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Interest Rates are Up, What to do Next?

Financial Detox presents new micro learning series today with an explanation of the Fed and raising of interest rates.  Jason Labrum and Alex Klingensmith with IDA discuss the relationship of the raising Fed rates to the markets and what investors should consider for hedging against inflation.  

Let’s talk about the FED.  Its very clear the our economy is in a “bear market” and these times will determine if you are successful investor or not.  The fed just raised the rate another 75 basis points yet the markets reacted by going up that particular day.   The reason the fed has raised rates is to  control inflation or slow inflation.  The US Economy has been in what is considered a  “easy monetary” policy since early 2000; lower rates, easy to borrow,  and the economy has been stimulated by these actions.  Then throw in COVD where the government flushed the economy with trillions of dollars into the system.  At the same time production of goods and supplies became limited therefore driving the costs of goods and services.  Listen to todays shows to hear what to expect and what investors can do. 

View Transcript of This Weeks Show Here

Speaker 1: (00:00)
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 from maximum impact. Join Jason and co-host 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: (00:39)
Hi, welcome to financial detox. I’m Jason Lero with host co-host co-host Alex man. That’s me. You. Hi, and we have producer Monique in the show today. So we’re really excited to bring you this show. We’ve been a little remiss with financial detox as we have been super busy and we, we slowed this show down, Alex, we went to monthly. That’s just not enough. We just, the demand is overwhelming for content. So we are going to start working more towards shorter micro learning, kind of one hit intense shows. That will be a little shorter, uh, maybe 12, 15 minutes. So we got producer, Monique running the camera today. We wanna talk a little bit about financial detox, just cuz we’re did it come from? Who are we? Yeah. And what is this? What happens? So the financial detox team at intelligence driven advisors, right? We are a wealth management firm that operates in a fiduciary capacity, fully obligated to do what is in our client’s best interest all the time, while disclosing all conflicts of interest and such, but we wanted to touch more people, right?

Speaker 2: (01:38)
And we wrote, I wrote a book in 2018. Oh my gosh, time flies, great book called financial detox. And then we, I went as a guest on a radio show and started talking about investing and stuff. And at the end, the, the show host said, you should, you should actually do a show. And like three weeks later we had a financial detox show, which is funny. I think you’re you’re and I was around then. I remember you. I was like, what are you talking about? What is financial detox? What’s the difference between financial detox and Ida, which is our wealth. And I think your, your idea was you wanted to be able to teach what we do yeah. To the masses, to everybody, anyone can do what we do, but not really. And so that’s, that’s what I think you were trying to accomplish. And so that is the purpose of this show is to talk about and, and you get to know us a little bit.

Speaker 2: (02:22)
Yeah. And how we think through these things, like, like we’re gonna talk today about the fed right. A little bit. Right. And the point is it’s like, look, if you wanna work with us and you want a fiduciary advisor help be great. If not financial detox is our consumer education brand, right? Yes. Consumer advocacy brand to help people truly become financially detoxified because unfortunately the truth is in our education system, we don’t learn a lot about finances growing up. And then the media traditional media that has the talking heads telling you, buy telling you, sell, telling you my money’s on the side, I’m waiting for things to get better. Just a bunch of bad, bad, toxic information out there. So therefore the decisions become toxic and people really hurt themselves financially because they don’t have the right information or because they’re financially not detoxified. So that’s what we’re doing.

Speaker 2: (03:10)
We’re going for it. Let’s talk about the fed lots of action going on. I mean, this is a crazy time in our world, right? Every 3, 4, 5 years, seven years, we have a bear market and we’re in a bear market. And these are the times that determine whether you’re a successful investor or not. We’ve got the fed raising rates today, 75 basis points, which that’ll be our central theme for this show. Yeah. That happened today. 75 basis points just a couple hours ago. Yeah. Right. Raising rates. Why are they raising rates? Why does the fed raise rates? So this is important. Right? I think the answer, uh, in my opinion, was that the fed is trying to control inflation. Yeah. So the fed has only really one trick and they can talk about what they’re gonna do, which scares everybody when they just talk. Yeah. And then when they actually do something and this is gonna be a leading question at a moment here, when they actually do something, they’re, they’re the actions they take are trying to slow inflation so that all of us can afford to continue to live life.

