Monthly Archives: October 2019

How Much Does It Cost To Raise A Child?

October 13, 2019

On CBS, Karl discussed with Sharon Ko how much it really costs to raise a child.  The number may shock you.  Karl gives some practical tips on how to pay for those important expenses.


Sharon Ko:                         This morning, let’s talk budgeting for a baby. There’s the joy of parenthood, but having a child can quickly turn into a financial nightmare. Here’s some tips to get you money-smart for a kid.

Karl, as I was reading this article, I almost dropped my phone. I couldn’t believe $233,000 on average for a middle-income family to raise one child, birth-

Karl Eggerss:                      So you don’t want to have six kids, is that what you’re saying?

Sharon Ko:                         I’m going to stick to my Chihuahua.

Karl Eggerss:                      Okay.

Sharon Ko:                         From birth to 18.

Karl Eggerss:                      Right.

Sharon Ko:                         So can you break down the cost for us? How does that number even get that high?

Karl Eggerss:                      Yeah, it’s an astronomical number. We probably have a smaller population than most people who heard that stat.

I think if you think about having to have a bigger house, a lot of folks that end up having a baby, that’s where they kind of moved from an apartment to a house. So that’s a cost. More food, especially teenagers. I have two teenagers, a lot more food. Clothing, extracurricular activities. And we’re not even talking about college. Most state universities are at least $100,000 for a four-year degree. And those are things that I think parents need to start thinking about before they’re parents.

If you really are intent on having a family, don’t wait until the child’s born before you start saving. You can start saving for that child well in advance of even having a baby, and there’s a lot of creative ways to do that.

I also think having a comprehensive plan, and there’s a lot of apps and software out there nowadays, more than ever, to help you with a budget. And oftentimes, after people look at a month’s worth of expenses or three months, you start to see and go, “I didn’t realize we were eating out that much. I don’t necessarily need that latte every single morning.” And you can begin prioritizing. You can maybe skip… Well, some people can’t skip their coffee, but you may skip the expensive coffee so that you may be able to take a trip with your family. And really, it’s about controlling where those dollars are going. There’s only so much coming in. It’s about saving and about budgeting.

Sharon Ko:                         What about couples who already have children? Are there any tax credits?

Karl Eggerss:                      There are. The tax credits gotten much more favorable a couple of years ago when we had the new tax plan that rolled out. And so people used to be fairly limited on income to get child tax credits, the income’s much higher now, which means more people have the child tax credit available to them that maybe didn’t think they did previously. So make sure if you do your own taxes that you do check that because you may be leaving some money on the table if you don’t claim those credits. And remember, the difference between a tax deduction and a tax credit is pretty big. A tax credit is dollar for dollar. So if you get a $2,000 tax credit, that’s literally $2,000 you get back at the end of the year. A deduction depends on what tax bracket you’re in. If you get a $2,000 deduction, they are only dollars you’re really getting back or what income tax bracket you’re in based on that 2,000. So if you’re in a 10% bracket, you’re going to get $200 back. So a credit is much more valuable than a deduction.

Sharon Ko:                         Do you think thinking about life insurance is too early? I mean, is it or is it never too early to think about that?

Karl Eggerss:                      I don’t think it’s ever too early. I think you have to assess the situation. If you have a one income household, obviously if that primary income, something were to happen to that person, that’s why they need to have insurance on that person because that income is gone. It magnifies when you have kids. The younger you are, the more healthy you are, the more insurance and the cheaper it’s going to be. So absolutely plan for that. And insurance has gotten a lot cheaper over the years and you can go online to do it. A lot of folks have too much insurance because they’re sold insurance. Be very careful about where and how you get your insurance because it’s pretty easy to figure out what you need and it’s pretty easy to get nowadays as well. It’s a very competitive world, which is great for our viewers.

Sharon Ko:                         Thanks so much Karl Eggerss for those great tips.

Trade War Truce

October 12, 2019

On this week’s show, Karl discusses the back and forth of stocks this week all based on trade.  But, by the time the dust settled, a deal had been reached, and stocks rose.

Also, Casey Keller, CFA joins Karl to discuss the best savings account ever created.


Karl Eggerss:                      Hey, good morning everybody. Welcome to Creating Richer Lives, the podcast version. Thanks for joining us. Appreciate it. My name is Karl Eggerss and if you want to get a hold of us (210) 526-0057 and the website is We make it nice and easy for you. The name of the website,, the name of the podcast, Creating Richer Lives, pretty easy. And by the way, this show is brought to you by Covenant Lifestyle Legacy Philanthropy. We are also on all the social media outlets and don’t forget too that the podcast is carried in multiple places.

