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So, You’re Financially Secure. Now What?

Dr. James Grubman, Financially Secure

With Dr. James Grubman, Wealth Counselor, Author of Strangers in Paradise: How Families Adapt to Wealth Across Generations

Dr. James Grubman is an internationally-recognized consultant, speaker, and educator in the field of family wealth psychology. His book, Strangers in Paradise: How Families Adapt to Wealth Across Generations, is a look inside the singular interplay of culture and wealth.

The book helps financially secure individuals share their wealth with loved ones.

Defining “Wealthy”

Being wealthy in the U.S. means a few different things.  For one, there are self-made high-earning professionals or very successful business people with assets of $10 million or more.  This puts them in the Top 1% of all Americans.  Others marry into wealth, inherit it, or have a windfall through a lottery.

Immigrant Journeys From Scarcity To Wealth

In his book, Jim lays special emphasis on immigrants’ journeys from scarcity in their native countries, to building up wealth and becoming financially secure in the U.S.  An estimated 75% of wealthy Americans were born and raised in scarce circumstances and built up wealth in their lifetimes.  These journeys involve socio-economic and cultural shifts.

For example, immigrants raised in poor communist or socialist countries faced very different socio-economic environments relative to America.  Immigrant transitions often reflect a change from doing what’s necessary to survive to having the opportunity to thrive.

Reactions To Change

When faced with socio-economic change, people react in different ways.

Many immigrants want to hang on to their old worlds and recreate them in the U.S.  For instance, an immigrant from Greece might continue to eat Greek food, speak the language at home, and surround himself with fellow Greek immigrants.  They avoid openly embracing the cultures and traditions of the U.S.

Immigrants also worry about their children losing core values from the old country.  These values include hard work, an emphasis on savings, respect for the elderly, social modesty, etc.  They recognize that their children are growing up in a very different environment and aren’t always sure on how best to raise them.

Rushing To Assimilate

Jim Grubman points to the other type of immigrant who quickly wants to put the old country behind him.  These quick adapters lose themselves in the new world.  They often become very materialistic and rapidly leave behind their middle-class grounding and good values.

Jim Grubman believes these early adapters are as short-sighted as those taking an avoidance approach.

Middle Of The Road Works Best

He advocates a middle-of-the-road approach with acceptance of the new society and a retention of old-world values.  These values include risk tolerance and the ability to persevere under difficult circumstances.

Affluent Parenting Is Not Easy

In his book, Strangers in Paradise: How Families Adapt to Wealth Across Generations, Jim Grubman notes that parenting gets more difficult as you become rich.

To succeed and raise well-behaved children, affluent parents must inculcate strong values in future generations.

The path to good parenting starts with understanding oneself and being a role model.  Parents can use everyday decisions to guide their children on how to value things and do what’s necessary to grow wealth.

Marrying Into Wealth

Similarly, when someone marries into wealth from a lower economic background, they need guidance on how to adapt to wealth.  Such marriages are sometimes viewed with a jaundiced eye because the incoming member hasn’t really worked for that wealth.  This can cause problems.

Instead, Jim recommends welcoming the in-law with appropriate safeguards, educating them on the family’s journey from lesser means to wealth, and emphasizing their core values.  The goal is to create respect for wealth and recognition of its value.  This way, newcomers do not waste wealth but safeguard it and look for ways to grow it.

Having wealth comes with a responsibility to future generations, whose lifestyle will be vastly different from the one before. Families who are educated in this regard will be more successful in holding on to the legacy and to the true riches that having money can make possible.


Disclosure: The opinions expressed are those of the interviewee and not necessarily United Capital.  Interviewee is not a representative of United Capital. Investing involves risk and investors should carefully consider their own investment objectives and never rely on any single chart, graph or marketing piece to make decisions.  Content provided is intended for informational purposes only, is not a recommendation to buy or sell any securities, and should not be considered tax, legal, investment advice. Please contact your tax, legal, financial professional with questions about your specific needs and circumstances.  The information contained herein was obtained from sources believed to be reliable, however their accuracy and completeness cannot be guaranteed. All data are driven from publicly available information and has not been independently verified by United Capital.

Read The Entire Transcript Here

Steve Pomeranz:  Sometimes an idea comes along that takes the things you already know, organizes them in a brilliant way, which then gives you a new perspective and wisdom about the world around you.  For me, one such book is, Strangers in Paradise: How Families Adapt to Wealth Across Generations and was written by my next guest Dr. James Grubman.  Hey, Jim.  Welcome to the show.

Dr. James Grubman: Glad to be here.

Steve Pomeranz: Before we get started we’re going to talk about people who have accumulated some wealth.  I’d like to get an idea of what that means.  What does it mean to be a wealthy person?  Or in the vernacular a rich person?

Dr. James Grubman: I think it means a couple of different things.  One is there are those people who become very successful and, either as high earning professionals or very successful business people, develop a level of assets that put them in the 1% which is, in America, having about $10 million or above.  Certainly, there are people that have quite a bit more than that.  For some people, even coming from a difficult background, being able to get to $1 million or $5 million is quite affluent.

Steve Pomeranz: Yeah. That’s quite an accomplishment.

Dr. James Grubman: Others marry into wealth or have a windfall through the lottery.  Basically, somebody who significantly rises above the economic level of how they were raised.

Steve Pomeranz: One thing that I really like about your book is that you describe this in terms of an immigrant’s journey.  This journey, let’s say, from scarcity to wealth—however you define it.  Take us through this idea that it is an immigrant’s journey.

Dr. James Grubman: Steve, multiple surveys over many decades in the US actually indicate that 75-80% of those with wealth were born and raised in more scarce adverse circumstances.  The ranks of the wealthy really consist of people streaming in in various ways.  Only a few are really born in those circumstances.  About a decade ago my colleague, Dr. Dennis Jaffey and I realized that wealth is, in a sense, a land of immigrants.  In terms of being raised in one economic culture, but now they’re living in another, much better economic culture.

Steve Pomeranz: So you can then continue this analogy to say you have the pioneers, you have the people who marry into the pioneer families, and we’ll get into some of the other aspects of the people who have made this change.  But instead of it being a change in geographic location—which is how we normally think of an immigrant—it’s a change in social movement and also in an ability to do the things you want to do versus doing the things you have to do just to survive.  You use an example of the Greek immigrant or any immigrant from a country who comes over, and many immigrants have certain patterns in the way they act.  Tell us about that.

Dr. James Grubman: Sure.  The core issue is culture.  We often think of money related to class, but the underlying element that I address is, think of economic status as a culture.  If you’re born and raised in middle-class culture or even working-class culture, living with affluence is a very different culture.  Not unlike somebody who is born and raised in Greece with all the cultural elements of that.  What they experience when they move to America and have to adapt to living in a very different culture.

Steve Pomeranz: How do some of them actually react to that?  Give us the range of the ways people deal with these changes.

Dr. James Grubman: Well, what’s interesting is cross-cultural psychology guides the way for us on this.  We know that there are people who try to handle the blend of their heritage culture compared to the new circumstances by pretty much avoiding making any adjustment.  Continuing our example here, it would be like the Greeks who come to America, but they continue to maintain the home with all the trappings of what it looks like back in the old country: eat Greek food, speak the language.  They really don’t make much adjustment to the new circumstances.  Those are the avoiders.  There are people who become wealthy who actually take much of the same approach.

They consider themselves to be middle class, now and forever.  Their identity is middle class.  They actually see acting like the rich as very toxic.

Steve Pomeranz: Yeah. What about the other concern of an immigrant worrying about their children now in a new country; let’s say it’s America, adapting all of the different aspects of the culture, both positive and negative.  They see perhaps these children are losing these core values that were developed in the old country.  Do those who immigrate to wealth look at their children and have the same concerns?

Dr. James Grubman: Absolutely.  That was one of the core insights that Dennis and I had.  Those people who become wealthy have, in a sense, the same dilemma of the immigrant parent, which is how do I raise my child and then our grandchildren in a culture that I did not grow up in?  That’s what I, as a wealth psychologist, have heard over and over again with the families that I have dealt with.  They recognize their children are growing up in an environment very different from what they grew up in, and they are bewildered on how best to do it so their kids turn out well.

Steve Pomeranz: So you have the immigrant, as you mentioned, that holds back, that avoids the new culture.  Then you have the immigrant that jumps in with both feet and wants to put the old country behind them.  What would be an analogy with regards to that type of immigrant to the immigrant who has obtained wealth?

Dr. James Grubman: Interestingly, that’s what general society, movies, and TV tend to portray about what happens when people become rich.  They provide the stereotype we all know of.  Kind of like from Wall Street, the movie, or something like that, The Great Gatsby.  People lose themselves and become very materialistic, and rapidly leave behind their grounding and the good values, which actually are part of middle-class life.  In a sense, those are people who are so quick to assimilate into the new culture that they leave behind all vestiges of where they came from.  That’s as short-sighted as taking an avoidance approach.

Steve Pomeranz: So kind of a middle of the road approach where there’s acceptance to the new society plus a foot back in the old society to keep those old values is important.  What kind of characteristics …  Here’s what I’ve often thought this idea that you have of an immigrant with just the clothes on his or her back and poor as church mice.  Let’s say this is in the early 20th century, and they get on a boat and they come to America.  We all know that picture of them coming in and seeing the Statue of Liberty.  All they really have is the hope of a better life.  I think sometimes what kind of people were these to take these kinds of risks?  Discuss that a little bit.

Dr. James Grubman: You put your finger on something that, again, is really intriguing from the research of cross-cultural psychology and the research on what we know about entrepreneurs.  In a sense, those people who set out to become much more successful from often some pretty adverse circumstances.  I can think of one client I knew, in particular, a patriarch and a very successful family business, who grew up in poverty.  He actually has many of the characteristics that we identify, like with those people who make it to Ellis Island, and came to America and did well—a capacity to understand and tolerate risk, the ability to persevere under difficult circumstances.  Often they’re very strong-minded and strong-willed, which unfortunately later can sometimes backfire in trying to run the family.  There actually are many similarities between immigrants who set out, who come to a new land more successfully, and entrepreneurs.

Steve Pomeranz: My guest is Dr. James Grubman.  The book is, Strangers in Paradise: How Families Adapt to Wealth Across Generations.  Jim, when a person arrives at this place of wealth, there’s no welcome wagon.  There’s no literature or way for them to figure out what to do now, how to act, and how to rethink their status in this new country.  Is that right?

Dr. James Grubman: That’s very true.  Yes.

Steve Pomeranz: Tell us how this manifests itself with the person who’s got some newly attained wealth.

Dr. James Grubman: This is where we often hear, and the real reasoning behind the proverb, “Shirt sleeves to shirt sleeves in three generations”.

Steve Pomeranz: Yeah.

Dr. James Grubman: Which is that people are so focused on making the money and getting the demand of wealth that they are not really prepared necessarily, once they get there.  In particular, the issue of adapting parenting.  There are very real differences that need to occur because of the complexity of having wealth.  Being affluent, actually, people often think it makes parenting easier, but as Malcolm Gladwell quoted me in his recent book, David and Goliath, one of the things that parents often discover is that there are many complicated questions that arise in raising what you might think of as the natives in the land of wealth, the second and third generation.

Steve Pomeranz: Let’s talk about that for a minute.  As I was growing up and I would see affluent families, a child graduates from high school and gets a BMW, not anything that was particularly earned, but here’s a gift.  Around me in my own cultural neighborhood, so to speak, nobody got that type of thing.  It really felt like that type of person was being spoiled, but give us some context on that.

Dr. James Grubman: That’s a great example.  What I have found and sometimes what I do in counseling families is it’s not just about the BMW at age 18.  For many of the kids, it’s the fact that they have no responsibility for it, no skills for it, and no preparation for managing that asset.  I have actually seen it work out very well, including where kids sometimes get a good car, but the ones who are prepared by their parents during the teenage years to understand how to work towards contributing, what the insurance costs,  how to pay for upkeep, how to manage the loan.  Ironically, those 18-year olds who have a BMW do perfectly fine with it, but it’s because they have been prepared with skills, not just given it as an entitlement.

Steve Pomeranz: Really, the issue, as I see it is, first the parents really have to understand their own immigrant journey in order for them to get the perspective on their own lives.  Once you have that then you can turn around, and you can share that perspective with your children and make sure that you make the right decisions to guide them properly. But if you don’t understand your own situation and the challenges you face and their context,  how are you ever going to figure out the healthiest way to relay this to your children?

Dr. James Grubman: That’s exactly it.  You have to understand yourself and have some self-knowledge in order to know what to do for the subsequent generations.  We have to remember, every in-law who marries into a wealthy family from middle-class life, they are immigrants, too.  They need to be shown the ropes.  They need to learn what to do because it affects parenting as well.

Steve Pomeranz: Isn’t there some type of resistance at times from the pioneer immigrant family bringing in an in-law or someone from the outside thinking that somehow, “They haven’t really earned this money like we have.” What do you find in reality to be the case?

Dr. James Grubman: Ironically, I sometimes say, “In a land of wealth, there’s border patrol as well.” The original family is weary of new immigrants coming in, sometimes forgetting their own immigrant status originally forming a family.  Those families that are able to be welcoming and help educate the in-laws that come in, and to do it in an educated way, in a welcoming way, with appropriate safeguards, actually find that the relationships go much better in married life and the kids then benefit from that.

Steve Pomeranz: You’ve said it before, that these in-laws are also risk takers which is one of the characteristics of the so-called pioneers.  They have the ability to take risks, and they’ve developed skills, including the emotional skills in order to cope with their new life, and you’re saying that the in-law in some ways also shares these characteristics.

Dr. James Grubman: Some of them do.  Some of them legitimately don’t.  They’re marrying in and they haven’t developed those skills, but the stresses between, in a sense, a native of wealth marrying an in-law immigrant out of middle-class life.  Those are very significant stresses.  I can think of one recent set of clients I have where at age 28, a young man was asking me to help him and his soon-to-be bride who comes out of middle-class life to work with them around doing what you mentioned in the beginning, on becoming bi-cultural, being able to blend the two cultures, work out the differences, and then create consistent parenting, so that the marriage works out, and the kids turn out well.

Steve Pomeranz: This is important stuff.  The book is Strangers in Paradise: How Families Adapt to Wealth Across Generations.  The book is available, I suppose at Amazon and other outlets alike.  Is that correct?

Dr. James Grubman: Yes.  On Amazon in paperback and in Kindle version.