Speaker 2: (04:06)
Right. Cause inflation’s been really, really high this past year or two. Right. Yeah. Which is predicated in our opinion, a lot of this show by the way, and full disclosure is opinion. It’s not necessarily derived from some concrete data. So we are just, we kind of flow with it here and we throw out a lot of opinions and thoughts, but we’ve had easy money or easy monetary policy since really 2000, since the original internet bubble burst. Right. In 2000, it really picked up in 2008 with a great credit crisis. And the great recession, cheap money bar money was really easy. Money fed, lowers rates, lowers rates. They want money to be prevalent and everywhere so that they can stimulate the economy. And all of a sudden we get things back on track. Well, they may have gone way too far. Um, there’s some great arguments.

Speaker 2: (04:52)
We can’t even just blame them though. Cuz when COVID happened, then that another government body decided to throw a bunch of trillions of dollars into the system, which might be part of the problem now. Right? I mean it is right. You just can’t, it’s so fake and so stimulated. Right money. Doesn’t just, I mean they do just print it. I was gonna say, wait minute, we just print it and you print it and you print it and you give to people and give to people and give to people. Eventually there’s so much money. And then when you add C to that, where the production of goods and supplies became limited, right? Cuz there’s less people working. People were staying at home of COVID. They weren’t allowed to work. And so now there’s less supplies, but there’s tons of money chasing not very many supplies. You have an imbalance in the system.

Speaker 2: (05:34)
So therefore the price of goods go up and now we’re faced with real deal inflation home interest rates. Now around 6%, they were at 2.7, five less than 12 months ago, even lo I think even some of my friends locked in, are clients locked in even lower than two seven. I got two seven last February, just crazy. And now it’s double that. Have you ever seen a movie? A beautiful mind? I haven’t. I haven’t seen a long time. I it’s great. Like one of the greatest, greatest movies. Yeah. It’s it’s it’s the guy, the gladiator Russell Crowe. I love and he’s I think he’s Nash, you know, Nash, equilibrium, Nash, economics like that whole, yeah. I was talking earlier today with someone about, about what’s going on with why is inflation happening? The same question, right? Yeah. And amongst our colleagues and I’m like, I think that movie actually my answered the question time to do, I did watch a Disney movie last night against my better judgment though.

Speaker 2: (06:18)
It was recommended by Andrew Graham. I love Disney movie time to me, you know, I’m not a Disney fan, but um, oh gosh. Yeah. But, but the movie was phenomenal. Miracle on ice. About the 1980 hockey team, the 1980 us hockey. What a story? You gotta watch the movie. Did I have a lesson on inflation too? Or is this just a totally unrelated that’s okay. Checking direct connection to our conversation at all. All here’s here’s the question I wanna tee up. Okay. On inflation. And we’re gonna, there’s gonna be a point to this, but so I asked you the same question and the same colleague I was telling I’m like, so the fed raises interest rates, but the market, why not? Right. A decent chunk. The ZDA was up 4% today or something. Yeah. Big move. The Dows two and a half the S and P or maybe the S and P is two and a half.

Speaker 2: (06:58)
The doubt’s one or 2% everything’s up. Yeah. The most that’s been up. And, and what seems like particularly after they raised rates, then it went up Uhhuh. Well, I think what happened is market markets. Don’t like uncertainty. Yep. Right? And so there was some apprehension about, well, what if they surprised and raised it, you know, go up a hundred basis points versus 75 basis points. You know, what, if something else. So I think that once the market realizes, okay, it is what we thought that amount of uncertainty has gone away. So therefore the market rallies up there may have been some other things that, that, that rallied it too. And like when your knees hurting real bad, it’s so bad. You can rarely walk and you’re like, you probably can’t sleep and everything you’re doing is affected negatively, but then you go to the doctor and you’re like, oh, we can fix that.

