I’m meteorologist Andrew Stutzky.
Gary Determan:
Thank you, Andrew. It’s overcast. We have Southwest winds and a temperature of 65. Our update brought to you by S Kelly’s Design.
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Gary Determan:
We are going to continue to the bottom of the hour with Dave Nelson. So enough about being a Power ball winner.
David Nelson:
Yes.
Gary Determan:
What else are we going to talk about today, David?
David Nelson:
Well to me, probably one of the real pressing issues right now is what’s happening as far as in Washington, as far as some of the decisions that are being made. We see abroad, what’s taken place. I’m sure most people probably saw this yesterday on the national news as far as that China, Xi over in China, you have Russia, Putin, and then you have the North Korea, Kim, that came together as far as in a big military display as far as flipping off the United States type thing. That took place yesterday or the day before. I think it was yesterday.
Those are big issues. These have ripple effect. And we saw the market yesterday as far as, we started off today down five, 600 points as far as in the Dow. So it was a rough start. It didn’t end that bad yesterday, but nevertheless, these are some issues that can come home to roost. Tariffs, we don’t know what’s going to ultimately come out of that. We implemented these tariffs. Now all of a sudden the courts are saying, no, you can’t do that. Now, do we have to pay that money back? That’s one of the discussion points right now as far as that we may have to write checks and pay these countries back as far as the money. So I’m not saying that change, not saying or implying that these type of decisions are bad. It’s the world that I exist in likes certainty, and most people, the world that I exist in, most people have exposure to it, whether it’s direct or indirect exposure to it.
In other words, through their retirement plan at work, through their 401k at work, they have money in the market. So the market used to be perceived as just for rich people. But if you look at the statistics, I think it’s north of 70% of people out there have exposure to stocks, again, directly or indirectly. So uncertainty around some of these issues that we’re talking about as far as tariffs, what have you, make markets uncomfortable and subsequently oftentimes end in a bad way. If you look at the history books, Hoover, back we’re going to the Great Depression last time that there was discussion similar to what’s taking place right now. We took the average, today the average tariff that countries are paying is roughly two and a half percent. This is, I say today, six months ago, two and a half percent today. Today, today it’s about 19%.
That’s a huge increase. Only time in the history of the United States that some change like this took place looking at the history books, was back basically right after what we now call the Great Depression started. This magnified the problem countries around the globe, basically again, maybe I shouldn’t say this on the radio, I said it earlier, I’ll say it again here, flipped us off and said, we’ll put tariffs back on you. And all of a sudden we have a global recession that takes place and it was actually a depression as far as for the United States. I don’t know what’s going to happen here. Nobody does. And I always like these individuals that come on and they know exactly what’s going to happen tomorrow. Most of them are politicians of which, and I’m not holding back anymore on this. I can’t stand almost 90% of the politicians, both parties, where a bunch of liars will tell people what they want to hear.
We don’t give a damn about solving problems. We care about our net worth statement. We go there because the power, and we go there because of the entourage that’s going to follow me around. I’ve been out to Washington DC, I was just out there and it’s disgusting as far as what’s taken place. And I’m again, throwing darts at both parties. We’ve got to be adults. And the problem is it really starts with us because we’re the ones that put them there. If we don’t have the time and the attention to try to do some homework and figure out what these people, their past history and their belief systems, whatever, we put people in that tell us what we want to hear, and then they get into Washington and do what they want to do. And so we’ve got a freaking mess as far as that’s taken place in Washington.
And so far the stock market has pretty much ignored it. But at some point here, I’m telling you, there’s going to be a price to pay for what’s taking place now. I’m not talking about a one-time event. I’m talking about over a period of time. Now notice I said predicting this stuff is pretty tough. You didn’t hear me say in the next six months. You didn’t hear me say in the next year or two, which you heard me basically say is we’re going to have a price to pay and it will be an extended period of time, price to pay. And we’re not probably talking 20 years from now, we’re probably looking at the next three to five years that there’s going to be pretty significant backlash that’s going to take place. And Wall Street’s going to open their eyes up. Interest rates will probably go up, will probably go up.
I want to qualify that. And if interest rates go up, it’s really going to get ugly out there. So again, I want to be optimistic, and I historically am. And that’s why, again, when I talk about this logically, people are usually nodding their heads and kind of agreeing and yeah, that’s true. Okay, what are we going to do about it now? And what we’re going to do about it now is we better, if we’re concerned about directly impacting me, me being the listening audience out there right now, I better have a plan and the plan better center around something to the effect of having an exit strategy as far as with my money. Because again, putting the money in and just saying a prayer and hoping that things work out is not an investment strategy. It’s a hope. And we’re not in the hope business. We’re basically in the business of strategically making decisions to try to grow our money and minimize downside.
