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What we hear about the economy changes on a minute-by-minute basis. And it’s hard to separate fact from fiction when everyone is saying something different.  

Retirement, even in the best economy, is a huge transition. You don’t want to dip into emergency funds or drain your assets over bad market advice. 

Breaking down the information you receive is the first step in smart investing.  

In this episode, you’ll discover how to protect your plan from the wrong words and thrive in any economy. 

Show Highlights Include:

  • How to avoid manipulating your retirement plan with Led Zeppelin music. (1:53)
  • Predicting the health of the 2021 economy through George Carlin’s double entendre. (3:22)
  • How to protect your portfolio’s assets from the ‘Tale of Two Economies’ today. (7:31)
  • How to calculate the true value of an investment (instead of trusting someone’s word). (16:41)

To schedule your free retirement tracking meeting, specifically for first responders, head to http://pensionattention.com/ or call us at 805-409-8150.

Read Full Transcript

Welcome to Pension Attention, the best show for first responders who want to take control of their finances.

After advising Los Angeles city firefighters for over 12 years, financial advisor, Brad Barrett now shares how you can grow your wealth, build your legacy and enjoy a life of freedom. And now here's your host, Brad Barrett. [00:19.9]

Brad: Welcome to Pension Attention, the show for you, first responders who want more out of their deferred compensation and pension plan. My goal with this podcast is to reach you where you are at whatever stage in your career you are in, in order to provide my nearly 15 years of experience working with both active and retired service members on their investment and retirement planning. My team of fiduciary advisors here at ONE Fire and Police are dedicated to ensuring you take control of your finances and build the life you deserve. Before we get started on today's episode to find out more about me or any one of my advisors here at ONE Fire and Police, you can go to our website at PensionAttention.com or you can give us a call. You can call us at (805) 409-8150. And if you haven't already done so you can go to our website, again its PensionAttention.com. You can click on the media tab and there you can download and subscribe the Pension Attention Podcast. It also keeps us up to date on the weekly episodes so, we make sure to get an email from us. And if you don't want to go to the website and download it, you can also download and subscribe the Pension Attention podcast on any platform where you would download a podcast, whether that's Spotify, SoundCloud, Google podcasts, or the apple app on your phone. Leave us a comment, let us know how we're doing. It's always good to get feedback. And if you liked the episode, if you liked the show, tell a friend, tell someone you like, if you don't tell an enemy, maybe I don't know, but tell someone. [01:46.5]

I'm excited about today's episode, as you can probably imagine. We're gonna talk about communication breakdown. Now, yes, the first thing I thought of when I titled this episode was Led Zeppelin communication breakdown. It's always the same, having a nervous breakdown. Drive me insane. Now you're lucky I didn't sing it for you, but big Zeppelin fan over here. And I titled it, the communication breakdown. Number one, I love that song, but number two, I think it's a great description, but what I want to talk about and share today when it comes to this world that we live in, the communication that we receive and read and hear pretty much on a minute-by-minute basis. Don't you feel that way? And then thinking about this week's episode, I started thinking, you know, words, they're a funny thing, right? Words have, well, they have precise meanings and when words are strung together in sentences again, they convey a thought, right? A specific thought. And essentially words are a means of communication, we all know that. A way of, let's say telling each other our thoughts, but words are subject to manipulation. Don't you agree? Have we seen that lately? I mean, look at any political environment or discussion or really any moral or social discussion nowadays. I mean, words are definitely subject to manipulation. [03:01.8]

