Well, good morning, and thank you for tuning in to Let's Talk Money on eight ten WGY. I'm John Malay and I'm going to be your host for the next hour. I'm a certified public accountant, the chief financial Officer, chief operating Officer, and a wealth advisor at Bouchet Financial Group. This morning, I also have the honor of being joined by my esteem colleague, Polo La Pietra. Polo is a certified financial planner, a wealth advisor, and a portfolio strategist
with the firm. Polo works closely with our Chief Investment Officer, Ryan Bouchet in help managing and constructing our investment portfolios.
Good morning, Paula, glad to have you this morning.
Good morning, John, pleasure to be on.
Excellent You know, here we are on this beautiful full September Saturday morning, believe it or not, tomorrow is the last day of summer, and you know we've been blessed with some great weather over the last two weeks and this weekend is not going to disappoint. As you heard the weather through the break there, it's sunny and seventies and I'll certainly take that weather all day long. And although you know I will say, grown up in the Northeast,
I love the change of season. So it's been a great summer and it certainly gave us some bonus here in September, but you know, looking forward to fall coming out, it's a great time of year two. And you know what, I encourage listeners to call in this morning. You know, we want to hear from you. If you've got questions about the markets or the recent Fed interest rate activity this week, which Paul and I are going to be
talking a lot about, give us a call. And you know, we always say there's no such thing as a dumb question when it comes to your money, So I'm sure if you've got that question, other listeners have that question as well, So certainly, you know, call in eight hundred talk WGY. That's eight hundred eight two five five nine four nine, and give Paul and I any questions you've got there.
You know. One of the things I.
Also want to note is Stephen Bouchet will be hosting the show tomorrow morning at eight am, So be sure to tune in to the show tomorrow and listen to Steve and what he's got to say.
So we appreciate you.
Tuning in this morning, you know, whether that's while you're in the home, whether you're driving in the car, or outside doing some yard work. We hope you enjoy the next sixty minutes with pol And I, and again you encourage listeners to call in with questions. You can reach us at eight hundred talk WGY. That's eight hundred eight
two five five nine four nine. So this morning, Paul and I are going to be talking about the markets, investing, some financial planning topics, and whatever you call in with, So we'll start jump right into market update. You know, it seems like for six months now we've had this FED September meeting circled on our calendars as a likely meeting where we'd see our first interest rate reduction, and
certainly it was highly anticipated. Now, I will say heading into the week, there was a I will say probably.
Fifty to fifty.
Decision or anticipation of whether we're going to see a quarter point a twenty five basis point decrease or a fifty basis point half a percentage decrease. And you know, FED came out strong is as most of you know, we saw a fifty basis point, so half a percentage reduction in the FED funds rate. And you know, I'm not gonna say that was a huge surprise, but it was. Again, it was a fifty to fifty call I say heading
into the meeting. So yeah, you know, anytime the FED meets, and you know, we see the action, but now we're gonna hear dialogue. And we heard some dialogue from Fed Chairman Powell this week, and you know, really saying that they're operating from strength, not weakness.
And you know that makes sense.
You know, if the Fed really thought the economy was in dire straits, you'd see a much you see a higher rate reduction, you might see something close to seventy five basis points to a full percentage decrease. So Fed Powell, you know, Chairman Powell coming out with some strong remarks really, you know, saying they're operating from strength. They see inflation getting close to their two percent target. They see the
jobs market yet it is slowing but still healthy. And you know, we are seeing you know, a slight uptick in the unemployment rate, you know, just a little over four percent, but still historically you know, not a problem area. And what we haven't seen is we haven't seen layoffs. Right, we've seen the slow down and hiring, but still overall some decent wage growth and you know, still a healthy jobs market. But I will say the Fed will be all eyes on data for sure for the remainder of
the year into twenty twenty five, you know. And also GDP is growing, so you know, they expect growth over two percent for the you know, for full twenty twenty four and for twenty twenty five.
So definitely a strong reduction in rates.
But really the Fed coming out in saying giving really a boost of confidence to the economy, that it was not about a fear of a weakening economy really more about strength. And you know, they also, you know, Powell made it clear that they felt that this fifty basis point reduction shows their commitment to make sure that they don't fall behind. You may all recall we all faulted the Fed for being slow on the other end of the equation right where they were increasing.
Rates, felt that they were slow to start.
Doing that, and they've made it clear, you know, they're going to be looking at data, but they.
Don't want to be behind the eight ball.
