More Knowledge, More Wealth Ep 201: Interest Rates

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[00:00:37] Good day. This is Gabriel Shane, certified financial planner. And your host of more knowledge, more wealth here on every weekend, talking about all important topics of personal finance. My goal is to go over the knowledge you need to increase your wealth now to the listener, you can always reach out to myself or any one of my colleagues here at FOMO Planning.

[00:00:55] 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 to get this episode or any one of our previous episodes along with our video casts that we also have on YouTube and just go on our website. You can go on our knowledge center and you're able to also look at other helpful strategies that we have posted where we've gotten over a million views on YouTube already.

[00:01:28] Now I'm the president of Falcon Wealth Planning. We are a fee only, non-commissioned, true fiduciary investment firm. We are a registered investment advisory firm as well. And we talk about all important topics and that could talk about where you are today, how investments look like, retirement taxes, estate planning, insurance, folks, you name it.

[00:01:48] Anything that involves a dollar sign, we are more than happy to help you with, and that is why we're offering a free financial assessment really to help relate this show to your specific situation. Folks, give us a call. We are offering one to two meetings, one to two hours of our time. It doesn't matter where you are.

[00:02:03] We service all the United States, our phone number. 8 5 5 and 9 6 3 25 26. That's 8, 5, 5 and 96. Falcon like the bird. You know, today I got a few, not so much today, this week I got a handful of emails. I. That came in and it was all just asking about what's going on in the market, what's there to be aware of, and, and so on.

[00:02:28] So I wanna highlight just a, a few things, and really a lot of it has to do with the stabilization we're seeing in interest rates, uh, as the 10 year treasury is about 4%, and you are looking at the feds that really are now committed to slowing down the interest rate hikes. And so it starts off with looking at investments and what is kind of the next pop.

[00:02:49] Now, it's very easy to talk about the student loan with $1.7 trillion that are expected to restart payments coming this October, and there's some fears with that because there are some forecasts that say there could be up to 30% who default on month one, which means they do not. Pay. And here's another thing.

[00:03:07] You got some people that have private debt investors out there. Hey, those have been great paying 11, 12%, but very similar to the mortgage-backed security problem that we had back in 2008, where everybody loved those risk-free investments. And those things were paying 4, 5, 6, 7% and they were secured by property super, uh, safe, right?

[00:03:25] AAA rated. Remember that? Well, because so many investors were wanting more and more of that. Well, the underwriting started to get a little looser. They started approving things they wouldn't historically approved. So you had people buying homes that really couldn't afford the homes, which of course drove the prices up and the bubble.

[00:03:42] Pop. You may be seeing that potentially in private debt. People are very excited about 11 to 12% liquid on a quarterly basis. People like that. I don't blame 'em. I like that. Well, what happens when more and more money goes into these things? They have to invest it into other funds that are out there, into other loans, and so they may be.

[00:04:03] Really jeopardizing the credit quality now of new loans that they're getting. Typical good fund could be a few billion dollars, but when there's 10 billion, 20 billion in this fund, yet again, they may be having to give loans to companies they would've historically not underwritten. I'll take it a step further.

[00:04:22] Yes, you do have, uh, interest rates that have slowed down. You're starting to see a normalization, what's called a yield curve. This could make sense for people. Historically speaking. I've been touting to say short term, high quality. Bonds well now could make sense, especially with the mobilization of stopping, of raising of interest rates to go into intermediate term bonds.

[00:04:41] This could be a good time to do it. I was a big component of the US treasuries that were paying about 5% and now you are really seeing some other value that's out there and being able to capture some of these stronger rates. Let's continue with commercial real estate, especially in the office space.

[00:04:57] You have now seen a significant slowdown in some of the. Urban areas, popular areas like San Francisco, like Chicago, like New York, like even Los Angeles, where people are no longer as excited for those. And the real estate you're seeing continuing vacancies. So you have risks of real estate in office.

[00:05:16] Dropping heck, commercial real estate. It's not like your home real estate folks. It's not like you're getting a 15 or 30 year mortgage and it's just fixed payment for 15 to 30 years. No commercial real estate. They have what's called 10 over 25, which means yes, it's a 25 year amortization, but after 10 years they balloon the payments.