Steve Pomeranz: Okay.  More information can be found at the website JamesGrubman.com.  Jim thank you so much for sharing your time.  Great book.  Appreciate it.

Dr. James Grubman: Thank you.  Thank you for having me.

Last Minute Retirement Planning

5The Best Way To Save For Retirement

The best way to save for retirement is to diligently sock away dollars starting with your very first paycheck. Too bad it doesn’t always work out that way. On the road to a comfy retirement, many folks hit detours. Job loss, divorce, illness, disability — there are myriad of reasons why distant goals like retirement are often put on hold. Whatever the reason, many people are just now waking up to the fact that they are under-funded for retirement. Some 44% of Americans age 55 and older have saved less than $100,000. Only 13% have saved $250,000 or more. If you’re fifty-something and under-funded, it’s time to take bold action. First, start with your company’s 401k plan. It’s the first, best place to get your savings mojo started.

4Being Underfunded

If you’re fifty-something and you have not saved enough for retirement that is called being underfunded. If you find yourself in this situation, it’s time to take bold action. You must improve your savings strategy fast — and perhaps adjust your expectations, as this is last minute retirement planning. But don’t worry. With determination, your retirement can still be comfortable. Here are some tips. Tip 1. Start saving more. Conventional wisdom holds that most folks should save at least 10% of their annual gross income. But those facing an underfunded retirement should try to save more than that. Uncle Sam lets workers age 50 and older save more than younger employees. They’re called catch-up contributions in an IRA or 401k. This is a very good place to start.

3Postponing Your Retirement

If you’re fifty-something and you have not saved enough for retirement, postponing your retirement — even by a few years — can have a huge effect. Not only is each year an additional year to save — it’s also one less year you have to live off of your retirement stash. Many people retire until they’re physically unable to work any longer — which very well might be in their 70s or 80s. But that doesn’t mean they’ll continue to work at the same job that they toiled in during their prime breadwinning years. Many young retirees take part-time work, often working as a consultant in an industry they know well, or maybe even working in a low-stress service job.

2Moving During Retirement

A lot of folks are reluctant to move during retirement. But for those on a tight budget, it can have an enormous impact on their quality of life. People say they don’t want to leave their friends and family. But unless they want to move in with them, they might not have much of a choice. This is particularly true for those people who have significant equity in their homes — and little savings elsewhere. While people who choose to relocate may talk about the lure of the palm trees and warmer climates, cold, hard economics is the most common reason why retirees choose to relocate. And yes, relocating, can even jump start your retirement savings. So think about it wisely.

1Adjusting Your Contribution Levels

In 2004, the maximum contribution for an IRA is $3,000 for the general population and $3,500 for those ages 50 and older. In 2005, the maximum jumps to $4,000 for the general population, while those 50 and older can contribute $4,500. With 401(k)s, the maximum contribution limit in 2004 is $13,000 for most workers; for those ages 50 and older by year-end, the figure is $16,000. Think it’s too late to make amends for a low savings rate in 2004? Not at all. Many plans allow you to adjust your contribution levels on a daily basis, which means you may still have time to ratchet up the contribution made with your final 2004 paycheck.

 

India – Slumdog Millionaire or Great Investment Opportunity?

Henry To

With Henry To, Chief Investment Officer and Head of Research at CB Capital Partners

While everyone talks about China and Europe on the topic of international investments, few talk about India – the largest and most entrepreneurial countries in the world. Henry just got back from a trip to India and shares his views on the investment climate in that country. A recent change in government – in the world’s largest democracy – has led to a spate of industry-friendly reforms, and technology and infrastructure investments.

India’s middle class is rising fast and driving demand for houses, appliances, energy, financial services, healthcare and consumer goods and services. India imports about 3.7 million barrels of oil per day – the third largest oil importer in the world – so the near 50% drop in oil prices has sizably boosted India’s investment budget for things other than oil.

So – with positive changes afoot, Henry sees a key market index doubling over the next five years and shares his recommendations on how to participate in India’s growth potential and what sectors to focus on.

5 Great Books For The Serious Investor

5 Great Books For The Serious Investor
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11 One Up On Wall Street by Peter Lynch

Peter Lynch ran Fidelity’s Magellan Fund from 1977 to 1990, beating the S&P 500 in all but two of those years. He averaged annual returns of 29%. It means that $1 grew to more than $27. In other words, if you invested as little as $37,000 with him in 1977, you were a millionaire in 1990.

Buy Now On Amazon
1. One Up On Wall Street by Peter Lynch

22 Against The Gods by Peter L Bernstein

If you ever wanted to how our modern economic system ticks, this is the book for you. I was fortunate enough to interview Mr. Bernstein shortly before his death in 2009. Always the gentleman, he was actively engaged, funny and quite brilliant. His interview stands as one of our most cherished.

Buy Now On Amazon
2. Against The Gods by Peter L Bernstein

33 The Warren Buffet Way by Robert C Hagstrom

This was one of my very first introductions to the thinking behind the genius of Warren Buffett. Bob Hagstrom provides the step-by-step method into Buffett’s value investing style for the novice and expert alike. A great first book on the subject for the serious investor.

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3. The Warren Buffet Way by Robert C Hagstrom

44 Extraordinary Popular Delusions and the Madness of Crowds by Charles Mackay

This seminal work studies the psychology of crowds and mass mania throughout history, including accounts of classic scams, grand-scale madness and deceptions. Some of these include the Mississippi scheme that swept France in 1720 and the South Sea Bubble that ruined thousands in England at the same time.

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4. Extraordinary Popular Delusions and the Madness of Crow...

55 The Intelligent Investor by Benjamin Graham

This is the book that started it all. Ben Graham was Buffett’s professor at Columbia University and it changed the way Buffett saw the world forever. Graham’s precise approach to valuation and understanding of the conservative and enterprising investor has stood the test of time and Jason Zweig’s additional commentary helps the uninitiated along the way.

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5. The Intelligent Investor by Benjamin Graham
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Episode 977

Steve Pomeranz, Market Call, COVID-19

Steve’s Market Commentary

My Last Commentary To You All

How To Handle Investments In A Low-Yield Environment

With Christine Benz, Personal Finance Editor at Morningstar.com and author of The Morningstar Guide to Mutual Funds: Five Star Strategies for Success

 

Steve Turns The Tables As Terry Interviews Him!!!

With Terry Story, a 31-year veteran with Keller Williams located in Boca Raton, FL

Steve Turns The Tables As Terry Interviews Him!!!

With Terry Story, a 31-year veteran with Keller Williams located in Boca Raton, FL

The Subtle Art Of Manipulation: Mad Men Style

With Josh Weltman, Co-producer of Mad Men and Author of Seducing Strangers: How to Get People to Buy What You’re Selling

Steve Turns The Tables As Terry Interviews Him!!!

Terry Story, Real Estate, Steve Pomeranz

With Terry Story, a 31-year veteran with Keller Williams located in Boca Raton, FL

For their final show together, Steve and Terry Story interviewed each other, sharing some of their personal lives with listeners.

They began the conversation by recounting a funny story about how they first met. After being introduced by a mutual friend, they discovered that they were actually working in the same building, just two floors apart.

How Did Terry Get Into Real Estate?

Terry told listeners that she first got into the real estate business 31 long years ago when she and her husband relocated to Boca Raton from Miami. Although she came from a real estate family, at the time she was working with Norwegian Cruise Lines in the travel industry,. Terry noted, ”I’m grateful not to be in the cruise line business right now.”

Since she had gotten her real estate license while in college, her father encouraged her to give the business a try when she moved to Boca Raton. Terry said, “I jumped in with both feet, fell in love with it, and I did really well. I was ‘Rookie of the Year’ my first year.” That was an amazing feat, given the fact that she didn’t know a single person in Boca Raton when she started out.

Terry mentioned one characteristic of her professional career that she and Steve share. She said, “Starting young really gives you an advantage because when you start in a real estate career, you have to have money in the bank in order to spend the money to do the proper marketing of yourself and get established.”

Steve immediately replied that it was the same in his business as a financial advisor. He said, “In my business, too, it takes at least two years to build up enough of a clientele to even make a living, so starting young is definitely good.”

From Coldwell Banker To Keller Williams

Terry’s been mentioned so many times on the show as being with Keller Williams Realty that it may seem like she’s been there forever, but, in fact, she spent her first 29 years in the business at Coldwell Banker and only the last three with Keller Williams. When Steve asked her about the difference between the two firms, Terry explained her preference for Keller Williams. “The main difference is that it’s almost like an employee-employer relationship when you’re with a company like Coldwell Banker. When you’re with Keller Williams, it’s more of a partnership. We have profit sharing, which is a huge difference—50% of our office profit is shared among the agents.”

Terry’s Personal Life

Steve asked Terry to share some of her personal life. She related that she has two daughters, both in their early twenties. One daughter followed her into the real estate business where she is flourishing and her other daughter is a nurse. Both Terry and her husband are native Floridians—he from Fort Lauderdale and she from Miami. Like many Florida families, much of what they do for fun revolves around the water—boating, fishing, diving, sailing, water skiing. According to Terry, “Our weekend passion is taking the boat out.”

Finally Learning Some Things About Steve

When it was time for Terry to ask Steve some questions, the first thing she noted was that he’s never really talked about himself on the show. She asked him why that is. Steve explained, “Well, the show has really never been about me. It’s always been focused on the listener. It was never meant to be a vanity project or a vehicle to talk about myself. We have enough of that around us today already. I just really wanted to help people, to stick with the facts, and to get a chance to meet more people and learn more.”

Steve’s natural curiosity has been a driving force behind the show, as he’s always had a thirst for knowledge. He shared with Terry: “I love to learn about the world. I travel a lot, and I love to read. I get a lot of pleasure in the pursuit of knowledge. I’ve always been like that, and my tastes are very eclectic. I think that shows up in the show. I’ll have someone on the show talking about how the Erie Canal was built or how the Transatlantic Cable was laid, and then next I’ll have John Bogle on, talking about index funds—and, of course, you, Terry, sharing all the different interesting things about buying or selling a home.”

He added, “Then there’s my band, The Steve Pomeranz Band, which is also very eclectic. We play jazz, country, pop, classic rock, just about every genre.”

Music And Financial Planning

Music has always been a big part of Steve’s life, a real passion for him, and he’s seen over the years that there are similarities between playing music and his professional career as a financial advisor. He said, “I’ve realized that music and investing have a lot of similarities, in the sense that when you’re dealing with music, you’re using abstract thinking—it’s all in your mind. Well, when you think about investing, that’s an abstract concept as well. It’s about ideas and how to synthesize them. Music is very much the same kind of thing.”

Steve’s Journey In The Financial Services Industry

Steve then, at Terry’s prompting, shared some of his personal journey in the financial services industry. He decided to leave his early career as a musician back when he was married with a growing family. He started out with no previous experience and not much knowledge about the financial world, working at a small company that sold municipal bonds. He was so far afield from the music business that some of his friends back then thought he was working as a bail bondsman.

He eventually became a stockbroker. One of the key things that he did differently from most other brokers back in 1988 was to earn the professional designation of CFP, Certified Financial Planner. That move would end up helping to shape the rest of his professional life. Steve explained his motivation for seeking the CFP designation: “The stock brokerage business was all about selling. It wasn’t really about financial planning, but I really wanted to help people with their lives, not just sell them stuff to make commissions. So, I got my CFP designation pretty early, even though I didn’t actually get an opportunity to use it until I got out of the brokerage business and started my own fee-only financial advisory company in 1996.”

The opportunity to do the radio show came along in 2001. Steve recalled, “I had no idea how that was going to go, but as things turned out, it went really well.” Terry asked him why he was ending the show now. Steve explained that he’d actually retired from financial planning in 2019 and that the timing seemed right a year later to wind down the show as well. He then said, “There are more things in heaven and earth, Terry, than running a business. I’m fortunate enough to have enough capital and a bright future in good health to look ahead to, so that’s what I’m doing.”

Steve’s Private Life

That comment naturally turned the conversation to Steve’s private life and what he enjoys doing. He first remarked that 10 years ago he found “the love of his life”—who also happens to be the editor of this radio show—and that the two of them look forward to traveling to Italy and through the rest of their lives together. Like Terry, Steve has two children: “I have a son who’s approaching 40 and a daughter who’s a little over 30, both in the arts. My son is a filmmaker who lives in L.A., and my daughter is a songwriter and singer who lives in Chicago.”

As far as his favorite pastime, Steve confessed, “Music is number one for me. It gives me joy. It gives me a creative outlet. It’s also the kind of art that you never stop learning about. There are so many genres, so many wonderful songwriters and composers and players, and they all inspire me.” Terry chimed in that she’s heard The Steve Pomeranz Band perform and that they’re “very good”—so, watch out, world.

Terry’s final question to Steve was what he thinks the future holds, both for himself personally and for our world. Steve offered a very insightful answer. “First of all, it’s great to get older. You’re wiser. You can create a new world for the rest of your time on this earth. But looking at the bigger picture, I worry a lot about America these days. I think many of us forget that we’re all Americans, not just separate factions. I know politics has always been messy, but it just seems to have turned so mean, and because of that, I really fret for our country.”

In closing, Steve and Terry shared a mutual thought with listeners—“May God bless us all.”

An then, as always, Steve concluded the show by putting the focus on his guest, noting to listeners, “You can connect with Terry through Keller Williams Realty in Boca Raton or online at teamterrystory.com.”

Disclosure: The opinions expressed are those of the interviewee and not necessarily of the radio show. Interviewee is not a representative of the radio show. Investing involves risk and investors should carefully consider their own investment objectives and never rely on any single chart, graph or marketing piece to make decisions. Content provided is intended for informational purposes only, is not a recommendation to buy or sell any securities, and should not be considered tax, legal, investment advice. Please contact your tax, legal, financial professional with questions about your specific needs and circumstances. The information contained herein was obtained from sources believed to be reliable, however their accuracy and completeness cannot be guaranteed. All data are driven from publicly available information and has not been independently verified by the radio show.

Read The Entire Transcript Here

Steve Pomeranz: Well, today, Terry and I record our final interview after 10 years of weekly discussions. I know from personal experience that every time I meet people in the community, they all tell me how much they love her. Of course, they love her. I love her too.

Terry Story: Aww.