They don't want to be slow to reducing rates, so big strong move by the Fed, and you know, I will say it wasn't without some dissension. You know, we did have one of the FED governors Bamen, who came out dissented, and that's not normal on the Feds, you know, So you know, it's not.
Normal on an interest rate action.
As a matter of fact, it's the first dissent that they've seen since two thousand and five, and that Governor Bauman really favored a smaller reduction. So that'll just be interesting to note and keep an eye on as the FED meets throughout the remainder of the year. You know, I think the expectation that came out of the meeting is we should expect to see maybe another fifty basis points between now and the end of the year as
a reduction in rates. And then they also signaled the full percentage cut in twenty twenty five and really in their dot plot, really expecting the rate to settle close to two point nine percent after twenty twenty five.
So this, this.
Move, you know, signaled change in our federal monetary policy really from a from a rate pause to a rate reduction. And as you know we've been talking about for months, it was anticipated and somewhat built into the markets.
But as we did see.
Markets reacted strongly, very positively to the FED action. You know, Wednesday was a little i will say, up and down day. But Thursday we saw markets, We saw Dow SMP hid highs, you know, the Dow crossing the forty two thousand level for the first time, closing at record high. So certainly the markets reacted very, very positively.
To the Fed's action, you know.
So for the week, we saw the S and P five hundred up a little over one point three percent for the week, a nice almost twenty percent year to date increase on the SMP, so nice nice performance so far this year. NASDAK almost up one and a half percent for the week and similarly up almost twenty percent
year to date. The Dow hitting record highs, closed up one point six percent for the week and again year to date a little over eleven and a half percent, and we also saw the Russell two thousand, So, you know, one of the things that we do expect to see with the FED raid action is a broadening of some of the recovery.
You know, for the first half of.
The year, there's a lot of talk about the mag seven and how there was concentration in performance, and we certainly are seeing a broadening and we I will say since July we've started to see it, but certainly with the FED action the year, expect to see more of it. So the Russell two thousand up over two percent for the week, almost ten percent year to date. And now we're going to see you know, the in your treasury.
Treasury fell to about three point seven to seven percent for the week, and uh, you know, one of the outcomes of the feed cutting rates is going to be you know, some some you know, reduction in yields. So we're cert we begin to keep keeping our eyes ten year treasury, but also more the shorter end of the curve.
And at this.
Point we've we've got a caller, so we're gonna uh, we're gonna call her Rick from delmar Rick. Appreciate you tuning in this morning. And what can Paul and I do for you this morning?
Well, I have a question that a lot of retirees are near retirees when they're adjusting their portfolio, the typical sixty to forty mixed equities to bond. We're obviously we're going to be in a good bond environment for several years, and is it adequate just to have a one basic bond index ETF or you can can you diversify into other portions of the bond market for substantial portfolios.
Rick, great question, and I'll touch on that, and then i'll certainly as we've got Polo la Pietra on the phone with us, I'm certainly going to have Pollow chime into and you know, Rick, it's been interesting, you know question, and you know we will say, is you know, one of the things that investors have benefited from with these higher interest rates is really it's been great to get yield on some really risk free investments.
Right.
So we've had you know, uh, treasuries yielding over five percent, short term money yielding over five percent.
And that's been that's been nice.
Right, So, so many retirees who have substantial you know, maybe forty percent as you mentioned, you know, back typical balanced portfolio sitting in fixed income have been able to get a decent yield without taking any risk.
Right. So now we're seeing.
You know, really redeploying that we've been doing this for our clients over the year, right, is we don't want we didn't want to be too heavy in cash, and so we've certainly been investing more bonds and I will say hitting different parts.
Of the yield curve right to really lock in rates.
But certainly Paula would love to get some of your insights as well on that question.
Yeah, Rick, it really is a great question. I think when you look at your fixed income allocation, certainly you're going to want your core positions similar to the when we look at your equity sleeve, and you're gonna have your core positions that will be the Nasdaq, the S and P five hundred. We want to replicate that in the fixed income sleeve. And one of the most simplest ways to do this and achieve this is capturing the Barkley's Aggregate bond indecks, which is essentially the SMP five
hundred buffer bonds. And I think that's a very good position to strength of being at this point. You know, John shared some remarks on you know, how the yield curve is now moving based on what the Fed is doing with interest rates, and I think it's a little bit of a wait and see approach. We're still technically inverted on our yield curve. Meaning that short term bonds are yielding more than long term bonds, and eventually that's going to normalize where short term bonds start yielding less
than longer term bonds. So I think by holding on to some more core positions that will give you broad based diversification across treasuries and corporates and mortgage backed securities and collateralize loan obligations, that's where you really want to be.
