Jason and Alex started the show by taking a step back and reminding listeners and themselves why IDA’s team does not pick individual stocks and try to time the market. There are always unpredictable events that will happen with individual companies, such as Cox communication’s internet going down for multiple days unexpectedly. One of the biggest questions that clients and prospective clients have been asking is “What are you going to do to fight back against inflation?” Jason explained one of the main reasons that people are getting nervous about inflation is because the 10-year Treasury yield rose from approximately 0.5% up to around 1.7% in just a few months.
Jason and Alex discussed the amount of debt in the U.S. that has grown to over $28 Trillion after the latest stimulus package. They explained how inflation is a general increase in prices and a fall in the purchasing value of money. A few examples of items that would be negatively affected would be food, gas, travel, real estate, etc. Jason talked about the crippling effect of shifting back to a country that is dependent upon other countries for oil and gas production, and this will really hurt the trucking industry and other workers that rely upon affordable gas prices to provide for their families at a sustainable level.
Alex asked a good question to find out what investments perform well during periods of higher inflation. This is a crucial aspect of the financial planning process to ensure IDA’s clients are able to keep pace with the purchasing power through the strategic allocation of their investment strategy. Jason explained how gold and broad commodities, natural resources, hard (tangible) assets such as real estate, and certain types of inflation protected bonds historically have performed much better during inflationary periods. Jason even touched on Bitcoin or cryptocurrencies in general being a good potential inflationary hedge in the coming years. This is still a speculative asset class to an extent, but it could become a more important piece of the overall portfolio in the near future. Jason also explained that now more than ever it is crucial to be careful with the types of bonds to own because we have been in a great 40-year period of bond performance while interest rates have been coming down and have remained low historically. Alex and Jason talked about the importance of not only being well diversified on the stock side of the portfolio, but also being well diversified on the fixed income or bond side of the portfolio.
They stressed the importance of meeting with a Fiduciary adviser regularly, like the ones on the IDA team, especially at a time like this, to make sure that one’s financial plan is fully on track. Alex explained how now is not the time to have a large amount of cash in a client’s portfolio if a client’s main worry or risk is inflation.
In this show you will learn about:
– What should investors do to prepare for inflation?
– Impacts of inflation
– Types of investments that thrive in an inflationary period
– Stress testing an investment portfolio to prepare for inflation
View Transcript of This Weeks Show Here
Speaker 1 (00:01):
This is financial detox, helping you retire with confidence. Featuring Jason labrum, certified financial planner and founder of Ida wealth intelligence driven advisors. For over 20 years, Jason has shown people how to steer clear of toxic advice, achieve financial peace of mind and manage their wealth for maximum impact. Join Jason and cohost Alex Klingensmith. As they simplify the complex share industry secrets and provide proven strategies designed to take you from financial insecurity to financial independence. This is financial detox.
Speaker 2 (00:40):
Hello, and welcome to financial detox. I’m Jason labrum with Alex Klingensmith and we are bringing you a financial detox from our very powerful Skype systems today. What’s that balance? Good morning, Jason. I don’t think anybody cares where we’re bringing them financial detox wrong, but we’re we are Skyping it. Why do I need for disclosure? Just in case the audio quality is a bit different perhaps, but as of yesterday, 11:00 AM Cox, uh, internet Cox company is down across San Diego. So that’s interesting and that’s what we have at our office, right? So we’re not no longer working, which is really nice. The fact that we just added it, Cox goes down and what’s more impeccable, and this is for all your business owners out there. If we have a backup internet, we intentionally have a separate provider to provide us internet in the event that one of our internet providers goes down and they’re supposed to be on simultaneously in there to support each other, except our it from just never connected those dots.