Speaker 2: (07:38)
You’re like, okay, now I know who that it is at least, but right. Yeah. You know, there’s a path on treatment planning year who does with, I, I think that’s what that’s, what happened today is the uncertainty of maybe a bigger raise or some surprise went away. But the problem is, you know, markets on a day to day basis, it’s just absolutely a waste of time to try and predict or understand why markets are moving on a day to day basis. Great. To gather information and understand what’s going on on a global macroeconomic level, which we do, but, and you should, but changing your portfolio dramatically because of short term movements, one way or another in a market is, is a fools Aaron and will almost always result in probably a not very good outcome. Next question. Yeah. Might seem like a tangent, but it’s not.

Speaker 2: (08:21)
It’s related to inflation related to investors, which is what we’re talking about here. Get to the point. Bonds just dropped so much this year earlier this year. Wow. Terrible. Right. Second worst. Start to bonds. Second, worst six month period for bonds ever in the history of the market. What was number one? I wonder, whoa. Um, I think we were talking about late seventies, early eighties, not even oh 8 0 8. Wasn’t even this bad for no, no. This is the second worst. Start to bonds ever because as interest rates go up, like, look, if I buy a bond and it’s a, uh, 10 year bond and it pays me 2% interest rates go up and I bought that bond last year, interest rates go up a lot, lot. And now a 10 year bond will pay me 4%. Nobody wants my 10 year bond. That’s only paying 2% that I bought last year.

Speaker 2: (09:01)
Therefore the price of it goes down. Good thing about bonds. If you hold it till maturity and the company or the government stays solvent, you will get all your money back and you’ll continue to earn the interest that they promised. You think a bond fund, you don’t have that kind of decision making. Anyway, you’re a bond fund. You don’t have that decision making. So hopefully the bond manager is holding those bonds and tele maturity and managing that process. But that’s what happens when interest rates go up, bonds go down. So super, super tough environment for bonds. I have a hard time imagining how the environment for bonds gets really good in the near future, but still probably an important part to your portfolio to have, regardless of whether it’s terribly attractive right now. And they’ve been terrible, it’s much better to own bonds today than it was six months ago.

Speaker 2: (09:47)
That’s for sure, because most of the damage is probably already done, right? Although interest rates are still not high enough in the bonds to really be an attractive, except for some select classes, which we don’t wanna get. Well, and also the, you talk about short term, long term expectations. The long term expectations are really what we always wanna tell people focus back on anyways. Yeah. And so if the long term expectations of bonds are to be a dampening factor yeah. Within volatility, that’s still true, isn’t it? That is true. And to beat inflation at the same time, which that maybe not true right now. Some bonds maybe. Yeah. But will beat inflation some, but you’re totally right about why do you even own bonds? If we know that stocks over long periods of time, let’s just hypothetically say to eight to 10% return. And we know that bonds do, let’s just say three to five.

Speaker 2: (10:31)
Why would I ever own bonds doing three to 5% return? If I could own stocks between 10? Why, why ever own bonds? The only reason you own bonds in your portfolio is to lessen the volatility, dampen the volatility. As you said, Alex and smooth out the ride. Now also, if you’re in all stocks, the potential downside volatility in a given year is maybe 40 or 50% where in bonds kind of a worst case year is maybe, uh, 10 tend, uh, 15%. So if you’re in a later stage in your life and you’re taking income off of your portfolio and it goes down 40% and you keep taking the same income, you may not recover. That’s another reason why people put bonds as less volatility helps ensure a more sustainable income stream, but you will have a lower rate of return. And some people just aren’t wired for that kind of, uh, emotional instability like that comes with equity.

