What To Do About Your Finances. Pat McClain Talks to Armstrong & Getty

and years. So Pat, after people will worry about getting the disease or not getting the disease, I think most of our thoughts turned the immediately to our personal finances, UH, savings, etcetera. What's the heck through this whole thing? At least through now. I spend more time thinking about the financial ramifications of this than I do the health right right. So what are you hearing most from your clients right now? Uh? Kind of a stated disbelief, a little bit of shock. Um,

people are focused. You know, this is different than the last recession, which was all money. This is health and money and lifestyle and social interaction all wrapped up in one. Um. But most of the clients are actually sticking with their portfolios. The vast majority. Uh. If they had a well defined and well balanced portfolio going into this that they're they're fine and they'll get through it. Um. But it's a

shock to everyone, obviously. Um, it is obviously, And we're just telling people, know what you know, what you own. You better know what you own. You should have known before, but you better known now. Why why do you need to know assuming you made the right decisions before. Can you just write it out and wait for it to come back or do you think sectors are going to change that much that you need to to move it

around a little Well? Uh so, at least you know, a good investment advisor knows what they own, but the people that do it themselves normally don't know what they own. So there are some sectors that will take a little bit longer to get out of this. I would think if you look at the energy and oil sector, it's going to take some time to get out of this. Um. Uh, you know, crew lines of sort of things. Entertainment's going

to take some time to get out of this. High yield debt, things that were low rated bonds will struggle to get out of this, But the blue chips will do fine. And if people are taking income from their portfolio as long as they had three to five years set aside in safe assets, government bonds, corporate bonds, they'll be fine as well. Now I have two million dollars worth of radio shack bonds, How do you feel about in my future? There you go, We'll listen, stick to

the radio and leave the radio shack alone. Advice. There you go. Do you do you spend much world? Yeah? Yeah, you mentioned the word world. That's what I was going to bring up. How much time do you spend looking at Because I was just reading a story that broke in the New York Times on the day we're taping this about how long this could impact the world financial situation.

How much time do you spend looking at that? So we think a lot about that, um, and we think a lot about the recovery, right, so you're prepping for their recovery. What's different about this versus the last recession is how the Federal Reserve and the Treasure are actually and actually legislation is managing through this. So for bands on a mortgage for sixty days, they're thinking about people being displaced from their home because they can't make mortgage payments.

So I don't think we're going to see um, this sort of foreclosure scenario that we saw last time. I think that they're going to bounce back. Small businesses. Oh, it breaks your heart. They're gonna struggle like no one's business it is. It's awful. My guess is of small businesses won't come back. Wowh whoa, whoa, whoa. What does that mean for unemployment? I mean I realized that's not your specific Baileywick, but that's scary. Well, so look at

the unemployment. So here's another thing, right, unintended consequences. So you've got your state unemployment and then six hundred dollars a week and federal unemployment. So someone could be effectively making fifty thou dollars a year on unemployment. So the job comes back, you're a waiter or a bus boy in a restaurant um or your job is marginally pays

marginally um more than the unemployment benefits. A lot of people aren't going to be racing back into the job market just because the benefits are, you know, almost as good staying out of the job market. So you look at that in the in the recovery sense, and then you look at these guys that have just you know, these restaurants, small restaurants, and I know a number of restaurant tours that they're just shaking their heads saying, I don't know if I'm gonna if I'm gonna come back. Yeah.

One of my favorite Chinese places have been eating that for twenty years, is out of business already. They've done. Yeah. Yeah, it's rough. So I seeing some of the stuff you sent our way. We've talked a little bit about reviewing your ounce and you say evaluate your cash needs. What

do you mean by that? So if you're taking distributions just to make a lot of people are living on their accounts, you need to make sure that you have three to five years in cash so that you can actually wait for the equities of the stock portion of the portfolio to recover. So the other thing you look at is that people a lot of people invest for yield or dividends on their stocks. Re expect that you'll see dividends come down significantly as corporations try to preserve

their own cashhold beings. Right, So they the investment landscape is changing going forward. Fortunately, Uh, they've they've stepped in and they've actually started buying. If you can believe this, Uh, the Federal Reserve Treasury has started buying corporate bonds in the secondary market in order to keep liquidity in the system. We've never seen that before. So it's que seventeen quantity easing,

you know, five six seven. So they stepped in. They even stepped in and started buying bond exchange traded funds in order to keep liquidity in the market. We've never seen this before. But the government is much more aggressive um this time than the last time in terms of holding down UH, keeping liquidity in the marketplaces right, and when liquidity means that there's a buyer for a bond, if someone wants to sell it. Do you worry about inflation?