So, meaning of course a carefully worded sentence can say one thing, but mean something else. By the way, this technique is known as a double entendre. If raised a speech that has more than one meaning, right. A rhetorical device that exploits the breadth, so to speak of the English language. And it also got me thinking of a guy George Carlin. Remember that comedian, he to me was brilliant. I loved the way he strung words together. I always thought he was hilarious. And I think George Carlin identified an excellent example of a double entendre in one of his comedy routines. I was kind of Googling it one night as I was thinking about this episode this week. And I definitely got lost in YouTube and started watching a lot of old George Carlin clips. And again, I think he's hilarious, but, and it seems in one of his episodes and I want to reiterate, this was kind of funny. One of George's friends was arrested for drunk driving. So, when George asked what the friend was being charged with, the cops replied he's legally drunk. To which George replied, if he's legally drunk, what's the problem. So again, funny guy, right? You know, he died almost 15 years ago now. And I wonder if you were alive today, what do you think George Carlin, as an example would say about the doublespeak, the double entendre that we hear from, let's say politicians and what George Carlin say about the health of the U S economy, big shift there, sorry, but you get where I'm going with this. [04:21.1]

He'd probably say it suffers from Corona virus, you know, and thank God prior to getting the virus, the U.S economy really didn't have any serious underlying medical conditions, and he'd be right. You know, what I want to talk about today is some of the communication we've been getting, and I'm not going to get into the deep weeds of this whole pandemic because that's not for today's forum. But prior to COVID-19, the U.S was experiencing its longest economic expansion in history. Unemployment was at a 50-year low. There was wage growth for the first time in nearly a decade. And the lion's share of the wage growth by the way, was going to the blue-collar workers. So due to the 2017 tax cuts, thank you, Trump and deregulation GDP was on the men, reaching highs again. We haven't seen these highs in 10 years. And the U.S stock market, as we all saw was breaking records pretty much on a daily basis. [05:11.4]

Before Corona virus, okay, the state of the U S economy was I'll say incredible, incredibly good. And right now, one could say it to say to the economy is also incredible. Maybe incredibly concerning, maybe incredibly good, depending on how you look at it. You know, in its own way, the word incredible and where I'm going with this is somewhat of a double entendre. You can say it's incredible and someone might say, well, are you saying that because it's good or you saying it's incredible as a sarcastic way of saying it more negatively or it's bad. There are really two interpretations of the U.s economy that I want to talk about today. Despite today's volatility, the stock market is still in the incredibly good category, in my opinion. And as a firm, we researched the fundamentals of what we're seeing in the market. And there’s still fundamentally strong value in our market today. New highs are being reached. Yes, mortgage rates, essentially liquidity in the economy, right, is in that category as well. Money is very accessible and several other factors such as housing and technology, they're all doing well. And inflation remains low, but it's an interesting one to talk about. We talked about a couple of weeks ago on my episode run flight gate, we touched the surface of inflation. [06:22.2]

But these are all things that ball is still low and while we see some fed actions that are gonna be happening here and some projections, these are all incredibly good things. But there are aspects of the us economy that may fall into the incredibly bad category. Unemployment is higher than we'd like to see it, 6.3%. And for certain categories of people, unemployment is about 10%. And new job was claims. They're holding somewhat constant, but still higher than forecasts. So, in the next few months for closures and bankruptcies, they're projecting and they're expecting those to surge, to record levels, something we're going to keep track of. And short-term interest rates, they remain low. So, savers really aren't being rewarded. Like I don't know anyone that I know right now is getting a checking account, paying you 5%, right. And really what that hurts is retirees that are holding cash are being conservative. That's going to hurt in the long run potentially. So, the restaurant and bar industry, let's just talk about that for a second. They're being decimated, right? The stock market volatility it's there, but it's not rampant. So incredibly highs are happening. We're also seeing some lows, but nothing dramatic. Like we saw maybe in March of last year. [07:29.5]

So, in 2021, almost post coronavirus. I'm hoping we're getting there, right? The us economy has been a classic depending how you look at it, glass half full glass half empty story. And very often news reports, you know, they'll describe it as a disconnect between main street and wall street. Essentially, it's two different stories, one incredibly good and the other one they'll they'll detail out of like incredibly bad. And in a broad sense, look, I'm gonna go back to my childhood here for a second. And many of us do in our elementary years of Charles Dickens, remember that cat, he's probably best known for his opening sentence in his book, A Tale of Two Cities. It was the best of times. It was the worst of times. It was the age of wisdom. The age of foolishness. It was the epic of belief. It was the epic of incredulity. It was the season of light. It was the season of darkness. And it goes on, right. It was the season of hope. It was a winter of despair. We had everything before us. We had nothing before us. We were all going direct to heaven. We were all going direct the other way, end quote, I'll stop reading now. [08:27.0]

