9-9-26 Q&A Wednesday: What Should Investors Do Now?

0:00And that was something completely different. Forget everything you've been told by others before. Another day, another gallon of coffee. Get ready for the real deal. The full story. That's pretty much right, Java. The whole enchilada. My wife has this thing about wanting to keep me around for a long time. I'm like, just let me go. It's money, news, and information you can use. This is the big debate over what to eat. You know, you asked your wife, you know, what do you want to eat tonight? I don't know what you want to eat. No, I just want to make you, I'll eat anything. You could be dirt on a plate if that makes you happy. I'll eat that. To grow financially healthy, wealthy, and wise. A marketing idea for restaurants. Yeah, name it. I don't care. That's a great idea. We're going to go eat. I don't care. Got the place to go. Just name it. Now, welcome in, the real deal. What's it meant to be rude? It just meant to be true. The real investment show with Lance Roberts. Happy wife, happy life. That's what we live to do. Happy husband, don't ask me. Just tell me what he needs to do. He'll be completely happy. Presented by RIA Advisors.

1:01And good morning. Welcome to the show. Of course, it is Wednesday, Hump Day already. It's only the second day of the week. But then already halfway home. So that's right. Hump Day now getting started here, of course. It's also Q&A Day, Danny Ratlett joining this morning. We're going to do live Q&A. So if you're watching our stream this morning on X, on Metta on LinkedIn, be sure and jump over to our YouTube channel and join the chat there and ask any question you want. We'll certainly try to answer it. While you're there, be sure and like and subscribe to the channel. Certainly helps us a whole lot. And we do appreciate it very much. All right, I don't have a lot to talk about this morning right out of the gate. No economic news to speak of. We had it in FIB yesterday. The National Federation of Independent Business. That was a little bit weaker than expected. But overall, pretty light economic day. Tomorrow and Friday. Those are the big days. PPI and CPI on Friday. That's what the market is going to be looking at most closely. Got a few little earnings sprinkling in here and there, but for the most part, earnings season behind us. So the market has been as of late just kind of hanging out.

2:05But we may actually be starting that correction that we've been talking about as of late. Here's what you need to know before the bell this morning. So looking at the S&P again, this is kind of ad nauseam. And I'm sorry about it. But we've been just having to go through this for the last really kind of a couple of weeks. The market's just stuck here. We're back below the 20 day moving average. Market so far this month, really kind of playing out to norms, which has been a little bit weaker. But the market's really not going anywhere very quickly. We're not extremely oversold yet. And we're certainly on a sell signal momentum basis that certainly puts some downside pressure to the market. First level of support is sitting right around 7570 on the S&P 500. That's the 50 day moving average. Below that's the 100 day at 7450. So there is about 2 to 3% of downside here as we start to kind of progress into the month a bit. Again, a hot CPI or hot PPI number, this Thursday Friday, something that raises rate height odds from the Federal Reserve. Certainly we'll put downward pressure on the markets here

3:07a bit. So again, we do have that risk of a correction. We don't have buybacks right now. They're back in blackout mode here for the next month, getting ready for quarter three earnings to start. So we've kind of lost that. That's not selling pressure, but that's a lack of buying pressure that's there. Again, we're just kind of in this malaise of we don't really have a lot of earnings data helped support markets at this moment. And we've got this concern right now with oil prices currently taking up here, of course, as ongoing attacks last night. We ran attacks on bases in Jordan. We retaliated by attacking their oil tankers. And so that's certainly pressing oil prices higher this morning as we've talked about lately. That is a concern on two levels. First of all, rising oil prices are certainly putting pressure on the economy through higher gasoline prices, et cetera. That creates demand destruction. That is going to feed into economic growth and potentially earnings estimates very high right now.

4:11So again, as oil prices remain higher for longer, that's certainly going to weigh on that demand destruction. The future second thing is, is there's a very high correlation between oil prices and CPI. And with this rise in oil prices, it really started back in early August. It's now been long enough about three, four, five weeks here that that's going to probably show up in CPI on Friday. So again, this rise in oil prices is going to be reflected in inflation. So we are probably going to get a little bit stronger print in terms of inflation on the year of your bases. Friday, we'll see how that number comes out. So again, oil prices are going to, that increase of oil prices certainly weighing on inflation. That's going to potentially put pressure on the Fed, at least from a PR standpoint that they should hike rates at the next meeting. And again, that's why all this is a kind of a risk to the markets right now where we currently are. So again, continue to manage risk, hedge your exposures, those type of things we talked about yesterday, puts are very cheap right now. So there's a lot of ways it's kind of hedge your exposure. Raise just raise a little bit of cash

5:11and portfolios and nothing else. Been very rapid rotations as well as we talked about yesterday. We saw the momentum stocks, semi-conductors and some tech doing very well. Refs market very weak this morning, those are weak. And we've got health care and energy stocks doing well. So again, we continue to see this kind of rotation very quickly through the markets. As we said, that makes it difficult to bait big moves in your portfolio right now, but certainly work around the edges and hedge your risk a bit until we kind of get through this month. All right, that's what you need to know before the bell this morning. We'll come back, pick up Danny Ratliffe. I'll get that out here in a second. And we'll do your live Q&A coming up next. [♪ OUTRO MUSIC PLAYING [♪ Get daily investment news you can use. Deliver to the speed of the internet at realinvestmentadvice.com. What if your money runs out before you do?