Speaker 2: (11:22)
The rollercoaster analogy like the, we used talk about one versus magic. I went to magic mountain for, we went to magic mountain as a family over Thanksgiving. Was it all last year, but we only went on one ride and it was the Goliath one, which was no, no, the second one closet, sorry. Goliath was too long of line. Whatever. Get your rollercoaster. We’re four hours. We did one ride and I’m like, but the story is this. It was so scary that cuz you do it twice. The first time you go through and then you go back and do it again. And my wife looked over at me after the first time where they kind of pauses. You’re kind of going up real slow clicking. Cause you have that click noise. Everyone knows that click noise. As you start to go up and then drop screaming at me crying.

Speaker 2: (11:59)
Like we’re terrible parents. We’re the worst parents. No, Grady’s next to me. And she’s like, don’t let our son fly off and die and oh wow. Harper refused to go on it. Oh dear. Cause she saw everyone who got off and, and was like, and they were white. No chance. Ghost laughing at poor mom freaking out. So the reason why I tell the story, Tish pull it together. She is a bond investor. Yeah. um, and we’re Greaty and Avery and I are like, bring it on you don’t let’s go. I trust the way this thing was built. Yeah. That’s that? No one’s died. Yeah. I trust how my portfolios built and similar analogy. I’m okay with the double back flips, but Tish all bonds, no stocks to we’re gonna keep her in bonds. So it was so funny. I want to go, but I wanna go on a Tuesday midweek when it raining.

Speaker 2: (12:40)
So then I can ride all of ’em and I have to wait in line and get the fast pass thing. Yes, it’s totally worth it. Don’t go around Thanksgiving. We didn’t another question we talked about or we received from some clients and, and whatnot. Uh, what are the best hedges against inflation? Yeah, we’ve talked, man. We’ve been asked this question about 452 times this year. It’s a great question though. Best hedges against inflation. Gold can be commodities can be real assets in general. So real estate and also higher returning assets. So equities tend to hedge better against inflation because they have a higher rate of return than bonds do. So I personally like private equity, owning private companies through private equity funds and diversified investment strategies. We call those alternative investments because they’re not stocks or bonds. They’re alternative to traditional stocks and bonds. Also private real estate direct ownership in diversified.

Speaker 2: (13:29)
Private real estate, um, has done phenomenally well this year, even despite bonds and stocks doing terrible, it’s done phenomenally well because if you think about commercial real estate or multi-family or industrial properties, the values are pretty much driven by the rents and those rents. Don’t just because we have inflation those rents don’t go away. Those people don’t just quit renting them. All of a sudden you actually go up. They might probably will. Cuz they’re typically set at automatic increases anyway. So that hedge out that inflation. So real real estate is probably the single best hedge against inflation. I would say, you know what? One of our guys told me when I asked this quote, cause I’m going around today asking everybody. Yeah. I love getting real feedback real time rather than just reading it, which we do both. But private art is the best performing asset class in the past.

Speaker 2: (14:17)
I think it was two years or something. How much private art do we? I don’t have any private art. Yeah. So it’s not my thing. We might need to bring in a private art specialist on our team. And then the segue to another really buzzword this past few years, at least for sure. It’s crypto. So same thing. And I didn’t, I just checked right before the show started today, but for the markets went up fed rays rates market went up. Remember that crypto went up even more, 8%, 9%, whatever. That’s crazy. Yeah. So is crypto here’s a question. Is crypto a good hedge against inflation? Yeah. Who knows? I don’t think anybody knows about crypto and how it’s gonna operate over. It’s just too new. Interesting blockchain technology. Super interesting. Could change the world financially or change the world like the internet change the world.

