When should I rebalance my portfolio? How often? | TRANSCRIPT

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:
Good morning and welcome to On the Money right here on WDBO 107.3 FM, AM 580, always streaming live on the WDBO app. This show, of course, is brought to you by the Certified Financial Group, one of the top 100 financial advisory firms in the country, as named by the CNBC. That is something to slap your back about. Way to go guys. This, of course, is your chance to hop on the air, pick the brains, get the answers to your questions about your financial future because this is a live call in show. You guys are just as part of a show as the financial advisors here. We need you to play along and to get your questions answered. The number to call is 844-580-9326. 844-580-WDBO, or feel free to send in those open mics. Today, we’re joined not in studio today. It’s a little bit different. They’re around the corner. They’re in the building, but why don’t you, Gary, Joe, how are you guys doing today?

Joe:
We’re doing great.

Gary:
Great.

Joe:
And it’s a pleasure to be here in the Stanley Steamer Performance Studio here in the WDBO facilities right here on John Young Parkway. We have a live studio audience this morning. Let’s hear it from the audience. You’re out there? Come on, let them know you’re here. All right, all right, all right, all right. So, Gary and I are here to take questions as we have now for more than 30 years from our listeners and from our audience if you’re so inclined. We have a mic that’ll be floating around if you want to ask a question, things that might be on your mind regarding your personal finances. As we’ve said, time and time again, Gary and I and the 14 other certified financial planners do financial planning and investment for a fee on Monday through Friday. But on Saturday mornings, we are here for you absolutely free.
And if you’re here in the studio with us this morning, we not only do we have advice, but we have some good food, right? You’re chomping down on that, as well, and you’re welcome to do that. Well, we’re glad you’re here and we want to take your calls this morning, answer your questions about stocks, bonds, mutual funds, real estate, long-term healthcare, annuities, life insurance, reverse mortgages, all those things that Gary and I and the 14 other certified financial planners deal with every day, day in and day out, trying to get our clients to and through their retirement years. Well, we’re here for you this morning, absolutely free. So, if you have any questions about any of those topics, things you’ve been thinking about, things you’ve heard, rumors you’ve had, you want to talk about the economy, anything you want to talk about, we are here. And the good news for you is the lines are absolutely wide open. So, you can be right in the front of the line by picking up the phone and dialing these magic numbers.

Josh McCarthy:
844-580-9326. That’s 844-580-WDBO. Or feel free to send it in your open mic in the free WDBO app. Today’s topic, when should I rebalance my portfolio and how often?

Joe:
Aha. So, why don’t we first of all begin with what is rebalancing?

Gary:
That’s a great question. So, rebalancing is the process of putting your investments back where you wanted them to be. So, for example, we often talk on this show about risk. And if somebody’s a moderate investor, that would be equivalent in our view to about 60% stocks and about 40% bonds, right? So, when we talk about rebalancing, if you have a bear market, let’s say you have a decline in stocks of 34%, which is about the average bear market, you’re going to have that 60% drop quite precipitously. So, you’re going to need to rebalance, which means you’re going to need to buy stocks while they’re on sale, right?

Joe:
Right. And what happens? Most people don’t do that.

Gary:
Most people don’t do that, no. And what I wanted to do is dig in a little bit deeper so we can rebalance between stocks and bonds, and I think we all know that we need to do that. Now, everybody has a different idea of when you should do that, right? Some people will rebalance once a year. Some people will look at their portfolio maybe once a quarter. I know Justin’s sitting in the back and Dylan is sitting in the back, and they run a report from each morning so that we can look at our client’s equity percentage compared to their target, and what our team does is we use a 5% threshold.
And so, when a client is off balance by 5%, we put their equities back on target. Now, some may want a broader percentage, maybe 10%. Some may want to do it by time. But what’s interesting is, not only do we need to rebalance between stocks and bonds, but we also need to look within the stocks and within the bonds. So, for example, this past year, we had large cap … in 2022, I should say we had large cap value stocks lose around 7.5%.

Joe:
Okay, let me stop you there. We all-

Gary:
What’s a value stock?

Joe:
You and I know what large cap value is, but our listeners that don’t deal with this every day.

