EP. 135 More Knowledge, More Wealth: AM 590 Radio Show

Transcript:

Announcer:

This is More Knowledge, More Wealth, with your host, Gabriel Shahin. Gabriel is a certified financial planner and a registered investment advisor at Falcon Wealth Planning. This show is not intended to provide personalized investment advice through this broadcast and does not represent that the services or securities discussed, are suitable for any investor. Investors are advised not to rely on any information contained in the broadcast, in the process of making a full informed investment decision. More Knowledge, More Wealth, on AM 590 The Answer. Now here's your host, Gabriel Shahin.

Gabriel Shahin:

Good afternoon, everybody. This is Gabriel Shahin, certified financial planner and your host of More Knowledge, More Wealth that's 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 myself or any one of our colleagues here at Falcon Wealth Planning. Our phone number is (855) 963-2526. That's 855-96-FALCON like, the bird, with any personal questions you have that you want to relate this show to your specific situation.

Now, I'm a principal of Falcon Wealth planning, a registered investment advisory firm. We are the only independent RIA that specializes in financial planning, but we also help with investment management as well. But folks, we cover everything that covers a dollar sign, really, and that's where you are today. How retirement looks like, talking about taxes, insurance, estate planning. Folks, you name it. Anything that involves a dollar sign, we are here to help. And that's why we are offering a free financial assessment.

Folks, it's one to two meetings, one to hours, and our goal is to help point you in the right direction, tell you what you need to do, and we can help relate this show to your situation. Folks, give us a call. We'll be happy to help. That's (855) 963-2526 that's 855-96-FALCON, like the bird. Or visit our site, new and improved. That's falconwealthplanning.com. That's falconwp.com for short. You can always grab this on live radio show here on AM 590, the ANSWER, that is on 12:30 to one o'clock every Saturday, or just do the podcasts and Spotify.

Man, that's a mouthful. I got to find a way to shorten that up. Folks, a lot going on in the world right now, whether it's stocks with Russia and China, Russia and Ukraine war, going on in Europe, talking about rising interest rates and inflation. Folks, the stock market, now it's all of a sudden on a rebound. For those of you that were freaking out and wanted to go all cash, that's why you don't try to outsmart this thing folks. But I wanted to talk to you about the current increases in interest rates. And now the fed fund's going up, prime rate's going up.

So how this impacts you and the direct and indirect ways of doing that. I want you to be careful of these insurance agents going out there trying to sell you junk, because right now bonds, the issue with bonds right now... Excuse me. If you were to buy a bond right now, it's part of your portfolio. And most people have bonds in their portfolio. The thing is with rising interest rates, as they go up, bond prices go down. So what are these insurance sales people that call themselves... I don't know what they call themselves. Financial advisors, financial consultants, the vice president. They're always a vice president. I'm a senior vice president. Of what? You're a one man shop and you're selling product.

You're not even a financial anything. You're slinging annuities and insurance sales, folks. And that's sad as they... And they try to position it like it's an investment. It's an insurance product. That's all it is, annuities or return to principle product. A life insurance, you can make money on life insurance. Absolutely. But you have to use it. You know what that means? You have to die. Yeah. Go ahead and die. That way you'll make money. And by the way you don't make money, your heirs make money on life insurance. So yeah, it doesn't sound too great, does it? But it's great. No risk. Index universal life. Look, you can never lose.

Yeah. They don't tell you about the cost going in. That's only for the first 10 years, because that's a commission you paid in the annual cost on those, the floors and the rising costs and insurance. They don't tell you any of this stuff because by the time you try to figure it out and take that tax free loan, now what? Now it's too late. And these premiums take away and eat away at the cash value, which allows these products to pop. They blow up. You have to die for the loan to get paid off. And you're only taking out your principle, and not even that.

These things round me up folks, because now people are going to be looking for what's called yield, right? Because bonds are not doing much, now these insurance people are going to be going crazy trying to sell you... I can't say the word. Last time I did that, the SEC audit wasn't too happy with that. That was the only thing they found. I was describing certain adjectives, these individuals who sell you things. So I'm not allowed to use... I'm just going to completely disassociate with these advisors. Hopefully the SEC is okay with this. I'm not talking about them, but I was using words like crap.

I was using words like... What was the of word? It was something, taken advantage of crooks. That was the word they didn't like. My compliance officer, Rachel, hopefully you get a kick out of this one, but I'm not talking about advisors. I'm just saying random words out. There're crooks in the world. And be careful. So be careful of insurance products that are out there. And I'm going to explain to you the bond yields and what's currently going on right now. And then I'm going to talk about the insurance products and how they're positioned for you. And please be careful of this because the insurance people only get paid when you buy.

