Speaker 1:
Information presented on this program is believed to be factual and up-to-date, but we do not guarantee its accuracy, and it should not be regarded as a complete analysis of the subjects discussed. Discussions and answers to questions do not involve the rendering of personalized investment advice, but is limited to the dissemination of general information.
A professional advisor should be consulted before implementing any of the options presented. Certified Advisory Corp is registered as an investment advisor with the SEC, and only transacts business in states where it is properly registered, or is excluded, or exempted, from registration requirements.
Speaker 2:
Stay tuned for On the Money, Central Florida’s most listened to financial call-in show, brought to you by Certified Financial Group, in Altamonte Springs. It’s the only show hosted exclusively by certified financial planner professionals. Monday through Friday, their CFPs provide financial planning and investment advice for a fee. But on Saturdays, the advice is absolutely free, and has been for more than 30 years, for their WDBO listeners. If you have a financial question you want answered by real fiduciaries, the lines are wide open. Call 844-580-WDBO. That’s 844-580-WDBO, and enjoy the show.
Josh McCarthy:
Hello, and welcome to On the Money, right here on WDBO. My name’s Josh McCarthy. Sitting in studio with Anna Edwards, and we’re so fortunate to be joined by a couple of certified financial planners with the Certified Financial Group. They are Gary Abely and Matt Murphy. Thank you so much for joining us today. This of course, you know, is On the Money, where we have been taking your calls live on the air for the better part of, what, 30, 20, a whole lot of years, so we are happy to be taking your calls.
The number to call right now is 844-580-9326, 844-580-WDBO. Pick up the phone, call us now, or download the free WDBO app, where you can send in your open mics. We’ll be sifting through those if you want to send in your question that way. Gary, Matt, how you guys doing today?
Matt Murphy:
Doing real good, Josh, how are you this morning?
Gary Abely:
Terrific.
Josh McCarthy:
I’m doing just dandy. I was driving in today. The weather looked like it was going to be horrible and beautiful at the same time, but that’s just a regular Florida day.
Matt Murphy:
Well, your weather forecasters, I just learned, said that the storms are going to roll in a little bit earlier today than usual. I think that’s going to cut into my golf plans this afternoon, unfortunately. But here, for this morning anyways, Gary and I are in the studio here, at our office, and we’re here to take your calls on any of your personal finance questions, whether it’s your 401ks, your IRAs, Roth IRAs, Roth conversions, mutual funds, what’s going on in the markets right now or in the economy.
Normally, we give that advice throughout the week, Monday through Friday, for a fee. But as you mentioned, Josh, we’ve been doing this now for over 30 years, and we do it from 9:00 to 10:00 on Saturday mornings for free. We would encourage anybody, our listeners out there, to give us a call, throw those questions our way, and we will be happy to do our best to answer them.
Gary and I are here this morning, and Joe is normally running the show on Saturday mornings, but Joe is on vacation. He deserves a vacation. I like to say Joe’s usually, even though he is been here, started the firm, for 40 years. He’s usually the first one in and the last one out. So hope Joe’s out there, if he’s listening, enjoying his vacation. Gary is one of those rare breeds, that’s both a certified financial planner and a CPA. I’m real happy to be here with Gary this morning. If you have any questions, folks, out there, give us a call and dial these magic numbers.
Josh McCarthy:
They are 844-580-9326, 844-580-WDBO, or feel free to send in your question via the WDBO open mic. The topic of the day today, what are the Magnificent Seven stocks, and what do they tell us about current market evaluation? Is it the stock market? Oh, and also, well, is the stock market overvalued today?
Gary Abely:
Well, Josh, a lot of people have probably heard about the Magnificent Seven stocks. I’m going to just tell you who they are, just so everybody does know. We’re talking about Nvidia, Meta, which is the old Facebook name, Tesla. We have Amazon, Microsoft, Apple, and Google. Now if you just look at those seven stocks, year to date, it accounts for about 90% of the overall return for the market, and that’s why we call them magnificent.
Now, one of the things I wanted to do is give our listeners some flavor of how these particular stocks performed last year, because I’m worried, especially just having some meetings this past week, that people are getting caught up in the frenzy, if you will, of artificial intelligence, and all that is promised. Let’s look at how these stocks did last year.