You can just go to our website and listened to it. We have the transcripts are up there as well. So if you like to read the podcast, which some of you do. Monday afternoons, you’re sitting at work, the boss has walked by and he’s on the other side of the office and you want to catch a glimpse of the podcast and you can’t really put the ear buds in or the cool air pods hanging out of your ears. You want to read it. We put that on there for you, so the podcast you can read just as much as you can listen to.

All right. Well coming up in a little bit, we’re going to have Casey Keller chartered financial analyst to tell us about the best savings account ever created. You’ll want to stay tuned for that. The best savings account ever created, that’s coming up in just a minute. But it was a crazy week on Wall Street and while the major averages point to point didn’t seem to move that much, the Dow Jones was up a little less than 1%, the S&P, a little more than half a percent. That wasn’t the real story. The real story was all the up and down due to trade talks and it was quite fascinating because we come in Monday and the Dow falls about a 100 points after some negative reports came out regarding trade.

Then, we saw that Tuesday China would signal that it was going to hit back at the Trump administration because they are going to place eight of the country’s technology giants on a black list over alleged human rights violations against Muslim minorities. So China didn’t like that. And then asked Tuesday whether China would retaliate, their foreign ministry said stay tuned was his quote. Stay tuned. So markets clearly didn’t like that. The Dow Jones fell 300 points, very volatile day, S&P down about a percent and a half.

Now Wednesday we, here we go again, we hear China says, hey, we’re open to a partial trade deal. And so the market jumps 180 points at the open. Pretty strong day. Pretty much a relief rally. Not much internal strength, but a pretty good rally nonetheless. But it was after the bell that we had all the fireworks. We heard that China negotiators were going to leave the US without any progress on a trade deal. And so the futures after hours, most of you probably didn’t even notice this. But if you watch this stuff practically 24/7 like I do, you see that the futures were down about 300 points.

And it was because the Chinese officials are going to leave the United States without a deal. And we were trying to picture this in the office and Justin Pawl, our CIO, said, I can only picture the US officials grabbing the legs of the Chinese officials as they board the plane, don’t go. And sure enough, about two hours later, we hear that tariffs could be removed because there’s some positive negotiations around currency. And by the time the market opens the next morning, it’s flat, and so the ping pong match continues back and forth.

And Thursday, stocks are up 150 because we start getting the sense that maybe trade, maybe there’s a deal coming. And lo and behold, Friday we get the deal. But is it a deal? Well, the Dow jumped 500 points, very solid day, but it stalled off at the end of the day and we still finished up about 300 points. But the caveat is it was called phase one. So it is a skinny deal. It’s a mini deal and it covers some of the basic things, which is essentially we won’t put more tariffs on you and you buy a bunch of soy beans and whatever else from us.

That’s kind of the deal. We don’t touch intellectual property, probably not in some of these more important things. So this is phase one and it was best described this week, not as a de-escalation, but rather just it was it … It froze that we didn’t have further escalation, so just didn’t get any worse. But did it really get better? Who knows? But it was a relief rally, nevertheless, and it was a kind of a comeback. But the whole week was dominated by trade. Now, over the next couple of weeks, it’s going to shift rather dramatically because we’re going to see next week 53 of the 500 S&P 500 companies are going to be reporting earnings.

And then it’s going to get even busier after that. On October 24, there’s going to be 51 companies report just that one day. And in the last week of October, you’re going to see 162 companies in the S&P 500 report their earnings per share. Now when you start looking at the checklist in terms of can the market break out to new highs, you have to look at trade. That’s a big one because as we’ve been saying for months, as soon as tariffs were introduced, pretty much the market has had a lot of trouble making new highs.

We saw the market make new highs in January of ’18 and at that point the Dow was sitting somewhere about, we’ll call it, 26,600. Where are we today? 26,800. So, we’re basically at the same level we were more than a year and a half ago and it’s tied directly to tariffs and trade. So we may have some positive news on that. So what’s next? Well, the next thing is we need the earnings to come in better than expected that’s the next catalyst in the next few weeks. If we can get good earnings, which again is really what you are buying when you’re buying a stock is profits.

We need those to be good. And then probably the last ingredient is just the overall economy and we are still seeing some positive news out there. We’ve got some negative things happen in as well. But again, if it doesn’t get any worse, you remember we heard about yield curve inversion. Remember the short term rates higher than the long-term rates and why that typically leads to a recession. It’s a warning sign. Some of that’s been corrected and some of it’s not, but is it going to get any worse? If it doesn’t get worse, you have the trade deal getting better.