Please get a second opinion. And if it sounds too good to be true, it's probably too good to be true. How many times do you need to be told that? Come on. Be your best advocate. Don't just do things because it's convenient or the person looked nice or was at your local bank, and so you trust them. It has nothing to do with that. Understand who you're working with and how you pay them. And it pisses me off when people are like, "You don't pay me. The insurance company pays me." Well, can you be any less transparent? So be careful of that and these tactics.

By the way folks, if you're just joining us here, listening to Gabriel sheen, certified finance planner and your host of More Knowledge, More Wealth here on every weekend talking about all important topics of personal finance. And here we're trying to scratch the surface on bonds. And we're trying to scratch the surface on what you're going to be sold with a target on your back, trying to sell you a bunch of things that I wouldn't say are in people's best interests. And that's why FINRA and state regulators have annuities and insurance products on some of the biggest beware watch out lists that's out there. So keep in mind that you just have to be your best advocate out there.

And folks, if you need help with that, if you want somebody to review and do a second opinion folks, we got offices all across California and we help people nationwide. Give us a call. We'll be happy to help at no cost phone numbers, (855) 963-2526 that's 855-96-FALCON, like the bird. Folks, I want to go over here and discuss with you guys what's going on in the world of bonds. And as you know, the feds raise rates by a quarter percent earlier this quarter, and they announce that they're going to be raising by another quarter per... Excuse me, half a percent coming up.

Their goal is to meet six times this year that's left, and to raise rates every single time. So what does this mean for bond holders? You're investing in bonds because it's safe, right? Because if the market drops, like it kind of did during the initial war in Russia and Ukraine, about a 10% drop for the S&P 500, you want to be in bonds that protects you because bonds historically go up when stock drop. But wait, interest rates are going up. The treasury was over 2%. So what does that mean? Well then bonds fell too? So you had stocks fall and bonds fall? That doesn't seem right. Heck, we are at the second or start ever for starting a year for bonds.

That's down over 3% for the year. And by the way, if you were to look at the worst, there was a negative 8% and that was in 1980. Why? That was a Jimmy Carter years and then inflation came and in the next 10 months it went up over 12%. And historically speaking, bonds do rebound. When you just look at the past 10 worst possible times, the 10 worst years, it averages over a 5% rebound over the next 10 months. I'm not saying it's guaranteed. Past performance has no guarantee on future results. But I am here to say, don't freak out. And please don't be sold some of these products.

Right now there's repricing that's happening in the bond market. Rates were so low for so long. So right now its just a repricing of everything. And there's two types that goes on for repricing. One is us like the treasury. That's what we control just through supply and demand and being active with the things like real estate and so on. And so the other part to it is with the government controls directly. Indirectly, we could say the treasury of course, but directly. And that is the rising of rates. Whether it's fed funds, prime rate, discount rate, whatever it may be. That's where banks get involved. And that's where now our costs go higher.

And we see that whether it's mortgage costs, whether it's corporation lending, whether it's your credit card, whether it's variable rate loans. Whatever it may be, there is direct impact in that. That matters folks. That's a big deal, but you have to understand what the long term effects are. And if you're invested in long term bonds, which I hope you're not. I can't imagine you are. This shouldn't have been shocking. A long term bond was paying you a 3% over 30 years. Would you lock in a 3% for over 30 years? I mean, you can get a mortgage at the time for lower than that. So why would you lock up your money for 30 at three? It's not really logical.

So my point to you is just being... I hate to say, be aware. Let's be in a kinder way, be aware of what's going on, and don't just take advice from somebody showing you past results because we're hitting unprecedented times. Since the Jimmy Carter era, I will say, from the 1980s to today, our interest rates have steadily decreased. Our interest rates have dropped drastically over the past 40 plus years. We're about to see unchartered territory where we're going to see rising interest rates. I mean, it's inevitable, we were talking about this 10 years ago after the 2008 crisis. And then after the dot com bubble, the interest rates went up by quite a bit. So these are times right now, you have to be aware and be proactive of your situation.

And you do need to talk to an advisor. Every portfolio is at risk. And especially those target date bonds, those 2030, 2040, 2050 funds. Heck, those were really designed for $25,000 and under to put in until you get 25,000, because after that you have enough money to diversify inside your 401k or retirement account. It's not designed really for anything over $25,000. I mean, there is not reconstituting that happens in most of those, rebalancing that maybe happens once or twice a year. Folks, there's not enough value in there and yet people are paying almost as much as what they're paying managers, full on financial planners. Folks, you need help with that, give us to call. We can help. Our phone number is (855) 963-2526. That's 855-96-FALCON, like the bird. We'll be happy to help. Folks, we're going to go on a short break. We'll be right back after a few words.