6:13Join Richard Rosso and Jonathan McCarty for our next RIA Retirement Income Workshop. Saturday, September 19th at the Embassy, Sweet Silton. Discover why the traditional 4% rule may fail you. The costly retirement income mistakes you need to avoid and strategies designed to create a paycheck you can't outlive. Your retirement deserves more than guesswork. Register today at realinvestmentadvice.com for this exclusive in-person retirement income workshop. Realinvestmentadvice.com. You're listening to The Real Investment Show. [♪ OUTRO MUSIC PLAYING [♪ It'll allow this one. [♪ OUTRO MUSIC PLAYING [♪ That's right, I am too old. It's too loud, I'm too old.

7:15I've now got to the point in my life where I have to turn down the radio to see what the street signs are saying. So listen. [♪ OUTRO MUSIC PLAYING [♪ Anyway, good morning, Danny. How are you? Hey, good morning. Good, good. Got your computer with you this morning? I do. All right, good. [♪ OUTRO MUSIC PLAYING [♪ I'll help you out this morning. No, we're good. We're good. All right. So, all right, we got live Q&A going on this morning. So again, jump into the chat, ask your questions, and we'll certainly get into those. So what we got, Danny. All right, so overnight we had some interesting statements from Scott Besson. What do you think about him saying, I am the house in regards to the end? Well, basically he is. He is. Yeah. I mean, he's pretty much controlling it right now. So, you know, this is his job, right? This is the Treasury's job. And when there's financial strain within markets, whether it's the yen or whatever it is, it's the job of the Fed and the Treasury to step in to try to control those risks to some degree, so that they don't spiral out of control. These aren't bad things.

8:16This is their job. This is what they're supposed to be doing. So what you want them to do. And in particular, this is why during a financial strain of some sort, they step in to provide dollar liquidity, provide dollar exposure. In this case, we're providing euros to buy yen to try to keep things under control while governments kind of work through their processes to get what they want so that you don't have an event spiral out of control and create a financial strain on a global basis. So again, it's always interesting every time he's like, oh, here, you know, they're Scott Besson, just trying to keep yields now. No, he's just trying to keep a financial strain from becoming a financial crisis, which one we could have other have. He's doing his job. He's doing his job. Exactly. You've never had anybody actually come out and say exactly what he said. And I think that's what's concerning people. Like, oh, well, I mean, he came out and said, I'm the house. Well, he's always been the house. The Treasury has always acted in that manner. So nothing has technically changed. He's just set it.

9:17Yeah, exactly. The question here, what do you think about the dollar versus the euro in regards to what? Like, do you want to be long euros or short dollars? Or, you know, what's, I'm not sure what the question is there. But, you know, dollar versus your right. And dollar's stronger today. Dollars been on a decent rally, really, ever since March. And we talked about before, there's a big short position against the dollar. And this, I wrote an article probably right at the beginning of this year talking about the dollar weakness was likely going to be over this year. And that's been the case so far this year. Markets, you know, dollars trade versus euros relative to, you could call it a peg. When the dollar gets too strong relative to the euro, actions are taken to try to keep, try to, try to revert those, that dollar euro relationship back to some level of stability. Because if a currency is too strong relative to another currency, it impacts both countries in terms of economic output, exports, inflationary pressures, et cetera. So again, you just have to, you know, if you're trading currencies,

10:20that's fine. Just trade your spreads and make sure that you're, you know, kind of, you know, watching your technicals. But on a long term bet, I would bet on the dollar versus the euro because of economic strength. But because eventually, then the day the stronger the economy is, the stronger the, that currency will be relative to another currency because they have, you know, their stronger economic activity is pulling demand from other areas, which is increasing the strength of their, of their, of their currency relative to a weaker economy where their currency weakens. So, you know, if you just look at economic growth rates over the course of the next several years in the US versus the euro, I would bet on the dollar versus the euro. All right, so I have a gut feeling any middle of the road portfolios should have a small allocation of high risk, high reward investment slash trade vehicle, like maybe one to two percent. What do you think? What do you consider high risk, high reward? Well, and secondly, that makes no sense. Well, but, but if you're middle of the road portfolio, you're always going to have something new to the dollar. You didn't let me finish. You didn't let me finish.