You have earnings getting better. You keep getting some positive economic news. Then, yes, we can, I think, go up to new highs and in a pretty good fashion because remember we’re still seeing a lot of money flowing out of the stock market. I know it doesn’t really make sense and it is hard to wrap our brains around. What do you mean going out of the stock market when the stock market’s at the same level it was a year and a half ago? So aren’t there equal sellers and buyers? Yes, that is the case.

But if you track the fund flows, some of the fund flows rolling out of the stock market right now in the billions are worse now than during the financial crisis. So you’re still having a big pessimistic theme happening and that can be reversed pretty quickly with positive news as we saw on Friday with a trade deal and the Dow Jones at one point was up about 500 points and a lot of big, big winners, three, four, 5% up on a lot of stocks. That’s what happens when people are in a sour mood and some positive news takes them by surprise, you get short covering and you get buying and that’s what we saw this week, so that can continue.

But to me those are the three basic ingredients, economy, trade and earnings. And we kind of have one at least checked off partially for now. Now a couple of quick notes before we get to our interview. Did you see the Social Security news, Social Security, COLA, cost of living adjustment? This is how much they gave you extra on your Social Security check each year. And when I say extra meaning the increase, the inflation adjustment. Well, it looks like it’s going to be 1.6% in 2020 and that is down from the 2.8% received this year.

So therein lies the issue, guys, that for those of you on pensions, on fixed income, relying on Social Security, the raises you get, the increases typically do not keep up with inflation. Now if we look at the government inflation numbers, yes, they would say, look,

Karl Eggerss:                      This is what we’re basing it on. If social security’s inflation is only 1.6% the COLA, then that’s what we think the inflation rate is. But you and I know that your inflation rate is probably a little higher than 1.6%. Thus, you have to have a diversified portfolio that’s going to beat inflation, so over time your portfolio grows more than that and you will have enough to take out for your living expenses. That’s the general idea. We are seeing a drop in the COLA for 2020. That was one thing that caught my eye this week.

The other thing is that there’s a lot of charts circling around now saying, “Look, this is the time of year from a seasonality standpoint that we should see a positive move for equity markets.” We already went through the low period, the tough period for equities. If you look at a long-term picture of the market and you averaged out every day for the last 50, 100 years, you have a pattern. Because you take every January 1, every January 2, cetera. You put them together and you get this pattern. We’re entering the period right now where typically you see the stock market rally. So we have that on our side. Is it something we all rely on? No. Every year is different. Every situation is different, but it is something that could offer a tailwind because other people see it. Other people might use that.

The other thing I saw in this was a tweet I put out. I saw a commercial for the new Apple card. Have you seen the new credit card by Apple? Obviously you can use your phone, but they have a physical credit card now. It’s pretty cool. It’s got some nice features. One of the coolest things is you ever get your credit card statement and you look at it, and the description of one of the places you went doesn’t make any sense. You’re like, “I don’t understand what this is. It’s got a bunch of letters. It has a bunch of numbers.”

Well Apple, what they do is they use their map technology and where you swipe the credit card, put that together, and give you the actual name of the business where you purchased something. So it makes it easier. They got some reward points, et cetera, et cetera. But they say in the commercial they claimed “not created by a bank” but yet, do you know who backs that card? Goldman Sachs. Do you know Goldman Sachs is a bank? Interesting. I thought I’d share that with you. When you see that commercial come on next time, think of me. Think of because when it says “not created by a bank,” it kind of is. Goldman Sachs is backing it. Maybe they didn’t create it, but it’s still a credit card backed by a bank.

All right. As I mentioned earlier, we have Casey Keller, Charter Financial Analyst in studio with us. Casey, welcome to the podcast.

Casey Keller:                      Glad to be here, Karl.

Karl Eggerss:                      We teased it at the top of the hour as the best savings account ever created. Why? Or I should say not why are you calling it this, but what is the best savings account ever? Especially given that we’re still in a low interest rate environment, so this piques people’s curiosity. What is the best savings account ever created in your view?

Casey Keller:                      Yeah. Karl, it may surprise some people, but it’s called a Health Savings Account. It’s basically just an account to help you pay for medical expenses, either today’s medical expenses or future if you have a high deductible health insurance plan.