Speaker 2 (01:43):
So our backup internet didn’t turn it on. And now we are without internet and we’re back in our home offices, just like the good old day, just like the Kobe days. I’ve got something, I’ve got something that’s super relevant to the purpose of our show. And I know we’re already off to a very random start here because we’re supposed to talk about inflation inflation today. Oh my gosh. Is there inflation? Look at what’s happened to the treasuries. Okay. Yeah. What’s your, what’s your thing? Go out. Here’s here’s the, I love, I love, uh, I love moments like this to educate, uh, clients and educate advisors, educate myself on why we don’t pick individual stocks and why we don’t time markets is because it’s situations like this one with Cox, for example, this information about Cox was not available or known or predicted by anybody. And I have to imagine that if this goes on for more than a day or two, that Cox has stock price is probably going to go down.
Speaker 2 (02:30):
Right. Um, and that wasn’t no, it wasn’t earth. I don’t even know if they’re private or public company, but if they’re Republicans to say as a, as a, as an example, um, this is the kind of thing that you just can’t predict and you can’t know. So it just basically reinforces the importance of diversification, right? Yeah, it really does because, um, most publicly traded stocks are, um, priced probably just about right, because they’re priced based upon all the available that exists out there around that company, that’s publicly traded and there are buyers and sellers and there lots of smart people trying to figure out whether their stock is a good price or not. And so the, the only thing that really affects the stock going forward is, is new information like Cox internet is down. Thank you, Cox.
Speaker 3 (03:15):
They’re they’re the largest private broadband company, by the way, I just looked it up. So, so they are not public. I didn’t know. I didn’t know that. So they’re fortunate for them. They don’t have to worry about public shareholders, but all right. Anyway, it’s inflation inflation.
Speaker 2 (03:27):
Yeah. Well, it’s interesting. We have had a really, uh, I, I think this is a question that we are hearing continually from our clients and, and put some prospective clients as well saying to us, you know, what are we going to do? Um, if we have inflation, as we start to get inflation, what are we going to do? What are, how are we changing our portfolio? And if you look at, for example, a one-year chart, the reason why this question is up, what are we going to do to protect ourselves in inflation? The reason why is because people have watched, for example, the 10 year treasury yields go from as low as 0.5% yield a half a percent a year ago to 1.75 here, not too long ago, that’s, that’s like the gigantic hundred and 25 basis point move. I mean, it’s just, you know, the rate tripled. That’s crazy. So this is why I think people are starting to ask this question about inflation. When you start to see those rates go up, not only the rates,
Speaker 3 (04:30):
But isn’t it also because of the deficit don’t people, uh, isn’t that one of the potential like leading factors of impending inflation is when there’s a large deficit, we have a lot large national debt, much of which came from the pandemic. But if we even had a deficit before that, I think, right,
Speaker 2 (04:47):
Right. Um, yeah, I mean, here we are at now near what you used to talk about deficit is right. Like the budget each year, are we spending more than we bring in? And there’s no question that’s the case, but then you also talk about just overall debt and the balance sheet. And of course we’re almost died or maybe beyond at this point $30 trillion of debt, which is undeniably significant and huge
Speaker 3 (05:14):
Check this out. U S debt, clock.org. I can’t confirm the accuracy of this source, but it says 28 trillion and increasing quickly that’s $5,064 per us citizen, right. 224,000 per taxpayer. And I think there’s a lot of people that are citizens that don’t pay taxes. Then that’s an interesting number there.
Speaker 2 (05:34):
The wealthy need to pay their fair, share, you know, 200 more than half of the country doesn’t pay any tax
Speaker 3 (05:42):
Shipping, your 224, whenever you get a chance and we’ll be good. Okay.
Speaker 2 (05:45):
Yeah. As long as every other taxpayer does it in, let’s just cover it. Yeah, it depends. Yeah. If you start to get frustrated as a taxpayer, if the government isn’t spending money at use usefully and wisely on things that make sense and better, uh, our society and whatnot, but hold account, that’s a whole political show. We won’t do that one.
Speaker 3 (06:03):
That’s okay. I think people want to hear a little bit about us and that will be what you believe in these things or what our beliefs are and our value system. But what do investors do about this though? Jason inflation’s coming. Everyone kind of agrees that that’s going to happen. And we don’t know when or how fast, but what are you supposed to do as an investor to prepare for that?