Steve Pomeranz: So I thought it’d be a great idea to take this final opportunity to find out a little bit more about Terry’s life, and then in turn, have Terry ask me some questions, so you can learn a little bit more about my life as well. Hey, Terry. Welcome to the program.

Terry Story: Thanks for having me, Steve. This’ll be fun.

Steve Pomeranz: I’ve heard that phrase before. I don’t know where. Okay, so I was trying to remember how we met initially. I know I was doing a mortgage segment for a really long time with Alan Robinson, the mortgage broker. Did we meet through him, or was it from some other way.

Terry Story: Yeah, that’s right. What a memory. Yes, Alan Robinson mentioned my name, and then what was so funny about it, I reached out to you, you reached out to me, and we come to find out that actually you invited me for an interview for the position for this role, and sure enough, I was on the first floor and you were on the third floor of the same building.

Steve Pomeranz: Oh, that’s right. I know.

Terry Story: You’re like, “When are you available?” I’m like, “Well, where’s your office?” And I’m like, “I can be there in five minutes.”

Steve Pomeranz: Yeah, can you come up?

Terry Story: Right, exactly.

Steve Pomeranz: I remember that.

Terry Story: It was awesome. It was great. It was meant to be.

Steve Pomeranz: Yeah. That is funny. That is funny. Yeah, I totally forgot about that. You were with Coldwell Banker at the time.

Terry Story: That’s right.

Steve Pomeranz: Yeah. So when we began your real estate segment, you had been an agent for 21 years, so tell us how you ended up in the business and what did you do beforehand?

Terry Story: Sure. So prior to that, I was in the travel industry. I was a sales rep for Norwegian Cruise Lines. Grateful not to be in the cruise line business right now. I got married, we decided we’re going to move up to the Boca Raton area. I came from Miami, and I had been in a real estate family. My parents were both agents. My dad really was an expert in commercial and land, and he encouraged me to get into real estate. So I had gotten my license while I was in college, and when we moved up to Boca Raton, I didn’t have a job, and my dad said, “Try it.” So I jumped in with both feet, I fell in love with it. I did really well. Rookie of the year first year, and 31 years later, I’m still here.

Steve Pomeranz: Wow. Yeah. So you started from scratch, or did you have some assistance from your parents at that time?

Terry Story: No. When I came up here, I didn’t know a soul. My father, he was a dual … He was in real estate, and he was also a captain for Delta Airlines, so he was working a niche. He was doing lots and warehouse sales, so they just felt that I would be a natural for it and encouraged me to give it a try. At the time, I had a second income from my husband. Starting young really gives you an advantage if you have a way to be able to support yourself, because when you start in a real estate career, you have to have money in the bank in order to spend the money to do the proper marketing of yourself and so on and so forth. So I don’t know that I would have gotten into real estate had I not done it right from the beginning, because I know the challenges that are there today.

Steve Pomeranz: Well, in my business too, it takes at least two years to build up enough clientele to even make a living, so starting young is good because you don’t really have a lot of financial requirements when you’re young.

Terry Story: Well, exactly. No kids, we were renting an apartment, we could live on one salary, so.

Steve Pomeranz: Yeah. So was it easier to get into the real estate business back then than it is today?

Terry Story: It’s just different. Back then, what was easy, we almost had a different type of client base. Back then you had things that we call walk-ins where, the traditional real estate offices, clients would actually walk in or they called the office. We would take those calls and rotate them amongst the agents. Today, it’s a little bit different with the internet. Agents now work really more independent from the brokerage firms, so you really have to almost have your own book of business or a real strong spear of influence to start this business. Where when I came in, I didn’t know a soul in Boca Raton. I just answered the phones. We called it floor time.

Steve Pomeranz: Yeah, the brokerage industry had that too. Matter of fact, back in the early 80s, when I started Merrill Lynch had come out with the CMA account, which was a money market. It was the first time that people could have savings outside of a bank, and the interest was way higher. So they were around the block, so I heard. Of course, I got in too late, unfortunately. Didn’t experience people lining up around the block to open up accounts, but it was the same thing. You were a floor broker.

Terry Story: Yeah, exactly. A lot of similarities.

Steve Pomeranz: So tell us about similarities. Tell us a little bit about your family, your kids. I understand your daughter is in the business now.

Terry Story: Yeah. My daughter’s in the business. She swore up and down she would never get into real estate, because I worked too hard, worked too many hours, and she said, “Never for me.” Here she is, she’s doing extremely well. She works side by side, and she’s got her built her own database of clients and just flourishing. My other daughter’s a nurse. They’re both in their early 20s, actually approaching mid-20s, and they were raised here in Boca Raton. We’ve been here 31 years, and my husband as well. He’s a Florida boy raised in Fort Lauderdale, and I’m originally from Miami.

Steve Pomeranz: So what do you guys like to do for fun? What are your favorite pastimes?

Terry Story: We have a lot of those. Boating, fishing, diving, sailing, skiing, anything outdoors. Hiking. Weekend passion would be to take the boat out.

Steve Pomeranz: Cool. That’s interesting. We don’t really get a chance to talk about our personal lives on air, and I think it’s a good chance for people to really know a little bit about who you are. Now, we talked about earlier before about you working for Coldwell Banker, and then you moved to Keller Williams. I’m always curious. A lot of real estate agencies are very small, like one or two person operations, and some of them are really big. What are the differences between working with, let’s say Coldwell Banker, which is an international firm. My guess is that Keller Williams is more of a domestic firm and bigger, and yet you said you really run your own business. What’s the difference?

Terry Story: So the main difference is Coldwell Banker is an international company. So is Keller Williams. Actually, Keller Williams is the largest real estate company in the world, but the main difference is it’s almost like an employee-employer relationship when you’re with a company like Coldwell Banker. When you’re with Keller Williams, it’s more of a partnership, and the difference being Keller Williams is run and owned by realtors, where Coldwell Banker is more of a true traditional corporate business. We have a lot more flexibility. We have profit share, which is a huge difference. We get to participate in the profits. 50% of our office profits is shared amongst the agents.

Steve Pomeranz: I see. I see.

Terry Story: It’s just a different environment. Both great companies, just different philosophies and models that they follow. I was with Coldwell Banker for 29 years. I’ve been with Keller Williams three years, and grateful for the change that I made and the way that my business has really been growing since then.

Steve Pomeranz: Very cool. So listen, it’s time to turn the tables. It’s time to ask Steve. So why don’t you start? You’re going to be the interviewer, and I’m going to be on the hot seat now. Go.

Terry Story: Yeah. So I’ve noticed all the times that I’ve been spending with you, we never talk about your personal life. Why is that, Steve?

Steve Pomeranz: Because I have no personal life. No, I’m only kidding.

Terry Story: I know you do.

Steve Pomeranz: Well, the show has really never been about me. It’s always been about the listener. It was never, ever, ever a vanity project or a vehicle to air my personal laundry. We have enough of that around us today already. Everybody’s got an opinion. I just really wanted to kind of help people and stick with the facts and get a chance to meet more people, really.

Terry Story: I love it. So tell us a little bit about your family, your number of kids, all that good stuff.

Steve Pomeranz: Well, I have two kids. I think I mentioned it before in one of my commentaries, but I have a son who’s approaching 40 and a daughter who’s a little over 30, and they’re both in the arts. My son is a filmmaker, lives in LA. My daughter is a songwriter and singer, lives in Chicago. So I’ll be helping them for a really long time, but I was married for 30 years, and then 10 years ago, I got out of that relationship. Luckily, I’ve found the love of my life, and she’s the one that we’ll go off into the sunset together forever.

Terry Story: Aww.

Steve Pomeranz: Yeah, that’s where I am. By the way-

Terry Story: A true romantic, and she’s a wonderful woman by the way.

Steve Pomeranz: Oh, thank you. I’ll tell her. Well, actually she edits the show, so she will hear this.

Terry Story: Oh, so she’ll hear it.

Steve Pomeranz: Which, and she reminds me all the time that she’s out of a job now, so if anybody is hiring out there, you should call.

Terry Story: How about some of your favorite pastimes, Steve?

Steve Pomeranz: Well, music is number one for me. It gives me joy. It gives me a creative outlet. It’s also the kind of art that you never stop learning about. There’s so many genres. There’s so many wonderful songwriters and composers and players, and they all inspire me, so I can fulfill my entire life with these new and exciting things concentrating in music. The other thing about my nature is I love to learn about the world. I travel a lot, and I love to read. I’m lucky enough that I get a lot of pleasure in the pursuit of knowledge, and I’ve always been like that. My tastes are very eclectic. I think it shows up in the show.

One show we’ll have someone talking about how the Erie Canal was built or how the Transatlantic Cable, and this is just stuff that interests the heck out of me. Then next I’ll have John Bogle, and we’re talking about index funds, or we’re talking about someone who’s looking at the future and trying to figure out what’s going to go on, so lots of different topics, all kind of generated by me and the ability to get the access to these great guests. Then also my band, The Steve Pomeranz Band, is very eclectic. We play jazz and country and pop and classic rock and so much more, so it’s a great joy to do that.

Terry Story: I’ve had an opportunity to listen and see your band, and they are very good, so look out for his band, guys.

Steve Pomeranz: Thank you.

Terry Story: So I have a question. You’re obviously a musician. How did you get started in the investment business? Those two careers are like oil and water?

Steve Pomeranz: Yeah, it’s interesting. They’re really not. I’ll explain that in a second, but yes, in my 20s I was a musician. I was mostly self-taught, as I am with so many things. I did go to school and study music for a while, but I got married when I was 26, and I had my son, Ryan, two years later, and I looked at the music industry and I didn’t really like what I saw. I didn’t see a path for me towards earning a good enough living to support my growing family. Didn’t know what to do, wasn’t really trained for anything, but I managed to get an interview at a small company that sold municipal bonds, which were very big back then. I didn’t know what they were. My friends thought I was in the bail bond business. That’s what they would say. Like, “No, no, no, no, that’s a different business,” but yeah, that was just a little different.

But anyway, it turned out I had a knack for it, and I realized later that music and investing have a lot of similarities in the sense that when you’re dealing in music, you’re used to abstract thinking. You’re not really thinking about physical things so much. It’s all in your mind, and when you think about investing, it’s an abstract concept as well. There’s nothing really physical to it, but it’s ideas and how to synthesize ideas, and music is very much the same, so I was very lucky. I took to it very, very easily.

Terry Story: Wow, that’s amazing. So, Steve, you achieved your CFP designation, which is certified financial planning, back in 1988. Let me ask you, were there other brokers getting that certification back then?

Steve Pomeranz: Yeah, no. Back in ’88, the stock brokerage business was all about selling. It really wasn’t about financial planning, but I really didn’t like that culture, so I really wanted to really help people with their lives and not just sell them stuff to make commissions and the like. So I got my CFP designation really pretty early, and I didn’t actually get an opportunity to use it until I got out of the brokerage business and started my own company in 1996. Talking about that, there was some pivotal part of my career. First of all, going from music to investments, that was a very important change for me. I joined Chase Manhattan in 1991, and they turned out to be a very good organization, and their goal was to focus on the client, with the idea that the revenues would come next.

Unfortunately or fortunately, Chase Manhattan merged with Chemical in 1996, and everybody went back to the brokerage industry, but I was done with that, so I started my own fee-only advisory company, and that turned out to be a great moment in my life. Then, of course, the radio show in 2001 was a wonderful start. I had no idea how that was going to go, but it went really well. So all of these things came, the CFP and these events that happened in my life, to get me where I was today.

Terry Story: Well, you’re a true trailblazer. So now I’ve got to ask a sensitive question. Why are you deciding or did decide to retire from this business and end the radio show?

Steve Pomeranz: Well, there are more things in heaven and earth, Terry, than running a business. So I had enough capital and a bright future in good health to look ahead to, so the show, I retired last year on June 30th of 2019. The show went on for another year, but it was time to hang that up too.

Terry Story: Yep. Yep. Well, all good things have to come to an end, right?

Steve Pomeranz: They do, and 19 years is plenty, especially in the radio business. There’s a lot of radio stations that went out of business, and then someone else picked us up, and then we went commercial and NPR for a while. That didn’t really work, and just trial and error. That’s life.

Terry Story: Sure. Sure. So I know nobody can tell us how the world is going to turn out, but in your small little world, what do you think the future holds?

Steve Pomeranz: Well, that’s a great question. First of all, it’s great to get older. You’re wiser. You can create a new world for the rest of your time on this earth. The bad thing about getting older is you’re older.

Terry Story: You’re getting older, exactly.

Steve Pomeranz: You’re getting older. There’s not as much time. Your days are more numbered, so to speak, but looking at the bigger picture, I worry a lot about America these days. I think many of us forget that we’re all Americans, not just separate factions. I know politics has always been messy, and that’s the American way. It’s always seemed to work out, but it just seems to have turned so mean, and I really fret for our country. So we are out of time, so one last time I want to say, I’ve been talking to Terry Story, a 31-year veteran with Keller Williams located in Boca Raton, And she can be found at terrystory.com. Terry, thanks for all these years and thanks for being here.

Terry Story: Steve, thanks for having me. It’s been wonderful. Thanks for having me, Steve, and may God bless us all.

Steve Pomeranz: May God bless us all, right. One more time, I want to hear that catchphrase that you created. Go.

Terry Story: Thanks for having me, Steve.

Steve Pomeranz: Perfect. Thanks, Terry.

How To Handle Investments In A Low-Yield Environment

Christine Benz, Handle Investments, Low Yield

With Christine Benz, Personal Finance Editor at Morningstar.com and author of The Morningstar Guide to Mutual Funds: Five Star Strategies for Success

Steve spoke with Christine Benz, Personal Finance Editor at Morningstar and the author of “Morningstar’s 30-Minute Money Solutions: A Step-by-Step Guide to Managing Your Finances” and the “Morningstar Guide to Mutual Funds: Five Star Strategies for Success”, to get some insights for retirees on how to handle the current low-yield environment.

The Bucket Strategy

Steve started off their conversation by asking Christine straight out how, in such a low-yield environment, people expecting to live off their yield income can manage to get by. He laid out the current situation on yields, saying, “The 10-year Treasury is around 0.6., 0.7%. Short-term CDs are in the 1% range, maybe 2%. So, that probably means, after taxes, losing money to inflation.” Christine replied that “It’s been an ongoing challenge over the past several decades where we’ve had yields on safe investments go lower and lower and lower. That’s left income-oriented retirees with the option of either subsisting on less or gravitating to higher risk, higher income-producing securities. I think that there are other ways to think about building cash flow in retirement that don’t involve exclusively income distribution.”