Tesla had the worst market beating, falling about 65%. Meta not far behind, at 64%. Nvidia and Amazon both lost 50% last year. Alphabet declined 39%, and Microsoft and Apple lost approximately 25%. Now, the reason I’m giving those numbers is to say, “Hey, when you’re invested in super high growth stocks, you can expect a lot of volatility.” Now, fortunately for this year, Matt, it’s been volatility to the upside, and that’s what we like to see.
Matt Murphy:
That’s right, but people tend to forget what happened before that. I know the old story, it’s like if a stock loses 50% one year, and then gains 50% next year, are you back to even?
Gary Abely:
No, you’re not. It’s going to take a lot more than that. You’re going to have to, basically, double from there to get back. A lot of folks are also invested in ETF, which is called an exchange traded fund. The Qs, you’ll hear commercials on them all the time, QQQ. I wanted just to share it for our listeners, the concentration risk, and Matt and I will talk a little bit about the dangers of concentration risk, because I think it’s really important for our listeners.
But when you purchase QQQ, which is in essence purchasing a sampling of the NASDAQ’s stock market index, you actually own about 13% in just one company, Microsoft. Another 12 and a half percent in one other company, Apple. Amazon’s around seven, so is Nvidia. Tesla, and Meta, and Alphabet round up the total. The top 10 holdings in this ETF are 60%. On average, you’ve got about 6% in each of these top 10 names, and that is what we call concentration risk. Now Matt, when we manage portfolios for our clients, every planner will be a little bit different. But for a moderate investor, I don’t like to have more than 1.5% in any one company, maybe, tops, 2%.
Matt Murphy:
I think going back to the QQQ there, Gary, people might say, “Well gosh, didn’t you just say those are the companies that are doing real well this year?” Right?
Gary Abely:
Exactly, yes.
Matt Murphy:
It’s like that next shiny object. You want to be very cautious about loading up on any companies, any stocks, no matter how good they’ve looked in recent history. Because oftentimes, the ones that outperform today will be the ones that will get hurt worse tomorrow, as Gary illustrated with some of the track records in those stocks, back in 2022.
Gary Abely:
That’s right. For our listeners, we have an excellent chart that I’m happy to share with anybody. We’d be happy to email it to you. But it gives you the one year, three year, five year, and ten year performance for the top 10 US stocks, prior to becoming a top 10. Think about the meteoric growth that they achieved to become a top 10. Nvidia, I think, is up close to 200% just year to date, for example. But now here’s the interesting thing, and here’s why the chart is so important, it also shows you the one year, three year, five year, 10 year performance, post becoming a top 10 stock. That doesn’t look so pretty. When we look at a company like Apple, valued around $3 trillion, what’s it going to take to become a $6 trillion company? I’m thinking a lot.
Matt Murphy:
Something much different than it took to get to three in the first place.
Gary Abely:
That’s right. I think the time period that it took to go from $1.5 Trillion to $3 trillion is going to be much, much different, much shorter, than it’s going to take to go from $3 trillion to $6 trillion.
Matt Murphy:
And oftentimes management teams change, personnel people change, so it’s not like stock market growth, whether it’s an individual company, the market as a whole, or a fund, is some sort of linear pattern upwards. It just doesn’t work that way. I think what Gary’s trying to illustrate here is not only the benefits of diversification, and you mentioned concentration earlier. I know over the course of my career, I’ve seen lots of clients that have held really, really high percentage holdings in their portfolio of one or two stocks.
Gary Abely:
Say Publix, or Lockheed Martin, or some of the Big Fours-
Matt Murphy:
… or Disney, or-
Gary Abely:
Exactly, yes.
Matt Murphy:
And oftentimes, at the end of the day, when I’m sitting with those folks, oftentimes it hasn’t hurt them. A lot of times they’ve done that through their 401k through the years. They’ve done payroll deduction. You’re doing a great job of contributing 15% of your income every year into your 401k, and maybe a portion of that was going into the company stock. So not only are you putting money into that stock, but that stock probably has grown and appreciated significantly over time, and that got you to where you are. But boy, once you get into those retirement years, or closer to retirement, a lot of times folks don’t realize the type of risk that they’re taking in those retirement years, having so much concentrated in one or two companies.