And once the dust settles and we get more of a for and forecast from the Fed on exactly where they're going to be bringing interest rates, specifically in December, I think that's going to present more of an opportunity to be targeted on exactly what type of bonds you want to own and exactly where you want to be on the yield curve, meaning maybe a little bit longer term on the yield curve five plus ten plus yields
years on that yield. So right now, I think just being on peer core capturing something like the Barclay's aggregate bond is a good spot to be as we're in that wait and see approach.
Yeah, this sounds good, So hanging on to Barclay's index ets for now, let's see what happens down the road a little bit.
Exactly. And we always talk about being a long term investor here, and we certainly fully believe in that, especially on the equity side, but we always stay on the bond side. You're even a longer term investor. I mean, these are longer trends that we're going to see now
that we're in a interest rate cutting environment. The five year outlook is really what we want to be focused on in bonds, and right now, specifically talking about the Barklay's aggregate bond indecks, that five year outlook return looks north of four point five percent. That's a good spot to be in on a risk off asse a class.
And frankly, if I'm just thinking about heading into retirement and what my portfolio looks like, I want more of a risk off approach on my fixed incomes leave that's going to pay me yield and also will happen attract a five year outlook.
Yeah, that's helpful, Thank you great, Rick.
Appreciate that question.
And and you know, certainly, you know this is something we've been talking about a lot this year, is as rates are coming down, you know, really what to do with the fixed income part of your portfolio.
And and you know, I will say, you know, many investors have kind.
Of looked in the rear view mirror, right in terms of looking at hey, with with very little risk, I've been able to get yields north of five percent, right, but sitting in in real cash vehicles as opposed to bonds. And you know, now as we're seeing rates come down, right, you're gonna see those yields, yields come down on those
on those cash investments. And so that's going to be important really, uh, to deploy redeploy those assets, you know, really based on your risk tolerance, but but really in a way that you can capture more yield because it's been because I will say, if if you're an investor who really hasn't had debt, really hasn't been harmed by increased interest rates, right, you've benefited greatly on the fixed income side with with let's face his treasuries with no
risk in generating some some great coupons. Uh, that that has been in a great position to be So great question, Rick, appreciate you calling in and so you know, just wrapping up, so so you know, overall, you know, great week in the market uh responding very well to the the Fed's action, and you know's I as I quickly touched on you know, now what you know, the Fed's going to be meeting several times this year. You know, certainly we're going to
have the election in the middle of that. But from the Fed's UH dot plot and other data released and again we will over the next few weeks be hearing a lot of commentary from FED governors and but certainly there the telegraphing another fifty fifty basis points and it could be spread out over two quarter point decreases and then a full percentage next year. So certainly, you know we are in a change in policy and going to
continue to see rates down. And you know, certainly you know now the question is, okay, rates are we're in a different environment, rates coming down, How does this impact my portfolio? This is something really you know, our Investment Committee who follows a an integral member of you know, we've been looking at this all year long, right because we knew at a point, right we're in a pause
cycle that rates are going to start coming down. Start to look at different parts of the different sectors and how they're going to respond and really to make sure portfolios are aligned for that. And so pollow as you think about this and say is hey, if I'm an investor and I'm okay, you know rates are coming down, now.
What like, what are parts of the.
You know, where are some things I should be thinking about from an investment point of view?
Who's going to respond well to this? What sectors? What you know?
Are there certain ets we should be thinking about? So maybe share some thoughts that you've been thinking about, and you know, kind of what we're seeing happen now the rates are starting to be starting to come down.