Speaker 2: (15:05)
But yet does anybody own the internet? You own the internet like bill gates on the internet. Uh, you don’t own it. Like you don’t have shares in the internet. So having shares in crypto, is that gonna be the answer? I don’t know. It’s certainly an interesting asset class and there’s a lot of youthful people who think they’re gonna be multi-billionaires because they bought crypto. I wish them the best lot or all their Bitcoin. Do you see that? No, I didn’t know. This week Tesla, they, you know how they bought a bunch of Bitcoin, like billion plus dollars of they sold. They sold all their Bitcoin. I think they kept, is it dog coin or Deutch coin. Oh yeah. Yeah. How do you say that one money. I think that’s cuz Elon Musk actually started that the producer knows how to the producer doge coin do like, like Deut smart.

Speaker 2: (15:45)
Kind of like do yeah. Dis call it that. Yeah. That’s fine. Regardless. Is it a good hedge? Don’t know. Should you have some of it in your portfolio if you’re young and you want to be speculative with a certain asset class? Maybe. Yeah. Have some of it in there. I, I, I was uh, skiing this winner late in the season and I remember sitting there talking to a guy in the line and he was a young guy who was very confident in himself and he was convinced that he was gonna be a multi, multi multimillionaire because you know, his Bitcoin was going to the moon as he said yeah, with, um, you stop. Yeah. And I said, how much of your portfolios in Bitcoin is a hundred percent? You know, is in crypto. I buy all kinds of cryptocurrencies, man. I diversified in cryptocurrencies. I said, man, good luck.

Speaker 2: (16:25)
There’s the difference between putting a little bit of money to work in something and in an interesting technology versus slinging your whole portfolio. Yeah. For another show, we talk about target rate, return, financial planning, long term expectations for now, we’re trying to keep it point inflation. Here’s one that kind of brings it home. Okay. And this is a really fun one to try and Dodge, but like , how’s our economy really doing right now. What comes next? Yeah. What’s the outlook. As people stay in the industry, like there’s so many outlooks and here, right. What they’re really trying to say is what we thinks, what do we think’s gonna happen? Yeah. I think it’s unpredictable. Unfortunately what’s gonna happen next man. There’s a lot of stuff going on in the world. Everybody knows what those things are. You know how that plays out. I mean, we have probably the weakest leader of our country we’ve ever had in the history of the United States of America.

Speaker 2: (17:08)
It’s really scary. And not saying you should be a Republican or a Democrat or anybody’s right or wrong. There they’re all wrong probably. But is that cuz he thought his by, but the fact of the matter is we have the weakest world leader and we are the leader of the free world and it’s weaker than it’s ever been ever in the there’s never been this kind of embarrassment or weakness. And I don’t, I’m not saying Trump’s right. I’m not saying Biden’s wrong. It’s just weakness. It’s just sad. So that’s gonna affect things like does China decide to move on Taiwan? You know, why did Russia move when they moved? Uh, what happened in Afghanistan? There’s so many things, but there’s always been, when you look back over the history of investing, there has always been countless reasons. If you look at a big chart, it’s like you can’t fit in all the reasons why you should never be invested.

Speaker 2: (17:55)
The bottom line is people are creative, right? We’re resourceful and we’re gonna solve things are gonna get better. The world’s gonna get better. The economy’s gonna continue. People are gonna make companies are gonna make products and services and sell those for a profit. Yep. So if you diversify appropriately and you have a well-balanced portfolio and you don’t act emotionally around the events of today or tomorrow, you’re gonna have successful outcomes, a highly likely chance, a highly probable chance you’re gonna have a successful outcome. So that’s what we can help you do. And I think it goes into last thing. I’ll, I’ll be quiet on this, but you know, it’s just like alternatives. You have to have asset classes. Crypto is an alternative, private, real estate, private debt. You should be looking towards getting broader diversification than historically standard because the historically standard stock and bond portfolio 60 40, unfortunately now proven over the last two recessions, if you look back to the great recession and now bonds are acting like stocks, right?