11:20Okay. One to two percent does not move the needle. In other words, let's say that you buy SpaceX. You buy 1% of SpaceX in your portfolio and it goes to the moon, right? It goes up a thousand percent. A 1% position does nothing for your overall portfolio at all. So, if you're going to have some exposure to high risk, make sure A, you can tolerate the volatility, but you need to size, and again, this is, we go back to our website, pull up the article on portfolio risk management and learn about sizing, how to size positions in your portfolio. You have to understand what your beta volatility is and your overall portfolio. You have to understand what your risk dynamics are personally in terms of what you can measure, what you can withstand in terms of volatility within your portfolio, and then size that position large enough to actually be a benefit. If you're just doing a 1% to 2% position in something in your portfolio, just don't even do it. You're just, you're, you're really wasting your time, and you're just adding extra volatility for no reason. Well, but if you're in middle of the road portfolio already,

12:20you're going to have that growth risk element inside that portfolio. It should, yeah. Already, I mean, if it's a 50-50, if you're saying middle of the road, 50% stocks, 50% bonds, you're already taking on that exposure. Now, I guess that goes back to what you just mentioned, were you buying SpaceX pre IPO, were you in other investments and maybe don't have a liquidity? Well, then yes, we can make an argument, but 1% to 2% as you mentioned, doesn't move the needle. However, you also need to understand what if it goes wrong? What is the impact to your overall broad plan? I think that's where many people fail to remember. Like we all want this additional growth, but yet when the risk happens or the event occurs, many people can't tolerate it. And your plan may not be able to tolerate that either. So you need to understand what happens if you're down 50% in a position. Yeah. Well, and again, the really what the question comes down to is that you're asking should you gamble with 1% to 2% of your portfolio, right? And this is the one thing that I think too many, and I've got an article coming out about this

13:21in the next couple of weeks talking about the gambling, the coming gambling addiction and the economy because of things like CalShi and polymarkets and all this other stuff that we've got going on. But we've started to migrate investors into believing they need to gamble in the markets rather than invest. And you say, okay, well, Lance, it's just 2% of my portfolio. Okay, so let's say you got $100,000 portfolio and you're going to throw $2,000 into this high risk, high reward investment. Okay, it may do great. Again, it triples in size. It's now $6,000 in your portfolio. It's done fantastic. Or it goes to zero. So you've just lost $2,000. Yo, it was just $2,000, right? That's my vagus money. You hear this all the time, right? This is my vagus money. Okay, I don't know how many of you, but I do not go to Vegas and gamble with $2,000 anyway. That's just me. Because I work damn hard for my money and I'm not going to just throw away $2,000. Again, go do some simple math and an Excel spreadsheet. Plug in $2,000 over 30 years at a six or seven or 8% annual growth rate. And look at what that $2,000 actually just cost you

14:24gambling in the markets, right? This is what people mistake about investing. This is why I'm writing this five part series right now. The first four parts already out on the website. So if you go to Monday's article, it's part four and the other three articles are listed there about investing for the long term and the myths surrounding things like, you know, buy and hold and these type of things. These are all are great narratives, but in reality, they don't work in a lot of cases because of all the other factors that feed into it. So having a meal of the road portfolio is fine. There's nothing wrong with that. And your portfolio, should you have some momentum in your portfolio and some growth stocks in your portfolio? Absolutely. Should you have some value? Absolutely. So do you speculate? Not really, no. Well, but I think it goes back to the question on what do you consider speculation? High risk high reward. Yeah, but what is a high risk? A high risk high reward bet is a bet. It's basically betting on a hand of black bet. But is that in video or is that? That's not a high risk high reward bet. It's got fundamentals. High risk high reward is a stock that's trading at $3

15:29in your... Well, Penny's talking about it. Well, that type of stuff. Pretty cheap. Yeah. No, that makes sense, but I think that's what you need to determine is what exactly is high risk high reward for you. Because I think many people think like, oh man, growth is extremely... If you look at a cape, you say you can make an argument that, hey, there's a lot of expensive areas of the market. So you need to figure out what is high risk for you and then what does that mean for your overall plan if it is derailed. All right. What dividend sector is the safest for building a retirement paycheck? Ooh, I think that's a tough one. No, not really. Well, but it is rebonds. But nobody's thinking about that. Dividend, not coupon. The coupon on the dividend on the S&P 500 is about 1%. It's the lowest on record right now. So utilities, which are normally a dividend yield... Oh, here, let me put this way. 4.5%. That's the number of S&P 500 companies that have a yield greater than US Treasury right now.

16:32Stop any. Yeah. It's the lowest on record going back to like 2000. So the problem with that is that's a problem evaluation, right, market evaluation. That's going to lead me to our question here. We've got Rob says, I read two or three of your article series and I've been investing for just over a year and now I'm doomed. And so, I'll get to your question. You're not doomed. We'll get to your question. But if you're trying to build a dividend yielding portfolio, what the mistake is that people are making right now is they're going out and they're finding stocks with the highest dividend yield, but they're not paying attention to the underlying fundamentals. And the reason those stocks have a high dividend yield and in many cases, not all cases, is there is an embedded risk into those stocks that you're buying. So if you're trying to buy a dividend build a dividend yielding portfolio right now, you can do that and you're going to yield, you could probably get a reasonable yield and then all stock portfolio of dividends.

