Ep. 171: How to Assess Your Financial Situation for the New Year
[00:00:00] Good day. This is Gabriel Shahin, certified financial planner and president of Falcon Wealth Planning. I'm your host of more knowledge, more wealth here on every weekend, talking about all important topics of personal finance. Our goal is to give you the knowledge you need to increase your wealth. Now to the listener, you can always reach out to.
[00:00:17] Or any one of our colleagues here at Falcon Wealth Planning, our phone number is (855) 963-2526. That's 8 5 5 96 Falcon like the Bird, or visit our website@falconwealthplanning.com. That's falcon wp.com for short. Now, president of Falcon Wealth Planning, we are a fee only, non-commissioned true fiduciary, independent registered investment advisory.
[00:00:44] Now we do manage money as well, but folks, we special. In all important topics of personal finance, really anything that involves a dollar sign. It could be from where you are today, focusing on retirement, tax planning, investments, estate planning, insurance, folks, you name it. Anything that involves a dollar sign we can help.
[00:01:00] And if you want to help relate this show to your specific situation, we are offering a free financial consultant, which offers one to two meetings, one to two. Of our time at no cost to you folks, and we have offices all over. We help people all across the country. Folks give us a call. We would love to help.
[00:01:19] Our phone number is eight five five nine six three twenty five. 26. That's 8 5 5 96 Falcon like the bird, where we can help answer the questions that you have, especially as you're entering into a new year, a new situation, and taking a look at what happened the past few years has been quite volatile. A lot of people have focused on, in, uh, COVID, a lot of people focused on supply.
[00:01:46] A lot of people focus on high interest rates, high inflation folks. The point is, it's always, it's ever changing. It's never changing, never ending, and so you have to be able to adapt and understand what has happened and what will be happening. These are important. Attributes to success is learning from the past.
[00:02:04] Not saying that what happened in the past is guaranteed to happen in the future. No, no, no. But what did happen in 2022 truly has been a textbook year of what normally happens. It's quite simple. When you don't have money in your pocket, what do you do? , you either don't spend or you borrow money. This is basic human financial principles that's happened for thousands of years.
[00:02:29] Economics is no different. A company doesn't do well when nobody wants to buy their product. You see how I, what I'm saying? These are core elements of why finance it is important to understand history. So I did wanna go over just kind of some, a recap of what has happened recently because November, December, excuse me, October, November.
[00:02:49] were fantastic Months in the market, absolutely fantastic. Just those two months alone, this is of 2022, did over 14%. It's since 1950. It is ranks 13th at best two month period in history. Now, when you look at every single one of those periods, Except for, uh, during, uh, the black, uh, we'll call it Monday in 1987.
[00:03:16] Uh, but even then, the next 12 months that only lost 2%, but. . I mean, if you look at the next 12 months, on average, it performs over 25% over the next 12 months. Yet again, not a guarantee, but it's logical. It could only drop so much. The stock market is intelligent. It understands the information that is captured today.
[00:03:36] It takes a count, that ramification of what it will look like, so the effect happens almost instantly. This is why the stock market is by far the leading indicator. This is why in 2008 when the. Crash. The stock market dropped first. The bottom of the, uh, stock market happened in March of 2009. Bottom of real estate market happened in 2011.
[00:03:59] So it takes time and as people are worrying about the on the looming recession, there's two sides to that. Number one. recession typically lasts 13 months. Okay. That's what a normal bear market lasts. Excuse me. So it's important to note on that is that normally it only lasts 13 months because in q4, which was just recently, people do a lot of their traveling and spending at that time.
[00:04:26] So that is typically they don't have a negative gdp. Now there are fears after Q4 of 2022 that Q1 and Q2 will also be re uh, negative gdp. This is of course, important because then you could still define it as a recession. . But of course our government's changing the definition. Well, when unemployment numbers come out and they show that maybe there are more unemployment that was originally reported, maybe then they'll report that we are in a recession, and that is when the market like now will continue to be volatile.
[00:05:00] And so by the time they call the recession folks, let's just say as by the way, our fed chair said Q. to Q3 of next year, they're gonna continue to raise rates. Well, the rates are now prime rate is 7%, right? So you've got treasuries that are looming around 4% in one to two year. So rates have come up. The beauty of that is when you do enter a recession, now the government has something to hold on where if we fall into a recession, what can the government do?
[00:05:27] They can lower rates. So this is why multiple economists are feeling that Q2 to Q3 of 2023 is going to go ahead. B. the peak of probably the recessionary period, and it should be getting better after that. That is a long-winded conversation of why the market that had a terrible 2022 of why 2023 may be looking a lot better, especially yet again when you look at the next 12 months.