Steve then asked her to explain what she calls “the bucket strategy.” Christine credits Coral Gables financial planner Harold Evensky as a strong influence in developing the strategy which she explained to listeners: “The basic idea is that you’re kind of structuring your portfolio as a series of buckets. In bucket one, you’ve got cash—CDs, money market accounts, what you have in your checking account, etc. The idea is to have in there two years’ worth of expected withdrawals that you can subsist on when your portfolio isn’t kicking off enough income to meet your living expenses.” She went on to explain bucket two: “Once you’ve developed bucket one, then you’re kind of stepping out on the risk spectrum. With bucket two, you’ve got a portfolio of high quality short and intermediate-term bonds. You’re taking more risks, but you’re potentially picking up a little higher income. The goal is to build yourself a runway with buckets one and two of roughly 10 years’ worth of portfolio withdrawals in safe investments.”

To combat the current extremely low-yield situation, Christine further suggested, “I think you can potentially add some corporate bonds into the mix to potentially pick up a slightly higher yield. You might also think about adding some dividend producing equities.”

Seek Professional Advice

Steve remarked about how much the yield environment has changed over the years. “When I started in the business in 1981, the yields on fixed income were considerably higher than the dividend yields on stocks. But in recent history, that has turned around 180 degrees. We now see a higher yield on the average stock, let’s say 2%+, than we do on US Treasuries and on some corporate bonds as well.” He asked Christine if people can manage to keep up with inflation with a 10-year runway composed mostly of bonds paying less than 2%.

Her advice was to get professional advice, explaining that each individual’s personal financial situation and needs are different. “It’s very personal – run the numbers and see how your retirement portfolio sustainability looks. It may be that 10 years’ worth of cash flows in very safe securities is too much, that you need to step out on the risk spectrum a little bit more. I would definitely get some advice from a financial professional because it’s such an important question.”

Steve concurred, saying, “The idea of having some help here, it’s vitally important. I always say investing is simple, but it is not easy. There are a lot of different variables, different probabilities that you need to take into account. There are a lot of different products out there, some of them great, some not so great, and you really need a guide to navigate that jungle. While I understand the do-it-yourself idea, I think that someone who’s on your side and who does it every single day and has the research to do that is someone that you should seek out. I want to stress that for my listeners—don’t be afraid to get some help and pay some money to get some help. It’s money well spent.”

Social Security—Take it Early or Delay?

Before letting Christine go, Steve asked for her opinion on how people should handle Social Security, as far as electing to take it early or delaying. Christine had, in fact, recently investigated that very subject and found that, as she reported, “In the vast majority of situations, delaying does make sense because of that enlarged benefit you get from delaying. It’s an 8% benefits pick up for every year that you’re able to delay past your full retirement age up until age 70. That’s a big number, and remember that it’s also guaranteed.” But she again stressed that it’s an individual decision and recommended that people review their personal situation with a financial advisor. She added, “There is a free tool called Open Social Security, where you can run some scenarios based on your own Social Security anticipated benefit.”

You can learn more by reading Christine’s articles at Morningstar.com.

Disclosure: The opinions expressed are those of the interviewee and not necessarily of the radio show. Interviewee is not a representative of the radio show. Investing involves risk and investors should carefully consider their own investment objectives and never rely on any single chart, graph or marketing piece to make decisions. Content provided is intended for informational purposes only, is not a recommendation to buy or sell any securities, and should not be considered tax, legal, investment advice. Please contact your tax, legal, financial professional with questions about your specific needs and circumstances. The information contained herein was obtained from sources believed to be reliable, however their accuracy and completeness cannot be guaranteed. All data are driven from publicly available information and has not been independently verified by the radio show.

Read The Entire Transcript Here

Steve Pomeranz: I’m very happy to welcome back Christine Benz. Christine is Morningstar’s director of personal finance and the author of 30 Minute Money Solutions, and The Morningstar Guide to Mutual Funds. Christine, welcome back to the show. You are my final interview after 19 years, so thanks for coming.

Christine Benz: Well, Steve, it’s been a tremendous run for you. You’re an amazing host.

Steve Pomeranz: Oh, that’s nice. Thank you so much. Let’s get to business here. What I wanted to speak to you about today was this idea that with yields so low, how is it possible to create a livable income stream for those people who are counting on that?

Christine Benz: Right. It’s a big headache for retirees who might’ve thought well, I’ll just subsist on whatever income distributions my portfolio kicks off. It’s been an ongoing challenge over the past several decades where we’ve had yields on safe investments go lower and lower and lower. And that has left income oriented retirees with the option of either subsisting on less, which very few quite logically want to do, or else gravitating to higher risk, higher income producing securities. So I do think that there are other ways to think about building cashflow in retirement that don’t involve exclusively income distribution.

Steve Pomeranz: Yeah. So if you think of it as cashflow, it opens up some other possibilities. One being that you can use the cash in your portfolio to supplement the low yields for a period of time. So take us through what you like to call the bucket strategy.

Christine Benz: Yeah, this is a strategy that’s really a total return strategy at heart, and I always have to credit Harold Evensky, the great financial planner in Coral Gables, Florida for really influencing my thinking on this. But the basic idea is that you’re kind of structuring your portfolio as a series of buckets. So in bucket one, you’ve got cash. So just CDs, money market accounts, what you have in your checking account, cash investments where you’re not taking any risk. And the idea is that you’ve got two years worth of expected portfolio withdrawals and cash, and you can use those to subsist on in a period when things are really volatile or for whatever reason your portfolio isn’t kicking off enough income to meet your living expenses.

Once you’ve developed that bucket one, you’re kind of stepping out on the risk spectrum. So with bucket two, you’ve got a portfolio of mainly high quality short and intermediate term bonds. You’re taking more risks there, but you’re potentially picking up a little higher income and maybe even a little bit of insulation with this portion of the portfolio, and so you’re building yourself a runway with buckets one and two of roughly 10 years worth of portfolio withdrawals in safe investments. And that way, if Armageddon occurs with the equity market, you won’t have to touch your stock portfolio if stocks are in a trough.

Steve Pomeranz: Yeah.

Christine Benz: That’s the basic idea, and it builds you some flexibility around whatever’s going on with yields currently, you know that you have cash set aside to meet income needs.

Steve Pomeranz: The yields are pretty low. So let’s go through those very quickly. I mean, we’re talking the 10 year treasury is around 0.6., 0.7%. Lending money to the US Treasury for 10 years and only getting that kind of return seems almost impossible. Short term CDs are in the 1% range. Maybe you can get up to 2% going out quite a bit longer. So we’re really not talking much, maybe some inflation coverage, but after taxes, probably not. Probably losing money to inflation

Christine Benz: Potentially so, and I think here you can potentially add some corporate bonds into the mix. I don’t think you’d want to be exclusively corporate bonds, but you could potentially pick up a slightly higher yield by adding some corporate bonds. And certainly if you own a good quality intermediate term bond fund, you’ve got a mix of government issued securities with lower yields and better credit qualities, as well as some corporate bonds with potentially better yields. You might also think about adding some dividend producing equities into the mix, where you can pick up some yield, certainly as well as a little bit of capital appreciation potential, dividend growth potential.

Steve Pomeranz: When I started in the business in 1981, the yields on fixed income were considerably higher than the dividend yields on stocks. That was the norm for 25, 35 years, and in recent history, it has turned 180 degrees over. We now see a higher yield on the average stock, let’s say two plus percent, than we do on US Treasuries and some corporate bonds as well. So you have to have stocks in the portfolio, plus the fact that you have the potentiality of higher dividends throughout the years, where when you buy bonds, those interest rates are fixed. So you’ve got to have, but here’s a question for you, Christine. If I have a runway that carries me 10 years, I mean, that’s an awful lot of bonds in my portfolio at a 2% yield. Is that going to be enough to beat inflation, do you think?

Christine Benz: Well, it’s a good question. I think if you do add some dedicated inflation protection to that portion of the portfolio, you’re hedging inflation risk a little bit there as well. One thing I always say with this idea of a 10 year runway of cash flows set aside, it’s a luxury good. So if you’re someone with a retirement plan that is very, very tight, where if you run the numbers and there’s some risk that you’ll have a shortfall later on, it may be that 10 years’ worth of cash flows in very safe securities is too much. That you in fact do need to step out on the risk spectrum a little bit. It’s very personal, but do run the numbers and see how your retirement portfolio sustainability looks.

And this is a great place to get some advice too. It’s too important, when you’re thinking about will I have enough money in retirement, will my portfolio last. I would definitely get some advice here because it’s such an important question, but the reason I arrive at that 10 way runway, is when you look at the facts, if you have a time horizon of 10 years, it’s actually extraordinarily reliable, that 90% of the time, more than 90% of the time, they’re in positive territory if you have a 10 year time horizon. If you shrink that, the probability goes down, and that’s why I get a little nervous about people running with way less of a cash and bond cushion than what we’ve just talked about.

Steve Pomeranz: No, you’ve made an excellent point. You know, this idea of having some help here, it’s vitally important. You know, investing is simple as I always say, but it is not easy. There are a lot of different variables, different probabilities that you need to take into account. There’s a lot of different products out there, some of them not so great, some of them terrific, and you really need a guide to navigate this jungle and take you through it. So while I do understand the do-it-yourself idea, I think that someone who’s on your side and someone who does it every single day and knows how to navigate and has the research to do that is someone that you should seek out. So I want to stress that for my listeners, don’t be afraid to get some help and pay some money to get some help. It’s money well spent.

Christine, I want to ask you, one major source of income for retirees and pending retirees is social security. And I wondered what the current thinking was in terms of whether one should take it early now with the pandemic or whether one should continue to delay, which is generally the way people, the way advisors have been talking for years.

Christine Benz: Yeah, Steve, I recently investigated this issue because I know it’s top of mind for a lot of retirees. You hear this conventional wisdom about well, delaying is something that always makes sense. And the fact is that in the vast majority of situations, especially if you think you have longevity on your side, or you have a spouse who has longevity on his or her side, oftentimes delaying does make sense because of that enlarged benefit you get from delaying. But I think the real pivotal situation right now is some people have had losses in their portfolios and have kind of wondered, well, if I was planning to retire soon, or maybe I’m already retired and had been planning to delay social security, am I better off invading this depressed portfolio than I am delaying?

And so here’s a spot where I think it makes sense to run the numbers, and there are some good tools out there. One I would recommend is a free tool called Open Social Security, where you can run some scenarios based on your own social security anticipated benefit. But I think that people need to remember that it’ll be probably tough to out earn that benefits pick up that you earn by delaying with any investments in the market.

Steve Pomeranz: What-

Christine Benz: Like I sometimes hear from investors… Oh, go ahead.

Steve Pomeranz: Yeah. So how do you measure his yield pickup you’re talking about? What are you talking about?

Christine Benz: Well, so the number that you often hear is that it’s an 8% return or an 8% benefits pick up for every year that you’re able to delay past your full retirement age up until age 70. That’s a big number, and remember that it’s also guaranteed. So you are not able to get close to 8% with other investment types.

Steve Pomeranz: That are guaranteed too.

Christine Benz: Certainly, other guaranteed. Yes. Right, exactly. Stocks, maybe it will deliver that.

Steve Pomeranz: Yeah, maybe.

Christine Benz: Over very long time horizons, but I’m certainly not guaranteed.

Steve Pomeranz: Yeah, so if you’re comparing apples to apples, if I may, if you’re comparing apples to apples, social security income stream is guaranteed. So you say, well, what are other guaranteed options? Well, I just mentioned the 10 year treasury at three quarters of 1%. Well, look, eight versus three quarters of 1%, it’s better to have eight. So delaying could make sense in that case.

Christine Benz: That’s right. That’s right. So I think making the right comparison is really important and being careful about this idea of trying to out earn your way out of a bear market, I think is a risky proposition.

Steve Pomeranz: Well, Christine, we are out of time, and I thank you so much for all the years of coming on the show, especially sometimes at short notice, and I wish you the best of luck, and stay safe during this difficult period.

Christine Benz: Well, Steve, same to you. It’s been my great pleasure talking to you for all these years. You ask great questions and you do great work.

Steve Pomeranz: Thank you, Christine. Okay, we are out. Beautiful. Thank you, Christine. That was beautiful.

Christine Benz: Okay, thank you so much, Steve.

Steve Pomeranz: Appreciate everything.

Christine Benz: Thank you so much.

Steve Pomeranz: Take care of yourself.

Christine Benz: Well, I do as well, and I hope you have a lot of fun in your retirement.

Steve Pomeranz: Thank you so much. Thank you. Take care.

Christine Benz: Okay, thank you. Take care. Okay.

Steve Pomeranz: Bye-bye.

Christine Benz: Bye-bye.

My Last Commentary To You All

Steve Pomeranz

Well, folks, this is our final show, and I want to wrap up my long tenure by sharing some of the most important lessons I have learned over these many years.

First, however, I want to thank everyone currently involved in its production. First, there is Brian Zeikowitz, my engineer. Brian has been with me since 2008 and, poor guy, he’s been listening to every word of the show, every week, to make sure I sound much smarter than I am. As a matter of fact, when we were discussing the show’s end, he reminded me of a story I told which made an impression on him, and it’s one that I had totally forgotten. So I would like to share it with you.

Back in 1987, I had been a stockbroker for six years, working at Merrill Lynch at the time and was still struggling to get on my feet and build a clientele. Of course, you may remember that 1987 turned out to be a very challenging year because of the 25% market crash on October 22nd. This crash was totally unexpected and reminded everyone of the 1929 Stock Market Crash which ushered in the Great Depression. So everyone was scared and shaken. Unfortunately, I was a casualty of bad timing because on October 1st, I had closed on a new, bigger home and my costs had risen dramatically. That year and the few that followed created a tsunami of events for me, a combination of high expenses combined with lower income similar to what is going on with a lot of folks today due to the Covid-19 crisis.

In order to keep everything going, I used my credit cards and any other debt I could muster to stay afloat. And I was not alone. A lot of my fellow brokers in the business were in trouble too and some of them decided to file for bankruptcy the following year. I was tempted. It was easy to do, and I noticed that those who did were still able to get a loan to buy cars and other things and it didn’t seem like it had much in the way of serious consequences.