[00:05:34] It's kind of crazy. I don't know why they do that. Outside of an S B A loan, they have to refinance every 10 years or pay it off in 10 years. Well, you have. Lemme get this straight. 25% of all commercial loans coming during the next two years. That could be scary. There could be a sale going out. So these are companies or investors that historically very easy for them to refinance their debt, but now they're refinancing what used to be a three and a half to a seven and a half.

[00:06:05] What could that do to their payments? You get what I'm saying? These are additional things to take into consideration. Let's continue the conversation. You have other issues such as, uh, people and the affordability of real estate for residential. You have certain regions across the country that real estate has actually.

[00:06:28] Not only dropped to value, but dropped substantially in value. Now, here in Southern California, there's a supply and demand issue, which means yes, certain areas have dropped in real estate, but in addition, and this is from its high of December of 2021, but in addition to that, You have not enough homes on the inventory.

[00:06:46] Why? Because let's just say myself, I wanted to buy a house and I have to buy a house now and get a six point half to 7.5% mortgage interest rate. Well, my house currently has a two point a half percent. I don't wanna get rid of that. I'd probably sell my house after I pay it off because I love that two point a half percent interest rate.

[00:07:02] Hey, you can't rent for as cheap as my mortgage. I bet you you can say the same, right? So you got a lot of people who would've historically sold not selling. By the way, folks, if you're just joining me, you're listening to Gabriel Shaheen, certified Financial Planner, and you're host of more knowledge, more Wealth here on every weekend, talking about all important topics of personal finance.

[00:07:22] And you have all this interesting concept and ideas that are out there that is affecting multiple different segments of finance and money. And so you do have. In fact the, uh, real estate that does have issues because there are high costs right now with interest rates and still real estate high in a lot of markets relative to where they should be with higher interest rates than just the carrying costs in general.

[00:07:47] I mean, I foresee personally a 40 year mortgage coming out in the next three years. Mark my words. That wouldn't be farfetched, especially this way. People 25 to 35 can buy a home. They'll still be alive in 40 years. Now, will they still owe the home? I don't know. And will the rates be even higher? I don't know, but you can assure me or you can assure that there would be some potential government intervene in something like that.

[00:08:15] We can talk about the US being downgraded by Fitch. So AAA rated that it looks like they're not considering us risk-free. And the most, uh, uh, best highest quality, uh, fixed income bond, and, uh, Country out there. I don't know which country is better. Uh, but to get my point, it's still something that uh, uh, whether it's for political, uh, instability, whether it's because of government backed student loans, whether it's government back.

[00:08:44] Uh, mortgage and real estate, whatever the case is. Uh, there are some, uh, risks in the horizon and folks, there are always risks, um, in the horizon, uh, as well. And we can continue. Uh, uh, and by the way, sometimes when we look at this and when we look at like things that happened even in 2020 with c o and 2021 and 2222, what happened in the stock market?

[00:09:05] What happened in 2008 with the housing crisis? Things are always so obvious, so textbook. After the fact. It's kind of funny how that works, right? So my comment, my point of course to you is that this is why it's extremely important just to have that conversation around indices. I. And just the stock market.

[00:09:25] And this is why it's so difficult to time markets. This is why it's so in, uh, difficult to choose individual stock. My comment, my recommendation to you is stay diversified. You don't need to try to out time these markets and put yourselves in position of buying real estate, buying commercial real estate.

[00:09:42] 'cause people get hurt really bad. And most people who buy real estate, guess what? They have a leverage. That's like investing in your investment account on margin. How come you do it in real estate? You take that, but you don't do it in the stock market. Doesn't really make sense. Yeah, I see a lot more people invest in real estate because they're able to write it off and they're able to leverage.

[00:10:04] You only have to put a hundred thousand dollars down to get a 500,000 home. Well, in the. Investment side, people don't do that. Yes, you make a lot more money with margin. I'm not telling you to do margin. It's much more risky and most people don't know what they're doing and because maybe the stock market's a little bit more complicated, people choose to do it more in real estate 'cause it's tangible.

[00:10:23] They can see it and feel it. My point to you is, This is why I like the stock market. It still has the highest expected rate of return. I know there's some people out there who says, well, cryptocurrency to the moon. You see the rocket emojis that come out there, people talking about that. Well, I was just interviewed through a.