Gary Abely:
That’s right. Think Enron, WorldCom, think Columbia Healthcare, et cetera. Josh, one of the things you had asked is, “What does this Magnificent Seven, how does that instruct us as to overall valuations today?” I think this is pretty interesting. If we look at the price earnings ratio for the S&P 500 Index, which is a much broader index than the Dow Jones, which is often cited in the media, we learn that, typically, we’ll pay somewhere around 15 to 16 times what the underlying companies earn on a long-term average basis to purchase the stock.
As an example, if you have a company like Coca-Cola, earning $2 a share, as an example, and the share price is $32, that would be a price earnings ratio of 16, and that’s been about the long term average going back the last 30 years. Well, right now the overall PE ratio for the S&P 500 Index is around 20, so it’s a little bit above average. But what’s interesting, and Matt and I were talking about this before the show started, if we strip out the Magnificent Seven, things look pretty good. The PE ratio is 15, which is slightly below our long term average if we’re focused on those 493 stocks. Don’t chase stocks, that’s when people get burned. People get burned with concentration risk.
Matt Murphy:
Live by the sword, die by the sword, is what comes to mind there, right?
Gary Abely:
Exactly, yup. And Matt, who do we have listening? Who do we have actually taking calls off-air today?
Matt Murphy:
Yeah. Folks, if you have a question, and you don’t necessarily want to air that live, and you’d like to have more of a private conversation, we do have Wynn Smith who’s taking calls offline, and you can reach Wynn at 407-869-9800. Again, Wynn Smith, you can call our office 407-869-9800, and Wynn would be happy to take your calls, and answer any questions that you have there.
Josh McCarthy:
Wonderful. If you want to hop on the air right now, the number to call is 844-580-9326. Maybe you’re one of the lucky ones. Maybe you’re that person who scratched off, and won a million bucks, or whatever that headline I saw here in the Florida area, and you want to know just what to do with that money. This is the whole point of this show. You have questions. I know an expert or two by the name of Matt Murphy and Gary Abely. They answer your questions, call right now, 844-580-9326, or send in your open mics to get your questions live on the air answered by these wonderful experts, who I hold hostage for one hour a week, every week, for my own personal gain. 844-580-9326. You are listening to On the Money. We’re planning tomorrow, hey, with the Certified Financial Group.
Welcome back to On the Money, right here on WDBO 107.3 FM, AM 580, always streaming live in your very own WDBO app. My name is Josh McCarthy, joined in studio today by Gary Abely and Matt Murphy. We are so happy to be taking your calls about anything financial going on; your Roth IRA, your 401k, you just stumbled across a pile of money and you want to know what to do with it. That may for the lawyer in the next couple of hours, but we are happy to take your calls on anything regarding your financial future. 844-580-9326 is the number to call to hop on the air. 844-580-WDBO, or send in an open mic to our WDBO app. Gary, Matt, I believe you wanted to talk about some of, if you don’t have time to call in today, but you want to just pick the brains of you guys live in person, that’s an option for these listeners too.
Matt Murphy:
It sure is, yes, Josh. We’ve got some workshops coming up, and the first one is on Wednesday, July the 19th, which is Savvy Cybersecurity: 10 threats every person in business faces, and how to protect yourself now. This is put on by Charles Curry, here in our office, from 6:30 to 7:30. Again, that’s Wednesday, July the 19th, and that’s one of those topics that we all need to take great care to protect our information, and not be a victim of cyber security or cyber threats.
So again, that’s Wednesday, July the 19th, Charles Curry, 6:30 to 7:30, here in our offices, in our learning center. And then Gary, actually, on July the 29th, we’ve got a special event going on down at the WDBO studio from 10 to 12. Gary has his workshop, Tax Efficient Investing and Distribution Strategies. So Gary, why don’t you give the listeners a little heads up on what that’s all about?
Gary Abely:
Well, thanks, Matt. In this workshop we’re going to talk about several things, but the theme is, “It’s not what you make on your investments, but what you keep.” And constantly, when folks come in, and I look at where they’re locating their assets, I’ll see for example, bond funds, or treasury securities, or CDs in a Roth IRA account, and I’m like, “Ah, don’t do that.” We want the high growth assets, typically, in the Roth account. Or maybe they have a trust account, or a brokerage account, and again, they’re putting in the type of assets that will produce ordinary income, or interest income, income from bonds, when we want to have long term capital gains, typically, in that bucket, and we want the fixed income, typically, in the IRA bucket.