17:33You could get a reasonable yield around two and a half to 3% if you kind of push the edges a bit. Then your treasury's 4.8, right? So you're just not getting paid for the additional risk you're taking on. And should you now, are you, are you, am I saying that you shouldn't own dividend yielding stocks? Absolutely not, you should. Dividend yielding stocks tend to perform better over time because they have a stewardship of capital issue. So dividend yield stocks tend to perform better over time. There's a natural gravitation towards dividend yielding stocks and times of stress and the financial markets you should absolutely use them. But if you want to know what the best way to build an income paycheck for your portfolio is, add bonds to it. A little bit on what you just said them, they have a stewardship of capital issue. Yeah, I've got to pay the dividend. Yeah. So you are, you're moving the needle or the budget and kind of, you know, I don't know what the right word is. But you're manipulating books to make sure

18:35that you meet that dividend regardless of your situation. And there are companies like ExxonMobile that are very defensive of always paying that dividend. And that's great, right? Because that forces some capital discipline within the company to make sure they can pay that dividend on an annual basis. Because what they don't want to do is come in and cut dividends. But that's the risk is that with valuations where they are right now, with markets very stretched historically, we are due for a sizable correction at some point in economic downturn within the next three, four, five, six years, whatever it is. At some point that will happen. So if you go in and buy a bunch of, you know, stocks today with the high dividend yields and take that risk today, you may find out in the next two or three years that you own a bunch of stocks in your portfolio that are down 50% with no dividend yield. Because that's what those dividends get cut during market downturns. So again, just be careful. And again, just always, you know, find, and so how do I find dividend yielding stocks on one own? You find stocks that weathered 2000 and 2008

19:36without cutting dividends. Those are the companies you want on, right? Those types of companies find stocks with strong balance sheets, strong income statements, have plenty of cash per share to make sure they can meet those dividends. They're not strained in terms of debt issuance, et cetera. And the those companies can navigate a market downturn with having to cut dividends. And this is why you look for dividend payout, ratios for companies, how have they done during downturns? Focus on that first before you just go buy a yield. Yeah, that's a good point. And Chevron was a great example of that. If you remember, they went in and did a bunch of M&A. They promised they were going to increase their dividend, going back a couple years, and they suffered for it. All right. So let me get to Rob's question real quick. Because he says, I read two or three of your article series I've been investing for just over a year and now I feel doomed because I bought it high values and all time highs. Should I just pull, should I just pull it all off the table for lower? No, you shouldn't. Because we never know when that downturn's going to come.

20:37So if you now, and part five is coming up next week, we're going to have a bunch of trading, you know, investing rules to follow. So you'll have kind of some guidelines to work around. The point of the article is not to fall in love with a lot of these ideas that are portrayed in markets. Oh, just buy stocks. They always go up over time. You're going to be fine. You're not because valuations matter. They don't matter today. They don't matter tomorrow. They don't matter next week. But they do matter over time. Ford returns will be lower. But that doesn't mean they're going to be lower every year. That means that sometime over the next 10 years, we're going to have a major market crash if some sort. And I don't use that term lightly. But, you know, it's we're going to have a downturn. 20, 30, 40% at some point. That's not going to be surprising at all. That's not even going to bust the bull market trend going back to 2009. But it's going to be a substantial correction because of whatever reason I have no idea. But it will happen. It's happened repeatedly throughout history. It'll happen again at some point. It may not be until the 2030s, but it's going to happen.

21:40It'll happen for a year or two, to 18 months to two years. That's about the average length of a bear market. Then market starts to rally again. So the point of these articles, and again, the point of these books is to just make you aware of these risks that are out there. And to focus on managing the risk of your portfolio, should you just take it all out of the market? Absolutely not. You need to be invested. I would be investing on a regular basis. If you're young, in particular, I would be dollar cost averaging as best I can into an index fund, but paying attention to the overall risk. Again, what we're focusing on in these articles is just getting rid of some of these narratives. They say, oh, look, here's a chart going back 100 years. And look, it just goes up and to the right. What you miss is is that where you started investing is the most important part of your outcomes. And yes, you're investing now at a very high valuation. That will be problematic over the next 10 to 20 years. But when we get through that next 10 to 20 year period, and you can navigate that by managing your risk, the things that we talk about here on the show

22:41on a regular basis, you can navigate those cycles within the markets. And then you'll be on the other side of this at some point down the road and valuation will be much better. And then you can really buy a lot of stocks at a great value, but that's going to be a wall out there. So we're going to have to manage the risk we have today, which is why we talk about taking profits, rebalancing, paying attention to the technicals, doing these types of things, managing your exposure, don't gamble and your portfolio, don't take exceptional risk, invest smartly, and you'll be just fine. Yeah, I think that's key is understanding where you are in your own cycle. That's the one thing we can't control is where we retire in a cycle, or where you're starting to accumulate assets in that cycle. But if you are an accumulator, dollar cost to cost averaging in, putting funds to work, even despite a bad market is crucial. And I think that's where many people make a lot of mistakes is that we hear often from people like, oh man, I quit my 401k contribution because the market was down. No, that's what we want to invest. So continue to put those funds to work. Now, if we're in distribution phase,