The spring of hope, the winter of despair, I mean these contradictory statements and words, it reminds me a lot of what we hear, depending on what news channel you listen to or what you want to believe and perceive has a lot to do with how we look at our retirement and ultimately how we look at the engine that drives that retirement, which is our investment portfolio. So, it doesn't that perfectly sum up in a way where we stand today, July of 2021. By the way, A Tale of Two Cities was published 162 years ago in 1859. I know you've heard it from me before. I'm a nerd. I like to look up history and research what I'm talking about. And coincidentally, that was just about the time across the pond from Dickens in America here, we were beginning to emerge from the economic panic of 1857. This was the first financial crisis that began abroad overseas, really, and spread to the U.S by the way, does that sound familiar to anybody? [09:22.2]

Anyways, many economic historians believe the economic panic of 1857 marked the beginning of interconnected world economies. Pretty interesting when you think about it. So anyways, you know, today, the U.S economy is indeed a tale of two economies, depending on how you look at it. And more than ever before, it is vitally important to consider, to understand who is telling you the story of U.S economy. This is my point in today as the communication breakdown of who we choose to listen to, who we choose to hear, and ultimately how we settle with that, how we bring it in, how we perceive it. Some people will paint an overly optimistic, this rosy picture. Another old paint, a picture of pain, you know, of economic doom and gloom. And by the way, there's a lot of financial people out there that are trying to sell some story and really selling fear. I see that a lot. And the end of the day, sometimes they can't be proven right or wrong, depending on what topic they're discussing. The reality is looking at it from a point of view where you don't get over your skis on being overly optimistic, but you also to get over your skis on being overly pessimistic. [10:30.8]

One great example of that right now, when you talk about, let's say a key consideration right now of inflation, okay, it's a big topic going on. We've seen a lot of money being printed from the U.S government into our economy. So, inflation is on the mind and here at One Capital Management, we are managing the portfolios with that in mind, still looking at fundamentals, finding treasury, inflated, protected securities, and things that work uncorrelated or will benefit from maybe a higher inflation over the next five or 10 years. So, finding that portfolio, that's designing a portfolio and an engine for your entire plan is a key point to making sure you manage inflation. [11:05.8]

Do you know how much you should be contributing to your deferred compensation plan? Are you getting the most out of your current investment options? Looking at entering or about to exit the DROP program? Go to www.pensionattention.com to find out how we can help. [11:21.8]

When you talk about inflation and you talk about someone who's being maybe overly pessimistic. One of the things that comes up in my mind is the overly pessimistic would be Oh, I don't trust the stock market, too volatile, getting close to retirement. I want to preserve, okay. So, nothing wrong with that. This is my point that the communication today, there's nothing right or wrong with those thoughts, but understand who you're listening to and why you feel that way. For example, mathematically, if we do have inflation, that's going to kick up. Maybe not hyperinflation, I'm not talking about this runaway inflation here. I do think personally, the inflation we're seeing right now is transitory. There's lots of data that's showing us that. So, it's more about price fluctuation in the short term than it is long-term hyperinflation fears. But if we do have some inflation kicking up here, let's say the next five or 10 years, those that are being out over their skis on being overly pessimistic will get burned. [12:15.1]