Karl Eggerss:                      The Health Savings Account, most people know them as HSAs. You may have heard that term not really understanding exactly how they work. We’re going to explain it a little bit, just real high level about the plan. But really what we wanted to talk about was the main benefits of the plan that most people don’t even think about. We’ve talked to CPAs. We’ve talked to financial planners. We’ve talked to all types of folks that don’t realize what this can really be used for. In terms of a Health Savings Account, we started out in the eighties and nineties HMOs, PPOs. Those were a traditional copay. You have a little lower premium and you go to the doctor and you pay a certain amount. Then you do have a deductible. It really worked for people that go to the doctor a lot or sick a lot.

Health Savings Accounts came out in 2003 as part of the Bush tax cuts I believe. They’ve been around for awhile and they’ve gained popularity, but these are high deductible plans. What we’re talking about with PPOs and HMOs were generally a little lower deductible. You could raise them. These are pretty much exclusively high deductible plan. Number one, who generally uses high deductible plans? What are the negatives of that first?

Casey Keller:                      Sure. Well, I’d say more and more people are probably using them because they’ve seen their health insurance costs rise and they started to explore other options. They’re starting to look and see what are other options to get my premiums down. If you’re looking in that direction, a Health Savings Account or a high deductible plan usually will pop up as an option. You start to look at it and compare. Nowadays, I believe the minimum requirement to qualify for an HSA is like $2,700 deductible for a family. So it may not be as high as one would think. That’s typically-

Karl Eggerss:                      So you pretty much pay for everything out of pocket up to $2,700 for a family?

Casey Keller:                      Correct. For a family. Yeah. I mean you are going to incur more costs upfront. You’re going to be paying for-

Karl Eggerss:                      If.

Casey Keller:                      If you have this plan.

Karl Eggerss:                      Yeah.

Casey Keller:                      So it varies in terms of how you look at it. I would say more and more people, if they looked at the details of high deductible plans, some of them may be less frightening or less costly than they may think.

Karl Eggerss:                      You really do have to go back and analyze your medical history, your family’s medical history, your kids, how often they are sick or not.

Casey Keller:                      Medications that they may need. A lot of that needs to be a part of the conversation. It’s not for everybody, but I think more and more people would qualify or benefit from it than they may think.

Karl Eggerss:                      So that’s the basic fork in the road. You’ve got low deductible traditional plans or high deductible where people are trying to save on their premiums, but it’s a higher deductible plan, so you’re on the hook when those things do occur. That’s what it is. Of course, you still go to your doctors and you still do those types of things.

Casey Keller:                      One other thing I’d add to it as well, Karl, is that I think it does make you a smarter consumer. If you have a high deductible health care plan, you’re going to start thinking a little bit more about how you handle healthcare because you are paying the first part of it out of pocket. It does help you ask more questions and be a little bit a smarter consumer. Not that everybody could fit, but it’s kind of like if you extrapolate that across the whole country, you could see how it can really benefit healthcare overall.

Karl Eggerss:                      Unfortunately most people probably don’t want to see behind the curtain of what some of these things really do cost when you start digging in, what am I being charged? I’m being charged 12 bucks for a Kleenex.

Casey Keller:                      Right. Then you start to realize I can go to this place versus this lab to get some blood work or lab work done and actually save money. There’s a lot of ways that you can become smarter about healthcare.

Karl Eggerss:                      Yeah. A $10 bandaid is not what it should be.

Casey Keller:                      Right.

Karl Eggerss:                      We know what that plan is. Employers offer it. You can get them on your own or employers were offering them. Sometimes they’ll match and have some incentive as well. But where does the savings account come into play? When you participate in one of these, you’re putting money into this pot, right?

Casey Keller:                      Correct.

Karl Eggerss:                      Then the idea is that it grows and you’re able to use it later or anytime for medical expenses.

Casey Keller:                      Right.

Karl Eggerss:                      Right? That’s the traditional sense. Does it grow tax deferred, tax free? Do you get a tax deduction? Explain some of that.

Casey Keller:                      Sure. Well, I think first of all, I think it gets confused a lot because there is another healthcare plan called a Flex Spending Account. Folks may be familiar with that. That’s a little different animal. That does require you to spend every dollar you put into it at the end of the year.

Karl Eggerss:                      Use it or lose it.

Casey Keller:                      Use it or lose it. Sometimes this account gets confused with that so people think they have to spend it all. That’s one misconception. With an HSA, you have to know if you have a difference between an HSA or a Flex Spending Account. But if you have an HSA, you’re not required to spend it. Basically, it allows you to have your money go in tax deferred or pre tax. If your employer’s putting dollars into the plan for you, it doesn’t count as income for you.