Now, the reason I say typically, every client is different, and in a lot of what we have to do when we’re planning our retirement is plan a distribution strategy. I can’t tell you how many times I’ve met with a client, or met with a prospective client, I should say, and they’ll say to me, “Hey Gary, gosh, I’ve got the best CPA last year, I paid no income taxes.” I look at it, and I say, “Okay, well you’re living on $80,000 a year, but you’re living on savings. You didn’t take anything out of your IRA, so you had very minimal taxes,” and I said, “You know that Apple stock that you have, that $60,000 gain in? You could have sold that, and simultaneously bought it right back, and paid zero taxes on it because you were in a zero or 10 or 12% tax bracket.”
Understanding, and that basically would reset the cost factor for the Apple at the new higher amount, so that when that person has to take required minimum distributions, which for most of us now is going to be age 73, they would have to pay taxes on that, because the RMDs will put them in a higher than the 12% tax bracket. We’re going to be talking about how the tax brackets are going to change. And because of that, what you might want to do, we’ll talk about Roth conversions, we’ll talk about Medicare premiums, and how those are impacted by decisions you make. We have to plan out those big ticket purchases.
A lot of folks, when they’re doing budgeting, they forget, in today’s environment, do we want to pay eight 9% on a car loan? Yeah, maybe not. Maybe we want to pay cash for a car. If you had the ability to take out 10,000, 15,000 over the last five years, and stay in a lower bracket, you could have accumulated the funds for paying cash for a car, versus pulling out a lump sum of 50 or 60,000 for that car, and putting yourself in a much higher bracket.
We’re going to talk a lot about asset location. How to determine from where to pull your money from to live, to meet your needs, and I’m excited about it. Lastly, we’re going to talk about using tax software. I honestly don’t know how you can do financial planning without doing a lot of what ifs with tax software. It’s going to be a very interesting workshop, and I look forward to hosting that at WDBO.
Josh McCarthy:
We look forward to seeing you here in the upcoming weeks for those live things. We love always getting a chance to say hi to the listener, getting a chance for the listener to really just look past me and go to the accountants, the certified financial planners, who are here with their brains and their answers. That’s the whole point, is bringing together the listener and the expert is what we love to do here to benefit everyone.
If you want to hop on the phone right now, and talk to Gary or Matt with your financial questions, the number to call is 844-580-9326. 844-580-WDBO. You are listening to On the Money, where we’re planning tomorrow today with a Certified Financial Group.
Speaker 2:
Welcome back to On the Money, Central Florida’s most listen to financial call and show. Brought to you by Certified Financial Group in Altamonte Springs. It’s the only show hosted exclusively by certified financial planner professionals. Monday through Friday, their CFPs provide financial planning and investment advice for a fee. But on Saturdays, the advice is absolutely free, and has been for more than 30 years for their WDBO listeners. If you have a financial question you want answered by real fiduciaries, the lines are wide open. Call 844-580-WDBO, that’s 844-580-WDBO, and enjoy the rest of the show.
Josh McCarthy:
Hello, and welcome to On the Money, right here on WDBO, in your car at WDBO 107.3 FM, AM 580, in your pocket in the WDBO app. We’re always happy here taking your calls on anything regarding your financial future, make sure you are ready for retirement, make sure you understand every box in your tax filing so you can maximize your earnings, and prepare the best for your retirement. 844-580-9326 is the number to call to hop on the air with Gary Abely and Matt Murphy.
Or if you want to leave us a open mic in the WDBO app, you’re more than welcome to do so. It’s free in the App Store and Play Store. If you want to have a question, but you want to get a little specific with your finances, or your personal information, I recommend calling the off-air number, right to the office of the Certified Financial Group. Wynn Smith is standing by, and that number is 407-869-9800. 407-869-9800. Matt, Gary, we had someone call in, in the break here. If I could ask the question for them, they had a question.
Gary Abely:
Fire away, Josh.
Josh McCarthy:
Okay, gotcha. Okay, this one comes to us from a listener. He said, “When a relative dies, and they inherited a sum of money, does their point of debt get transferred to them, and is there taxes on that?” Maybe they inherited the debt, or they inherited the sum.
Gary Abely:
Yeah. We have to read between the lines, because we don’t have that person on the air, but I think there’s probably two elements to this. When somebody inherits money, they do get, typically, a step-up in basis to fair market value as of the date of death, or as an alternative date, six months later, or past the date of death. It’s important, and a lot of people are confused, when receiving money, you’re not going to pay a tax on that money.