If they're heavily in cash, that's one of the key asset classes that will get hurt because your purchasing power risk is high. Your dollar today, or your hundreds of thousand dollars that you may be putting away in cash and not wanting to be “in the market” is going to get hurt when the dollar gets weakened because of inflation. So again, being overly pessimistic, can't hurt. Being overly optimistic or in a sense being very myopic with your point of view on how you're managing your assets. Maybe being very singular, not very diversified can also be a problem. We want to make sure that we have growers in the portfolio, no doubt. But you also want to make sure you have uncorrelated assets that work with those growers to provide value. You've heard that term before growth stock versus value stock, which in turn really gives us dividends gives us yields gives us stability in typically larger capitalized companies that are more stable can weather storms. So, all of that comes into play when you're looking at it from a glass half full maybe, or a glass half empty. So, words matter in the communication that we are listening to, even this podcast right now, you can see very clearly. I'm trying to be very ambivalent if you will, to the direction I think any client should be looking at it from. [13:33.6]

We don't necessarily want to get all into one area and again, go hide in a corner because something like one topic I mentioned of inflation might hurt us. And by the way, the other side of it too is being, oh, I'm definitely gung ho. I think we're going to be fine. We're going to get through it where the U.S, yada, yada, yada. And we get really granular in our investments because we think certain sectors or certain specific companies will do just banger over the next five or 10 years. And we get very specific and we lose the grasp of diversified portfolio that can also be problematic. And I also want to stay in the middle here because to be fair, no one knows what tomorrow holds that's biblical, all right. So, you can't argue that in my opinion. And we don't, and we want that, by the way, we don't want to know what tomorrow holds. Some of us might like to hear in there, but we really don't. And to some extent, when I say that it's hard to know exactly where the U.S economy is maybe even right now. It's true condition, because the reality is we've seen in this past year, a lot of federal stimulus support it's been given the economy has been given a lot of support. We see it, and it's likely to continue. [14:37.4]

We're seeing Biden talk about some infrastructure plans right now. And there's a lot of nuances inside that plan that we're going to keep our eye on because there's a lot of things in there personally, that I'm not a big fan of. All of which by the way, has resulted in a ton of liquidity in the market, which by the way, is why we're kicking up some inflation discussion. But there are tools at place here for many of you listening right now that are very gung-ho on the dollar is going to collapse, I'm not arguing that at all. What I am discussing and saying is that there are tools that our central bank has, whether you like them or not. They do have the tools there to help curtail some of this inflation, right. With fed funds, rates, discount rates, to use, to make sure that the oversupply of money right now can be curtailed a little bit. No one likes that. I'm not saying I'm a big fan of the government sending out a bunch of money and increasing our debt ceiling, right. We’ll look at it in context, I've shared this analogy before. I'm not saying it's exact numbers of tried and true, but when you look at 25, $30 trillion of debt and you back that up against the assets or the GDP growth of the United States, it's a relatively smaller number. We don't like to see it rising. I'm not saying we do, but it, again, it's not out of whack where we're going to be basically insolvent so far that we've seen. [15:48.4]

It's somewhat like looking at a $200,000 house value with a 25 or $30,000 mortgage. Now no one likes debt and I'm not saying that we still owe that money, no doubt. But are we overly concerned with that debt? And I will tell you as an experienced advisor, being a financial advisor for nearly 20 years now, I've met with a lot of clients, current clients who maybe even listening to this podcast right now that would be concerned about a 25 or $30,000 mortgage on a $200,000 house. I've also met equally as much clients and prospective clients over the years that aren't concerned about that at all, and would actually love that scenario. So again, the eye of the beholder, how we're looking at things matters, the communication that we receive and perceive matter. And although there's a lot of liquidity going into the market, there's a positive and that the businesses have money in their hands, on the ability to, I guess, access more if they needed. But as you and I know, sadly, there are a lot of businesses that without that liquidity would have closed their doors long ago. So, there's positive negatives again, depending how you look at it. And we also know at some point in the future, this artificial, if you will support from the federal government will stop inflation again, might creep in unemployment, may retreat to post coronavirus levels. And we'll have a better sense of the damage if you will that's been caused by this business shutdowns. But right now, as we see it fundamentally again, we're talking about fundamentals. One of the key components of that is a PE ratio price to earnings ratio. [17:19.8]