So, I thought hard about it and finally decided not to do it, though it would have relieved me of much pressure and anxiety. My reasons? First and foremost, I felt I owed this money and it should be paid back. Now I know it’s not possible for everyone to adopt this attitude, but I was still earning a living and slowly building a clientele, and I had hope that this difficult time would eventually improve. I hoped it wouldn’t turn out to be a race to the finish however, so it was pretty nerve-wracking.

Also, I didn’t really know what the true future effects of a bankruptcy would be. There’s a lot of unforeseen consequences that can happen when you make big decisions like that.

So, here’s my point to the story. Eight years later, in 1996, after being so unhappy with the sales culture of the brokerage business, I desperately want to change the way I did business.

Fortunately, an opportunity arose which allowed me to start my own fee-only financial planning and advisory business and create my own culture. However, there was one caveat and guess what that was? In order to head up a firm as an investment advisor, I would not have been allowed had I declared bankruptcy. Wow, I thought, I really missed that bullet!

All that followed, a business that I loved, my great clients, and this radio show, would not have happened had I taken the other course of action.

So, the bottom line is: You never know what the consequences would have been for me had I taken the easier way out.

Okay, before I get into today’s commentary, I want to thank a few people who have been a tremendous help to me. First, my producer, Erica Stimolo. We are a small operation here, and Erica is the chief cook and bottle washer, and I have relied on her common sense to help guide me week after week. Happily, Erica has accepted a new position with my former investment firm and all will be okay. My editor, Carol Malzone, who is also my partner in life, has transported our website and weekly update into the literary light. I’m proud to say we have been using the oxford comma for years now and that, in addition to that upgrade, she has caught every nuance and tone that would make any publisher proud.

And finally, I want to thank you all for your support, especially those who over the years have written me via the website and have become clients and friends. And I also want to mention the kind emails we have received over these past few weeks. Thanks to you all!

Now for my commentary:

As I thought about my final words, it occurred to me that the same themes have consistently reoccurred.

I am going to take them one by one because I think this is a list for getting it right. It’s a recipe for wealth creation and smart financial living. These are not magic bullets but taken together, they can help you achieve the kind of financial security we all seek.

  1. First, know what you can control and what you can’t. It’s the old serenity prayer from AA: Grant me the serenity to accept the things I cannot change, the courage to change the things I can, and the wisdom to know the difference.

So, what is it that we can control and what is it that we can’t?

You can’t control the stock market’ you can’t control interest rates and inflation; you can’t control your job security (to a degree) and especially unexpected events like virus pandemics.

You can control your emotions, how much you save, how much you spend, and your personal cost of living. You can also control the personal and financial decisions that you make.

So, concentrate on that. If you’re spending your days playing the random casino of the stock market, in the long run, you will lose valuable time and money.

  1. When it comes to investing, you should have a knowledgeable partner with you at all times. If it’s a seasoned family member, fine. If you have no one, you should hire a fee-only advisor. I have seen so many do-it-yourselfers blow up again and again. People who think they can outsmart the market by following the “Buy, Buy, Buy” action and the “Sell, Sell, Sell” action of the market. Remember investing is simple but it’s not easy. If Warren Buffett can buy a great company like Heinz and also four major airlines and get snookered, what makes anyone think they can do better?
  1. Also, find someone who will analyze your whole financial life, not just your investments. There are wonderful tools available today to help guide you. An advisor who is a master of these tools can be a tremendous help.
  1. With regards to investments, once again, you can concentrate on expenses and taxes which are definitely under your control. You see, investing in the market indexes around the world will bring you the vast majority of your return over the years. You can increase that return by owning things that charge low fees and don’t spew out capital gains.
  1. Advisors come in many varieties—insurance agents, transactional brokers, annuity salesmen, lawyers, trust officers, and investment advisors. There are good and bad people in all of these, but focusing on the compensation structure is one of the best ways to weed out conflicts of interest. Everyone works to earn a living, just make sure that their compensation aligns with your goals.
  1. Expect difficult periods. Times when things don’t go your way. You may plan to retire on X date, but a pandemic accelerates it or messes everything up. Make sure you have your finances in order, so it doesn’t throw you for a loop. What do I mean? Keep your debt levels modest. Make sure you have an adequate emergency cash fund. Get insured, by this, I mean life insurance and health insurance. Make sure your long-term investments are low-cost and tax-efficient, as I mentioned before. Max out your 401k if you can. These are just some examples of having your house in order.
  1. Stay invested. Don’t let current worry cause you to lose faith in a well-diversified mix of quality assets. If you have thousands of stocks contained in your funds—and if you checked, they are probably thousands of stocks—they are not going to zero, even though it can feel like it sometimes.
  1. CD’s are not safe for your long-term savings. Don’t be fooled. You may feel safe right now, but you will find that you start to run out of money because they won’t keep up with inflation. I have seen this sorry scenario time and time again. After taxes and inflation, you will lose money.
  1. The economy does not go to zero and your stocks won’t either if you’re diversified. Remember that your stocks will go up 20% in a given year, but if they do, remember that higher return is really the cushion for the inevitable bad times. The real rate of return is going to be quite a bit less than 20%.

Well, those are some ideas for keeping you on the right path in the years ahead. As I said, no magic bullets but some good common sense.

And as for me, I’ll concentrate on the words of the beloved Fred Rogers who said, “Often when you think you’re at the end of something, you’re really at the beginning of something else.” And I think that’s definitely going to be true for me.

And as George Bernard Shaw said, “You don’t stop laughing when you grow old, you grow old when you stop laughing.”

Once again, thanks for all the years, and best of luck to all of you—and God Speed.

Investing involves risk and investors should carefully consider their own investment objectives and never rely on any single chart, graph or marketing piece to make decisions. There are no investment strategies that guarantee a profit or protect against loss. Content provided is intended for informational purposes only, is not a recommendation to buy or sell any securities, and should not be considered tax, legal, investment advice. Please contact your tax, legal, financial professional with questions about your specific needs and circumstances. The information contained herein was obtained from sources believed to be reliable, however, their accuracy and completeness cannot be guaranteed. All data are driven from publicly available information and has not been independently verified by the radio show.

The Subtle Art Of Manipulation: Mad Men Style

Mad Men, Art Of Manipulation, Steve Pomeranz

With Josh Weltman, Co-producer of Mad Men and Author of Seducing Strangers: How to Get People to Buy What You’re Selling

Josh Weltman is the co-producer of the incredibly popular and hugely acclaimed Mad Men  TV series and has written an insightful book, Seducing Strangers: How to Get People to Buy What You’re Selling. In this text, he gives us an inside look into how he created the ads we grew to love in Mad Men, and how we can apply his secrets to success in order to get people to buy what we’re selling. Literally.

Technological Revolution

There is no doubt that the technological revolution has changed marketing products forever. In the past, businesses would use words, pictures, stories, and music—advertising, in short—to induce someone somewhere to buy whatever it was they were selling. But that doesn’t necessarily cut it anymore. In today’s social media-centric information economy, everyone appears to be engaged in some form of advertising. Persuasion is no longer the job of just a creative director and a host of media buyers. Today, it is everyone’s job!

Information Economy

People in the current information economy spend all or most of their time and effort trying to get someone somewhere to do something—whether a boss, a boyfriend, a customer, or a committee. This creates a huge amount of noise, and cutting through this is absolutely key to getting your message heard and connecting with the people to whom you wish to sell.

The problem is that most people today don’t feel equipped to craft messages or take action with confidence or coherence. They just aren’t familiar with the principles of persuasion. Furthermore, rapid changes in technological ubiquity and new media have made the job a hell of a lot harder, even for seasoned marketers. People are familiar with the platforms used to sell, but they don’t know what it is about a message that makes them buy into it.

Surprise And Inform

In his interview with Steve, Josh explained that crafting a message that’s both surprising and informative is really the marketer’s craft. Telling the truth is important (as lying is counter-productive) but it is also vital to instill a sense of urgency in your customers. How often have you encountered an offer online, only to be told that it’s about to end? There is a reason for that!

Apple Of Your Eye

Josh cites Apple as a company that does an excellent job of implementing modern marketing techniques, teasing punters by selling the sizzle not the steak and creating a strong brand awareness by differentiating its products from the competition. Josh went on to discuss many of the most important marketing concepts, and how they can be implemented by people from every walk of life.

Seducing Strangers helps all of us conceive more effective, persuasive ideas, and communicate them in a world of changing technology and consumer expectations. It was great having Josh in the studio and benefiting from his massive experience in this field.


Disclosure: The opinions expressed are those of the interviewee and not necessarily of the radio show. Interviewee is not a representative of the radio show. Investing involves risk and investors should carefully consider their own investment objectives and never rely on any single chart, graph or marketing piece to make decisions. Content provided is intended for informational purposes only, is not a recommendation to buy or sell any securities, and should not be considered tax, legal, investment advice. Please contact your tax, legal, financial professional with questions about your specific needs and circumstances. The information contained herein was obtained from sources believed to be reliable, however their accuracy and completeness cannot be guaranteed. All data are driven from publicly available information and has not been independently verified by the radio show.

Read The Entire Transcript Here

Steve Pomeranz: With the start of Mad Men’s new season, Mad Men co-producer Josh Weltman has just published his first book, based on the insights of his 25 years in the advertising business. He’s worked as creative director, co-producer, writer, and artist and has created the ad campaigns for Taco Bell, Doritos, BMW, Microsoft, and Whole Foods, to name a few. Now, Josh has been part of Mad Men since the show’s first season. And he works closely with Matthew Weiner and the show’s writers and producers to help ensure that Mad Men accurately depicts the process of creating ads and servicing clients. He also creates most of the original ads seen on the show. His new book is Seducing Stranger: How to Get People to Buy What You’re Selling, and he joins me now. Welcome to the show, Josh.

Josh Weltman: Hey, thanks for having me.

Steve Pomeranz: So the world of advertising has changed a little in these years that you’ve been practicing. What is different and what has stayed the same?

Josh Weltman: Well, I think the media is the thing that’s changed the most. I mean, the digital revolution and online media is the thing that’s most different. And human nature, what makes people buy things, has probably changed the least. You sort of have those two things clashing together right now.

Steve Pomeranz: Do you think that most people who are really not trained in this area are spending more time on the technology, but they’re forgetting what compels people to buy?

Josh Weltman: I think that’s exactly right. I wrote the book because most people today don’t feel equipped to craft messages or take action with the same confidence and certainty as Mad Men’s Don Draper. And I think it’s two things that confound them. I think, first, that most people are a lot less familiar with the principles of persuasion than they are with the meme. And what I mean by that is, everybody listening knows how to send 140 characters to millions of people around the world. But they don’t really know what makes a message persuade them and what doesn’t.

And the second thing that confounds people is the recent and rapid changes in new digital media technology, doing the job hard for even experts who do understand the principles of persuasion. There’s just so many different platforms and media to choose from, clients and businesses and people are very confused about what’s the best media to do the job.

Steve Pomeranz: The fact too is that there is so much more noise that has to be parsed through or broken through in order to get your message out there. What does one really have to do in order to solve that problem?

Josh Weltman: Well, it’s tough because to break through and to get people to notice you, you have to be surprising. And to come up with a message that’s both surprising and informative is really the art of the advertising and communication business, even the entertainment business. You want people to tune in and not be able to take their eyes off the television show because they’re familiar enough to love the characters and can’t possibly imagine what they’re going to do next.

Steve Pomeranz: Right, the book is Seducing Strangers: How to get People to Buy What You’re Selling. My guest is Josh Weltman. He is the co-producer on the TV show Mad Men, which is just starting this week, actually. So we’ve asked him to join us to talk about his book and the art of advertising. Josh, you’ve mentioned in your book that so many people say to you that advertising is lying, but you take exception to that. Tell us about that.

Josh Weltman: Yeah, it doesn’t really help companies, or products, or brands, in the long-run, to lie. You have to base a successful advertising or persuasive campaign on some human truth, on something inside people that makes them want to buy the product or service. And if you don’t get that right, people listening are just going to call BS right away. So it does not do you, your company, or anybody’s reputation any good to lie. It’s also illegal. I think people get lying confused with sort of puffery, that sort of thing. What you want to do is, you want to set expectations at a level that products and services can meet or exceed. Because I think that’s what makes people happy. When reality meets or exceeds their expectations, you get a happy customer. So better than lying is to adjust the bar to kinda the right level.

Steve Pomeranz: What is the basic motivation for someone who’s trying to get the message out, not the motivation so much, but the message to a potential customer. What do they want that customer to feel?

Josh Weltman: Well, that’s a great question. I think it depends on what business result they’re trying to achieve with the message. I’ve always found that there have been about four of those different business results and four different kinds of ads that kind of inspire them. You either want people to inquire about the ad. You want to increase inquiries or clicks or phone calls or something like that, and that’s usually a new product.

Steve Pomeranz: Curiosity.

Josh Weltman: Or you want to bump sales or traffic immediately, and to do that you have to impart or evoke a sense of urgency. And you do that with the limited time offers, or deals, or things. Most common in what we really think of advertising is when companies are trying to distinguish themselves from other choices that consumers have.

They’re trying to answer that question for customers of what makes them different. And in those ads, you’re trying to make people familiar, familiarize people with the one unique feature that makes your product or service different from anybody else’s in the market. And in the fourth kind of ad, you’re trying to protect margins or increase margins by making people feel like they’re part of an exclusive club. Sort of in partnership with an advertiser or company of which they’re of like mind and shared values.

Steve Pomeranz: So as you’re speaking, some companies come to mind. Some of the more obvious ones, like Starbucks, comes to mind.

Josh Weltman: Sure.

Steve Pomeranz: That’s a club. Apple, of course, comes to mind. Can you take us through very briefly how, let’s say, an Apple is able to achieve these four aspects of good messaging?

Josh Weltman: Oh, my God. Apple’s the best at it. Whenever they come out with a new product, the first thing they do is buy lots of billboards that really make you curious about seeing that product. I just saw a teaser for the watch that is not in stores yet. You can’t buy it, but boy, I took heed of the date. I know exactly when it’s coming out and I can get my hands on it. Because it just looks like something you want to touch, and feel, and experience. So that’s the first thing you want to do is you want to show people enough of the product to make them curious. But not so much that you’ve answered every question because you want them to inquire further about it. And the next thing that you typically do is get them to try it. I remember when, jeez, a long time ago, probably before most of the listeners were born. But the 1984 spot that introduced the computer Macintosh was such a success in the third quarter of the Super Bowl, 1984.