These are the questions you need to be thinking about. Right. Interest rates are coming down, certainly that is a major shift from what we've been seeing from twenty twenty two to twenty twenty three and even into twenty twenty four. And what types of changes should I be making in my portfolio? Before I answered that, I want to touch on a couple comments that you talked about earlier, John, on what the Fed's decision and what that means for
the economy. You made the point that going into the FED decision of fifty basis points, the market was a little bit conflicted about fifty to fifty on are they going to go fifty basis points and then going to go twenty five basis points? And I thought that was unique in and of itself. You know, over the last year and you know, six months to two years, we've we've all gotten to know jpal more than we'd like, and every single FED decision, on every single FED you know,
press conference, we've we've listened to every word. And the one thing that he's done since twenty twenty two as we went into this FED tightening regime of raising interest rates is he's been very transparent on what he was going to do next with interest rates, and the market really came to understand and knew what was coming when
the FED made decisions. And I found it interesting once we started this FED easing cycle, or what could be the FED easing cycle, there was a little bit of ambiguity on exactly how far it's going to bring down interest rates, And me personally, I thought twenty five basis points was going to be more of the stand to what the FED was going to take because, as you know, Chair Jpalell reiterated on Wednesday during the press conferences, the economy is in a position of strength, John, you said
it yourself, and it is so. Fifty basis points to me signals that you know, either one, they were concerned that we saw some weakness and labor back in July and they should have started cutting in July, or you know, they feel that they have fully achieved the inflation target that they are mandated to and fifty basis points are appropriate. So nonetheless, you know, it was interesting on Wednesday and we saw here the market a little get a little
bit conflicted on market performance. You know that we saw a tiny bit of volatility, and then Thursday, we saw that the market said, yes, you know what, economy isn't a great spot. This actually is great for the overall markets. And we saw indicies across the board do well. So now when we think about how does portfolio construction look like from here on forward, we really need to start thinking about two simple questions. First, are we going to continue down the FED easing cycle? So is the FED
going to continue to cut? And really what that is going to be indicative of is is it inflation going to continue to say at Bay And that's important. We started to you know, take inflation and push it to the side. As inflation has remained around three percent. If we're looking at core PCE, you know, right at the FED target level two and a half percent, I'm not ready to you know, raise the banners yet. And so we've won that battle. So that is still a question
that needs to be answered. Are we going to continue to have inflation at the levels at the FED wants. If that is the case, we'll continue to see easeman. And if we continue to see easeman, there are certainly some shifts that we can make in the portfolio. We've already been overweight dividend payers in our portfolio, so we're consistently looking at companies that have been growing their dividends
over the last fifteen years. And we really saw that come into flavor this week, come into flavor this year, but this week it was highlighted, especially when the FED cut fifty basis points. We saw sectors that are interest rate sensitive, like financials and materials and industrials and utilities
really shows some strong outperformance, some market breadth. And that's important, right, that's the diversification that you need to insulate your portfolio because a lot of times when you're just thinking about Fed's going to cut rates. Where do I want to go usual this centertypical answer to that is technology, and certainly technology is going to continue to outperform. We saw what the NASDAK did on Thursday, you know, outperforming by
about two percent. The problem is, though, you know, technology has gone on such a run, So we don't want such a large concentration of the portfolio in technology. You want your overweight, but you don't want more than say fifty percent, right, that's too big of a bet for where we are in the economic cycle. So it's important at this stage of the game to have the diversification of dividend payers which will should do very well in a declining interest rate environment. And then John also touched
it on this a little bit. Is size style as well, some small small cap exposure in your portfolio, some mid cap exposure in your portfolio. These are two size styles in the account me that have you know, very much underperformed over the last two years. Higher interest rates creates a very tough environment for small and MidCap companies to
do well. And to really put this simple, it can make sense a small company or MidCap company really has one main objective, and that's to be a large cap company, and usually one of the main ways to achieve that is leveraging debt, right borrowing, generating enough capital in order to grow to dominate more market share, and higher interest rates makes that very expensive to do, so it really hurts into margins. And for that reason, small midcaps have
been severely discounted over the last two years. It has not been a very attractive as a class to be in. But we saw with the fifty bases point rate cut small midcaps coming into favor. And now I'm not saying right now to go out and start buying small MidCap companies, you know, and take up most of your portfolio small midcaps, but certainly an opportunity to start introducing that into your portfolio, start getting that exposure because again they're so heavily discounted.
Not only will market performance be there, but over the long term, these are very very attractive valuations to get in on. And the other element too, And we have been you and.
Paul.
You're you're hitting on some high points here and I know we're going to be heading into the break in just a second.
So I don't want to have you.
List they have no loose steam, and so you know, certainly, you know, as Paula's outlining, you know, with the with the change of now heading into a reduction cycle, you have.
To look at portfolios.
Right So after this break, you know we're gonna touch a little bit more on that. And so I can't believe it. We're halfway through the show. We're going to be taking a quick break. I want to thank you for tuning in with us today. I hope you're enjoying the conversation. Again, we encourage listeners to call in with questions. You can reach us at eight hundred Talk WGY. That's
eight hundred eight two five five nine four nine. You are listening to Let's Talk Money, brought to you by Bouchet Financial Group, where we help our clients prioritize their health well we manage.
Their wealth for life. Thank you for tuning in.