Gary:
Yep.

Joe:
Let’s talk about what large cap is and what value is.

Gary:
Great. So, large would be companies typically above $10 billion in value. And value are typically your energy companies, your utility companies, things that are not trading at really high multiples of earnings.

Joe:
Like Tesla.

Gary:
Tesla would be growth.

Joe:
Right.

Gary:
Tesla would be growth. Amazon, Microsoft, Google, Nvidia, those are the big part of the magnificent seven stocks as they’re called.

Joe:
Right.

Gary:
Those are growth stocks. So, in 2022, growth stocks declined a little bit more than 29%, but value stocks declined only 7%. So, if you’re just looking at stocks and bonds, I mean, last year the S&P 500 index dropped by a little over 18%. Also, 10 year treasuries dropped by a little over 18%. So, there wasn’t much to rebalance if you were only looking at stocks and bonds. But if you got into the minutiae and you looked at, “Okay, how much did my growth stocks go down versus value stocks,” and what happened so far this year? What’s happened with growth stocks?

Joe:
They’ve taken off.

Gary:
They have.

Joe:
Yep.

Gary:
Right. Again, these magnificent seven, I think, on the heels and promise of artificial intelligence have really rocketed to where the average growth stocks trading at over 30 times what it earns versus a 20-year average of only about 22 times earnings. So, growth stocks have really accelerated. So, had you rebalanced at the end of the year between growth and value, you would’ve bought more growth and you would’ve had some appreciation as a result of that.

Joe:
Right. So, let me stop you right there.

Gary:
Yep.

Joe:
Because this is really where, I think, the average investor or the unknowledgeable investor makes the mistake. Because they look at, like you said, at the end of the year, the growth stocks were hammered more than the value stocks. And so, what happens? You look at your statement, “Oh, my gosh. Look how much money we’re losing honey.” And what do most people do?

Gary:
They’re going to sell what went down.

Joe:
They’re going to sell at the bottom.

Gary:
Yep.

Joe:
And now, what happened?

Gary:
Well, of course, growth stocks rebounded, and that was exactly what you wanted to be buying.

Joe:
Yes.

Gary:
Right.

Joe:
And that is a benefit of what you’re driving at is the rebalancing.

Gary:
Right.

Joe:
And this is what our clients pay us to do. It’s not just a matter of buying it and holding it, I hope it all works out. It’s a matter of getting through that storm and figuring out what to do. And then, not only what to do, but the quality in the investment and how you do it. It’s not just a matter of picking an investment and looking at how many stars, diamonds, or smiley faces it might have and you hold onto it forever and you hope it works.

Gary:
Yep.

Joe:
But it is a process.

Gary:
It is a process. And you look at real estate last year. I think real estate was down what, 29%, 27%, something like that. And we can all question whether we want to be in REITs that have commercial office space because, again, that’s why you need to dig into the details of those investments to see, “All right, if I’m in a REIT, how much is in office space? Or has that possibly been priced in already-”

Joe:
Right, right.

Gary:
“… by the 29% decline?”

Joe:
Right.

Gary:
Yeah.

Joe:
Now, we need to tell our listeners, when we build portfolios for our clients, it’s in the objective of getting you to and through your retirement years. Although we manage billions of dollars of money, and that’s just what our clients maybe know us most for, but we are financial planners.

Gary:
Right.

Joe:
When you sit down with clients, I sit down with clients, we look at where they are, how much volatility they have in their portfolio, and how conservatively they can invest their money and still have a high probability of reaching their retirement years and getting through the retirement years. And that’s what financial planning is all about.

Gary:
Exactly. And also focusing on, not so much what you’re making on your investments, but what you’re keeping on your investments, which is what we’re going to be talking about later-

Joe:
Yes.

Gary:
… on just how to invest tax efficiently so that if you have one fund that’s earning 10%, great manager. One fund that’s earning 8%, maybe not as good of a manager. That 8% investment, as I’ll show later, might actually be the better choice depending on how those gains are taxed.

Joe:
Right. Yes. So, we’re looking forward to that workshop that you’re doing from 10 to noon here today in the WDBO studios, and I see we have a call there, Josh. Do you want to take the call? We’re up against a break. You tell me, my friend.