Essentially a PE tells you how many times more expensive the stock is compared to its earnings or how I like to think of it is the price earnings ratio is your cost to buy $1 of profit. Now on the flip side EP earnings per share is how you calculate the earnings yield. So, earnings yield tells you what the percent total of your purchase price is in earnings or the percentage of a company's earnings per share. It's a way to think of it like buying a wallet with some cash already in it. So, when you understand fundamentals, we want to look at a price to earnings ratio is a key component there with regards to what is your cost to buy $1 profit. We typically fundamentally like to see that bandwidth within 16 to 18 times earnings give or take. And right now, on the S&P 500, we're seeing it in the 20 to 2122 range. Now for relative perspectives, pre-08, we were seeing those multiples up in the high twenties, 28, 29, 30 times, that's over bought, that's high. So, when we talk about fundamentally sound, we'd like to see a little bit lower. We're a little hot on PEs, but we're nothing that we're concerned about. And when you back out some of the FAANG stocks, Facebook, Amazon, apple, Netflix, Google I'll throw in Microsoft there from the S&P 500, which is 70% or so of the growth over the last year, our PE multiples are actually relatively low. [18:47.4]

So again, fundamentally, we're seeing strong values if you will, in the economy. And so when you look at this and you talk about what we are reading and hearing and seeing really what I want to talk about today on the Pension Attention podcast and for clients listening right now is we are actively involved in looking at your portfolio as you well know, as we talk about in our review meetings, but it's also important for you listening right now, as you share this podcast, maybe, or as someone who's listening to this podcast has been shared too, and not currently a client, if you're not doing some of the items I was talking about with regards to looking at the fundamentals in your portfolio, or really taking a quick second and kind of a checking with yourself, and how are you perceiving what's going on in the world right now, as it relates to your retirement, your investment management. And I want to say something because we use the term retirement plan a lot on this show and in our practice and at the a station's, I talk about it a lot. If you've got 5, 10, 15 years on the job right now, you're thinking retirement, that's like 20 years away, why am I even focusing on that right now? And if you talk to any one of my clients that are been with me for many, many years, and I, which I feel blessed to say that, and you talk to them, it's like, I wish I had met someone earlier 10 years earlier. So, the more you get started now, the better and a retirement plan doesn't necessarily need to be when you're 60 years old or 55 years old, you can build a retirement plan because the main driver in a retirement fund, you hear me say a lot is your deferred comp plan for those active-duty members right now, it's the engine that drives this proverbial car. And the car is the plan, right. Getting the wheels, getting the framework, getting the body, all that structured so that you can continually driving this thing to the goal and the destination that you want, which ultimately for many people is a happy and healthy retirement. [20:29.6]

So, make sure we watch what we are listening to, what we are hearing and ultimately how we are perceiving it. And if you are conflicted by that anxious about those kinds of things, that's where a good advisor, a good experienced advisor can help you disseminate some of these words in this communication breakdown that we see nowadays, there's a lot of things coming at you all the time, and I'm not saying they're wrong or right, because there's a lot of different avenues you can take in that, but how you perceive it matters and how you feel about it. And ultimately that actually has a lot to do with your next steps, how you want to invest, maybe how you want to actually live your life outside of financially. Right? So, it's just a good check-in when it comes to your finances, your cashflow, your debt management, ultimately your deferred component, investing strategies has a lot to do with how you understand and perceive the communication that's out there today. [21:23.9]

Thank you for listening to Pension Attention before acting on anything discussed today, remember speak with a financial advisor near you about your specific situation. And again, if you'd like our help, you can visit us at PensionAttention.com, there you can set some time with myself or Toby Rodriguez, or one of our advisors here that specialize in retirement planning and investment planning, for first responders, we set some time with that website, PensionAttention.com or give us a call (805) 409-8150. [21:52.5]

The information in this podcast is educational and general in nature and does not take into consideration the listeners personal circumstances. Therefore, it is not intended to be a substitute for specific individualized, financial, legal, or tax advice.

To determine which strategies or investments may be suitable for you consult the appropriate qualified professional prior to making a final decision. [22:16.3]

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