[00:05:56] Historically speaking, it does a 25% rate of return. By the way, folks, if you're just joining us, you're listening to Gabriel Shahin, certified Financial Planner and your host of More Knowledge, more Wealth on every weekend, talking about all important topics of personal finance. Our goal is to just go over the economics of how things are going on, and when you take a look at 2022, there has been just through November 30th, 2022, there has been 40.
[00:06:22] plus and minus 2% dates in the market. That's considered extremely volatile. That's more volatile than it was during the Covid crash. In addition to that, that is only in, uh, behind the 2000, uh, eight crisis that we had and during the tech bubble and. in the early two thousands. So if you look at it for a period in time, this is extremely volatile.
[00:06:46] Why is that important? Because historically speaking, when volatility occurs, you do see positive returns in the market. The market is confused because of all the new data that it's receiving. So you have to. Just factor in that the market is trying to reprice itself. So I would be a little shocked if the volatility continued into the, to the same extent, into 2023.
[00:07:10] But the thought is, is just knowing where you stand, of where the markets are. And historically speaking, we are on track. because December was quite volatile. We aren't on track to be the second most volatile time only behind the 2008 financial crisis. Now, when you take a look also of why things are going so bad, you gotta understand with rising interest rates, it's quite simple rising interest rates.
[00:07:34] Tech companies hate that because tech companies typically don't make a lot of money. And so they have to borrow money. Well, it's very easy to borrow money when rates are really low. Well, now rates aren't very low, so it's harder for them to get loans. Private equity companies can't borrow cheaply to give them money.
[00:07:47] Same with hedge funds and even individual investors. You have to be smarter with their money. So this is why growth companies struggle significantly. Tech companies struggle in a rising interest rate environment, and I've talked about this in previous episodes, but this is one side of the coin. People sometimes forget a.
[00:08:06] Stocks, the index, the value index. If you're investing in indexes and you have the s and p 500, God bless you. But the point is, is there's two sides to an index. There's a growth side and a value side, and most people were so attracted to value, they significantly underweight their portfolio. If you take a look at value, value has, by the way, historically outperformed growth since 1926 by well over 4%.
[00:08:30] But if you look just this, In 2022, value Company has outperformed growth company significantly. So much. So the most since 2001, which oh by the way, was the tech crash. It's the.com bubble. So, This is a key indicator. As I said in multiple episodes. This is a key element of how it feels like the.com bubble things were so significantly overpriced.
[00:08:58] It was doomed for this type of correction, which is why a lot of our clients in late 2021, we ended up. Taking our proceeds, being taking money from growth and putting it into value turned out to be a genius move. Now, it was a logical move. We did it for discipline reasons, not market time and reasons, but from an economic point of view, it made all the sense.
[00:09:20] In the world. Now I do wanna focus on bonds a little bit because bonds has had two years of negative returns. 2021, which was a negative 1.2%, and so far year to, uh, in nob through November, it was a negative 12.6% in 2022. Now it's never had, the bond market has never. Ever three years of negative returns in a row.
[00:09:45] That's important to note guys, and here's why. Because everything is effect efficiently priced. So we know rates are gonna continue to go up through Q2 and Q3 of 2023. So we know that that's why the bond market got smashed in 2022 cuz we knew the rates were gonna continue to increase. So historically speaking, when you take a look at what happens in the bond marketing year three average.
[00:10:10] Is over 6%. Now, when you look at the, uh, q uh, the third year, it's only happened really twice, folks, two year losses. When 1957, it went 7.8% and, and this is since 1926, and then in 1960 made 11.8% on year three as rates stabilize. I'm not trying to see, say be bullish on bonds, what I am trying to say. , you have to look at the information that's out there and the information that does show that stability has happened, and bonds got absolutely destroyed in 2022 last year.
[00:10:47] But this year you have to look at price efficiencies as they stabilize the sta uh, the interest rates. You are gonna see a pop in interest rates, especially as a yield curve makes itself normal. Now, here's the. , there is so much data out there, so much specific to you in your portfolio, in your 401k, in your situation, if you're retired, where should you be taking the money from?
[00:11:10] What type of income should you be going after? What type of dividends? You don't want to chase dividends here. Okay, I The point is, is you have to do what makes sense for you and in your situation. Even if you're retired, God willing, you have many decades ahead of you, and even if you don't, it's important that you get a customized approach to your situation.
[00:11:28] This is why we're offering a free financial assessment. It doesn't matter. You are. We help all across the country. Our headquarters is in Southern California, but give us a call. We would love to help give you one to two hours, one to two meetings of our time at no cost. Our phone number is (855) 963-2526.
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[00:11:46] That's 8 5 5 96. Falcon like the bird. Folks, we're gonna go on a quick break and we'll be right back at for after a few words.