23:43now that's when it becomes a lot more crucial for that risk management element to make sure that we don't have that major deterioration of capital. And I think if we can manage that aspect of it, you'll be in good shape. So speaking of kind of insurance, there's a lot of ways to hedge or protect. But if you recommend buying puts us insurance, I'm not gonna say recommend loosely, but what strike price? You don't recommend anything. Yeah, but go ahead. What strike price and expiration date? So really, I think if you're looking at the broad market, you have to think about what type of protection do you want. So that would indicate your strike price. Now, duration or your date on that, that can vary. Well, you gotta be careful with the strikes too. Yeah. So here, people make a lot of mistakes in buying options and portfolios. They buy too far out of the money. They get decay of premium. You have to buy time, depending on what you're trying to hedge. You gotta make sure that time frame that you're buying is right because if you miss your call on where the market's gonna correct, then your option is gonna expire

24:45before the correction occurs. So the timing is very important on these as well. Again, understanding your decay of premium, understanding your volatility that's your implied volatility within the option that will tell you how much the price of the option is gonna move relative to the price change of the market. You've gotta, once you understand what those are, and understand what you're trying to hit today and this point, trying to hedge, then you can try to start looking at strikes. So just, let's use a real simple example. I'm worried right now, this is hypothetical. Say I'm worried right now about the outcome of the election November the 4th. I might wanna buy some November puts to get me through the election because if there's gonna be a market risk, it would, it may occur most likely to occur between now and the election if the markets are gonna correct. So I buy a post election put on the index, and I might buy it just slightly out of the money for November, right?

25:45So if the market's trading, what are we trading at this morning? 7.63 on the spider. So say I buy a 750 put for November, that's not gonna be super cheap. You're not gonna go out there for 48 cents and buy a put. It's gonna cost you a few bucks. But if the market does correct, you've got some time, and you're close enough to being in the money that that will start to actually hedge your portfolio. If you're too far out of the money, if you buy some 600 puts on the S&P where the market's not gonna get to, that index, that option's not gonna move enough to actually hedge the risk in your portfolio. So understanding, and again, look, I'm doing stuff off the top of my head. I don't have an option sheet in front of me. So you'd have to actually go look at the data. But you have to just factor in to Danny's point. What you're trying to risk, what you're trying to de-risk, how much hedge you're trying to put on, and then size everything appropriately, with the understanding, and this is what you should hope for, is that those options will expire worthless

26:46because the market went up. Yeah. All right, what are your thoughts on including MIGAS for an income component? So MIGA is a multi-year guarantee annuity. So basically, a fixed annuity that's gonna be guaranteed a fixed rate for a period of time. Picture, and I know the industry does not love this, but picture a CD with an insurance company. It's kind of the way that works. Now, there's a lot of moving parts, so it's not a CD. I don't mind that. Actually, I think that you had to be careful though, because you want to understand what are the guarantees associated with that. What is the rating of that company? We typically look at A and BEST. There's a handful of other rating agencies that you look out and determine, you know, how solvent is that company? So you can be very enticed to go out and say, hey, wow, I can find a six and a half, seven percent yield. However, is that company going to be around to continue paying that? That's the question. So generally speaking, we like safe, secure companies that have been around for quite some time. I do think that can be a great income component to diversify away from necessarily maybe the markets.

27:48We can generally find something like that. It's going to pay a little bit more than what we'd find with the CD. So great option. I like the way you're thinking. You need to think of it in many different ways. I know annuity's get a really bad rap, but you need to look at all of these investment vehicles as a tool, and you've got a big toolbox and you're not always going to go to them, but you can in certain environments. So yes, I think that's a great option for an income component. Just real quick, I jumped down a little bit more. There's, because this is long the same line, if I wanted an income paycheck, explain why buying treasuries at four and a half percent would be better than buying a lifetime annuity that pays eight, I'll let you start. Well, okay, a couple of things. Number one, that lifetime annuity that pays eight is you're going to deteriorate your capital over time. So remember, you're getting that. So let's take a step back because there's many different ways we could do this, right? You could look at a SPIA, which is a single premium, immediate annuity, which means you would put your funds aside. You're creating your own paycheck. You're going to give your funds over to the insurance company

28:51and they're going to start paying you out immediately. Now, good and bad, right? If you had it in a pension, you get in a wreck, you die, the funds are gone, right? Doesn't matter how much is still in the account. If you go with and you create your own, now you're in that same instance happens, your air still have something left from a beneficiary perspective. So many people will do it that way. Now, if you're looking at a deferred annuity, meaning you're going to put those funds aside, it's going to guarantee you eight percent income. Now, this is where you have to be very cautious with this because you're going to have two buckets in this instance. One bucket, you're going to be able to create income out of. The other bucket is going to be essentially what you can take away from that. So, meaning that if I am going to put funds aside and you're going to tell me I'm going to get eight percent a year, I can later get income out of. You have to remember, you're not walking away with that eight percent. That's simply in the bucket that you're going to later take income out of.