And again, for most individuals, that’s their desire. The problem is they don’t have a plan in place as far as to accommodate that. So we basically step up to the plate and tell people, here’s what we think is going to take place. But guess what? We’ve got the guardrails just in case. And if the things start getting really, really ugly, we’re going to be basically sitting in cash, cash and waiting for things to calm down some. So hope I’m wrong. I really hope I’m wrong, but in 40 years you’ve seen a few things.
And what we’re seeing now in Washington is just, and it’s not one party, it’s both parties. The extremes have taken over and the middle people that are more not leaning hard left or leaning hard right, those individuals are being ignored. And we’re listening to the two extremes. And so we have just a chaotic mess. And again, our fault for putting a lot of these politicians in Washington hoping that they’ll do the right thing and they’re not. And we look the other way because it’s the other people that are bad, not my guy. And that’s not the case. So anyway.
Gary Determan:
Again, listening to Dave Nelson. Dave, I would think though there are probably people who are probably in that middle road, they are being ignored as you pointed out, or they’re thinking, why bother?
David Nelson:
Yes, why bother? Exactly. It’s almost gotten to that. And it’s really sad to think of that as far as the United States, the greatest country in the world, and the greatest period of time that we’re living in right now that the world’s ever seen. But we’re to some degree, we talk about we’ve been taken advantage of. That’s one way of looking at things. But our income levels today in comparison to where they were 20 and 30 years ago are off the charts in the United States versus if you look at Europe, you look at some other parts of the world, they’re not that way. You look at as far as manufacturing jobs, give or take, 30 years ago, you’re talking about 25 to 30% of the population was in that space. Today it’s roughly six. And so we’re acting like this is a bad thing, but what’s basically taken place is we become a service industry as far as the United States, and those jobs pay more.
So I don’t get the argument, I just don’t understand it. And again, we’re in an area where farmers are being affected in a big, big way. Look at as far as what they’re paying for their input costs now, farmers input costs, in other words, the crop, their fertilizer and all the stuff that they need. They’ve gone through the roof, but yet you look at the price, the price of corn today is a fraction of where it was 10 years ago. Holy cow. So we got to open up our eyes to what is reality out there. And what’s reality out there is that we’ve got a pretty good gig going here. And the bottom line is if we don’t totally screw it up, I think we’ll be okay. But I’m telling you, when you see China and you see Russia buttering up to each other, and oh, by the way, the prior day, who was there?
Modi from India. So here’s just massive population as far as that these three entities oversee, and we weren’t at the party. And so people say, oh, they screwed us this. Okay. Again, I want to look at facts. I don’t want somebody’s opinion as far as on this thing. The facts don’t back up a lot of the statements that are being made. So we’ll see. I want to be optimistic, and I am, we’re still pretty much fully deployed as far as, in other words, it’s a fancy way of saying we’re still in a lot of stocks and whatever as far as we’re invested, but at some point here, that’s probably not going to be the case, and we’re probably going to be pulling back significantly and putting more money in money markets and whatever. And the risk-reward is not as good today as it was a year ago.
Gary Determan:
I hope the people at home are enjoying what you’re having to say. It’s quite interesting.
David Nelson:
I have a tendency to get on the soap box sometimes.
Gary Determan:
There’s nothing wrong with that.
David Nelson:
And again, it’s just trying to give another opinion. And somebody that doesn’t have a vested interest in what happens in Washington. I don’t have lobbyists as far as that are lining my pockets because again, I’m not there. I don’t want to be there. But what I do want to do is I want to look out for the average guy out there, and the average guy out there is busy trying to make a living. They don’t have time to focus on a lot of this stuff. We do. This impacts our client’s net worth statements, and we want to make sure that at least we share with people as far as some possibilities of other things and not having a politician that only will look at their side of the equation. We want to look at both sides and help people make better decisions as far as, again, concerning their net worth statement.
Gary Determan:
I was looking at the calendar now. You’re not in on October 1st, right? You’re going to be coming in on the 29th, or is-
David Nelson:
I think that’s true, yes. I’m on the road someplace, and I don’t remember exactly. Oh, I’m down in Florida I think. I’m going down for clients.
Gary Determan:
So we’ll have you back in again on the 29th.
David Nelson:
29th. All right. Whatever works. I’ll be here.
Gary Determan:
We’ll see what has transpired over that timeframe. Again, very interesting. Thank you so much, Dave.
David Nelson:
Thanks, Gary.
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 representatives, 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 NelsonCorp Wealth Management are not affiliated. Cambridge does not offer tax advice. For more information, visit our website at www.NelsonCorp.com.
Market indices listed are unmanaged and are not available for direct investment.