Speaker 2 (06:19):
Well, I would challenge that thesis, that inflation is coming, um, five years ago or six, seven years ago. Now I remember having a conversation with another financial advisor who told me I’ve got my clients all set and inflation protected bonds are, we’re not even in that. We’re just set for inflation, you know, cause it’s coming next quarter or next year, we’re going to see huge inflation six years ago. We’ve seen really no inflation. Um, until recently we’ve seen the treasury yields pop up, right? So is that true? Inflation are the price of things going up, uh, at an exorbitant rate or the price of things. So all things I’d say food gas, right homes, um, are these prices going up? I mean, I think you could make a really good argument that some of them are going up significantly. The prices of homes are out of control.
Speaker 2 (07:11):
Right? Um, if we, uh, under the new administration, we have a very specific intention to literally crush our, um, oil production in our country. We went from for the first time in, in decades becoming a completely energy independent country, which was so good for us, in my opinion. And to literally within the next 60 days, we are now going to become energy dependent, again, upon a lot of our adversaries around the world. So the prices of gas, as you see, are starting to go up everywhere, even in the Midwest and across the country, which I, you have to love the, uh, Democrat and liberal agenda, which says we’re going to tax the rich, which the total taxes and Biden’s tax cut or Biden’s tax increases for the rich raise about 280 billion. As of the last number I saw, it’s not enough money to fund the government for a month.
Speaker 2 (08:13):
It doesn’t fund the government for one month, but yet what we’re actually doing is we’re going to raise the taxes, vis-a-vis gas and higher prices of food and higher prices of everything else because we’re limiting our ability to be a productive society. Um, and for what, um, uh, to get more votes from, uh, the green new deal, I guess, and trying to make, uh, that, that stuff look better. But it’s, um, it’s a sad state because what’s happening is when you look around at the contractors and you look around at the laborers who are driving their heavy trucks and working hard and, and, and, and, and really putting in labor around the world to make, make the world go round, right? It is the blue collar workers that keeps so many things going. Um, when they have to pay an extra dollar, a gallon of gas and they’re driving their big trucks around with all their equipment, so they can work and provide great services to people, build homes and build roads and build buildings and do all kinds of things that they do that hurts them right there really hurts them.
Speaker 2 (09:15):
But when our Congress, uh, house of representatives and our senators drive around in their Mercedes-Benz and they have to pay an extra dollar in gas, do you think it hurts them? It doesn’t, they don’t care. So we’re punishing and actually crippling the lower and middle income earners in our countries under this particular, um, legislative, uh, reign of control. It’s really sad. We do got to take a quick break, so we’ll do that and we’ll come back and keep the conversation going on inflation and what things you can do in your portfolio to help you. If you want to check us out, it’s financial detox.com. Welcome back. It’s financial detox. I’m Jason labrum in studio with Alex Klingensmith and we’re talking today about inflation, and we are the financial detox team at intelligence driven advisors. And we’re here to help you not make behavioral blunders that most investors make we’re here to help you protect your portfolio from the potential inflation on the horizon. And so that was a great question that Alex had just asked is what are we going to do? And how are we going to help clients protect themselves from inflation when, and if it comes.
Speaker 3 (10:45):
Yes, exactly. And especially when you hit, when the media, the financial media, and then all media is throwing out so many ideas, right? And so much emotion attached to that. Like, Oh my goodness, if you don’t invest your money in this, you’re not going to have any purchasing power next year. You know, it’s like, wait a minute. That’s not how it works.
Speaker 2 (11:02):
Yeah. Probably not going to be quite, quite that traumatic. But look, I mean, if you look at things that inflation, everybody knows the classic own gold in an inflationary environment, it’s
Speaker 3 (11:12):
A real Hasset right. Hard asset.