Karl Eggerss:                      Okay. Basically the employer puts in and you’re putting in, so you’re not paying. You’re getting a deduction yourself and whatever the company’s matching, you’re also not paying taxes on that right now either. You got both of those sources of money going into this bucket called an HSA and it’s growing.

Casey Keller:                      It’s kind of like a 401k or an IRA in that sense. But the beauty of it is that like with an IRA, if you’re putting money in, not a 401k, but an IRA, if you’re putting money into that each year, there are limits on your income. If you make over certain amounts, that income or those contributions will not be tax deductible after a certain level. HSA have no limits on that. So it doesn’t matter what your income is. If you’re putting into an HSA, you’re always going to get the tax deduction for it.

Karl Eggerss:                      The money goes in there and as opposed to a 401k or an IRA, this grows tax free, which is very different than tax deferred. Right? Because on a 401k, you took a deduction now. You’re going to have to pay the taxes on the gains later. With an HSA, that’s not the case. Right?

Casey Keller:                      As long as you take the money out for qualified medical expenses, that’s the key.

Karl Eggerss:                      Here’s where it gets interesting, right? Because you don’t necessarily have to take it out for qualified medical expenses, but you do have to take it out for medical expenses that were incurred at some point in your life.

Casey Keller:                      Correct. Yes. That’s the key part there. But to reiterate that, just like

Casey Keller:                      An IRA or 401k we said any savings in there, if it’s invested can grow tax deferred.

Karl Eggerss:                      So you can actually invest this money too. Flexible spending just sits in a silo, right?

Casey Keller:                      Exactly. So it can be saved and I’ll get into that just in a moment. Just a little more detail on that. But it can be saved and it is tax deferred, just like an IRA. But the kicker is, it can be pulled out or taken out tax free as long as it’s to offset either incurred expenses from previously medical expenses or current medical expenses. So here’s how it works Karl, here’s how the strategy would work, would be that you’d put money into the plan. The current limits are $7,000 per year if you have a family, for an individual it’s $3,500.

Karl Eggerss:                      Is that including the match by the way?

Casey Keller:                      That includes the match, so you can’t go over-

Karl Eggerss:                      Okay, so 7,000 total.

Casey Keller:                      Total, whether it’s employer or individual. So if the employer puts the full 7,000 in, you can’t put any extra. But let’s just say you’re max out. Let’s just say a family, you’re putting $7,000 in. The idea is that if you have the means and then you would just incur medical expenses throughout the year.

Karl Eggerss:                      Cashflow then basically.

Casey Keller:                      your cashflow, and you have a doctor’s visit, you have some medications, you’re paying for that out of pocket. And then you start to build up that balance that’s in each year, let’s say 7,014 it’s building up.

Karl Eggerss:                      So let’s just say after 10 years, they have $70,000 plus whatever it’s grown to.

Casey Keller:                      Exactly. Most of these a HSA accounts now offer the ability to invest the balance so you can choose to go pick mutual funds. Some even allow brokerage accounts where you can go in there and invest in whatever you want, and the idea would be to grow it. Meanwhile, in the meantime, you’re incurring medical expenses and you’re keeping track of those. So if you’re going to the doctor, a lot of these sites now, they’ll keep track and say, okay, I went to doctors, it was $80 and you put that in there, paid for this medication. You’re tracking all these expenses.

So you have this running tally of expenses and let’s just fast forward to retirement. Let’s just say someone started this in their forties, they started doing this, and now they’re 65. They could very well have hundreds of thousands of dollars in this plan, this HSA plan. And maybe they’ve incurred over that time $50,000 in expenses and they’ve kept track of that. So they’ve never touched it, but now they can reimburse themselves for $50,000 worth of expenses over the last 20 years, 25 years. And so they can go out and reimburse themselves if they want, take the family on vacation-

Karl Eggerss:                      And that’s tax free, right?

Casey Keller:                      That’s tax free because-

Karl Eggerss:                      Now here’s what most people probably are wondering, okay, you say somebody has, let’s just say $200,000, it’s built up over time, they’re in retirement. They’ve got receipts proving that they have 50,000 worth of expenses. So what about the other 150,000 that’s in the HSA? Is it trapped in there?

Casey Keller:                      No, I mean, potentially you pre-funded your retirement medical care or costs.

Karl Eggerss:                      So you could use it, if you did have another $5,000 medical expense at that time, you can take it out for that at the time. So as opposed to cashflow in it.