Josh McCarthy:
Yeah, let’s take a call now. Michael was so kind to call in. If you want to hop on with the experts of the Certified Financial Group, the number is 844-580-9326. 844-580-WDBO. Michael is calling in from St Cloud. Go ahead, Michael, you’re on the air.

Joe:
Good morning Michael.

Gary:
Good morning.

Michael:
How you doing? Thank you very much for your workshop here. What I was going to ask you is I’m retired. I’ve got a decent amount of money in the stock market, but I’m getting ready to sell a house for about $300,000, and I want growth, but I don’t want to get into the real heavy risk. I was wondering what you would advise me to do to put that 300,000 that will give me some growth and less gray hair.

Joe:
Well, what do you consider growth? What kind of rate of return, what do you think is good in today’s environment?

Michael:
Well, I would think safe is about five, 6% without much risk. But I’ve been reading up on everything and they’re saying that it looks like we’re going to be in for a pretty good growth maybe in a few years. But that’s why I’d like to ask you guys which you would think would be something you would do.

Gary:
Well, Michael, how old are you?

Michael:
67.

Gary:
All right. And what is the intended use of this money? Is this for your retirement living expenses? Or do you have some intended use for this?

Michael:
I don’t have any intended use for it other than I may use it for something that I want down the line. I don’t really need it, but I just don’t want to worry about it being eaten up because my health is not so great. So, I don’t know what’s going to happen in the future.

Gary:
All right. And so, my next question, just digging in, and bear with us, long-term care insurance. You mentioned your health isn’t good. Have you purchased that?

Michael:
I have not.

Gary:
Well, you’re like most people when they look at the price of long-term care insurance, it’s pretty shocking. So, I’m not surprised to get that answer. When folks mention they don’t need money, I think Joe and I both think, “Okay, where does this money go when we’re not here on earth? Does it go to children? Does it go to relatives? And should we be investing that based upon potentially their risk tolerance?” We have a lot of clients that were blessed with pensions, and between their pensions and social security, some of them still give us more money to invest and they take their required minimum distributions and they invest that, as well.
So, if you don’t need the money, I would say always have it invested so that you could have that rainy day, God forbid, where you did need a long-term care situation. So, you are correct, five to 6%. A six-month treasury bill right now is yield to maturity around 5.3%. So, if you go out to about January, so that would be a risk-free investment. And if you were just looking for five to 6%, I think that’s fine short term. The problem is these rates won’t stay this way for long.

Michael:
Right.

Gary:
And if you felt you wouldn’t need this money for at least five years, wouldn’t you suggest, Joe, taking a more moderate approach?

Joe:
Yeah, without question. I think Gary hit the nail on the head. Time is a great asset, Michael, and you’re still a young guy at 67 years old given reasonable life expectancy unless you’re terminal. I can’t tell if you are. You sound pretty good. But I’ve got to worry about 20 plus years in your life, and Gary hit the nail on the head. It’s really where does this money go when you’re gone? Is it to children, grandchildren, maybe charities? And you want to think in those terms, and that’s one of the real benefits of doing some planning. This is how we built a firm over nearly 50 years of looking at where you are today. And I hear the bumper music so if you’ll hang on, we’ll get back to your question, and we’ll try to wrap that up for you. So, hang on, Michael.

Josh McCarthy:
Thank you so much, Michael, for picking the brains of these experts we have in the Stanley Steamer Performance Studio today, a live broadcast of On the Money. Thank you so much. If you want to hop on the air, the number to call is 844-580-9326. 844-580-WDBO. Or feel free to send in the open mic using the free WDBO app. You’re listening to On the Money where we’re planning tomorrow-

Joe:
Today-

Josh McCarthy:
… with the Certified Financial Group.
Welcome back to On the Money right here on WDBO. My name is Josh McCarthy, joined in building today by Gary Abely and Joe Bert. I’ll get to that in just one second. If you want to hop on the air and get these fantastic answers from these financial advisor experts, the number to call is 844-580-9326. 844-580-WDBO. How’s it going over there, guys?

Joe:
It’s going great.

Gary:
Great.