If we keep adding trillion dollar packages to all this? Oh, inflation, No one's worried about inflation. Right now. We should worry about inflation, but no one's worried about inflation. And by the way, when this is done, if if we see less than five trillion dollars UH in in aid, I'll be surprised surprise that it's less than five trillion. My guess is at six to seven trillion dollars. They're throwing everything at this. How how long How long did it take after a nine eleven to get back to even

on the debt it was. It was actually the exact numbers, I don't recall. It was relatively quick, It was relatively quick. It was I think it was somewhere around less than eighteen months. Yeah, I was thinking a year and a half. But see, you have any guests how long this one will be? Oh, so there's a big so big talk about V recovery or l recovery. Uh, it depends on how much the government throws at this in order to

keep people from losing homes and businesses. Um, that is what is going to determine the recovery in this and how we interact together. I know my business will never be the same, right, My business will never be the same in terms of how we interact as co workers and associates and how we interact with our clients. So I have two D and ten employees and uh, no one comes through an office. Virtually no one comes to

an office. But our interaction with our clients is primarily by zoom, meetings and phone And we're adapting to the clients are adapting to it. And you think it will just be this way no matter what, even when the pandemic is over, yes. Education. You know, I know you both have kids, Uh, your college students. My kids every every night, every day they go into a room and they take college classes. Um. It will it will change the way we deliver good products and services, so much

like Amazon changed the retail environment. Uh, this will change the education and the delivery of financial services and UH non products to uh the consumer. And as we've been talking about, if it is enough of that going on, well then I there's no reason I need to live within fifteen miles of downtown if I don't have to drive downtown anymore. So real estate could change a lot, as you can live in different areas. Now your commute doesn't isn't a factor as much. This will be good

for some bedroom communities most certainly. Yeah, well there will

be a thousand changes, some good, some bad. I think. Hey, Pat, I wanted to ask you about if people get furloughed or laid off for their job disappears, and and they're they're tempted, say to dip into their four oh one k what are alternatives or in general, what would you suggest that folks going through that think about so they change the rules around four oh one k s. Last week where you can withdraw a hundred thousand dollars out

of your four oh one K without penalty. You still have to pay taxes on it, but you can pay the taxes over a three year period, or you can pay it back into your four oh one K over three years, which is complete change, uh in in the rules they've they've changed many things. They suspended required minimum distributions. Um, So we would caution people to if you're going to use retirement savings, do it with a plan in mind. Right, Sometimes you just have to because you have other needs.

But if you're gonna do it, do it with a plan in mind. Am I going to pay it back? If I'm not going to pay it back, how am I gonna pay taxes? Well, your plan might be I don't want to get booted out of my apartment this month, that's right, that's right, So then you don't really have a choice. Yeah, yeah, Well, I'm glad to hear that there's been that adaptive an approach by the federal government. Normally it takes years or generations of howling to get

some of these rules changed. But do you personally have like a gold bar buried in your backyard or anything like that. He's not gonna tell you. I just wondered. I mean, like, if you have a real this is a podcast, real ship hit the fans, sort of like super backup at a zombie apocalypse sort of thing where there's like gold bars in the garage and coffee can or anything like that. Well, if you've got to get gold bars, they're not going to help you. You need

guns and ammunition. You need a stockpile of food and water, because your gold is useless. If if you don't have those other things, if I'm gonna come and take it from you. But you know what, my son keeps saying, plant food, because that's what kills zombies. He keeps telling me that over over again. Really, yeah, I didn't know that. I guess that kill zombies. Listen, I've got a whole stock of a miracle grow here, so you should be saying,

so hey, listen, go ahead. Before we go, let's let's talk about what this is going to change in state governments in terms of pensions. Yes, please, because these you know, many states, many municipalities are their pensions were underfunded to begin with. I am hoping that the backside of this that it really forces state government municipalities to actually do some pension reform because they were underfunded going into this um and they assume breaks a return that many of

these pension funds actually expect. You know, by the way, if you ask them how UM they determine their internal rate of return, that their their goal is not what they return, but what the goal is. They just make it up vote on it um. So we're hoping on the back side of this we actually see some pension reform warm because we've yield this low and the stock market where it's at today, there's no way that these pensions are going to make it through three, five, ten

years from now. There's not a chance in the world. Yeah, and not to get too political about this, Pat, but we both know that a lot of those fanciful, just utterly fictional plans and formulas for the pensions. They're designed to do one thing, to get union members to vote a certain way. And the union members were lied to everybody as much as the general populace, the taxpayers were in that this stuff is unsustainable. But maybe that's a

discussion for another day. And hey, listen, Pat, as this thing evolves, and lord knows how long it's gonna last. I hope we can keep in touch. Yeah, and listen. I'm gonna plug since this is a podcast. Plug our podcast if you go to All word financial dot com. We do UM a weekly radio show that's on the podcast, and we do Right now, we've been doing covid uh market updates of what you should be thinking about in your own portfolio. One question just popped into my head.

What's the stupidest thing somebody could do right now? Like you think, like the people that are reacting out of emotion, fair and stuff like that, What's a really stupid thing they should not do? Uh? So, probably go a percent to cash in their portfolio. Um. Going a hundred percent to cash is a dangerous, dangerous thing because this too shall pass and it will recover. I remember in the last recession, I had clients saying I want to go to cash, and I was buying on the same day

in my portfolios. UM, in my own personal portfolios. UM. So the worst thing you could do is go to cash. If you're worried about it, you can move down risk. UM. If you're excited about the opportunities, you can move up risk. But you shouldn't make a wholesale move to cash because well balanced portfolio normally has some bonds or some fixed incomes in it. Good Pat McClain. Always interesting, Pat, and always a pleasure. Thanks, let's talk again soon. You got it. Extra large