[00:11:55] gabe: Welcome back folks. This is Gabriel Shahin, certified financial planner and your host, more Knowledge, more Wealth here in. every weekend talking about all important topics of personal finance, and today we are just talking about what happened in 2022 and seeing what that means going forward for 2023. And I spoke earlier in the first segment just about what's happened historically.
[00:12:17] I do, uh, on stocks, and then I started talking about the bond side. . And by the way, you can always get these on podcasts on Spotify as well. And folks, if you have questions, we have people working right now that you can go ahead and call in for help. That can help answer some questions, set you up with an appointment if necessary.
[00:12:34] Our phone number is (855) 963-2526. That's 8 5 5 96 f. like the bird. So I want to talk about the bonds. Historically speaking, since 1926, throughout the end of 2022, uh, the bond market has averaged historically about 5% a year. Okay? It's just really as simple as that. . And so when you take a look at just the average and what happened in 2022 where the bond market dropped roughly 12 to 13%, you have to look at just what that means and how often that happens.
[00:13:07] That's only happened one time in history, and that was in 2022 of a loss of over 10. percent. So it's never happened before, folks. Now, when you want to factor that in and what that does from an overall return point of view, all you have to know is this. Okay? Investing after a year in which bonds loses money results in an average rate of return of 6.8%.
[00:13:34] that's literally it. I'm not trying to tell you that's guaranteed, but the market is efficient. It dropped so much because of all the data that they're expecting, even in 2023, that's why it dropped so much in 2022. So we're not the only ones that know them. Interest rates are gonna continue to go up. You know that Everybody knows that, which is why it got beat up so much in 2022.
[00:13:54] So just be on the lookout for 2020. . Now when you take a look at stocks, now on average stock market averages 10% since 1926. Now, it's important to note that it's only happened six times since 1926 where the market actually returned between eight and 12% . It's kind of funny when you put in that perspective right now, over 40% of the time, the stock market averages over 20% E uh, 20% returns.
[00:14:21] That's just focus on that a little bit. 40% of the. . Okay, two outta five years, the market returns 20% plus. Okay? So the average of returns on the stock side is 20%. So yet again, you just want to be able to look at what is currently happening and how that affects where you don't freak out, where you have a plan in place and you have to trust.
[00:14:45] You can't put politics and mix politics and investing together. It doesn't work. So the idea and the logic here is to just. Discipline. Oh, I also like to focus, I'm going through a lot of this here, uh, just because it is important to stay disciplined in this, but when you take a look, okay, over now, there used to be a saying when you take a look at the historical saying is sell and man, go away.
[00:15:10] Okay? Now, historically saying on the stock side, the reason they say that is because the average rate of return during that period since 1926 is four. That's the return. Historically speaking from May 1st to October 31st. Now there's something that's called Turkey to tax. What is that? November 1st until the April uh period.
[00:15:33] uh, April 1st period. By doing that, the stock market returns 7.4% and it's the same over even in the past 40 years, where the last 40 years the stock market averages from the selling million go away 4%, while Turkey to tax is 8.7. So it is a significant outperformance by almost double. I get that. I'm not saying it's always like that, it's just something to note.
[00:15:55] Now bonds are different. So bonds, historically speaking, they actually outperform during Turkey to tax. Okay? So versus, uh, uh, excuse me, they outperform doing the, some people call it uhsame go away. Some people call it, uh, mommies to mumm. But, uh, the point is, is bonds typically outperform during that period, which is why it's so important to have a globally diversified portfolio.
[00:16:22] So from May to October, bonds typically outperform why stocks underperform. And from November to April 30th, bonds typically also underperform livestocks overperform. Yet again, it's important to have a globally diversified portfolio. Now why you ask? Well, cuz typical. , it's towards the end of the year. This is where the spending happens.
[00:16:43] This is also where the political season's typically calming down as the elections are typically over, whether it's midterms, primaries, or presidential election. It's done by November and the second half of the year. So yet again, historically speaking, I'm not trying to say these are what's gonna happen, but stocks do well between November and April and there's no surprise.
[00:17:05] Cause April was, or excuse me, November was such a great time in the. and bonds typically do well in May to October. Okay. And so I just want you to know that even though nothing is absolute, there are some. information and data in the stock market where just proves you should stay diversified. I mean, you can find a lot of data and analytics to support going in cash forever.
[00:17:31] Well, doing that over the past few years, your cash got completely destroyed and eroded. And if you did that since 2000, you're absolutely losing money. If you did that since 2010, you're losing money if the money's there for long periods of. You must stay disciplined. By the way, folks, if you're just joining us, you're listening to Gabriel Shahin, certified Financial Planner and your host of More Knowledge, more Wealth here on every weekend, talking about all important topics of personal finance.