Joe:
Once again, we have a live audience out here this morning. So, we’re thrilled to be here in John Young Parkway with our listeners and all of our listeners out there. And Josh, you mentioned in the opening getting the acknowledgement from CNBC as one of the top 100 firms in the country. We’re going to announce this week, Scott is going to pick it up, we’ve also been chosen by Orlando Magazine. We made their Best Of series by the readers of Orlando magazine. And on a national level, we were chosen by Financial Advisor Magazine as one of the top firms in the country. So, the accolades just keep coming in.
That’s a testament to Gary and the entire team of Certified Financial Group to what we’ve done for clients for many, many years. And we’re very, very proud of that, and we’re proud of you and the listeners and WDBO and our audience out here this morning. Let’s get back to Michael. Michael, let’s summarize, once again, for our listeners that just may have tuned in. You’re 67 years old, as I recall. You just sold a piece of real estate, $300,000 or so. You’ve got money invested in the market, so to speak, and you’re looking for a safe home for this money for a period of time. Is that pretty much summarize where you are?

Michael:
That is it on the money?

Joe:
Okay, about that. All right, so Gary, so what do we do here? So, let’s say Michael was in the office sitting across from you.

Gary:
So, I would first start out by saying a general rule of thumb for a minimum amount that you would want to have in equities, meaning stock mutual funds, would be 110 less your age. So, in this particular case, I’d like to see, Michael, that you at least consider being, what we consider to be, moderately conservative, around 40% in stock, 60% in bonds. However, if you’re not going to need these funds for some time, as you mentioned, I would consider who that money is going to and potentially flipping that and potentially being moderate, again, if you don’t need that money. We know that stocks over long periods of time will outperform bonds in over 15 year periods.

Joe:
And certainly over cash.

Gary:
Oh, absolutely. Now today, the opportunity cost isn’t so bad because there are reasonable investment options for cash, right? So, we can make close to 4.8% right now-

Joe:
Right.

Gary:
… I think in a Fidelity money market account, 5.3% on six month T-bills. But long term that’s not going to work, right. The interest rates will come back down in the next couple of years, and so you’re really going to want to have your investments in a mix of stock mutual funds and bond mutual funds.

Joe:
Give us a call, Michael. We offer a complimentary consultation. And with $300,000, you probably ought to have a little bit of a plan done for you and really show you what you might be able to do for yourself and your family in the coming years. I see we’re up against the break here. We’re up against the break. Joshua, take it away.

Josh McCarthy:
That’s right, Steve Perry is let me know it’s time to go to news here. Leo, standing by in studio 844-580-9326 is the number to call if you want to hop on the air, pick the brains, get your financial questions by these financial experts answered. 844-580-WDBO. You are listening to On the Money, where we’re planning tomorrow-

Joe:
Today-

Josh McCarthy:
… with the Certified Financial Group.

Speaker 2:
Welcome back to 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 rest of the show.

Josh McCarthy:
Welcome back to On the Money right here on WDBO 107.3 FM. AM 580, always streaming live in the WDBO app. My name is Josh McCarthy, joined around the corner from Gary Abely and Joe Bert with the Certified Financial Group. They are broadcasting live out of our Stanley Steamer Performance Studio around the corner. They have a full crowd in there, so I’m excited that people come in, they check out the knowledge, always dropping little tidbits of information here on this show because it is a financial call in show. If you need some advice, this is the chance for you to call in 844-580-9326. 844-580-WDBO.

Joe:
And Josh, I want to mention that back in the office, Charles Curry is taking calls off the air. So, if you’d like to call in and get a more personal consultation or something you want to get into in depth with Charles, you can reach him at 407-869-9800. 407-869-9800. Or 1-800-EXECUTE, as if you’re executing a legal document, and he’d be glad to take your call, as well. I see we have another call lined up there, Josh. Let’s take it away.

Josh McCarthy:
Go ahead, Karen. You’re on the air.

Joe:
Good morning Karen.

Gary:
Good morning.

Joe:
Hello, Karen?