This is Gabriel Shahin, certified financial planner. Your host of More Knowledge, More Wealth that's on every weekend covering all important topics of personal finance. We're going over retirement planning, making sure you're prepared for retirement, social security and strategies, real estate, taxes, avoiding them now and in the future, investments, reducing fees, commissions, and so on insurance and estate planning. Folks, we are offering a free financial assessment that you could take advantage of. We have offices all across Southern California, including the inlet empire. Give us a call to take advantage. It's a $500 offer. Our phone number is (855) 963-2526. That's 855-96-FALCON, like the bird, or visit our website, falconwealthplanning.com. That's falconwp.com for short. Enjoy the show. We look forward to serve with you.

AM 590, the ANSWER.

Welcome back folks. This is Gabriel Shahin, certified financial planner, and your host of More Knowledge, More Wealth. And every week am talking about all important topics of personal finance. And there's no better time to talk about interest rates and interest rates increasing. Our Fed chair, Jerome Powell recently said he's going to increase by half a percent, and he recently did prior to that a quarter percent increase. And he's saying, he's going to do it over the next six meetings, which are here in 2022. So we are expecting rising interest rates.

Ironically enough, the stock market is becoming favorable to that news. That's not really logical. Some people would expect because costs are going to go up, but inflation is not a bad thing for the stock market. And I talked about that in previous episodes, and I may bring that up again where I focus just on inflation and the benefits of that in the stock market. Now, let's focus as we talked about bonds and bond yields. And what this does focus, it allows for current investors a risk of their portfolio dropping. What's supposed to be safe money dropping.

As interest rates go up, bond prices go down. And the reason that's the case folks is because of something simple. Let's say you had a pizza shop, and that pizza shop, you needed 100,000 for the pizza shop. Well, instead of giving shares of your company away, maybe you said, "Hey. How about you give me 100,000, I'll give you 5,000 a year." And that's a 5% coupon. Well, if the next year now you expanded and you did very well and you want more money to expand, you might say, "Hey. How about you give me another 100,000 because rates are going up. I'll give you 7%." So somebody else is getting 7,000 and you're like, "Hey. I just gave you some money and I'm only getting 5,000. I'm short 2000, so now nobody's going to want my bond because the new ones that are being issued are at 7,000." So I have to reduce the price of my bond by $2,000. Why? Because at maturity, people get back the 100,000 dollars where it makes it equal to the current market rate.

So the purpose of this folks is understanding that you may be looking for alternatives, but not the alternatives that are trying to be sold to you right now by insurance agents that are out there. And that's where I wanted to focus folks is trying to protect you. My goal is to educate and protect you of what's out there. And I see so many sophisticated people that frankly just get lied to of how these products work. And it's just so unfair. It's misrepresented. That is a lie. When somebody misrepresents something knowingly, it is a straight out lie.

I don't care who you are. I'll talk to anybody about insurance products. And people out there are trying to say, "If you save into a Roth IRA $1000 a month over 30 years you can get 40, 50,000 income. But if you sell it, if you save into my fancy razzle-dazzle..." And they code it, they hide it. They call it R and G, "... my R and G investment." And they trademark it or register whatever it is. "... then you can get 100,000 dollars tax free annually." Give me break. How is this legal representation? They go on hypotheticals, previous history. There is no secret out there to get a 10% return. And when they try to say with no risk, and on top of that you'll take it out tax free, my God, that is so dishonest, but this is the industry we're in. I'm sorry to tell you.

So you have to be your best advocate out there. So don't fall for these ploys. I'm telling you. And if you feel you have a compelling argument to get some insurance, because there's some people out there, whether they're on the radio, on the TV, internet ads, at your local bank, whatever it is, if they're not a non-commission fiduciary, the only advisory... They may say, "No, I'm a fiduciary." Show me. The only document out there that proves you're the only, excuse me, true fiduciary is, look at their ADD. It's an advisor disclosure document. If they don't have one, they are lying to you. They are lying. Why are you in a relationship with somebody that's trying to sell you junk at all time and you have to buy so they get paid?

It's crazy to me. And I have pity against the advisors, let alone the poor people that are purchasing from them, because that's all they know how to do. So please be careful. And if you need that second opinion, we are here to help. Our phone number is (855) 963-2526. That's 855-96-FALCON, like the bird. Or visit our website at falconwealthplanning.com. That's falconwp.com for short. Folks, these insurance products, you can only make money if you die. And an annuity, you want to know what an annuity is? An annuity is designed to hedge the bet of the insurance company for life insurance. The thing with life insurance products, whether it's whole life, universal life, permanent life, index universal life, whatever the nonsense is, all the different ones that are out there, they're designed where you only make money if you die. And by the way that cash value is not on top of the insurance, it's already embedded. Not to digress.