[00:10:42] Uh, video, a documentary that'll be airing in 2024, uh, about cryptocurrency. Um, and my point is, is it's not always as cracked up to be because there's two sides to cryptocurrency, right? One side, they call it currency. Like our government has established that cryptocurrency, or specifically Bitcoin and Ethereum are currencies, so they don't have to be registered to the s E c.

[00:11:08] Okay, great. You establish that. Now, how come you're not establishing an E T F? Well, a Bitcoin E T F, you already said it's not a security, so why not make an E t F? They have currencies, ETFs in other currencies, so it's a little weird there. Right. I'm not saying I'm for or against it. It's just so silly that, uh, that, that they can't make a ruling on something like this.

[00:11:29] Then you have issues with of courts that would happen on F T X. And then you have issues. What's happening with Binance. You have issues now with coin banks. 'cause the, uh, the ss e c is saying now they cannot, uh, and they are selling securities certain, uh, crypto ex, uh, currencies are securities and they're unregistered, which is not allowed.

[00:11:50] So there's just some issues going all the way around. So we can even talk about that. I mean, heck, I had a conversation with somebody just the other day that wanted to invest in synthetic meat. And like, God bless him. Like I get it, like his whole points to it. I wrote 'em down. It's a healthier option.

[00:12:08] It's a more, um, sanitary option. There's no pesticides, there's no diseases that you get. It's cleaner and you can three d print these things. You can organically build it into a lab. Some of these now meats, and that was just passed in June, late June of 2023, where now you're, they're allowed to do that and you have some restaurants now offering these types of meats, and they're supposed to be more tender.

[00:12:33] They're supposed to be better, so you're eating meats. That are not even from an animal per se. So just what I'm saying. Just very interesting things that are out there. Folks, my point to you is stay informed and if you wanna get more information about your specific situation, you have specific questions, wanna talk about the economy, we wanna talk about everything, folks, give us a call.

[00:12:53] We are offering a free financial assessment where we can relate this show to your specific situation, folks. Give us a call. We would love to help. Our phone number is (855) 963-2526. That's 8 5 5 96 Falcon like the bird where we can help put together an assessment to answer these questions that you have.

[00:13:13] 'cause there is an ever changing market that we have going on right now. I wanna make sure you're properly invested properly. Allocated and properly diversified in a situation that is also built, not just a portfolio of today. Most people have a portfolio of yesterday, but a portfolio that will stand you going forward.

[00:13:34] Folks, we would love to help Folks, we're gonna go on a quick break. We'll be right back after a few words.

[00:13:40] This is Gabriel Shaheen, certified financial Planner, your host of More Knowledge, more Wealth. That's on every weekend. We're going over 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.

[00:13:58] 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 Inland Empire. Give us a call to take advantage. Our phone number is (855) 963-2526. That's 8 5 5 9 6.

[00:14:16] Falcon like the bird, or visit our website, falcon wealth planning.com. That's falcon wp.com for short. Enjoy the show. We look forward to serving you.

[00:14:26] Welcome back folks. This is Gabriel Shane, certified financial planner and your host of more knowledge, more wealth You're on every weekend talking about all important topics of personal finance, and today we're just talking about everything that's going on in the market and we ended last segment talking about artificial meat and how there's just so much going on with technology right now that it's just so hard to keep up.

[00:14:46] We're not expecting you to do that, and I'm not even telling you to invest in anything like that, even though my client was sworn by it. My point is, is just because you're first to market doesn't always mean you're going to last. It's sometimes you're the trendsetter and then a new company that understands business or let you chip your teeth, losing your millions and billions of dollars to innovate the program and a new company coming in there to reap all the benefits from it.

[00:15:11] So my comment to you is the following, let's just say you wanted to get. And invest in some of these investments of tomorrow. Let's just say that's the case. So I pulled this up on my phone. These are some that I recommend for my clients. Now, I'm not telling you to invest. My point of this actually, let's back up significantly, is not telling you to invest in these stock is to understand strategy.

[00:15:35] And what people investments don't have is strategy. They chase companies, they don't chase performance. Now, number one, you never wanna chase performance. So let me back up. People look to ride the wave of one company versus riding an index. For example, I want to invest in Bank of America. Oh, okay. What's your reasons?