Karen:
… listening to you for over 30 years. You’ve done a great job. My question has to do with the last caller, and probably a lot of people with the age that I’m in over 60, the proceeds of his home and his health. I’m wondering if you could comment on annuities that have the buy-in bonuses and the long-term care riders, and what your thoughts are on things like those types of products.

Joe:
Well, first of all, the annuities that have those bonuses, they’re full of hooks and problems with them. We haven’t seen any of them that are worth it, really. Those are usually offered by, once again, people that offer these free lunch and dinner seminars. They give you the steak, and they show you how this annuity will, we’ll just about do everything but wash the dishes for you. We don’t like those. You can get those without any commissions or sales charges, and we have those available to us, but you’re not going to get them at one of these dinner seminars.
There are annuities out there, though, that we have used for clients that cover long-term healthcare, and you can get an annuity or a life insurance product. And the benefit to that is that you invest the money, and if you don’t use it, your beneficiaries get the money back. If it’s an insurance policy, they’re going to get it back absolute tax-free. So, it’s that looking down the road and knowing the probability somewhere down the road you’re going to need long-term healthcare. And if you need long-term care, Gary, what’s the monthly cost today?

Gary:
Oh, Lord. It’s over 10,000 a month in Florida.

Joe:
Okay.

Gary:
Yep.

Joe:
So, you’re looking at a huge bill today that’s $10,000 today. And so, okay, I’m going to have to do that, and how am I going to pay for it? Well, you’re going to pay for it one of three ways. Either you’re going to write the checks, it’s going to come out of your IRA, your savings, your investments, and that’ll be gone. And then, you’re going to use up your assets, and that’ll be gone. And once all that’s gone, then you’re eligible for Medicaid and you don’t want to be in a Medicaid facility because those are the pits, if you’ve ever been to one. And that’s where the people go that don’t have any money. So, you want to cover those costs if you can. And the way to do that is look down the road and say, “Okay, I’m going to need this. How do I cover it? How do I pay for it?” What’s happened in the long-term care industry is a lot of these policies that were issued years ago, and you’ve seen them, right Gary?

Gary:
Oh, yeah.

Joe:
They’ve run into trouble. And why are they running into trouble?

Gary:
Well, the actuaries didn’t think that there would be as much claims, and the insurance companies didn’t make as much interest. We were largely in a low interest environment. And so, they’ve exploded.

Joe:
Right.

Gary:
And unfortunately, most policies issued, until recently, all had the same verbiage. “The insurance carrier reserves the right to increase the premium as of any premium due date.”

Joe:
Right.

Gary:
So, if you still have premiums, they can raise the rates, which means you don’t know what you bought.

Joe:
Right.

Gary:
And I still see people buying those types of long-term care policies today. And I think it’s a big mistake because you’re putting a lot of money out there, and you don’t know what you’re getting because, later on, you’re going to get these letters like so many people have from John Hancock and Genworth and everybody almost that’s in the business has had to raise rates in order to pay claims.

Joe:
Right.

Gary:
And simply, they say, “All right, you’ve got some options here. If you want to keep the premiums the same, we’re going to have to reduce your benefits.” So, maybe you had a five-year benefit period. Now, you may have to go down to a three-year benefit period. Maybe you had 5% compounding for cost of living. Now, maybe you go with no compounding. And so, I don’t like buying a product where you don’t know what you’re buying.

Joe:
Right. And unfortunately, 10, 20 years ago, these were the only products that were available.

Gary:
That’s right, yes.

Joe:
And it’s not a fault necessarily of the insurance company, they just didn’t have the experience. And this is across the board. You have major companies, there’s nobody out there cheating anybody.

Gary:
Right.

Joe:
They just frankly didn’t have the underwriting experience, and that’s why they’re raising the premiums today. But getting back to what the alternative is today, and that’s what we call asset care programs, where you commit so much dollars to either an annuity contract or a life insurance contract with the idea that if you need long-term care somewhere down the road, let’s say you put in a hundred thousand dollars, you’ll get a multiple of that back for long-term care. So, it’s a way to really boost up the value of that money that we call, as Nancy calls it, toe of the sock money that you know you’re not going to need.

Gary:
Right.