But then, Apple did a brilliant thing, which is they followed that ad up with a limited time offer called test drive a Macintosh, where they made these Macs available for people to take home and try and get their hands on. And as if you were test driving a car, they really wanted people to experience it. So then the third sort of ad in the process is, again, make people familiar with the one most unique thing about it. And the fourth kind of ad makes people celebrate the difference between your customer rather than your product. Talk about what makes your customers unique. You get to that part of the relationship between the consumer and company where the advertising is really saying, enough about me and what I make. Let’s talk about you and why I’m so happy to have you as a customer. Apple with their Think Different campaign, I would say would fall under that category.

Steve Pomeranz: Well, I don’t see Apple offering us free anything these days. I guess they don’t have to, right? Back then they had to, but not these days. Everything-

Josh Weltman: Oh no, that was before they had retail stores that were packed with people who had their hands all over the things right now. They came up with a different way to get people in the store and get their hands on the product.

Steve Pomeranz: The book is Seducing Strangers: How to Get People to Buy What You’re Selling. The author is co-producer for the show Mad Men. He shares his 25 years of insights to the advertising business and also helps Mad Men get it right. Very briefly, what is your actual role at Mad Men?

Josh Weltman: I started out as the first advertising consultant on the first season. I was joined by a second advertising consultant named Bob Levinson the second season. And both Bob and I have been with the show through the completion of season seven. And what we do is we work with the writers and executive producer Matt Weiner to make sure or try and help make sure that the show accurately depicts the process of creating ads and servicing clients. And we come up with business stories that get the characters emotionally where Matt wants to take them.

Steve Pomeranz: I did read that the idea behind Jon Hamm’s character is that he’s so flawed in every other aspect of his life, at least we can trust that he’s going to get the advertising part right.

Josh Weltman: That’s been very important to Matt and the show. I think from the get-go, that Don is good at his job.

Steve Pomeranz: Right.

Josh Weltman: People want to root for him, they’ve seen him be brilliant. They like when he’s succeeding, and it breaks the audience’s heart.

Steve Pomeranz: Yeah.

Josh Weltman: And heart for him when he gets in his own way.

Steve Pomeranz: Going back 2500 years to Aristotle, you bring up a point in your book of something that he developed called the enthymeme, which is a two-part statement, which both confuses then explains. And if I may, let me just read this. Here’s a typical sentence. London has everything a man could possibly want to see or do, but, instead, it can be written and it was written by a great writer. When a man is tired of London, he is tired of life. Explain that to us in an advertising way.

Josh Weltman: Sure, what that’s talking about is the idea that you have to intrigue people and get them curious about hearing your message. And the idea of an enthymeme is, like you said, a two-part statement where if the first part confuses, the second part explains. And if the first part explains, the second part confuses. So you hang on every word to get the whole thing, like the set-up and the punchline of a joke. But one of the things that I noticed doing when I first started advertising is this same idea was being used in modern advertising with a little bit of a twist. What was going on was in print advertising, if the visual confused, then the headline would explain. And if the headline confused, then the visual would explain. And the idea is with those two pieces working together, people would sort of be flipping through a magazine and suddenly there’s this discord. There’s this confusion in front of them. And they had to sorta stick with the headline or concentrate to figure out what was going on. And as soon as they figured it out, they’re sucked in.

Steve Pomeranz: Yeah.

Josh Weltman: You’ve kind of got them. And it was breaking the ads apart into these two-part concepts with the visual and the words and the visual were working together to create one idea. Neither of which, neither the words or the visual could do it completely themselves, was really the creative breakthrough that was going on in the ‘60s when we opened the show of Mad Men. That sort of thinking was just beginning to happen.

Steve Pomeranz: Well, you mention in your book, or you show the ad for Volkswagen.

Josh Weltman: Right.

Steve Pomeranz: Now, again, this is way before many of our listeners would’ve been alive. But a big basically white space on a full page, with a small little Volkswagen in upper left-hand corner. Just take a few seconds to tell us about that.

Josh Weltman: Sure, and what’s funny about that ad is you have to sort of picture the ad in a magazine with tons of ads and tons of images. And you’re flipping through and suddenly you get this big white blank page with a little teeny car in it. And it was confusing to people. They didn’t know what to make of it. Was it a mistake or was it a misprint or something like that?

And then the headline, which was Think Small, explained what they were looking at. Which was, oh, it’s a small car, which was kind of a revolutionary big idea at the time. But it’s still that same principle of confuse people with a picture and explain with the headline that I was trying to illustrate in the book.

Steve Pomeranz: We don’t seem to see enough of that these days. We see lots of bright, flashing, quick moving images. Sometimes I think a little silence could help us all pay a little bit more attention.

Josh Weltman: Well, I think when people get nervous and timelines get shorter, and everybody’s watching the sales of every quarter, people feel that they don’t want to let their customers discover. They don’t want to take anything for granted. And they’re not as willing to sort of play with people and include them and they’re intelligence in the process of getting to know the advertising and being a part of the message.

Steve Pomeranz: Ironically, it’s like going back to the 1800s, where they had every single ad had every single piece of information you ever need to know about a wheelbarrow or a toolbox, right?

Josh Weltman: [LAUGH] Yeah, exactly.

Steve Pomeranz: Unfortunately, Josh, we are out of time, but let me say the book again, this is a fascinating book. Anybody’s who owns a business is interested in marketing and needs to understand the power of advertising and how to use it. The book is Seducing Strangers: How to Get People to Buy What You’re Selling. Thanks for joining us, Josh.

Josh Weltman: Thanks for having me.

Episode 976

Steve Pomeranz, Market Call, COVID-19

Steve’s Market Commentary

What’s Eating Warren Buffett? Part II

Strong Sectors In A Bear Market

With Sam Stovall, Managing Director of US Equity Strategy at CFRA Research; author of The Seven Rules of Wall Street: Crash-Tested Investment Strategies That Beat the Market

 

This May Be The Only Good Thing About Covid
Tax Changes For 2020

With Rocky Mengle, Author and Tax Editor for Kiplinger

How The Real Estate Industry Keeps Changing To Help You

With Terry Story, a 31-year veteran with Keller Williams located in Boca Raton, FL

Steve’s Favorite Interview: Vanguard Innovator, John Bogle

With John C. Bogle, Founder and retired CEO of The Vanguard Group, Author, Investor, and Philanthropist

This May Be The Only Good Thing About Covid Tax Changes For 2020 

Rocky Mengle, COVID, Tax Changes for 2020

With Rocky Mengle, Author and Tax Editor for Kiplinger

This week, Steve spoke with Rocky Mengle, author and tax editor for Kiplinger Personal Finance, about the numerous tax changes stemming from the coronavirus pandemic of 2020. These changes are mostly specific to 2020 and can help you out a lot financially.

Due Dates For Taxes

One of the most important things for tax filers to understand is that the due dates for filing federal taxes have changed. Rocky explained, “Any federal tax due date previously scheduled from April 1st to July 14th has been extended to July 15th. This covers, of course, your income tax and your 1040. It also covers estimated tax payments that would have been due April 15th or June 15th.” Additionally, gift and self-employment taxes, as well as IRA and health savings account contributions for 2019, can be made up until July 15th.

But, let’s say that you’ve already submitted your taxes for 2019. It’s not too late to make a contribution to your IRA, but you will have to file an amended tax return in order to get the credit for the deduction. Rocky added, “And be sure that you tell your IRA custodian that you want that applied to 2019.”

Stimulus Checks

The government’s stimulus checks are designed to help ease the burden many families are feeling in the midst of growing unemployment rates. But what do those checks mean in terms of how you file your taxes? Steve asked Rocky to explain it.

“The money you receive in your stimulus check isn’t taxable; you’re not going to be bumped into a higher tax bracket. In fact, there’s a chance that you might even get a slightly higher tax credit for 2020 because it kind of mirrors the stimulus check calculation. But if your stimulus check isn’t as much as your 2020 tax credit, you’ll get the difference back when you file your return,” Rocky said.

Charitable Donations And Student Loan Payments

With all the craziness and hardship that 2020 has brought, there is some good news in terms of charitable donations and for people who are employed by a company that helps pay off student loans.

Rocky informed listeners, “There’s a new above-the-line tax deduction in terms of charitable donations and you don’t have to itemize. It’s for up to $300 worth of cash donations. This only applies to 2020. On top of that, for people who do itemize, the cap on Schedule A cash donations has been removed. That means you can donate and deduct up to 100% of your adjusted gross income on Schedule A itemized deductions for your 2020 return.” Steve added that this is excellent news for charities that were worried about a drop in donations this year.

The good news doesn’t stop there. Rocky noted that “If you’re lucky enough to have an employer that will pay off some of your student loan, that amount will not be taxable income to you, the worker. It’s capped at $5,250.”

2020 Changes For Retirees

There are some changes this year for retirees as well. Retirees age 72 and over normally have to take required minimum distributions (RMDs) from their retirement accounts. However, the government passed an RMD Waiver for 2020. Rocky said, “You get a break from that this year. For 2020, you don’t have to take any RMDs if you don’t need the money.”

There’s also a great change if you need to take a loan from your 401(k). “There’s usually a cap on how much you can take,” Rocky said. “Instead of only being able to take 50% of the account balance, up until September 23rd of this year, you can take out the full balance.”

And penalties for early withdrawals from retirement accounts have also been relaxed for 2020. The 10% penalty for early withdrawals on retirement accounts is being waived for up to $100,000 of coronavirus-related expenses. Rocky explained, “Normally if you’re not at least 59 ½ years old, then you get hit with the 10% penalty. But not if your withdrawal is $100,000 or less and being used for payments related to issues with COVID-19. These funds can be repaid within three years and it’s just treated as a regular rollover,” Rocky shared.

You can learn more from Rocky and read his articles here at Kiplinger.com.

Disclosure: The opinions expressed are those of the interviewee and not necessarily of the radio show. Interviewee is not a representative of the radio show. Investing involves risk and investors should carefully consider their own investment objectives and never rely on any single chart, graph or marketing piece to make decisions. Content provided is intended for informational purposes only, is not a recommendation to buy or sell any securities, and should not be considered tax, legal, investment advice. Please contact your tax, legal, financial professional with questions about your specific needs and circumstances. The information contained herein was obtained from sources believed to be reliable, however their accuracy and completeness cannot be guaranteed. All data are driven from publicly available information and has not been independently verified by the radio show.

Read The Entire Transcript Here

Steve Pomeranz: My next guest is Rocky Mengle. He is the tax editor for Kiplinger and joins me today to discuss the confusing state of 2020 taxes. Rocky, welcome to the program.

Rocky Mengle: Hi, Steve. Thanks.

Steve Pomeranz: You know, with so much going on, from the issuance of stimulus checks to the implementing of the 2019 tax law, it’s hard to know where to start, but I was thinking maybe we should just start on the due dates. Let’s see what has changed with regards to when stuff is due.

Rocky Mengle: Yeah. A lot of changes there. Everybody thinks that April 15th is tax day, but for 2020 that’s one of the many changes that we’re seeing. So basically, any federal tax due date that was from April 1st to July 14th this year is now extended to July 15th. So that covers, of course, your income tax return, your 1040. It also covers estimated tax payments that would have been due April 15th or June 15th, they’re now, those first two payments, are not due until July 15th. Self-employment taxes, gift taxes, also, IRA contributions for 2019 or contributions to a health savings account for 2019, they were pushed back from April 15th to July 15th as well. So everybody gets an extra three months, basically, to not worry about taxes.

Steve Pomeranz: So my question is what if you already filed your 2019 and you want to make an IRA contribution. Is it too late?

Rocky Mengle: No, it’s not too late. No. You can still do that. Just make sure that you tell your IRA custodian that you want that applied to 2019.

Steve Pomeranz: Okay. Very good. All right. And, but actually, you’ll have to file an amended return in order to get the credit for the deduction?

Rocky Mengle: Yeah. If you’re taking the deduction, yeah. For the IRA, you would have to file an amended return. That’s a good point. Thanks.

Steve Pomeranz: Sure. Okay. Let’s talk about all these rebates that the stimulus checks… Well, they’re not rebates, even though the government thinks of them that way. Let’s call them stimulus checks or the $1,200.00 and so on. How is that being considered?

Rocky Mengle: In terms of taxes?

Steve Pomeranz: Yes.

Rocky Mengle: Well, it’s not taxable income. That’s one good thing. So you’re not going to be bumped up into a high tax bracket or anything like that from the payments. You might even get a little bit more when you file your 2020 return next year because there’s a tax credit for 2020 and it kind of mirrors, in terms of calculation, the stimulus check calculation. But if for whatever reason your stimulus check isn’t as much as your 2020 tax credit, then you’ll get the difference back when you file your return. And sometimes because the stimulus checks, they’re based on either your 2018 or 2019 return in most cases and you can have a change of circumstances, make more or less money or have a child or something like that, that makes a difference in how the stimulus check and the tax credit are calculated. So again, you’re kind of reconciling that when you do your taxes next year and you might get a little bit more back.

Steve Pomeranz: Well, you know, I was talking to somebody who changed businesses in 2018 and really didn’t earn anything for 2018, but he makes a very good living otherwise, and he received a stimulus check, which really surprised me because I wouldn’t think someone in his level of income would receive it, but 2018 was an unusual year. So now when it comes down to reconciling with the 2020, what is going to happen to him?

Rocky Mengle: Yeah. I mean, he’s going to be able to keep that money. The IRS is not going to try to take back any of that money if your stimulus payment is more than what your 2020 credit amount would be. So you get to keep that.

Steve Pomeranz: Okay. All right. Let’s talk about donations to charity because there have been some changes with that.

Rocky Mengle: Yeah. First of all, there’s a new above the line tax deduction. So you don’t have to itemize in order to claim this. And actually, if you do itemize, you can’t claim it. So it’s for up to $300.00 of cash donations. It has to be cash to a charity. So that’ll be on your 2020 return. It’s only for 2020. It doesn’t carry over into any other year. And then for people who do itemize, normally there’s a cap on the amount of cash donations that you can take as a deduction on your Schedule A and it’s capped at 60% of your adjusted gross income. Well, they’re doing away with that cap for 2020. So now you can donate and deduct up to 100% of your AGI on Schedule A itemized deductions for 2020. And again, that’s just for 2020.

Steve Pomeranz: Well, that’s good news for charities. I can tell you that.