29:51So, it can be a useful tool in that instance as well. You're trying to create that paycheck. So, we need to think about, it's three-legged stool per se. Social security, your investments, and now potentially that income annuity. I like that. I think it can be a great tool, but understand that that liquidity is now gone because I'm not ever going to utilize something like that and then go back and take my money out. Right? Where's the treasury? I have that liquidity. Right. Yeah. And once you give your money, the insurance company, when you pass away, that's it. Right. They get the, hopefully the game is, is that you can not live the insurance. Well, that's the key is with the insurance companies that I want to take income at a stage. Now, granted, we all knew our expiration date. This would be a lot easier to plan for with any of this plan. I know mine. Yeah. Well, okay. To the day. Yeah. Let me know when that is, please. But when we're using that type of product, you actually want to start income.

30:55Here's the biggest mistake I see on an income annuities that we started way too late. You'll have people starting their 80s. Well, the problem is you paid all this money to put the funds into it. And we don't ever want to like necessarily the liquidity's gone. And also if you want liquidity, they're going to hit you with the penalty, typically. So when we're doing this, you have to be very careful. But we also want to start that income at a point where we outlive our funds. And now we're relying on the insurance company's funds. That's the key. Insurance hopes you die early. You hope you live a very long life. It's a longevity tool is that's how you would use that. The treasuries are much different in the sense that you're getting that income now. And you still have that liquidity. So you still have your principle there. Right. Exactly. And you utilize them different users. There's a place for votes. Absolutely. And having an annuity within your total allocation makes total sense. And just understand the 8% is you don't ever get the 8%. You have to annuities that to a stream of payments. Correct. And you're not getting and living on that.

31:57It's going to be much less typical. Right. With the 4.5% treasury, I get the income. It actually comes in. And then the bond matures. And then I can do whatever I want to do with my principle down the road, right? By a high and by another bond or by stocks or whatever I want to do. And when I pass away, that money and the treasury is there to go to my heirs. So but but the Danny's point, not poo pooing the annuity at all. But this is one thing that we've done a lot of seminars on annuities and different types of structures like this, insurance, etc. They do have a very good place within your overall financial plan. But annuities are typically sold and not planned for and they're sold. And the reason you have a bad name is because people got suckered in through a sales process to buying annuity. Then they found out what all the traps were. And there's a lot of traps with annuities that you've got to be very careful of. But they are great tools if used properly. And so they as we always say they have to be planned for within your plan, which is when you're doing your financial plan, does an annuity make sense?

32:57If it does, there's some fantastic options with rates coming up. annuities are becoming much more attractive now with higher rates in the markets. But that's with any insurance. Like I don't know how you buy insurance without having a plan. And many times long term care will switch gears just to tadp it. But there's so many times I see somebody with a long term care policy that they've paid through the nose on. And the problems are wait a second. You're going to need, they'll say you need $80,000 in today's dollars for long term care need. Okay. Well, great. So then they sell them a policy that's going to cover all of that. Well, that's not necessarily what your financial life looks like. Because wait a second. Now you have, you have Social Security. You may have other guaranteed income. You have assets. So we don't need something to cover that full 80,000. We need something to subsidize or make up the difference. And you have to be very careful. This is the problem with insurance in general. Because we want to cover that whole need and it's not always the case of what needs to be done. And that's why we are very big advocates of not, of having a plan.

33:59So any insurance should be planned for. But yeah, I mean, I think any of those can be a great tool. Just be careful. Also on that 8% is it simple or is it compound interest? Understand what that looks like. So if you have 100,000 and you're going to get 8% are they going to give you $8,000 towards that bucket every year or after year two, they're going to give you that 8% and it's going to grow on that 108. Then it's going to grow on the next amount. So I think those are small caveats you need to look at. Find somebody that knows those in and out and put that into a plan to make sure that you're not caught off sides here. And you don't, you know, there's not something that later on you, you know, all the sudden you look at it and you're like, oh my gosh, why did I do this? Because I can't tell you how many people we see annuities they bring those in and they don't understand it. Oh, yeah. No, this one I'm saying is like, but you know, how are these things? But it's an easy sales pitch, you know, where was our question? It can be emotional. Right. So, you know, Earl, guy comes to him and says, why would you buy treasures? I can get you 8% with the sonuities. He's over this. Sounds great.

35:00And then then so you do that and then you find out all the other stuff later. Right. And you go, oh, I need some money, money back. Well, you can't get your money back. The biggest thing I see on something like that is that people think that they can walk away with that 8%. Yep. That's not how that works. All right. I'm going to move back up a little bit real quick. Have clients started calling and asking and worrying about market volatility? You know, it's interesting and it kind of scares me is that I'm having the opposite. Where more people I feel like are more inclined to take on risk at the moment than maybe like, hey, let's let's hunker down. And I'm just the opposite. I'm like, we need to hunker down. Well, that makes me feel like we need to hunker down when everybody, you know, everybody gets on one side of the boat. You're kind of like, huh? Now we do have, I was actually talking to somebody about this the other day. We have a handful of clients you're probably listening who I know when you call and you're like, oh my gosh, we need to get out of the market like, okay, it's time to buy or alternatively. Yeah.