Joe:
And if you don’t need it, the good news is you can get it back. Or your survivors are going to get it back. So, it’s not like you’re writing insurance premium checks, and I’m spending this money and I’m never going to get it back. But it doesn’t work in all cases. And this is where planning comes in and this is what we do. So, Karen, I don’t know if that answers your question, but that’s what we look at when we look at annuities.

Karen:
Yeah. No, that answers my question. I’ve always considered it a good option to consider, and a lot of people just poo poo annuities all the time. But I think it’s a good option to consider.

Gary:
Well, I would say if somebody has limited amounts of money, and they’re worried about outliving their money and they have longevity on their side, I would agree with you. Then, it is something worth considering. But, generally speaking, putting all of your money in any one product is not a good idea.

Joe:
Right.

Karen:
Right, absolutely.

Joe:
I don’t care what they say.

Gary:
And that’s what the agents that are pushing these bonus products out there want you to do. And, generally speaking, the bigger the bonus, the bigger the commission. They run very similarly.

Joe:
And the bigger the penalty to get out of the program.

Gary:
That’s right.

Joe:
And they’ll show you there’s no penalty, or you get it out of return. They can make it sing, dance, and like I said, do everything you can. The general rule of thumb is if it’s being offered to you at one of these free lunch and dinner seminars, somebody pays for that steak, and it’s going to be you.

Gary:
Right. Yep.

Karen:
Sure.

Joe:
Hope that helps you, Karen.

Karen:
I appreciate it.

Joe:
Okay, thanks for the call.

Karen:
Thank you.

Joe:
All right, Josh. I saw we had a text question come in. You want to take it away there, buddy?

Josh McCarthy:
I’ll take this one. Question number one, inflation is still high after all these interest rate hikes. The Fed says they are going to hike rates even higher. Do bonds make sense right now? Or should I purchase CDs instead?

Joe:
Huh.

Gary:
So, I don’t think we really know. I mean, the good news is the CPI data and the PPI, consumer price index, producer price index, have both come in lower than what was expected. So, inflation does seem to be going in the right direction, and that’s good news. The question of do we buy a bond, do we buy a CD? The CD right now, if you go to bankrate.com, you can look at some internet banks that are giving you about 5.35% for a one-year CD. And I don’t think that’s a bad investment for somebody’s safe money. Right?

Joe:
Yeah, and that’s the money that, if all hell breaks loose and I need to get my hands on money-

Gary:
Right. Exactly.

Joe:
… I’ll get it, and I’ll pay a little bit of a penalty, but it’s there.

Gary:
But we need to remember the bond market had its worst year since the Civil War in 2022. All right? So, that’s because we rose interest rates. Now, what are we going to do next? We might still have another quarter percent hike, possibly. They might be done.

Joe:
Right.

Gary:
But generally speaking, I think we’re pretty close to the peak.

Joe:
Right.

Gary:
And so, where we’re going from now is we’re going to be decreasing interest rates, which is actually a tailwind for bonds. That can give you better bond performance. So, I think it’s a mistake to, it’s not a mistake to invest in a one-year CD. I don’t think that’s a bad idea. But be thinking in terms of, sometime in 2024, the Federal Reserve will be lowering rates and that will be good for bonds. And I think you’re going to outperform CDs, most likely.

Joe:
I think one of the difficult things that many people have difficulty wrapping their mind around is, basically, why do the value of bonds go down when interest rates go up? And conversely, why do the value of bonds go up when the interest rates go down?

Gary:
Well, quite simply, I mean, would you want to own a 10-year treasury that’s only paying 2% when the current rates are 5%?

Joe:
Okay.

Gary:
The answer is no. So, it’s supply and demand for that investment.

Joe:
Right. So, once again, if I owned a treasury that I bought a couple of years ago-

Gary:
Yep.

Joe:
… because I wanted to guarantee that the government’s going to give me guarantees. The best thing out there, I can get 2% guaranteed for 10 years. So, I put my money in, and I know I’m going to get the money back in 10 years-

Gary:
Right.

Joe:
… and I know am I going to get that 2% per year for as long as I hold that. However, along comes rising interest rates-

Gary:
And inflation.