Hope you stay with us through the break, and Paulo and I will continue some conversation and hope you rejoin us.
Thank you very much.
Well, good morning, and thank you for sticking with us
through the break. I'm John Malay and I am the host for this segment this morning, and I'm also joined by my colleague Paolo la Pietra, Paulo and I were talking about the recent FED rate reduction this week and some of the impacts on the market, and you know, one of the comments that Paulo made is, you know, we've heard a lot and we've got to know FED Chairman Powell a lot over the last few years, and we sure have, and you know, I really feel, you know,
he is he's in legacy setting territory right now. You know, we most of us know Alan Greenspan, have heard that name and and know the impact he had. And I think, uh, you know, if Jerome Powell can orchestrate this soft landing, which you know it's not entirely uh solidified yet, but certainly looks like we're heading that way, uh, you know,
that'll be a major feat. And you know, certainly when you think about you know, from the pandemic and then we all that we went through with the rate reductions to you know zero and then really bringing UH inflation back under control and and as Polo said, hey, it is too early to celebrate, and you know, even the FED fields it is. That's why they had a dissenting UH FED governor on this vote, which is not normal on interest rate votes, and so you know in the concern it is is you know, not to.
Celebrate too early inflation. You know, it's been tough.
There's certain segments of inflation that have been tough to get under control. Housing has certainly been one of them. And I will say, you know you can feel it the housing. You know, we're not out of the woods with housing. There still is you know, lack of housing in certain areas and that that is impacting certain communities.
So you know, as.
PAULA said from here, you know, the feed is setting a path where they're looking to go with rates, but it's going to be a very very data driven process. One thing this FETIS showed is is you know they are looking at data and they're gonna have data informed decisions. One thing paul did say last week is they are not going to be behind. And that's one of the reasons at least that he stated they did a fifty basis point reduction instead of the smaller twenty five basis point which many expected.
And as I mentioned, on the other end of the.
Curve, you know, increasing rates, they were behind and we all know that, and they're set that they're not going to be behind.
Kind of this end.
So Paulo, I know you were, you know, going through kind of portfolio construction and how this new rate environment impacts them the thinking there, and I know we got cut off with the brake, but I just wanted to let you continue your thoughts there.
Certainly, John, thank you, And we talked about traditionally as a recap you know on the first half of the show before the break, technology will certainly be an outperformer in a lowering interest rate environment, and that you want exposure in your portfolio simply, you want an overweight the technology in your portfolio. But now is just not the time to super concentrate your portfolio. You don't want over fifty percent of your portfolio and technology just because we're
bouncing off of all time highs. You hear about some of the valuations in these technology companies trading at thirty, forty, fifty, sixty times their earnings, and that's fine as long as their earnings continue to be at market expectations, which all signs point that they do. But the second that they do not, and we saw that with Nvidia last quarter when they came out with their earnings. I mean, we're
talking about stellar, Stellar earnings. But when you're trading out of multiple as high as Navidia, the market always wants more and they slightly under delivered compared to market expectations and you see some volatility. So that's the risk that you run with technology. But we still want to have that overweight in the portfolio because that's going to give us the growth that we're looking for, especially in the lowering interest rate environment. We talked about the dividend payers,
companies that can consistently grow their dividends. Specifically in our portfolio, we're looking at companies that have consistently grown their dividends over the last fifteen years, and that will give you exposure to some of the more cyclical areas of the economy. You talk about utilities, materials, financials, healthcare industrials. That gives through that broad base of diversification. I think that's really
important at this stage of the economic cycle. But the one point that I was making right before a break was in our portfolios here at Bouchet, we have been US only for quite some time and that has really been a main driver of outperformance in our portfolios. And we're currently still are US only. And we did that we've seen that major shift it, you know, coming out of you know, the Great Recession. All throughout the twenty tens, we were in that growth cycle. Interest rates were low.
Technology was the massive driver outperformance, and let's face it, the United States is the technology capital and having that you know, US only approach has really driven a lot of outperformance. Now, with the FED cutting rates, in the prospect of the FED continuing to cut rates and continuing to ease, that should ease the dollar. The dollar strength should come down, and that can open up the door to international investments. So that's something to think about, not now,
but potentially heading into twenty twenty five. If we continue to see Eastman in the dollar, international investments could be attractive, Commodities could be attractive. These are things that are all dollar linked and parts that could be in your portfolio.