Speaker 2 (11:14):
So that’s something that could help, uh, hedge out inflation. Uh, real estate is interesting too, is as you see the prices of real estate going up, if interest rates are low, real estate tends to do well, particularly if you don’t have debt hard assets do well in inflationary environments, um, they do, they do better than commodities and gold. I don’t, you know, who knows it’s probably different every time, but both of those are asset classes that can somewhat protect you. I think you have to be, um, at least cognizant of what’s going on in Bitcoin and cryptocurrency as a very small piece of your portfolio, but something that could help, um, hedge inflation. I mean, that is part of the reason why blockchain was created was to, uh, prevent governments from affecting and negatively impacting the value of their currency to benefit themselves and at the cost or, or at the, at the expense of the public. So stocks also tend to do okay, right? Stocks are a more defensive and inflationary environment because they typically have a, um, a bigger rate of return than bonds. You know, stocks historically do eight to 10 and bonds do four to five.
Speaker 3 (12:27):
Is that, and that’s probably why I think many of our clients, um, many of the intelligence driven advisor clients are, or are concerned about this and they want to hear us, you know, allay their concerns or at least explain how we, you know, evidence and what processes that we use to determine which asset classes to tilt or because if we’re at all-time market highs and inflation may come, then, then what does that do to stocks? Is it, does it overinflate them and drive them even higher? Or does it create a potential, you know, precipice for another crash?
Speaker 2 (12:55):
Yeah, I, I, you know, I think it could do a multiple, a multitude of different things, right? There’s just too many variables to say, if we get this a little bit inflation, this is going to happen. Cause you just, uh, there’s 2000 variables or 5,000 or a hundred thousand that are affecting the stock prices and whatnot. So I think, I think a better way to think about that is we have a potential inflationary environment, uh, upon ourselves. What do you want to own? You know, I think owning a bunch of long-term treasury debt, or really long-term corporate debt, high quality corporate debt, or high quality treasuries, those those are going to get hurt. And here’s how it works because this is interesting. I had a conversation with a really a smart client the other day, and we were talking about just how bonds work and interest rates work.
Speaker 2 (13:41):
And it’s interesting that that’s kind of a complex thought process unless you’ve gone through it a couple of hundred times. So here’s, here’s, here’s one time for you anyway, right? If we buy a bond today, that’s a 20 year bond and buy a bond means you’ve lent your money to somebody. If we buy a bond today, a 20 year bond and it’s paying us two and a half percent, okay, we got two and a half percent for 20 years. At the end of 20 years, we get our principal back. If in three years from now, the 20 year bond is now paying four and a half percent. Well you’re two and a half percent 20 year bond with 18 years left is not very attractive because somebody could go get twice the rate of return on the same duration, right at the same 20 year bonds.
Speaker 2 (14:23):
So yours is not that attractive. Therefore the price of yours will go down and I’ll be at, you’re guaranteed to get your money back at maturity that’s 18 years. Um, so, and, and in the meantime, you’re sitting there watching your neighbor earn 4% while you’re earning 2%, that’s the risk to buying a longer term bonds in a potential inflationary environment. And we’ve been in a 40 or 50 year bull for bonds, interest rates have been coming down. So those bonds that you owned a while ago with higher interest rates versus new interest rates at lower were very attractive. So bonds have been doing great for a long, long time. You gotta be very, very careful as you, as you buy bonds in your portfolio, what type of bonds you’re putting in your portfolio? Does that make sense?
Speaker 3 (15:13):
Yeah, and I think, I think also it’s probably worth mentioning the differences between buying individual bonds versus using ETFs, right. Or even mutual funds, but for different types of bonds, like maybe we should think that’d be worth, worth, you know, explaining a little bit more because we don’t use individual bonds in our, in our strategies and our behave. Right? Yeah.
Speaker 2 (15:33):
Yeah. We haven’t, because we, we think we can get exposures, um, in better ways by either using bond managers who have access to debt bonds that we otherwise wouldn’t be able to get, or just by buying broad market, uh, exposure to bonds. Um, I really think that, um, you can get better diversification and have a better portfolio by doing that. We, we think that across everything, right? I mean, financial detox is about avoiding great behavioral blunders were so many people have had the, um, the misfortune of having a, a blunder that had to do with us stock. Right. And, and, and everybody knows somebody who lost a bunch of money in the stock market, but typically if you really, if you unpack that it has to do with one stock or two stones that they got decimated on, or one bond that went bankrupt. Right.