[00:17:55] Today we just wanted to talk about the market, what happened in 2022 and compared to kind of what is projected to happen in 2023 and what you can expect is still continued volatility until Q2 to Q3 of this year. That is just important cause that doesn't mean. Cell volatility, as we discussed earlier, could mean plus two minus 2%, and that's how it's measured typically.
[00:18:17] and in a year like 2020, that was extremely volatile. The stock market did a positive 20%. What if the stock market kept going up? 2%? 2%, 2%. That's still considered volatile. You understand? So my point is, is just taking a look at the current situation and you have to stay diversified. Tech companies are gonna continue to hurt you, as we've discussed in the earlier segments.
[00:18:39] So it's important to understand what you're invested in because Sure. You have the mega tech, which we can argue are Apple. Microsoft, Google, and then you can throw in at the very end, whether it's Netflix, Facebook, Tesla, whatever the case is for these companies, you have to focus on the profitability.
[00:18:57] Most people that stay disciplined investing in indexes, I respect you, but you have to have tilts in your portfolio. There's been Nobel prize-winning research that shows that's validating proof that there are tilts and premiums at the markets give, and there are two aspects to that. Number one, Value overgrowth.
[00:19:16] Now you've been probably super excited cuz you made a lot of money off your Teslas and Amazons and apples and I like that and I respect that. But also know historically speaking, value tilts do better than growth. You have to see that focus and make sure your portfolio is properly put together, especially if you're looking and heading towards retirement.
[00:19:38] Because you are entering a high interest rate environment and tech companies and growth stocks underperform and they've been underperforming since 1926. Value companies do better than growth historically speaking and. Speaking as growth companies historically have a higher valuation, have a lower uh, uh, expected outlook for during recessionary periods, it has a higher price to earnings ratio, which means what they're valued at versus what they're earnings.
[00:20:12] Some of 'em are negative in. I went over a bunch of companies a few weeks back that are down 75 pressure set plus for the year. So this is a time where you have to roll up your sleeves and take a look at what you're doing because these next periods of times, whether it's the next two to three quarters, whether it's the next two to three years or two to three decades, it's extremely important you have a pulse of what's going on, cuz what's worked historically, guys, we've been in a low interest rate environment since the tech rack.
[00:20:39] So what's worked for the last 20? May not work. And if you want help with that, if you want someone to help analyze your situation, we are offering one to two meetings, one to two hours of our time at no cost. Folks, we can help relate this show to your specific situation by answering the questions you have, analyzing what you have, and telling what you need to do.
[00:20:59] Folks, we would love to help. We got offices all over and we can help you no matter where you live across the country. Our phone number is eight five five. 9 6 3 25 26. That's 8 5 5 96. Falcon like the bird, or visit our website@falconwealthplanning.com. That's falcon wp.com for sure. Folks, there is no.
[00:21:27] reset button when you mess up. Okay. And everybody has messed up in the past 12 to 24 months. I don't care who you are, there's something that went wrong because most people did not take their profits off the table. And if they did, they did it too late. So the idea, the concept, the thought behind your situation is right now, even if you did guess right, when do you get it back in?
[00:21:50] There's people thinking 2023 is gonna be worse than 2020. I don't know if they're right, but the point is, are you positioned properly Where if in fact that is the case, that you are protected, you have downside protection in your portfolio, you are hedged against inflation. Your stocks and bonds are properly allocated to understand what happens, you have a reaction for, and you are proactive.
[00:22:14] Sadly, I see most people are not, they ride the waves well, you know, from 2000 and 2009, the s and p 500 did. versus a globally diversified portfolio doubled during that same period of time. You can't afford to stay stagnant. Folks, I recommend reaching out to a professional. We are fee only. We are non-commissioned folks and we are offering one to two meetings of our time at no cost.
[00:22:41] Folks, we'd be happy to help. We got people here right now that can help answer your phone calls. Our phone number is eight five five nine six three twenty five. 26. That's 8 55 96 Falcon like the bird, where we can help put together an assessment for you to relate this show to your specific situation.
[00:23:00] Our goal is to make sure that you are on the right track, and if it makes sense for us to work together, that's fantastic for everybody. But we're gonna give you the recommendations with or without you. We're hiring us. I mean, that's how much confidence we have. We're gonna give it to you if you want us to implement it for you.
[00:23:16] That's where we give a quote. By the way, folks, that was a fast fasted show. I want to thank you in for tuning in with us this weekend. Please feel free to reach out to myself for any one of our colleagues at Falcon Wealth Planning. Our phone number (855) 963-2526. That's 8 5 5 96. Falcon like the bird.
[00:23:34] Enjoy your weekend. Have a great week and God bless.