My point is, if you utilize it, the insurance company's out money because they have to pay out. So how does the insurance company protect themselves? It's what an annuity. An annuity hedges the bet. You give them money today, upfront money, let's say 100,000 dollars, and they will pay you an annual amount for life or monthly if you decide to take it out. So with life insurance, they never want you to die. But with an annuity, they want you dead. Sorry, I'm not trying to be disrespectful here, but the second you die, they stop making the payments. So it's common sense. And it's why and how they always win, these insurance companies. You look at the stadiums, the MetLife fields, the Lincoln financial fields, all these financial companies that have things that named after them, they're very profitable because they have it baked in.

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. We're here on every weekend talking about all important topics of personal finance. And today we're talking about the bond market. People trying to sell you a bunch of stuff. And then I want to close out with about other types of investments that are out there.

These are more alternatives that out there, but it could make sense for your situation depending on your liquidity, your time horizon, and your risk preference. Which is why there's no shortage of a full, comprehensive plan to understand your full situation. Sometimes you don't know what your full tolerance... You may know what your tolerance is, but you might not have a choice. You might have to take unnecessary risk or, excuse me, have to take risk that is unneeded. And there's other people out there that are taking unnecessary risk where you can actually wind down the risk that you are taking.

Now, going over, we talked about bonds, we talked about annuities and insurance products. And by the way, just with the annuities, the amount that you have to withdraw from an annuity, the government already pretty much says you're going to lose 50% of what you put into an annuity. How do I know that? Because there's a table from the IRS that shows that. It shows you with the exclusion tax is. Whether it's a charitable annuity or a commercial annuity, you're going to lose 50% guaranteed. The IRS shows it, proves it, validating my whole point of insurance companies are there to make profit.

So the last part I want to talk to you about is other type of needs that are out there. Other type of assets, because if bonds are declining because of rising interest rates, and if insurance products that try to sell you on ABC, that is so great and you're going to make all this money and then later you find out it's not, what other options are out there? If you're saying Gabriel, don't go long term or intermediate, stick short term high quality bonds, which is what we're recommending, what we're doing for our clients. There are some other options out there that is a bit more complex. Now, some of them maybe pay 3% and it's not risk free like it is at a CDR bank, but it is liquid. And these are some income neutral options that could make sense depending on your situation.

There's also people out there that have private debt. And private debt could make a lot of sense for some people, but there are illiquid issues with that. And who's to say that's not risk free, right? So there are some things here in March 2020, that thing was down almost 15%. So there are some options depending on the private debt that you're talking about. Obviously we have institutional ones here at our firm, but to yield on those could be a lot better. Now, we're here not trying to sell yield. I'm just trying to explain to you, there are different options out there.

And your advisor, they most likely work for a broker dealer because that's about 98% of the advisors out there, they have your series seven and other series license, they are not the only, but the important part with that is, they are fixating on offering you whatever their broker dealer, their boss says to offer. They don't have the whole universe of investments to offer. They don't. That's not how they work. They only offer what's on their lot. You go to a Ford car dealership, they're only going to sell you Ford, unlike going to a dealer that has access to every single car manufacturer out there.

So a broker dealer, whether it's Morgan Stanley, Merrill Lynch, Edward Jones, UBS, JP Morgan, Wells Fargo, they can only offer what's in front of them. And some of them may have more opportunities and a bigger car lot, we should say, than others, but at the end of the day it's restricted because they can only offer something they can get paid on. Even if you look at something like private debt. I'm not telling you to get private debt, I'm telling you something that you've probably never heard before. But when you go to these broker dealers, they have different ones that offer commissions upfront.

And when you look at the returns on them, the institutional class which you can't buy yourself. Typically, firms need at least 25 million minimum, but my point is, not every firm can get it because they can't hit that threshold. Not smaller firms. It's literally the rich keep getting richer. My point when you compare the asset classes, institutional always does better. Why? Because they're not paying an upfront commission and they have higher annual costs. Why? Because yet again, they got to pay the company they work for like those big companies that I mentioned earlier, they got to pay the advisor, and the product still has to get paid. And it's just too much of that. And when you work with a true fiduciary, when you work with a fee only advisor, they only get paid one way, and that's through the client only. So folks, that was a fast show.

If you want help putting stuff like that together, if you have more questions on that... Listen, we don't sell product at our firm. Okay? That's not how we do. If you call and say, "Hey, I want to get some of this." We can't help you. That's not who we are. We are financial planners. We have to understand your situation. But if you want help with financial planning, give us a call. Our phone number is (855) 963-2526. That's 855-96-FALCON, like the bird. We'd love to help put together a personal plan to help relate this show to your specific situation.

Folks, we are on every weekend going over all important topics of personal finance. We would love to help. Reach out to myself or any one of our colleagues. Our phone number is (855) 963-2526. That's 855-96-FALCON, like the bird. We'll help relate this show to your situation. Tune in every weekend. Our goal is to give you the knowledge you need to increase your wealth. We want to thank you for listening. We want you to enjoy your weekend. Have a great week and God bless.