36:01You know, if they're saying, hey, we'd add some risk. It's like, oh, she's about to drop out. What's about to happen? Now I haven't heard from those people, but I'm here from a lot of other people who are more inclined to take it, take a little bit more risk on because they look at the narrative of the AI, they say, look, this is going to go for a long period of time. This will not stop. It'll stop at some point. The question is, that goes back to what you mentioned earlier is when? Now all the things that we can think about that are negative in the market. The market knows about. So the things that keep us up at night are what do we not know? What do we not see at the moment? But yeah, it's, it's an interesting dynamic for sure at the moment. Rehors one, let me take this one. Then you'll be back on track, Danny. That moves as Berkshire Hathaway making in the current market environment. Actually, they've been buying Google. So since Greg Able's taken over, they've deployed quite a few billion out of their cash reserves. One of his moves was to start acquiring stakes in Google.

37:01We haven't got their latest 13 F yet. That'll be coming out soon. And then we can see what other moves that he's made since he's taken over leadership at Berkshire Hathaway. But no, they're actually deploying capital in the markets, not raising more cash. Then what's going to happen? You said I was going to get back on track. Well, I was trying to buy you time. So no, no, no, you're good. So talk about hedging a little bit more detail. We talked about options. What are the other ways that somebody can hedge that maybe aren't as sexy? Cash. Cash, everybody hates here net, though. I don't know, but cash is, look, I don't know why they hate cash, right? I put cash in, what's the, what's Fidelity's money market yielding right now? Like 3.9 something like that? Something around there? No, not quite, but it's still, I mean, it's three. It's over three. Yeah, it's over three. Yeah. But yeah, I mean, I can put cash aside at the moment. There's some things about cash that give you some advantages over trying to buy a put,

38:04let's compare two different things, right? So puts versus cash. If I buy puts and I do it exactly right, market goes down and the put goes up in value and it reduces the volatility and the portfolio. Great. Then the market takes off tearing again and the value of the put will drop if you didn't sell it. So you have some timing issues with puts that hedge your portfolio that are very important to the outcome. They'll work great on the downside, but if the market, let's say the market's going to correct 5%, well, when the market cracks 5%, what are you going to do? You're going to go, well, this market, this market's rolling over, man, I'm going to buy some more puts here because we're going to go lower and then the market bounces right off the bottom and takes off, right? Like we saw back in April. So now your puts go basically to zero up very quickly because of that rebound and you don't sell because you're expecting the market to go lower. The beautiful thing about cash is I put some cash on the sideline. I reduce the volatility, the beta volatility of my portfolio by increasing my cash buffer. It's yielding 3.9, 3.5 to whatever it is over three.

39:08So I'm getting a 3% yield sitting on that cash right now. It gives me optionality. No matter what the market does, I can come in and buy stuff if I want. The cash reduces the beta volatility of the portfolio by having that cash buffer and it removes the overall stress. Yes, the rest of my portfolio is moving down with the market, but that cash is helping reduce that risk. I don't have to worry about price risk and I don't have to worry about timing risk. I just need to be smart about when to redeploy that capital. So I love cash as a hedge and I think it's vastly overlooked when people are thinking about hedging their portfolio. Yeah, and the other way would be an inverse related ETF, but I think there's a lot of timing misconceptions with that and timing on that. The same thing with puts. You could use an inverse ETF for sure, but you've got decay of premium, you've got to get your timing right, you've got to sell it. Well, that's the biggest I think problem with that is that people buy those and then they hold them forever and that decay of principle over time because those options expire within that ETF or whatever that may be.

40:10And you see them hold it for years and they wonder why they're upside down and that's why those need to be short term. I can give you a really good thing. We had a client that did that, right? They bought some puts on the NASDAQ because they read everything in the market that said that everything is super overvalued right now and everything is going to crash. So we've got this triple, double short, I think it was double short, NASDAQ ETF and then the NASDAQ kept running and they still held that short and the NASDAQ kept running. They still had that short because they were told that the market was going to crash and so that kept becoming a bigger and bigger position within the portfolio because they kept adding to it because any time now, you know, this market is going to crash just any day now and the market keeps running and they keep building into that position because they're expecting this market crash to come and it never came and it became a huge drag on the overall performance of the portfolio. So again, shorting the market through ETFs, shorting the market outright, shorting the market using puts, those are all fine.