Now if you receive money, and the money grows in value, let’s say you receive stocks, you will be taxed, of course, on the growth. But you do have two choices. You have the valuation at date of death, and you have an alternate date, six months later. I’m thinking, from the question, that that might be what they’re asking, when they’re talking about date of death. Hopefully that answers the question, and if it doesn’t, please call back and clarify for us, and we’ll do our best to answer that.
Matt Murphy:
The other question that may, again, reading between the lines there, Gary, that may have been part of the callers question, was if my relative incurred some debt while he or she was living, and I inherit that money, do I also inherit the debt? How would that work in that situation?
Gary Abely:
Well, that’s a good question. It depends on whether the debt was secured or unsecured. For example, if you inherit somebody’s home, and there’s a mortgage on it, obviously that debt, the banker doesn’t lose. That debt is going to have to be paid off. Then the equity, the amount of the value less the debt, would then go to that beneficiary. But let’s say it’s credit card debt, or some unsecured debt, and you receive somebody’s house.
They leave you a house, maybe it’s a Lady Bird Deed, the house goes directly to you. You’re not responsible to pay, if that person had, let’s say, $20,000 of credit card debt, you get to keep that house. You don’t have to take a loan on the house to pay off that credit card debt, because that credit card debt is unsecured. Now we can think of another secured type of debt would be if you inherited a car, but there’s a loan on it.
If the loan is more than the value of the car, which unfortunately happens when folks finance over 84 months now, you can finance a car, then you just don’t want to take that, right? You want to disclaim an interest in that property. There’s nothing that requires you to accept a gift. When somebody gives you something, you have to accept it, right? You don’t have to accept a liability.
Matt Murphy:
Sure.
Gary Abely:
That’s a great point, Matt. Hopefully between those two things, hopefully we answer that person’s question.
Matt Murphy:
Yes. And if not, again, for our anonymous caller there, Wynn Smith is taking calls off the air. You can reach him at 407-869-9800. Again, that’s 407-869-9800, for our anonymous caller, or for anybody else that would like to discuss their personal situation in private, rather than here on the air. I just wanted to go back, real quick, to Gary’s workshop, well, all the workshops to begin with.
If folks would like to sign up for any of our workshops, any of the ones that I’ve mentioned, or any in the future, go to our website at financialgroup.com, and click on the Workshops tab. On that Workshops tab, you can go ahead and sign up, and reserve your spot for any of the workshops that are upcoming. If you’re interested in any of those, I would encourage you to do that ASAP, because they do fill up quickly. The one that Gary’s doing, on the 29th, is it Gary?
Gary Abely:
Yes.
Matt Murphy:
Yeah, 29th, Saturday, July. I did one a couple of months ago, there at the studio, and we had a great crowd there. It was really a lot of fun to do the workshop. Normally, we do them here in our office. We have a beautiful learning center here.
Gary Abely:
We do.
Matt Murphy:
WDBO also has a beautiful spot there for these workshops. I would really encourage folks to come out. One of the things that I think is neat about you doing that one Gary, is think about when people typically think about their taxes. It’s twice a year. It’s at the end of the year.
Gary Abely:
Yes. It’s after the fact.
Matt Murphy:
It’s-
Gary Abely:
Always after the fact.
Matt Murphy:
Always backwards looking. It’s when they file their taxes, and at the end of the year. And in both cases it’s too late to do anything about it.
Gary Abely:
That’s right.
Matt Murphy:
The benefit of attending Gary’s workshop on the 29th is he’s catching you mid-year. There’s still time to take some action on some things to reduce your taxes, to manage your tax liability. But as Gary mentioned also, we talk a lot about asset allocation, which if you’ve worked with us before, you’re probably at least vaguely familiar with that term. That just means what amounts you have, what percentages you have in stocks, bonds, cash, fixed income type investments, and that’s very important. Asset location, I would submit to you, is equally as important, particularly if-
Gary Abely:
Certainly can be.
Matt Murphy:
It can. If you’ve got accounts that are other than just retirement accounts, it’s very important that you’re paying attention to how to be tax sensitive, how to be tax aware. As Gary said, it’s not necessarily what you make in that situation, it’s what you get to keep at the end. Again, Gary’s workshop is Saturday, July the 29th from 10:00 to 12:00, at the WDBO studio. Go to our website, financialgroup.com, the Workshops tab. Go ahead and reserve your spot for that particular workshop.