So those are the things that you could be thinking about when you think about portfolio construction in an easement environment and then specifically bonds, and you know, Rick from del Mar was bringing up some good points of asking, Hey, how how should I be diversified in my fixed income portfolio if I'm heading into retirement and I still feel very adamant that you know, there's a lot of data still to come, especially on where yields are going to take us in fixed income and having more of a
broad based approach and more of a core approach. And we talked about AGG. The ticker is AGG. That's one of the main indices that you could track in the bond market. Is a very attractive place to be. Yields are attractive, and as interest rates come down, that index's price will go up. There's an inverse relationship between interest rates and bond prices, so very attractive and diversified entry
points to use on fix income. And as we continue to go along this Eastman cycle, John, I think, you know, a lot more opportunities will pop up. And I think that's where we could start getting a little bit more tactical on where we want to plant ourselves, either on the yield curve or on the sector you know basis in fix income, meaning you know, mortgage backed securities or collateralized loan obligations or corporates high yield, whatever the case may be.
Great, you're a great commentary pollo, and certainly you know, encourage listeners if you're sitting here trying to figure out what to do with your portfolios. It just have you know, thoughts or questions, certainly reach out to us. We're here to answer. You can reach us at eight hundred talk WGY. That's eight hundred eight two five five nine four nine. You know, and you know, one of the companies that we saw get a lot of attention this week is Intel, which interesting company.
You know, I grew I'm that age where I grew up in the PC era, and.
You know, I just recall every PC I purchased always had the Intel inside sticker. And Intel was just you know, a stellar company, great growth, great profitability. But Intel has really had a very tough year. You know, I think the stock is down over sixty percent year to day. You know, they're burning through cash. You know, in August they announced they suspended their dividend, cutting fifteen thousand dollars, fifteen thousand jobs.
You know, just just a tough, disappointing year.
And you know, here we've got AMD and Video like just killing it, and this stalwart company, Intel is just stumbling and stumbling. And you know they had an emergency board and you know, really a company that is really important from a national perspective, you know, having a US based chip manufacturer. So certainly this week they got some
positive news. Although there's still down close to sixty percent year to date this year, they certainly had some pops and you know, some of that as they struck a deal with with Amazon and then also they got three billion dollars of funding under this chips program from the US government.
So some good news there.
But you know, you know, on Friday we heard news of Qualcomm in talks about a potential merger with them, and you know, something like that would get a lot of you know, exposure from the government an anti you know trust perspective, but you know, it is just a reminder, you know, these tech companies and you know, and I'm not saying I'm not counting Intel out, but you know, when you've got you know, a major tech company, you know, down over sixty percent, when when most especially in the
chip world, are on a tear, you know, it's just a reminder that you just can't set it and forget it. You know, there's a there's a lot of uh, these are heavy capital intensive industries and you know, you read some of the commentary and some feel that that you know, Intel got a little riskd verse and made some poor decisions and uh, you know, certainly they're they're in a tough spot now. Uh, not that they're going to go away,
they're not. But whether they you know, whether there's any you know, movement with this Qualcom deal that'll be interesting to see. But certainly a stock to keep your your eye on. Certainly one that was was a very good performer for a number of years, but certainly over the last year has has not been performing well. And and again just a reminder that hey, you know, with tech, it's it's not a guaranteed that that all boats are going to rise as as the tide rises, you know.
And so here's a case where and tell a company that was such a solid uh you know, I I have friends in the industry who, you know, remember the days where a MD chips were somewhat of a joke and now a m D is a market leader. You know, they're highly respected and you've got na video you know,
leading the way. So certainly, uh, you know, just a reminder that you got to pay attention and sometimes if you if you're sitting in an investment for a long time and and uh, you know, knowing when to pull the trigger and diversify and maybe take some gains.
Can be a tough decision. Uh.
And you know here we've got a great company like Intel, who who certainly is suffering a bit right now. You know the other thing that you know, I just wanted to touch on quickly and and again just encourage listeners, Paul and I can answer. You know, you're here to answer any questions you have on financial planning, investing. And I said in the beginning, you know, there's no dumb question when it comes to your money, right. The only dumb question on your money is if you ask it
after you did something right. Then it's like, well, if you if you were concerned and you had questions, you should have asked.
Those before you executed it. So certainly we're here.
You can reach us at eight hundred talk WGY. That's eight hundred eight two five five nine four nine. You know, as we head into the election season, you know, one of the things that is not going to get a lot of attention just because you know, I think neither politician wants the lead with cutting debt.
But I'll say, you know, our national debt.