Rocky Mengle: Yes.

Steve Pomeranz: Because I know one concern they’ve had is the loss of charitable giving because of the reduction in the benefit for the tax benefit. So that’ll be good news for them.

Rocky Mengle: Yes.

Steve Pomeranz: What about student loan payments by employers? That was a category I really never thought of until I read your article?

Rocky Mengle: Yeah. If you’re lucky enough to have an employer that will pay off some of your student loans, never happened to me, but it happens for some people. That amount will not be taxable income to you, the worker. It is capped at a little over $5,000.00, $5,250.00. So if that’s a perk that’s available through your workplace, then that’s great. They can pay off that much of your student loan and it won’t affect your taxes. Your taxes won’t go up.

Steve Pomeranz: There were some changes with retirees taking their required minimum deductions, otherwise known as the RMD, something called an RMD Waiver. What is that?

Rocky Mengle: Well, basically for 2020, you don’t have to take out money from your IRA or 401K if you don’t want to. Now, those RMDs typically kick in now, after it changed in the law last year when you turn age 72. But again, you get a break from having to do that in 2020. And a lot of people take those distributions anyway because they need the money, but for people who have other sources of income in retirement, that’s always kind of a sore point having to take out that money when they really don’t want to. And so they don’t have to in 2020.

Steve Pomeranz: Okay. And for those who need money from their 401Ks, there’s a very good change in the law right now to enable them to take more as a loan from their 401K.

Rocky Mengle: Right. Normally, there’s restrictions on how much you can take. It’s usually up to $50,000.00 or 50% of the account balance and those figures have been moved up to $100,000.00 or 100% of your account balance. You can take it all out if you want, but that’s up to September 23rd of this year. So again, you can just borrow more from your 401K than you could in previous years.

Steve Pomeranz: That’s going to be an important feature for somebody.

Rocky Mengle: Yeah.

Steve Pomeranz: And finally, the penalty for early withdrawal on your IRA has been changed. How is that?

Rocky Mengle: Yeah. The 10% penalty is waived for up to $100,000.00 of coronavirus related payouts. So normally, you pay that 10% penalty if you take out money from a retirement account if you’re not 59 and a-half-years of age yet. Also, those funds can be repaid within three years and it’s just treated as a regular rollover. So you wouldn’t be taxed on that. And if you don’t do that, then the taxes on the distribution will be spread out over three years. So there’s some good tax breaks there.

Steve Pomeranz: Yes. Some interesting information from my guest, Rocky Mengle, Tax Editor of Kiplinger Magazine. And he can be found online as well, just type in his last name, M-E-N-G-L-E, and you’ll see all of his articles related to tax issues. Rocky, thank you so much for joining me.

Rocky Mengle: You’re welcome. My pleasure.

How The Real Estate Industry Keeps Changing To Help You

Terry Story, New Normal

With Terry Story, a 31-year veteran with Keller Williams located in Boca Raton, FL

During this week’s Real Estate Roundup, Steve spoke with Terry Story, a 31-year veteran at Keller Williams, about how the real estate industry is adjusting to innovatively conduct business during the coronavirus pandemic.

Realtors Getting Innovative

Steve first asked Terry to talk about one big change in the real estate industry—big conference calls between agents all across the country. “We have giant conference calls each week. We try to find out what each agent is hearing and seeing. A lot of agents have started doing webinars to show first-time buyers what their options are or straight-out buyers that we can still get them into the home they want, pandemic or no pandemic.” Terry shared. The most important thing about this innovative approach is that the essential information still gets to the potential client while practicing social distancing.

Terry, herself, decided to get ahead of the game by carefully tracking home sales in Palm Beach County. “As realtors, we’re foot soldiers,” she said. “We know what’s going on in the industry before any reports reflect it. With this information, I can spot a trend before it’s reported as a trend.”

How Buyers Can Help Themselves

Getting innovative during this pandemic is something you can and should do, too, if you’re a prospective home buyer.

Terry explained, “You’re going to have an area in mind. You can get a real sense of the neighborhoods in that area without ever leaving your car. Drive around. Use Google maps to find spots of interest such as restaurants, shops, and schools. Pay attention to things like traffic patterns. Remember that once you move, traffic is going to get heavier once everyone can be out and about freely. And use online databases for neighborhood data and statistics.” Steve added that using Google maps to actually see what a neighborhood looks like can be a big help to someone looking for a new home.

Getting proactive now will help you get a sense of what it would be like to live in different areas. This will help you narrow down what homes are actually of interest to you. Then, once you’ve settled on a neighborhood that meets your needs, call a realtor to get professional advice. They’ll be able to help you find homes that will work for you and set up virtual tours.

To learn more about buying or selling a home, check out Keller Williams.

Disclosure: The opinions expressed are those of the interviewee and not necessarily of the radio show. Interviewee is not a representative of the radio show. Investing involves risk and investors should carefully consider their own investment objectives and never rely on any single chart, graph or marketing piece to make decisions. Content provided is intended for informational purposes only, is not a recommendation to buy or sell any securities, and should not be considered tax, legal, investment advice. Please contact your tax, legal, financial professional with questions about your specific needs and circumstances. The information contained herein was obtained from sources believed to be reliable, however their accuracy and completeness cannot be guaranteed. All data are driven from publicly available information and has not been independently verified by the radio show.

Read The Entire Transcript Here

Steve Pomeranz: It’s time for Real Estate Roundup. This is the time every single week we get together with noted real estate agent Terry Story. Terry is a 31-year veteran with Keller Williams located in Boca Raton, Florida. Welcome back to the show, Terry.

Terry Story: Thanks for having me, Steve.

Steve Pomeranz: I’ll tell you I got to give it to your industry, give kudos to your industry because when the going gets tough, you guys are always thinking of ways, and you’re talking to each other. You’re having these huge conference calls where people are sharing ideas.

Before we really get started, I think you told me that you have 1200 agents on a big conference call and what are they talking about every, well, let’s say this week? What were they talking about?

Terry Story: So every day actually, we get on and say, “Hey, what good is going on? What do you see out there?” And again, it’s from people from literally all over the world and there’s business going on everywhere. We’re hearing about multiple offers. All the agents are adapting and finding ways to make business continue on because you know what? We’re one of the essentials, food, water, and shelter. And so we are deemed essential. People have to have a house, they have to have a roof over their head, be it that they rent a home or they own a home. Either way, they need shelter.

Steve Pomeranz: What are some of the best ideas that you’ve heard in the way that other agents are changing their mode of business?

Terry Story: So a lot of them are just trying to reach out to the widest audience. And a lot of them are starting to do conferences whereby, or webinars invite, first-time home buyers or straight out buyer seminars, telling people, showing them how they can buy a house, how things are different in today’s market than it was six, seven weeks ago. So that seems to be a real popular one. And then another real common one is sellers. Gee, I want to sell my house, but how do I go about doing this? How is it being done? So a lot of agents are putting these webinars together and then they’re promoting them. They’re going out through social media, they’re going out to FaceTime, they’re going Instagram, different methods of communicating that they’re still in business.

Steve Pomeranz: I know you’re putting out a weekly video. Tell us a little bit about that.

Terry Story: Yeah, so basically, as realtors we ‘re foot soldiers if you will. We’re out in the field. We know what’s going on before the reports reflect it. So I am monitoring the activity weekly. How many pending sales have we had this week? How many transactions are taking place? How many new listings? How many closings? And looking for a trend before the trend is even being reported.

Steve Pomeranz: So you’re doing that with yourself or is there someone else you’re doing that with?

Terry Story: I’m just tracking it myself and I’m tracking it, it’s all the sales and all the transactions in Palm Beach County. I’ve actually broken it into Palm Beach County, the city, Boca Raton, the areas that I specialize in. So I’m tracking at different levels just to see what’s happening. And Steve, to give you an example, last week versus this week in Palm Beach County, we saw an increase of 20% of contracts go hard or offers put together and come together.

Steve Pomeranz: Well, you think if everybody’s sheltering in place, you’d wonder why there would be any transactions now at all. Why?

Terry Story: Well, it’s quite simple. People need to move; people have to have homes. And what we saw in the earlier weeks of this COVID, it really was flat dead. Really, really, very little to no activity and it’s been increasing ever since because people are realizing, all right, realtors are out there. They’ve found a way to do business. We’re doing virtual tours, we’re doing, when appropriate, masks, gloves, booties, whatever’s needed, and bringing people into the property. But agents themselves are working differently. Buyers and sellers are having to work differently. The title companies are having to work differently. So we’ve adapted rapidly. And Steve, the interesting thing is this technology has always been here for us. It’s actually, pushed us two years ahead and forcing us all into becoming that tech-savvy agent.

Steve Pomeranz: So how’s that going?

Terry Story: It’s great. I love it.

Steve Pomeranz: But wait a minute, you being tech-savvy, how’s that going?

Terry Story: I’m adapting at a faster… I’ve been thrown into it, let’s just say it the way that it is. Watching a lot of webinars.

Steve Pomeranz: What you described, I think, will be carried across the full spectrum of businesses. This idea of working remote, not having to get in your car and drive here, there, maybe even to an office. I don’t know if this is true, but I have seen some reports where they say that people are more efficient when they’re working at home. For me, I would think that if I had a team, I would want to be face to face with the team. Though not 24/7, I guess.

Terry Story: Right. My team is in my house.

Steve Pomeranz: Yeah. All right, let’s get to some more information here. I love this infographic that was put together. Now, obviously, we’re on the radio, so we can’t use an infographic, but we can describe it. The title is, “How to Test Drive a Neighborhood while Sheltering in Place.” We’ve got about a minute left.

Terry Story: Yep. So basically, check out neighborhood publications and local social media about the area. Take a walk with Google. Go onto Google maps and check it all out to see what’s around. Browse different websites and neighborhood data, explore reviews and local restaurants and cost of living. There are all kinds of statistics that you can find through the city and Chamber of Commerce and investigate schools and educational data. There’s great information on the sites about the different schools. Check safety ratings. Most of the police departments have some form of crime statistics. Understand your daily commute. So how long will it take you to get from point A to point B. Now, here’s the secret. Don’t judge it based on today. If you’re moving, you think it’s only a 30-minute commute and you drive it today and there’s not that much traffic. Realize that there’s going to be a lot more. And then, of course, call a real estate agent. Use a professional that you trust.

Steve Pomeranz: Well, of course.

Terry Story: Yeah. Of course, go ahead. Give us a call.

Steve Pomeranz: The one idea that I like about using Google is that you can kind of see what your neighbor’s house looks like and if you see an old Ford pickup truck in the back or something that might give you a little bit of an idea. Nothing against old Ford pickup trucks, by the way.

My guest as always is Terry Story, a 31-year veteran with Keller Williams located in Boca Raton and she can be found at terrystory.com. Thanks, Terry.

Terry Story: Thanks for having me, Steve.

Strong Sectors In A Bear Market

Sam Stovall, Bear Market, Stock Market

With Sam Stovall, Managing Director of US Equity Strategy at CFRA Research; author of The Seven Rules of Wall Street: Crash-Tested Investment Strategies That Beat the Market

Steve spoke with Sam Stovall, Managing Director of US Equity Strategy at CFRA Research, about the current state of the stock market and whether he thinks the worst is behind us. Sam has been a market analyst for many years, so he’s seen his fair share of both bull and bear markets. Sam is also the author of the book, The Seven Rules of Wall Street: Crash-Tested Investment Strategies That Beat the Market.

Is The Worst Behind Us?

Steve started their conversation by observing that “The economy is still shut down, yet the stock market has rebounded and stabilized to a large degree.” He asked Sam if we’re really seeing a healthy rebound overall or if it’s just the top dozen or so large-cap stocks that have recovered.

Sam replied by saying, “Well, we are seeing a large number of companies that are moving above their 10-week moving average and also climbing above their 200-day moving average. While it does appear as if it’s the largest tech behemoths that are driving the market, I would tend to say that the breadth of the recovery is expanding, which is a positive for the overall market.”

Steve then stated that the market usually precedes a rise or fall in the economy by about seven months and asked Sam if he thinks that’s probably going to be the case again this time. Sam said he thinks the market’s March 23rd low is likely the bottom, noting that we’ve seen an impressive rally of about 30% since then. He thinks there’s less likelihood of a second major sell-off to a double bottom, primarily because of one key factor. “What’s happening today that did not happen in the past, like with the 2008 crash, is the very rapid stimulus response by the Federal Reserve.”

Steve also raised the question of whether the stimulus is really going into the economy or just into the stock market. Sam said that he disagrees with analysts who are saying the stimulus money is just creating liquidity in the market, noting that the largest stock market investors aren’t the people receiving stimulus checks.

He added that he thinks the market is at the point where it’s looking on down the road and considering where we’re likely to be six months to a year from now. Sam’s forecast from CFRA Research is “We expect to see 30% gains for the large caps next year, 40% for mid-caps, and 60% for small-cap stocks.”

Strong Sectors In A Bear Market

Since we’ve reached the month of May, Steve asked Sam about the old market adage, “Sell in May and go away” that has been reflected in the market’s performance since 1990, showing on average that the market has experienced its biggest gains—6.5%—between November and April, while only rising an average of 1.8% between May and October.

Sam offered listeners some deeper insight by adding that in two out of three years since 1990, the sectors of consumer staples and healthcare have significantly outperformed the overall market during that May to October period. He said, “I would rather stick with those defensive sectors where the demand for products and services remains fairly stable.” Steve asked if Sam would include major tech stocks, such as Microsoft and Apple, in that group of defensive stocks. Sam replied that he would include large, stable tech companies, noting that technology has typically been among the three top-performing sectors since 1990, the year that the S&P first started reporting sector-level data.

Steve summed up the conversation: “I think the message here is rotate, don’t retreat. If you’ve been out of the market because of fear, then it may be a good idea to look at getting back in, but play it defensively. The sectors Sam sees as strong, defensive sectors are healthcare, consumer staples, and blue-chip technology stocks. Investing in those sectors offers the added advantages that these are mostly companies whose names you know, that you’re familiar with, and they’re also companies that usually pay decent dividends.”

You can get more in-depth information on Sam Stovall’s view of the markets by visiting CFRAresearch.com.