Gary Abely:
Well, thank you Matt, and thanks for the plug. I think I’m excited to show how folks can use a simple, I don’t know, $25 tax software, to plan out their future, and save bunches of money in taxes, because that is important. We want to focus on how much you get to keep. All right, Josh, do we have any text coming in? Because I don’t think we have any calls right now.
Josh McCarthy:
Not a problem. If you want to hop on the phone, we got some lines open for you. 844-580-9326. You’ll be first in line if you hop on, with Gary Abely and Matt Murphy with the Certified Financial Group. But I got a couple of text messages strolling in. You mind if I throw one at you?
Matt Murphy:
Let’s do it.
Gary Abely:
Let’s do it.
Josh McCarthy:
All right. This texter, “Read an article in Kiplinger,” hopefully I’m saying that right, “that my children may not get a step-up in basis to FMV on my home if trust was not prepared correctly. The trust owns my home. Is this true? And how can my children still get a step-up in basis?”
Gary Abely:
This is a really good question and I will just say that we circulate Kiplinger in our office, and fortunately with the name Abely, I get the first circulation many times. I believe this is a very recent one, because I read the same thing. What the issue is, if you put, for example, your house, or any asset, into an irrevocable trust, all right, so now what’s the difference between revocable and irrevocable? I guess we should explain that.
When you put something into an irrevocable trust, you have basically gifted that. It’s no longer yours. You can’t just say, “Hey, I changed my mind, I want that back.” The reason people will do that is long-term care insurance is so darn expensive. A lot of people want to plan to qualify for Medicaid. If you have too much in assets, you’re not going to qualify. There’s an asset test and an income test. That’s one of the reasons people often will have an irrevocable trust.
But the problem comes in if the children receive that asset, they may not receive a step-up in basis to fair market value if the trust was not drawn up correctly. Now, in order to get the step-up in basis, that property, the stock or the house, has to be part of the deceased’s estate, for estate tax purposes. Now a lot of people say, “Well, I don’t want to pay estate taxes.” Most people won’t. Married couple can gift, or leave at death, over $24 million. It’s usually not an issue for most people to worry about estate or gift taxes. This is just a nuance. Now I am sure, I’m going to give you a plug now, Matt, a plug in the workshop.
Matt Murphy:
Sure.
Gary Abely:
Matt’s wife, Jodi Murphy, is an estate planning attorney. I know she wouldn’t make that mistake. In other words, if somebody is getting something out of their estate, gifting it to qualify for Medicaid, they want to make sure that asset still is considered part of the taxable estate. Because oftentimes, like I said, there’s no tax issue. It’s just really a formality. That’s a great question, and when I read that in Kiplinger, I did some research online as well, and that’s what I came up with.
Matt Murphy:
The other thing that you bring up, about irrevocable versus revocable, sometimes a trust becoming irrevocable happens by a triggering event, let’s say, right?
Gary Abely:
Yep.
Matt Murphy:
For example, if a husband and wife are co-trustees on a trust, and one of them dies, oftentimes, usually, the trust will then become an irrevocable trust. You might say, “Well, geez, that seems unfair.” Well, the reason for that is to actually protect that surviving spouse so that the worst case scenarios don’t play out, where he or she gets remarried, and then the new spouse runs off with the money, or daughters-in-law, songs-in-law, somehow get access to that money because it was a revocable trust.
By it becoming irrevocable at the death of the first spouse, that protects that money, and makes sure that the wishes that the people that put the trust in place in the first place are ultimately honored, and can’t be altered, let’s say. Yeah, that was a good question. Just going back, the person had put an FMV, FMV refers to fair market value, so a step-up in basis to the fair market value on that home. I think I hear the music rolling in, Josh. Let’s go ahead and take it away.
Josh McCarthy:
That’s right. We call you Matt Murphy the Eagle, because you hear everything we throw at you 844-580-9326 is the number to call. One more break coming up, one more segment following the break, to hop on the air with these experts, Gary Abely and Matt Murphy with the Certified Financial Group. 844-580-WDBO. More of On the Money Show, coming right up after this break. Again, you’re listening to On the Money, where we are happy to be planning tomorrow today, with the Certified Financial Group.