[00:15:59] They give me a bunch of reasons. Well, it sounds like it's not so much Bank of America's great. You're more bullish on the. Financial sector, so we may be ranking recommendations to say, invest in the financial sector versus just Bank of America. We saw what happened in Wells Fargo when they had billions of dollars of lawsuits because of their unethical practices.

[00:16:18] Do you really wanna put all your eggs in one basket with. One company, forget if they're doing unethical things lately, the c e O could say something that maybe the media doesn't appreciate and they attack them. Look at the marketing campaign with Anheuser-Busch and Bud Light. That sure ticked a lot of people off the.

[00:16:37] Beard didn't change, but the image changed substantially. So maybe if you wanted to buy Anheuser-Busch, maybe you just buy the alcohol and beverage index. You get what I'm saying? So there are other ways to get exposure to your stock. So a lot of these high flyers and people with artificial intelligence and wanting lithium batteries, it's solar and whatever the case is, there are other indices that are out there.

[00:17:01] There's some that I'm gonna go over it. The, uh, what is this one? Data center real estate Investment trust and digital informa uh, infrastructure. Social media index, the Internet of things, lithium and battery, video games and eSports, FinTech, autonomous driving and electric vehicles, ev, cloud computing, cybersecurity, robotics, and artificial intelligence.

[00:17:26] The Blockchain. Blockchain and Bitcoin specifically, and ai. You get what I'm saying? Like you don't have to buy 'em directly. You don't have to buy these individual stock. That is infinite times more risky. I'm not even telling you to invest in these. I'm just saying if you're really excited about the future and some concept of, let's just say artificial meat, For the example, I would say try to buy an index of all the companies doing something similar.

[00:17:50] Hell, I would probably also invest in Tyson Foods, which actually is one of the largest distributors of the chickens and meats that are out there. But you don't think they know about this technology. And by the way, they're more profitable, they have more money. They could chip their teeth a lot more times and already have an infrastructure to scale it versus these Joe Schmoe companies.

[00:18:11] You get what I'm saying? So sometimes the indices are smart enough to know that, and types of foods already is participating in something like that. And how do you know they're not even leading the way and just keep their mouth tight about it. My point doesn't change. Stay diversified. I know a lot of people think, Hey, you know what?

[00:18:29] I'm doing that through Vanguard. Well, Vanguard is great. Heck, my brother works at Vanguard. It's a fantastic company. Heck, we use Vanguard funds for our clients. Not all of 'em, obviously. If they were great at everything, they'd have the world's money and we wouldn't even be talking. But idea, of course, is that.

[00:18:45] They have a total, total, total, total portfolio, four funds. So you got a million dollars, you're really gonna have 250,000 each fund. Are they rebalancing? Are they concentrated enough? Are they taking advantage of the tax allocation for it? And a lot of these systems are designed on the advisor themselves.

[00:19:01] As well. So there are some core issues and problems with having that at Vanguard, and are you really getting that allocation? Keep an in mind it's market cap weighted. What does that mean? Well, what that means is the biggest companies you have exposure to, like the s and p 500 Apple. Microsoft, Amazon, Google, Facebook alone, just those five companies, you have over 20% exposure in just those five companies.

[00:19:26] How much diversification do you really have? Well, the answer, I can tell you not much why your portfolios are market cap weighted heck. You look at the s and p 500, which, hey, the Vanguard's all about indexing. I believe in indexing. But by going with a blind way to invest your money thinking you get exposure to everything is foolish.

[00:19:46] Look at Nasdaq this year up at a point 40% versus s and p 520%. Heck, Vanguard has the holdings, right? Instead of getting the SS and P 500, you can get large cap growth and large cap value, right? Large cap value. V T V, large cap growth, v u g bug, they call it. You can have the exposure there. So why would you do that?

[00:20:08] Well, because these indices go in different directions. Let's look at this here right now. Large cap value. Up 15%. Large cap growth, about 40%. Let's look at last year, large cap growth down about 40%, large cap value down about 2%. You get what I'm saying? Like it's, it, it's, it allows you to take advantage of volatility.