Disclosure: The opinions expressed are those of the interviewee and not necessarily of the radio show. Interviewee is not a representative of the radio show. Investing involves risk and investors should carefully consider their own investment objectives and never rely on any single chart, graph or marketing piece to make decisions. Content provided is intended for informational purposes only, is not a recommendation to buy or sell any securities, and should not be considered tax, legal, investment advice. Please contact your tax, legal, financial professional with questions about your specific needs and circumstances. The information contained herein was obtained from sources believed to be reliable, however their accuracy and completeness cannot be guaranteed. All data are driven from publicly available information and has not been independently verified by the radio show.

Read The Entire Transcript Here

Steve Pomeranz: I want to welcome Sam Stovall. He’s managing director of U.S. Equity Strategy at CFRA and a respected market technical analyst, he has been for decades. Welcome back to the show, Sam.

Sam Stovall: Good to talk to you, Steve.

Steve Pomeranz: The economy is still shut down and may be opening up cautiously, yet the stock market has rebounded and stabilized to a large degree. So looking at the statistics, is the rising market broad enough … First of all, when we say the market’s rising we’re talking about the S&P, these very broad indexes which are really controlled by, in a sense, a dozen stocks. Is the index itself showing a healthy rebound or is it just kind of the top companies that are doing that?

Sam Stovall: Well, we are seeing a large number of companies that are moving above their 10-week moving average, also slowly climbing above their 200-day moving average. While it does appear as if it’s the largest tech behemoths that are driving the market, I would tend to say that the breadth is looking as if it’s expanding, which is positive in total for the market.

Steve Pomeranz: The market usually precedes a rise or fall in the economy by about seven months, so you’ve written, do you think that it’s doing so this time?

Sam Stovall: I think it is. We are now up, meaning the S&P 500, through last night is higher by 30% from its March 23rd low. This is a very strong rally. Now, nervous Nellies would say, “Yeah, but we traditionally see 20-plus percent rallies in very deep bear markets.” We saw that in ’08, 2000, back in ’73, ’74, as well as ’29 and the late ’30s. So if this does end up being what I call a mega-meltdown bear market, then, yeah, this probably is a head fake.

However, what’s happening today that did not happen in the past is the very rapid stimulative response delivered by the Federal Reserve. They really have been leading the way in terms of monetary stimulus and Congress has grudgingly been able to work together to come out with at least two stimulus packages from a fiscal perspective. So what makes this different is the response by our leadership that could end up providing a very solid floor under that March 23rd low.

Steve Pomeranz: Yeah, there’s a couple of things about that. But I do have a question about that stimulus. The stimulus is made to go right into the economy, and yet some analysts have said that that stimulus goes into the liquidity, which then ends up in the stock market. How do those two work?

Sam Stovall: Well, I would disagree with that. Or disagree by saying that the liquidity just goes into the stock market because most of the people who are heavily invested in the stock market did not get stimulus checks. So, the checks are meant to go to those people who were most likely furloughed or just let go to give them some money that they can then turn around and spend in order to survive in the short term.

I think what is driving the stock market is the stock market’s natural tendency to look across the valley. To look and say, “Yeah, we know that the second quarter of 2020’s GDP is likely to drop by 30%, yet third-quarter should be up by nearly 20%, fourth quarter up by 10%, et cetera.” Yes, even though earnings within the S&P 500 are expected to be off 22% for all of 2020 and down 41% in the second quarter, we expect to see 30% gains for the large caps next year, 40% for mid-caps, and 60% for small caps. So, investors are basically saying, “This is going to be a kitchen sink year, where companies really just unload all of their expenses so they can look even more stellar in 2021.”

Steve Pomeranz: Does that suggest that the low we experienced on March 23rd, that wrenching, really hurtful low that we all saw and felt if we happened to look at our portfolios that day, that that is the bottom perhaps? Not that we shouldn’t necessarily expect, and I’m not saying guarantee, but just in terms of probabilities, a double bottom which everybody really fears. Because we experienced one of those in ’03 and in ’09, these wrenching double bottoms. You think we’re past that?

Sam Stovall: Yes. It does not mean that we don’t get some sort of consolidation of the recent gains, but I don’t think that we will end up going back to the prior low and exceeding that prior low. Sure, we could have some kind of news that causes investors to get nervous once again and elevates the agita, but I believe that because of the fiscal and monetary stimulus that has already been pumped in, that the March 23rd low will likely end up being the low for this bear market.

Steve Pomeranz: Okay. That’s very interesting. Now, there is this old Wall Street adage, “Sell in May and go away.” I never know if whether that was actually something you should ever do, but what about this year?

Sam Stovall: Well, I’m a big believer that you want to rotate, don’t retreat. Meaning, it’s better to stay then sell in May. What you do is, like whitewater rafting, you let the market take you where it traditionally wants to go. And in that May through October period, which since 1990 has been up only 1.8% on average, versus 6.5% in the November through April six-month period. While the market has posted that sub 2% growth rate May through October, the healthcare and consumer staples sectors have gained more than 4.5% on average, so about a 2.5% improvement over the market as a whole. So, on the firsthand, you want to stick with stocks because what if we don’t get a sharp sell-off? What if the March 23rd low was the low for this bear market? Then equities will likely move higher.

But it doesn’t mean that we should ignore this adage altogether. Because going back to 1990, looking at market sell-offs of about 20% or more, the average price change May through October of following those big sell-offs, the market was up about 6%, but consumer staples and healthcare were up more than 9%, with the average of those two sectors beating the market two out of every three years. The same is similar for presidential election years since 1990. That in that May through October period the market has gone down 2.4%, but staples and healthcare had been up an average of 2.5%, beating the market about six out of every 10 years.

Steve Pomeranz: So staples and healthcare, those are defensive stocks or defensive industries, right?

Sam Stovall: That’s correct. Which means that in a bear market they don’t go up, they just lose less than the overall market, and in a rising tide environment, it tends to lift all boats. In this May through October period, which I say tries to trace out the design on Charlie Brown’s shirt, meaning zigzag up and down, up and down, investors say, “You know what? I would rather stick with the defensive sectors where the demand for the products and services remains fairly static, than I am gravitating toward the really cyclical areas that tend to get beaten up.”

Steve Pomeranz:

Well, when you say defensive, are we also talking about these large technology stocks? Would you consider Microsoft or Apple or Google to be defensive?

Sam Stovall: I think some of these technology stocks are defensive. Believe it or not, going back to 1990, looking at the sectors within the S&P 500. And the reason I keep saying 1990 is because that’s when S&P first came out with its sector-level data. Technology has also been a very good performer. Its average price change has been among the top three, so if we were to select three sectors, it would be consumer staples, healthcare, and technology. So, yes, you can look to these larger, more stable tech companies, less the embryonic kind of tech companies that can serve as defensive in nature as well.

Steve Pomeranz: Well, we’re out of time, but I think the message here is rotate, don’t retreat. So if you’ve been out of the market because of fear, it may be a good idea to come back in the market but play it defensively. Which is kind of good because these are company names that you know, you’re familiar with. They usually pay decent dividends. And the statistics are behind you, pandemic not-withstanding.

Sam Stovall, managing director of U.S. Equity Strategy at CFRA. Thank you once again for joining me. Appreciate it.

Sam Stovall: My pleasure, Steve.

What’s Eating Warren Buffett? Part II

Steve Pomeranz, Warren Buffett

For those of you who weren’t around for last week’s announcement, I just want to let you know that after 19 years of weekly shows I have decided to retire because, as the saying goes “I have the two essentials of retirement—much to live on and much to live for.”

Today’s program will be the second of the final three, with our last airing on May 24th. In the meantime, I will be keeping you up to date on the investment world during this crazy time as well as re-playing some of our favorite shows from over the years.

I will be keeping the website active with all the past episodes, so if you want to hear something again or get in touch, you can contact me there. Stevepomeranz.com

Before I get to today’s commentary, there are some people I want to thank.

First is Jerry Carr. Jerry was the station manager at WXEL until his retirement and absolutely the gatekeeper who enabled me to start airing way back in 2001. Without Jerry’s professionalism and foresight, I would not have had the great radio and investment career that I have had.

Assisting him were Wendy and Ross Cooper. The two of them were always encouraging me and always there to help smooth out any rough patches. By the way, after Wendy left WXEL, she worked as my assistant and radio show producer for a number of years, and she did a great job.

My wonderful program director at WXEL, Joanna-Marie Kaye, and my numerous engineers:  Steve Cody, Caroline Breder-Watts, John Zuletta, Rochelle Frederick, and of course, Tissy, one of the sweetest most gracious persons I have ever met. Unfortunately, she passed away at way too young an age.

Needless to say, there were and are a lot of people to whom I owe a great debt.

Now to my commentary….

What’s Eating Warren Buffett: Part 2

Last week I pointed out the unusual behavior of our Oracle from Omaha, in as much as his public statements have been totally out of character. Normally, as I said last week, Buffett’s announcements are full of optimism and dedicated to the proposition that one should always be buying when others are fearful.

But this was not apparent during his hours spent delivering his talk at the Berkshire annual meeting last week nor was it on view during his interview with Andy Serwer from Yahoo Finance.

First and foremost, Buffett’s war chest, which was $125 billion at the end of the year, has not decreased at all. As a matter of fact, it has increased to $137 Billion.

Some of the increase we know about. He spoke at length about his sale of four major airlines and why he considered the purchases to be a mistake. He originally liked the idea that he could purchase about $7-8 billion dollars of airline stocks and earn $1 billion a year in return from earnings and dividends. All of that came to a screeching halt as travel disintegrated to zero, causing the companies to bleed billions of dollars and requiring them to borrow and issue new stock just to stay in the air.

He spent a lot of time talking about the economic history of our country, even to the tune of estimating what America was worth in the 1770s. He then moved on to the America that endured the devastations of the Civil War, the Great Depression, World Wars I & II, and up to the present.

He repeated the idea of the great American tailwind, in which American businesses benefit from our country’s work ethic, innovation, and expertise. This characteristically leads him to admonish us to Never Bet Against America.

But in my opinion, it’s what he didn’t say that was most important. He did not say that even though he believed in this country’s economic future that he was buying that future at today’s prices. Let me repeat that another way. He did not say that all things being normal, now was a time to buy. That even with the bright future from the American tailwind, he did not say you should be using today’s dollars to earn more dollars in the intermediate future. Long-term, definitely, yes, but short to intermediate-term, no.

Not Buying His Own Shares

This explains why he did not repurchase shares of Berkshire Hathaway which is something he loves to do under the right circumstances.

He said that even though there was a short period in March when Berkshire shares were down 30%, he didn’t think the price of Berkshire compared to its value had changed all that much. In other words, the intrinsic value of Berkshire had fallen in line with the price of the shares, so the shares were no more attractive now than they were three or six months ago. And it was stated that there were more interesting opportunities right now other than Berkshire stock.

This is very compelling in my view. Historically, Buffett said, “even though there were three times in his lifetime when Berkshire shares had declined 50%, there wasn’t anything wrong with Berkshire when those three times occurred”. So, if he’s not buying, is he saying that this time there is something wrong?

In no way do I think this is his way of saying that Berkshire is not a good investment. I think he is saying that this time there is an element of uncertainty that can’t be quantified. When you have an economy that stops in its tracks, no one knows what the ultimate short to intermediate-term future will bring.  No one! This just hasn’t happened before in modern times.

You see, It’s the range of possibilities and future outcomes that make it particularly hard to make rational investment decisions right now. And that is what is so confounding.

He said, “We do not know exactly what happens when you voluntarily shut down a substantial portion of your society. This is quite an experiment and we may know the answer to most of the questions reasonably soon, but we may not know the answers to some very important questions for many years. So, he continued, “it still has this enormous range of possibilities. And we run Berkshire that way,” he said. “We run it so that we literally try to think of the worst case of not only just one thing going wrong, but other things going wrong at the same time”.

An example he referred to was his insurance companies which take on big, highly-calculated risks—they insure against hurricanes and earthquakes and the like. He said that not only do they calculate the prospect of the worst possible hurricane in history but they look at the worst type of earthquake happening shortly after. You see, these are probabilities you can measure and therefore price. You can’t do that yet with COVID-19, according to Mr. Buffett.

And finally, he said, “You can’t rule out the possibility, any more than in 1929 you could rule out the possibility that you would be waiting until 1955 to get even. Anything can happen and we want to be prepared for anything, but we also want to do big things.”

So, he says, “I think that the degree to which it’s disturbed the world and changed habits and endangered businesses in the last couple of months indicates that you better not be too sure of yourself about what it’ll do in the next six months or year or whatever.”

Clearly, Buffett’s message was one of uncertainty.

What Does This Mean To All Of Us?

So, what does this mean to all of us? First, it means that no one knows how this thing is going to turn out. No expert, no matter how experienced knows. If the greatest investor of this generation doesn’t know, who else would know? I mention this because a lot of people we listen to and read act like they do know and are very sure of themselves. My advice? Take in the key points in their arguments, but always remember—they really don’t know.

Also, in times of uncertainty, keep a portion of your assets in safe investments, just like Warren. This serves a triple purpose: 1) It protects you from a future dollar being worth less than a current dollar, 2) It gives you money to invest when the smoke starts to clear, and 3) And maybe most important, it may help you get through some of the scary and frustrating times ahead. We don’t know if there will be tough times ahead but having a cushion may help you keep your wits about you when all others are losing theirs.

As I mentioned earlier, I am moving on to other things. My plans for the future are many-fold.  First, you might not know this—ˆ mentioned it last week— but I am also a musician with my own band, The Steve Pomeranz Band, which I invite you to follow on Facebook and Instagram plus at our website, www.stevepomeranzband.com. I plan to travel for long periods once it is safe. Italy is our preferred destination.

I also have a son and daughter who are in the arts as well. My son is a filmmaker in LA and some of his work can be found at RyanPom.com, and my daughter, who goes by the name Waltzer, can be found on Spotify and all the other important music platforms.

Please remember that our last show will be next week, May 24th, and we will keep the website active after that if you want to hear any segments or stay in touch.

Thanks, see you next week.

Investing involves risk and investors should carefully consider their own investment objectives and never rely on any single chart, graph or marketing piece to make decisions. There are no investment strategies that guarantee a profit or protect against loss. Content provided is intended for informational purposes only, is not a recommendation to buy or sell any securities, and should not be considered tax, legal, investment advice. Please contact your tax, legal, financial professional with questions about your specific needs and circumstances. The information contained herein was obtained from sources believed to be reliable, however, their accuracy and completeness cannot be guaranteed. All data are driven from publicly available information and has not been independently verified by the radio show.

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