Speaker 2 (16:24):
So by having diversification, you almost eliminate, uh, almost key word. You almost eliminate the possibility of total loss or long-term permanent loss because you’re so diversified. So that that’s a big deal. But, um, I think, you know, there’s no question that if we have a government that’s printing money, like there is no limit to it just unequivocably going for it, right? Print, print, print, print, print. And if we have a reduction of energy production in our country, I mean, to me, those two things alone, um, could, could really set us up for some inflationary environment. So you want to do something to protect your portfolio. We recommend you give us a call, the financial detox team at intelligence driven advisors. It’s Jason Lieberman, Alex, Klingensmith talking about inflation and what to do if inflation arrives or in the anticipation of inflation coming, what to do with your portfolio and how to protect your money.
Speaker 2 (17:22):
Um, you know, inflation, Alex is an interesting concept because I think that, um, it’s often misconstrued or just people think of it in one general term, but it really is a complex topic. Uh, when you talk about inflation, that is the price of things going up or the value of your money going down precipitously, right? So if you’re, if your money, if we’re holding the dollar today and a dollar becomes worth 97 cents, and then a month later, it’s worth 91 cents and a month later, uh, you know, that’s inflationary. So the decreasing value of currency, but also inflationary is when the price of goods that you need to live your life. Um, continue to go up at a rate that is, you know, just, uh, above and beyond normal increases. So if you see home prices going up 25% a year, or if you see gas prices going up 25% in a year, or food going up, and maybe it’s 25, maybe it’s 40, maybe it’s 50, maybe it’s a hundred. I don’t know what the number is, but that also is inflationary. And maybe a combination of the two would be the worst thing, right. Then the money that you’re the value of your money is going down. But yet the value, the cost of goods is going up pretty scary situation, especially for those people who live through the late seventies and early eighties and experienced that. Right? Yeah.
Speaker 3 (18:39):
Yeah. I think, I think people like to take action when they feel like there’s action that needs to be taken. And this is one of the biggest reasons why we, we as investors make so many mistakes. Right. And when I say we, I say that very broadly. I mean, even, even we’ve, you know, we could make mistakes, but fortunately we have checks and balances and evidence and, you know, the Dalbar studies or the investor behavior that to keep us in check. But so investors like to take action. They like to say, okay, well, you know, inflation is coming, inflation is coming. You know, the sky is falling from the ticket little thing I should buy gold or, you know, commodities or, you know, tips or whatever. But I think the best way to combat inflation is to do exactly what we do in any environment is to reassess your entire comprehensive financial plan, identify a target rate of return based on your personal situation, and then align your investment strategy to accomplish that with the best probability of success. And then come back to that every three to six months. Cause then you’ll, you’ll go beat inflation.
Speaker 2 (19:35):
Yeah. Yeah. Yeah. And I think another thing that we’ve talked a lot about too, particularly with higher net worth investors and people who have enough enough assets to do it is to think about being diversified into truly alternative asset classes, right? So if you own private companies, not just public companies, private debt, not just public debt, a floating rate debt and short-term debt, whether private and or public there’s different things you can absolutely do. And Alex, I think one of the coolest things we have is our Aladdin system, which is, it’s not ours. It’s, it’s, it’s proprietary to BlackRock, but we do have access to use it. And it’s a phenomenal risk analysis tool amongst some other tools that we have that allow us to take a portfolio and run an inflation test against that portfolio. And everybody shouldn’t be doing this right now, right? You should be taking your portfolio, running an inflation scenario against it and determining what the outcome is going to be. If we have one or two or three or 5% inflation, because you want to know, and if, you know, in advance, you can make some changes and you can prepare without sacrificing a good portfolio today. I think you can build things into it, uh, into your existing investment portfolio that will help you, um, uh, have probably a better portfolio overall.