Joe:
… and inflation, and here I am. Now, the market is 5% and I’m looking at my lousy treasury, I’m only getting 2%. So, if I want to sell my treasury, which is open market, you can sell it-

Gary:
Right.

Joe:
… nobody is going to pay you what you paid for that treasury and get 2% where they take that same money and buy 5%.

Gary:
Exactly.

Joe:
Therefore, you’re going to sell your bond at a discount. Now, if interest rates go down, so let’s say I hold a treasury today at 5% and interest rates go down to 2%-

Gary:
That bond’s going to be in heavy demand.

Joe:
That’s correct. That’s correct.

Gary:
So, then that bond’s going to be worth more than par value.

Joe:
Right, right, right.

Gary:
It’s important to note that treasury notes get issued at a thousand dollars. It’s called par value, and they mature at a thousand dollars. But between issue date and maturity date, they can trade up or down. And, of course, right now, with interest rates having risen, they’re trading down.

Joe:
Right. Right. So, people think they should own bonds because they’re safe.

Gary:
Right.

Joe:
But the value of your bond changes every day just like the value of the stock.

Gary:
Right.

Joe:
But they don’t report the Dow Jones bond market every day.

Gary:
No, they don’t.

Joe:
Or the S&P bond market, but it’s the stock market that does it. So, once again, that’s bonds and interest rates 101. I see we have another text there question, Josh?

Josh McCarthy:
We sure do. Question number two, what’s the difference between a growth stock and a value stock? And how much should I have in each?

Gary:
Huh. They must not have been listening earlier. So, that’s a great question. Currently, value stocks are trading at a multiple of about 13 times what those companies earn. And, again, for new listeners, value stocks are those typically trading at below 20 times what they earn in one year. Think of utilities, energy companies, healthcare companies. So, these value stocks, the 20-year average price earnings ratio is around 14. They’re actually trading a little lower than that. So, I think they’re fairly valued, right?

Joe:
Yep.

Gary:
Growth stocks. On the other hand, if you lump all the growth stocks together, they’re trading at over 30 times earnings compared to a 20-year average of around 22. So, growth stocks look expensive. However, and this is a big, however, if you take the top seven names that we all know ad nauseum, right? Google and Microsoft and Apple and Nvidia and et cetera. Those stocks, if we strip those out of the S&P 500, and we just look at the 493 stocks remaining, those stocks are actually trading right now at their 30-year average price earnings ratio.

Joe:
Right.

Gary:
So, stocks really aren’t expensive, as a whole. Certain stocks look very expensive-

Joe:
Yes.

Gary:
… unless they keep growing and growing.

Joe:
Yes.

Gary:
We’ve got a nice chart back at our office, which shows the one year, three year, five year, 10 year compound return before a company becomes a top 10 stock. And what’s interesting, it also shows what the compound return is for the one year, three year, five year, 10 years after they became a top 10 stock. Anybody who wants that, call our office.

Joe:
Right.

Gary:
We’ll send it to you, and it’s very revealing.

Joe:
Yeah, right.

Gary:
It’s really hard for a company that’s, say, $3 trillion to keep growing at high growth rates.

Joe:
So, I hear the bumper music. Josh, take it away.

Josh McCarthy:
844-580-9326. One more segment coming up following this brick. 844-580-WDBO is the number to call if you want to hop on the air with Joe Bert and Gary Abely with the Certified Financial Group, your chance to call in with any financial questions you have. If your financial question comes in a minute too late, or if it’s one of the more secretive matters, you don’t want to get into your numbers on the air, Charles Curry is standing by off the air at office of Certified Financial Group, 407-869-9800 is the number to call. 407-869-9800. You are listening to On the Money where we’re planning tomorrow-

Joe:
Today-

Josh McCarthy:
… with the Certified Financial Group.
Welcome back to our final segment of On the Money right here on WDBO. My name’s Josh McCarthy, joined around the corner from Joe Bert and Gary Abely. They’re broadcasting live out of the Stanley Steamer Performance Studio. How’s it going over there guys?

Joe:
It’s going great.

Gary:
Great.

Joe:
We had a chat off the air with a gal by the name of Mugsy who’s called in before, right Mugsy? You have called in before.

Gary:
Yep.