[00:20:32] You don't just have one fund like the s a p 500 riding the way. What you do, or I think Vanguard does, is like V T I, the Vanguard Total Stock Market Index. But keep in mind that's 77% large cap. Why could it's market cap weighted? I'm telling you, and the top five companies are 20%, top 50 companies are 50%.

[00:20:56] Top a hundred companies are 60%. Top 500 companies of the s p 577%. You get where I'm going with this. By the way, folks, if you're just joining me, you're listening to Gabriel Sheen, certified financial Planner. You're host of more knowledge, more wealthier on every weekend, talking about all important topics of personal finance.

[00:21:12] I'm just trying to tell you to reduce your risk. If you were crazy enough to buy an individual stock 'cause you thought it was gonna do great, and listen, I shouldn't be so harsh and call you crazy, but if you just really felt a passion behind it, like my heart and soul tells me that this is gonna be successful, I tell the story about, uh, me wanting to invest in a food company.

[00:21:31] Back when I used to invest in individual stocks, it was between, uh, cheesecake Factory and Chipotle. I go there all the time and it's always busy. So I knew I wanted to invest in at least one of these two companies, so I wanted to Cheesecake Factory. I'm like, man, look at this place. It's fantastic. I have to wait 45 minutes just to give them my money to eat.

[00:21:50] This is great. But then I thought, RSEC, man, these pillars are made of marble. The floor is really nice. I swear there's like 60 people running around, and their menu was yay thick. So I was thinking to myself, huh. If Gabriel Shaheen wanted to open one of these would probably cost three to $4 million. Then a few days later I went to Chipotle, Boyle boy was at an assembly line.

[00:22:15] There was probably 25 people ahead of line, and by the way, this is probably at this point, it was probably 2007 maybe, maybe 2008, I'm not sure. Let's just call it 2010, even could have been after the recession. I go there, 25 people in front of me in line. And I'm thinking to myself like, my goodness, this is, this is a zoo.

[00:22:34] But I was in and out in 10 minutes and the menu was not yay thick, but it was three options on the menu. I. So my point to you is, uh, by the way, I ended up saying it probably cost 250,000 open, open. One of these. Not that I would, but the point is, is just doing that, I chose Chipotle and thank God I did.

[00:22:52] 'cause I ended up having a 10 x return versus I think cheesecake is flat since when I looked at it. So I'm not trying to tell you I'm a genius, right. My gut told me that. So I'm not trying to say there's no. Validity to that. I'm just trying to say you're gonna get wrong more than you get, right? Academic research has proven for every one you get right, you get five wrong, which is why people underperform the index.

[00:23:16] So don't even try it. I do not recommend it. And if you're looking at it, you have to understand the person I was telling you about, me wanting to put 10% of his overall portfolio in this meat, artificial meat company, which he didn't even know which company he just wanted to participate in the technology.

[00:23:32] My point to you. Is you should have exposure via an index reduces the risk, and you'll still be able to get that participation. By doing that, we'll be much more successful. Infinite times, less risk, and you're able to just see in general how the industry is doing. Okay. Still look at the stock that you have there that you were looking at buying, and sometimes you look, it's not just the stock is doing great, but the whole index is doing great as well.

[00:24:02] Folks, if you need help with this, if you're looking to make some investment changes, if you're looking to review what you're doing, if you're looking to see that, hey, I need to get more diversified, give us a call. We'd love to help. We've got offices all over. We can help relate this show to your specific situation.

[00:24:15] Our phone number is eight five five and 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. We can help answer the questions that you have to make sure you don't make the mistakes that other people make. Smart person learns from their mistakes.

[00:24:38] A smarter person learns from others' mistakes. Let us share with you what other people's mistakes were. So you don't do that yourself. You're gonna only retire once in your life. I retired 30 times alone last month through our clients and so on, so. Let us help you with that. By the way, folks, that was a fast, fast show.

[00:24:57] I want to thank you for tuning in with me this weekend. You could always reach out to myself or any one of my colleagues here at Falcon Wealth Planning. Our phone number is (855) 963-2526. That's 8 5 5 9 6. Falcon like the bird, or visit our website@falconwealthplanning.com. That's falcon wp.com for short.

[00:25:18] Folks have a fantastic weekend. Have a great week, and God bless.