Speaker 3 (21:01):
Absolutely, absolutely. And that’s why people listening to this show should, should reach out to start a conversation with us. Right. We can help you get started on understanding where you currently sit with your, what your assets and your financial plan do any changes need to be made. Um, are you prepared for it or are you invested the right way? Are you in too much cash? Or these are some of the biggest questions I think you should be asking yourself, right? Yeah.
Speaker 2 (21:22):
Yeah. So it was interesting. I was trying to look at like just different definitions of, and, and scouring the internet because I’ve so many, we have so many clients and people who say I read this the other day. And so prior to our show, I spent, I don’t know, a little bit of time going through just the internet saying is inflation coming, what should I own? Because of inflation to try and get a feel for what the general public is looking at and thinking about. And, Oh my gosh, you couldn’t get more different opinions, right? I mean, you it’s coming, but it’s only going to last a week. It’s not coming at all. It’s never coming. In fact, we have deflation and then you have people saying, it’s coming in, your money’s going to be worth nothing. And you got to buy all, bake them.
Speaker 2 (22:03):
I mean, it’s crazy, which makes me think of the real purpose of financial detox, right? Th th the core of what we’re doing you now don’t go hopefully to a broker for information. Instead, you go to an advisor, a fiduciary, one who’s legally bound to act in your best interest. You go to them to help you sift through all of the massive amounts of information that can totally, and will almost certainly disrupt, uh, an attempted investment philosophy or a good plan of investing, because there’s so much information, so many different ideas and thoughts, pulling all different ways of which a lot of it is just meant to sell newsletters and meant to sell articles and meant to, you know, get eyeballs on pages for ads and clicks. So you got to realize if you’re getting a bunch of free information on the internet, and you’re not sure what the product is, the product is you you’re being sold, clicks eyeballs on pages with captivating, um, extreme sensationalized information.
Speaker 2 (23:07):
So be careful. And that’s what financial detox is about. We want to be here to be a source with, um, lots of years of experience, as fiduciary is guiding you to help make, uh, help helping good investment decisions, not make behavioral blunders and sit through the massive amounts of information that’s out there today. So you can protect yourself whether there’s inflation or not. You could use the help of a professional probably. And if not, maybe just a conversation points you in the right direction. We’re here to do that for you. And I’m Jason labrum, your host of financial detox with Alex. Klingensmith where the financial detox firstname.lastname@example.org and as always, thank you so much for tuning in we’ll catch you next week
Speaker 1 (23:50):
To learn more about financial detox and to get access to today’s show notes, transcript, and resources, visit financial detox.com. Call Jason and the team at intelligence driven advisors. If you’re ready for financial detox and a better tomorrow, call (877) 707-8889. Get answers to your questions. That’s (877) 707-8889. That’s financial detox.com for podcasts and information. And if you like what you’ve heard, be sure to hit the subscribe button that way you’ll be notified about upcoming podcasts. You’ll take one more step toward financial peace of mind. This content is provided for informational purposes only, and should not be considered investment advice or recommendations to buy or sell any types of securities. Mr. Labrum and intelligence driven advisors are not responsible for the consequences of any decisions or actions taken as a result of information provided in this program and do not warrant or guarantee the accuracy or completeness of information provided information discussed today, reflects the views of Mr.
Speaker 1 (24:54):
Labrum and his guests. As of the date of the show and are subject to change without notice past performance is no guarantee of future results. Any forward looking statements or forecasts are based on assumptions and actual results may vary from any such statements or forecasts. No reliance should be placed on any statements or forecasts when making an investment decision. Accordingly listeners should not rely solely on information provided today in making any investment decisions. There’s a risk of loss of investing in securities, including the risk of loss of principle. Different types of investments involve varying degrees of risk. And there can be no assurance that any specific investment will be profitable or suitable for particular investors by natural situation or risk tolerance, asset allocation and portfolio diversification cannot assure or guarantee better performance. It can not eliminate the risk of investment losses.