Speaker 2: (18:53)
Yeah. They’re kind of moving in lockstep with stocks. So what doesn’t move in lockstep with stocks or bonds, what doesn’t correlate, but still has an attractive return characteristic. That’s what you gotta start thinking about in your portfolio. Most importantly is we always say is tie it to a financial plan. If you don’t have a written, documented financial plan and you’re not organized, it’s probably not gonna work out. So you, you gotta start there. I was thinking about philosophy. So we’re working on a, on a course for financial detox to help, uh, do this in person and, and with groups of people and whatnot. But the philosophy thing is so critical when you’re talking about the us and the government and, and how there’s always thought history, challenges that the leader faces and or capitalism faces and, or the parts of the government face mm-hmm or all at the same time, which is what kind of feels like right now that’s what’s happening.

Speaker 2: (19:38)
But I was thinking, I like metaphors, right? So I was thinking of like a metaphor in terms of like how we feel, this is for another show, but a properly diversified portfolio looks, you gotta start with philosophy, like as an investor, what do I believe in otherwise, if you don’t believe in what you’re doing, you shouldn’t even be an investor. Cuz then you’re just gonna be scared and you’re gonna make mistakes and lose lots of money. That’s a good point. I mean like some people don’t believe in the stock market, they don’t believe in it cuz they don’t understand it. Well then you probably should not invest in it because if you do, and then it goes down 25% or 30%, you’re gonna say C, I knew it was bad. I don’t like it. And then you’re gonna sell at the bottom and we’ve seen that happen before.

Speaker 2: (20:12)
Yeah. So if you don’t believe in it or you don’t understand it, you probably shouldn’t do it. No. So start with your why. Yeah. Like figure out what your, why is and then build belief around. Why? So I’m gonna pretend, well, I’m gonna give you my why, for example. Uh, and I didn’t know this until probably, maybe, maybe when I met you, I started to understand it and then maybe like only five or six years ago. And I’ve been an investor for way longer than that, but I just didn’t understand why and what I really believed in. But if I believe that there are these forces, this capitalism forces that actually even this president and or all the government can’t control, that gives me a sense of relief around what I don’t agree what the president’s doing because he can’t do that much to capitalism in my opinion.

Speaker 2: (20:49)
Right, right. He can do it much, much bigger than him. It’s so much bigger than him. Yeah. Or her. And then you think about, okay, well, and then there’s there’s military. There’s also these other government groups I’ll call them that also don’t have to do what the president says necessarily either. And then I compare that to a globally diversified portfolio. Right? It’s the same thing. Companies are creating products and services around the globe in every different that’s right way. It’s a decade looking at that slide yesterday or today building that course, like there was 10 year period where us was actually negative as an investor where everything else was up. It’s like what happened in that decade? That was when you started in the business 2000 to 2009, if you were invested in us equities, you were down 10 years later, S and P 500 was the negative 9% return of globally diversified portfolio was up 60.

Speaker 2: (21:33)
It’s like technology. Everybody wanted tech six months ago before it down the most. And technology had a 17 year period of the NASDAQ from peak till it took 17 years for it to get back to that peak, you were negative for 17 years in technology. So you gotta be smart. You gotta be diversified and you gotta be financially detoxified. So with that I say, we close it out. Thank you for, uh, tuning in to this episode of financial detox, we will try and get you more videos and shows and you can check us out@financialdetox.com. I’m Jason labrum and I’m Alex plan Smith

Speaker 1: (22:07)
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 are ready for financial detox and a better tomorrow, call 8 7 7 7 0 7 88 89. Get answers to your questions. That’s 8 7 7 7 0 7 88 89. That’s financial detox.com for podcast 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 podcast. You’ll take one more step toward financial peace of mind. Mommy

Speaker 3: (22:49)
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 the information provided the information discussed today, reflects the views of Mr. 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 forecast. No reliance should be placed on any statements or forecast when making an investment decision sportingly listeners should not rely solely on information provided today in making any investment decisions. There is a risk of loss of investing insecurities, 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, financial situation or risk tolerance, asset allocation and portfolio diversification cannot assure or guarantee better performance and cannot eliminate the risk of investment losses.

 

 

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