Joe:
And you live over on the coast, so we’re glad that you drove over here. We have a growing studio audience here this morning, Josh, and we’re delighted that our listeners are here this morning with Gary and me. And I guess we’ve got another text question there? Or what’d you want to say?

Josh McCarthy:
We sure do. Yep. I’ll let you know, if you want. Also, we have Charles Curry standing by off the air for any off-air questions. He is answering the phone at 407-869-9800. 407-869-9800. Text question number three, I can’t afford long-term care insurance, and I have a family history of needing care. What are my options?

Gary:
Ooh, that’s a good one. So, probably legal planning would be your best option. A lot of folks don’t know in Florida, Florida’s a very favorable state for Medicaid, and there are strategies. This will sound crazy, this is actually a legal strategy of one spouse just saying no to paying for the care of the other spouse, and basically transferring assets from one spouse that needs the care to the spouse that doesn’t complicated things. There are legal strategies using a Miller trust where, if you have assets that would disqualify you from Medicaid, you transfer the assets into the trust. Or if you have too much income, you have to allocate income to the trust. But if somebody does not have the money for long-term care, treat your children really well, and really your options are self-pay, have family care, long-term care, or Medicaid. Can you think of another option, Joe?

Joe:
That’s about it.

Gary:
Yeah.

Joe:
Yeah, that that’s about it. So, yeah, it’s one of the things that you need to consider because one in three people are going to spend some time in a nursing home facility.

Gary:
Well, and I guess I thought of one other option, maybe.

Joe:
What’s that?

Gary:
If somebody had a home, they could potentially sell the home and use that for a continuing care facility.

Joe:
Well, sure. Yep.

Gary:
And those have a lot of pros and cons, too.

Joe:
Right, right.

Gary:
We do workshops on the pros and cons of continuing care.

Joe:
Right, right. And speaking of workshops, we’ve got a couple coming up.

Gary:
We do.

Joe:
Do you recall what they are?

Gary:
So, we have one coming up on social security, and that’s hosted by-

Joe:
Charles.

Gary:
… Charles Curry and that’s-

Joe:
That’s going to be a Wednesday evening. Charles likes the Wednesday evening routine.

Gary:
Yep, that’s August.

Joe:
7:30.

Gary:
Actually. Yeah, that’s August 9th. And this is a nice one. Tax planning changes through four different stages of life. That’s going to be hosted by Matt Murphy in our office, and that’s going to be from 10 to 11:30 on August 19th.

Joe:
That’s a Saturday morning.

Gary:
Yep.

Joe:
After our show.

Gary:
Exactly.

Joe:
Yep.

Gary:
And this is a good one. We were talking about this a little off-air. College planning for high school students, what parents should know. And, well, I can’t say enough about how we should educate our children. I did a workshop once, and I had the children raise their hands, how many of them knew what their parents were going to pay versus what they were going to pay. And only two of them rose their hands, and they happened to be my daughters in the workshop. So, we have to have those conversations with our kids-

Joe:
Right, right, right, right.

Gary:
… so that they don’t have surprises later and have to deal with a lot of debt.

Joe:
So, once again, those workshops are held at our office in Altamonte Springs. We have, what we call, a learning center that will accommodate 35 people comfortably. It’s, once again, absolutely free. And we have a crowd lining up here for your workshop, Gary, at 10 o’clock. People say, “Why do you do this?” We do it for basically two reasons. Number one, to prevent you from becoming a financial casualty. And number two, to introduce you to Gary and I and the 14 other certified financial planners do it this way. Whether you need financial planning and investment advice now, you’ll give us an opportunity to earn your business sometime in the future. So, thank you for being with us. It’s been a great show. We love being here with you, the live studio audience. People are still filing in and have got some goodies. And I can guarantee you Gary’s got a great presentation for you. Mugsy, you’ll be glad you came over from the coast to see this. And, as always, we’re glad to that our listeners are with us this morning.

Josh McCarthy:
Thank you so much. Let’s give one more today for the crowd participation if we can everybody get ready. You are listening to On the Money, where we’re planning tomorrow-

Joe:
Today-

Josh McCarthy:
… with the Certified Financial Group.

 

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