41:11There's nothing wrong with those as long as you're adept at three things. One, the timing of when you put them on. Two, the timing of when you take them off. And three, you have absolutely no emotional bias to admit when you're wrong. If you can do those three things. And those are really easy to do by the way. Those are exceptionally easy. Everybody is perfect at that. There is a comment in here is this cash is dry powder to buy the dip and that's exactly right. So the other two don't provide you with that liquidity or the ability to buy things when they're much cheaper. So everybody has this idea like you shouldn't hold any cash and I think that's a big problem when you get into these environments. You want to be able to be, you know, have to be able to do something without selling something. And so that dip that comes cash may be king when you think about the three main ways to hedge. But a lot of good questions. Yeah, bear with me one second because, uh, Brent, can you bring the screen up for me? If you could or our website. So live long and prosper my friends.

42:15We have an article called Spock and the logic based approach to volatility because there's a lot of comments in here about land speaks, cling on and Captain Kirk is 95 years old. And yes, I am a Trekkie from from way back when. So if you want to get a copy of the newsletter wrote back in April 2025, uh, talking about removing emotion from your processes and this newsletter goes through it. But just go to the website up in the upper right hand search box is just typing the word Spock and the scumbag 40 thinks Brent. So but that's kind of a good primer of starting to think about how to remove emotion from your investing process. And you'll be better for it if you can do that. Yep. All right. Well, I think we've gotten through. Well, okay. One last question. What percentage of cash? Uh, there's, there's, so first of all, I always keep three to five percent cash in a portfolio. The reason is is that let, let me, let me, let me step back here real quick.

43:18Um, let's say that you're moving towards retirement or you're, or let's say you're in retirement. I would maintain at all times about a 5% cash bucket in my portfolio. Why? So in my portfolio, let's say that I am 50% stocks, 45% bonds, 5% cash. The interest income from my bonds goes into my cash bucket. I don't reinvest my dividends in my div, or my income. I don't reinvest the dividends in my stocks. All my dividends from my stocks go into my cash bucket. So now when I need cash on a monthly basis, I go into my cash bucket. I take my cash out to spend and then the rest of my portfolio refills the bucket. When the bucket overflows with cash, right? So that 5% cash buckets now six or seven percent, I then rebalance the portfolio, take that excess cash to redeploy that within the portfolio and stocks and bonds, whichever sides needs it, right? So 5% cash is kind of just a good kind of starting point. It gives you optionality. So you've always got some cash available.

44:18If there's a really good opportunity in the market, you've got some capital to go to employee. You don't have to sell something to go buy something, right? An opportunity really shows up here out of the blue. I've got a 5% little bucket. I can go take advantage of it. But during times of market stress, that cash bucket in our portfolio can be up to 50% of the portfolio because I can reduce my equity exposure down to 25% of target. So if I've got a 50% target of stocks, that 50% can be 15% by reduction process. So I can have a minimum exposure there. So I've got 35% in cash now to add to that bucket. There's 40% and I can reduce my bond side if needed. I'm going to remove, let's say I've got high yield and I've got some corporates in there during periods of market stress. That may not one own those and one may own more treasuries. So I can reduce that corporate high yield. So my cash bucket could be half my portfolio during a market drawdown. So there's no limit on how much cash that you can have in your cash bucket. I would always maintain a little bit.

45:19Again, I think being 100% invested in your portfolio at all times is a bit risky because you have no optionality and you've got no hedge. So just, just, yeah. And I think cash, you need to think about it. Are you looking at it from a portfolio perspective or are you looking at from a big picture perspective? I do think cash can hold a very special place, meaning like what do you have coming on the horizon? Do you have an objective to meet? If you have short term needs, if you're going to buy a house, you have a large investment or capital to deploy, well, then yeah, we want that in cash because we don't want to take the risk of the market having a downturn in the middle of you needing something on a short term basis. Now, within the portfolio, that's different because now it's either a hedge or therefore opportunity, more opportunistic in nature. So when we trade in a portfolio, we're also not reinvesting dividends and interest. We're actually deploying that to capital, that capital to cash because then we can, we can say, okay, do we want to buy more of that company or we want to go buy something else? It opens up the playing field a bit instead of just saying automatically we're going back and buying into something each and every time we get to get interest.

46:19Right. Well, and two, we get a, we also have to remember that investors for the last 15 years have been taught not to hold cash because cash yielded zero. That's right. Right. So now that rates have normalized and we've gotten back to a normal level of interest rates in the economy, you're now getting 3% on cash. So it's not terrible, right? It's 2% higher than the dividend yield on stocks. So having some cash in your portfolio, you actually get paid for the, for not having risk, you're actually getting paid for it now, which is also something that I don't think a lot of investors have gotten their mind back around after 15 years of zero interest rates. That's right. That's exactly right. So all right, Spock, I think that's it for today. Appreciate it. All right, live long and prosper my friends. We always appreciate it very much. Thank you for being here. If you will like and subscribe to the channel, we do appreciate it. And of course, get by the website or latest articles are out again. Monday's article was chapter four of the five part series on investing for the long run. This Monday coming up, part five, all the investing rules. So that'll be there for you coming up next, this next Monday.

47:19On the meantime, I will be back tomorrow with Michael Liebwitz. You'll have a great day. And again, we appreciate you being here. See you then.