Is at extreme levels, you know, top thirty five billion dollars. You know, the interest payments on that have increased over thirty percent year over year, and now we spend on a net basis, we spend more on our interest on our debt than on every other category except for SoCal security and medicare. So we spend more on interest than we do on defense. And you know, someday there's got to be a reckoning of that, right we we've the budget deficits.
Are just enormous.
Uh And and you know there's gonna be we can't keep kicking this down the road at some point, you know, we we have to.
We have to deal with that, you know, as a country.
And so certainly, uh it, it'll be interesting to see if this gets any play, any attention at all during the election campaign. Now, certainly the you know, the high interest that you know was was paid on treasury certainly contributed to those.
High interest payments.
So certainly, as the rates are coming down, the coupons will come down and the overall interests will come down. But certainly the deficits are not you know, at thirty five trillion in growing and growing pretty dramatically when you when you look at the the chart of the debt.
It's not a nice smooth pattern.
It's really you know, over the last five years increased pretty significantly. So hopefully something that as a nation will start to get under control before it starts to impact things. And you know, that brings a question. You know, as I mentioned, you know, especially if you were retired and
your fixed income. You know, we we certainly, as we would sometimes have discussions with new clients or prospective clients, they had a significant amount of cash sitting in bank accounts, and you know, we certainly advised putting into treasuries, maybe do some treasury laddering, but there's still you know, I will say, when when yields are over five percent on short term money, a lot of investors kept money there
and reaped the benefit of that. And so certainly now as we're in a rate reduction environment, right the question is, you know, where do we put that cash?
And so you know, some of that we.
Certainly expect to see, uh, you know, deployed into equities and that that could certainly be a nice.
Boost for equities.
But Polo, as we look at you know, fixed income, I know we touched on this a little bit with Rick, but for you know, maybe on the safer side of you know, investing cash, whether it's for short term purposes. You know, what are you seeing is some of the events to be putting those funds to work.
Certainly, it's a great question, you know, the Fed reducing interest rates, it's an attack on cash. You know, we've gotten very, very comfortable over the last let's take you know, eighteen months on money markets that are yielding five and a quarter to five and a half percent. Now the Federal lower interest rates, that's directly going to correlate on a reduction on what you're earning on your money markets.
So that is going to be an incentive, a push for investors to start either a like John said, getting into the equity market or b finding other alternatives and fixed income, and certainly treasuries would be at the top of my mind of risk off while still taking on, you know, and and gaining the yield that you're looking for. And a lot of times when you're thinking about, Okay, I'm sitting on X, y and z amount of cash and a money market, they're talking about buying treasures, Well
what should I buy for treasures? And it's not a vanilla answer, right, not everybody's situation is going to be the same, and that's really going to be indicative of what you should be doing in the treasury market. So let's break this out a little bit more plain and simple. If you have say one hundred thousand dollars sitting on the side in a money market and you're you're okay. Now my money market's being dramatically reduced because the FED
is cutting interest rates. Now I'm going to buy treasures because I don't want to take risk, but I still want to pick up additional yield. You really need to start thinking about what your cash flow needs are. So first question you should be asking yourself is when would be the earliest time that I would need to access
any part of this money? And if that's say over a year from now, well great, Now we can start building out that treasury ladder and that first trunch, that first portion, say twenty five thousand, I'd be buying a nine month treasury, another twenty five thousand, I'd be buying a one year treasury. Another twenty five thousand, I would say buy you know, maybe eighteen months and then maybe
two years. And what that does is one give you diversification, meaning that you'll have lots coming back in cashull coming back in principle, coming back in and two you're getting all of that additional yield without the concern of, hey, if the Fed cuts again another additional fifty basis points of December, I'm going to be losing out on that yield. And I think that's a really attractive start for someone that is sitting on cash and looking for another risk
off way of picking up additional yield. Now, certainly there are other ways to go about it. On short term that instruments, I'm picking up additional yield, but a lot of those come with somewhat of risk. Rather that's credit risk, if we're taking on credit exposure, or if we're taking on short term mortgage obligations. You know, then we're talking
about pre payment risks. So again, the most risk off way of going from cash money markets into fixed income without taking on any undue risk would certainly be Treasury sean right, right.
And and you know, just to expand on some comments poll Ofmated earlier, is you know, as we have still seen a lot of cash on the sideline and and as investors are looking to put that to work, you know, always one of the questions comes is, you know, hey, we're at this point, you know, you know, could there be market volatility you know between now and the end of the year. We're heading into election year, election cycle.