Welcome back to On the Money, right here on WDBO 107.3 FM, AM 580, or always streaming live in the WDBO app. This song, Don’t Stop Believin’, has me feeling about the housing market right now. I feel like if I just don’t stop believing, eventually, the prices will eventually come back to somewhere where I can smile again. If you want to hop on the air with Matt Murphy or Gary Abely, with the Certified Financial Group, feel free to call 844-580-9326. As the show comes to an end, we always want to give you the option to call in a little bit following the show. Wynn Smith, with the team at Certified Financial Group, standing by at 407-869-9800. 407-869-9800.
Matt Murphy:
Josh, it sounds like, like many investors, the emotions are getting the best of you, my friend. You want to try and immunize yourself from your emotions, and make logical decisions yourself.
Gary Abely:
That’s right.
Josh McCarthy:
I had our IT department blacklist Zillow for me, so I could stop going on there and crying. I need to be endorsed by Kleenex.
Gary Abely:
Too many people moving here.
Matt Murphy:
At least you recognize your weaknesses, and-
Josh McCarthy:
That’s right.
Matt Murphy:
… some action-
Josh McCarthy:
There you go.
Matt Murphy:
… to protect yourself. I know we had a couple other text questions come in. Do we have time to knock through one more of those, Jeff?
Josh McCarthy:
We do got about three minutes until we call this episode a close, but this question comes to us, “My foreign mutual funds way outperformed my US stock funds. How much should I have in both? What is expected to do better?”
Gary Abely:
Well, that’s a great question, and I think I’ll answer the last part. What is expected to do better depends on who you talk to, right?
Matt Murphy:
Yes.
Gary Abely:
I think to answer the question though, we want to remember that the United States represents only about 60% of the world stock market.
Matt Murphy:
That’s right.
Gary Abely:
Which is impressive when you consider we’re what, 350 million people out of billions of people on the planet. It’s pretty interesting. Now, most people, I think you would agree, Matt, have a bias toward investing with companies that they know.
Matt Murphy:
Sure.
Gary Abely:
We see them every day, we’re comfortable with it, versus, say, companies in Japan and Germany we may have never heard of. In general, we would suggest, over time, if we are interested in statistics, go back to, say, 1969. The US stock market has outperformed foreign markets about 54% of the time on a 10-year trailing basis.
Now I want to flip that, and say, “Well, foreign markets have outperformed the US market about every four and a half years out of 10.” It’s something we don’t want to ignore. That particular listener is absolutely right. The first quarter, foreign stocks did phenomenal, and the price earnings ratio of foreign markets is much, much lower than US, substantially lower. I believe it’s around 12 times earnings. Where, overall, we’re around 20 times earnings. There is value abroad, and we don’t want to ignore it. Real quick, Matt, what percentage would you suggest having in foreign?
Matt Murphy:
Yeah, it’s a tough call. I think a two to one ratio, generally, is a pretty good rule of thumb. Although, for years, and years, and years, you’ve been hearing foreign stocks have underperformed, foreign stocks have underperformed. Finally, that’s reversed itself so far this year. Just the general idea there has been that trend won’t continue forever. Now I think we’re starting to see that, this year anyways, come true. Part of it could be, like you mentioned, the valuations. Our valuations look kind of like you talked about at the beginning of the year, or at the beginning of the show. The valuations in the US market are a little frothy, you might say.
Gary Abely:
Yeah, if we’re including those Magnificent Seven.
Matt Murphy:
On the Seven-
Gary Abely:
Exactly.
Matt Murphy:
Take those out and it looks pretty good, actually.
Gary Abely:
It does. Yep.
Matt Murphy:
What do you typically like to see in that rate?
Gary Abely:
I do a 70/30 split.
Matt Murphy:
Okay.
Gary Abely:
So about 70% US now. Because of the Ukraine war, and tensions in China, last year, we were more like an 80/20.
Matt Murphy:
Yeah.
Gary Abely:
I think it does depend on overall valuations, and what’s going on in the world.
Matt Murphy:
Yep. All right. Well it sounds like that’s a good note to wrap up on.
Gary Abely:
More music.
Matt Murphy:
Yeah. Josh, hope you have a great weekend. We enjoyed doing the show here this morning.
Gary Abely:
Thanks to all of our listeners.
Matt Murphy:
Got it.
Josh McCarthy:
Thank you so much. Another great episode filled with financial information. Thank you so much for listening to On the Money, where we’re planning tomorrow today, with the Certified Financial Group.