You know, it's certainly, you know, one thing we have to remember is, you know, during any average year, right, you know, we see a fit fourteen to fifteen percent sell off, you know, from high to low. So certainly, you know, you know, if we experience that kind of volatility, that's normal, right, And so certainly you know during an election period, depending on you know, how smooth the process goes. And I will say, you know, we've got the last election to lean on a little bit that it may
go smooth or may not. You know, there could be some concern. But I will say long term, and you know, at our state of the economy, Pollo and Ryan talked about some charts really showing that whether it's a Republican or Democrat in house, long term, the markets perform well, they adapt, right, Companies figure out if there is a change in.
Operating environment, how to perform under that.
But you know that doesn't mean that between now on the end of the year, right, right, we saw great week we saw markets respond well. But does that mean that between now on the end of the year we couldn't.
See some volatility.
Sure we could, but again, you know, in terms of our thesis on the markets were very bullish on equities, and particularly as Paula mentioned, US equities, and you know, not that we're you know, shutting our eyes to foreign equities because you know, yes, we've sold out I think for the last six years we've been out. But it doesn't mean our Investment Committee is not looking at that,
looking at a time where it might make sense. But quite frankly, with the growth potential we've seen from technology and some other sectors, you know, US equities are where we want to be and where we continue on to be. But certainly, you know, that's certainly an area that the Investment Committee is continually looking at.
You know.
The other thing that comes out of this is, and we get this question all the time is dollar cost averaging, Right, is so I've had cash sitting on the side. Right now, I'm starting to I'm already starting to get notices from my bank that the rates are going to go down on that and now I want, you know, maybe I've made the decision I want to.
Put it into equities.
Should I invest it all one or should I dollar
cost average? And that is a typical question in this You know, there are studies that show that dollar cost averaging does not benefit in the long term, but what it can do is kind of avoid some regret risks, right, Like we all hate that feeling if we put money into a market, or we bought an equity and then it went down five percent, down ten percent, right, And again this is where you know, Paula talked about your investment time horizon, knowing what your time horizon is and
then investing appropriately. And if you've got a long term horizon, you know, in most times it makes sense to just put that money and get it to work, right, And that can be a difficult emotional decision sometimes, but you know, there are studies that show that dollar cost averaging over the long haul, you know, does not typically work, but again it does help avoid some regret risks, and you have to take that in consideration, right, you know, you
you I will say, as we're meeting with clients determining what's your appropriate portfolios, you know, risk tolerance is always uh, it's the first and foremost a major part of our conversation.
And you can't be investing in a way that's going to keep you up at night, right, So if if, if.
Sometimes you know, you know the the you know, eliminating that regret, the potential regret risk of having your your portfolio go down.
If you decide to dollar cost average, you know.
Certainly that that can be appropriate, but again, long term it typically does not show that. So you know, we appreciate you you tuning in with this is when we've got a few more minutes left to the show, So we do have time for a call.
If you reach out, you can.
Catch us at eight hundred talk w guy. That's eight hundred eight two five five nine four nine. So one financial planning top pick that certainly has gotten a lot of attention this year is with inherited iras. And for a while there was a lack of guidance and you know, with Secure Act two point zher certainly came some clarification
on guidance on that. And so you know, one of the questions with an inherited IRA is, you know you always had always had a requirement to pull some of those funds out right over time to stretch that out because remember with with IRA or any any tax deferred vehicle right, ultimately the IRS wants to get paid.
They want their money right.
And so with the Secure Act two point oh, there was some changes to some rules and some clarification and so you know, if you have an inherited IRA, there is a new ten year rule that you basically have to empty that account within ten years. And one of the things that they came out with clarification on is for a.
Non ROTH, you do have to take.
Annual rmds, and there's different ways to calculate, but you do have to take those rmds. And so certainly if you have an inherited IRA, certainly talk to an advisor, make sure you're doing the right steps because the penalties can be.
Painful. So just know there's changes to that. So we are coming to the last week.
We really appreciate you tuning in, Paulo, appreciate you jumping on this morning. Some great insight and you know, just experience from the investing side. Ye, So we want to thank you for tuning in today. I hope you enjoyed the show. I know that Paulo and I did. We hope you enjoy the rest of your weekend and have an amazing week ahead. Please be sure to tune in tomorrow morning at eight am. Stephen Bouche will be behind the mic and hosting the show. Also check out bouchay
dot com for great content and information. You have been listening to Let's Talk Money, brought to you by Bouchet Financier Group, where we help our clients prioritize their health while we manage their wealth for life