Casey Keller:                      At that point, you kind of switch gears and you say, I’m not saving anymore, now I’m in retirement, I’m going to use this account for my medical expenses. So every time you go to the doctor or anything comes up, you’re going to use that account at that point. And if you are fortunate enough to where you’ve overfunded it and you have it too much money in there, worst case scenario is it just becomes like an IRA. If you end up not having enough medical costs to use the account for, you can pull the money out and it’s just taxed like an IRA, just like a paycheck.

Karl Eggerss:                      And what happens if somebody, let’s say a husband and wife pass away, what happens to the remaining balance in the HSA? It basically goes to their heirs and it would be taxable to them. But it still grew all those years, tax deferred at that point, and they just pay the taxes on that at that point?

Casey Keller:                      Correct. Basically the worst case scenario is that you’ve created another IRA for yourself.

Karl Eggerss:                      Yeah, right.

Casey Keller:                      Best case scenario, you’ve gotten to use it for medical expenses tax-free and for all of your life. You basically have to pay for your medical care.

Karl Eggerss:                      Yeah, and I think that’s the misconception, is that people think, well, number one, whatever I put in there is going to be used for medical expenses and I don’t want to over-fund it and all those things. What you’re suggesting is if you have the means, you cashflow your medical just like you normally would, except you get the benefit of putting $7,000 on something that you’ve got a deduction on that’s growing tax free and withdrawn tax free. So what you’re saying is this is triple tax free. I don’t know of another vehicle that has those characteristics.

Casey Keller:                      No, in fact the real popular Roth IRA has two of those.

Karl Eggerss:                      Yeah, so the Roth IRA you put in after tax which means you were taxed on the dollars you put in already.

Casey Keller:                      Correct.

Karl Eggerss:                      So that’s the, that’s already out of it. Then it grows tax free and it can be taken out tax free. So it’s very beneficial.

Casey Keller:                      Which is great, it is.

Karl Eggerss:                      Yeah. Awesome. However, it’s two of the three. 401k, deduction upfront, didn’t pay taxes, but guess what? It’s tax deferred. So the growth is going to be taxed down the road. And actually all of it’s going to be taxed at some point. You got the deduction up front, you pay the taxes down the road.

Casey Keller:                      Right.

Karl Eggerss:                      This goes in with a deduction, grows tax free, and withdrawn with medical expenses to counteract that is tax free as well. Triple tax savings.

Casey Keller:                      Exactly, and that’s what’s unique about it.

Karl Eggerss:                      Pretty phenomenal. So really, I mean, you think about who wouldn’t do this? I think this is where to me comprehensive financial planning comes in, because if you just look at some of these things in isolation, like for example, well, I go to the doctor a little more. Okay, well did you take in consideration how much money you’re going to save in tax free growth that may be greater than the money you… Yes, maybe you did spend a little more on medical by going this route, but if you factor in the tax free growth down the road, maybe that supersedes the medical expenses. You see what I’m saying? In other words, you can’t just look at, well, I go to the doctor a lot so I can’t use an HSC.

Casey Keller:                      No, and I think a real important factor here is that you have to have some liquid savings to be able to cover unexpected medical needs if you-

Karl Eggerss:                      Or good income.

Casey Keller:                      Or good income, one or the other. You need to have something to be able to pay for these things that come up. If you have a broken bone, stitches, things like that, that can be more costly with the high deductible plan. But if you have the cash there, it’s better to pay cash out of your savings than to pull out of the HSA and lose the growth potential, tax free growth potential of that account.

Karl Eggerss:                      This is a really excellent technique because it’s taking something that’s available to most people, that are used in traditional sense, but they are not using it or understand what else it can do. It’s like driving around with a turbo and you didn’t know you had to flip the switch to kick in the nitrous or the turbos, you don’t know it’s under the hood. You have this ability in this plan and most people probably aren’t using it to its fullest extent.

Casey Keller:                      Right, and if you really kind of embrace the power of what it can do, you would almost treat it as this cherished asset that you want to protect and you don’t want to ever tap into it. I think that’s when you start to realize how it works, you go, this is powerful. This can really be really beneficial long term. And then you go, how can I pay for medical expenses in another way? Your thinking changes. It flips in a different manner going I want to protect this account.

Karl Eggerss:                      Well, here’s what’s interesting too, just to kind of put a bow on it, it’s the fact that people come to us all the time, they go, “Boy, I hate paying taxes, I hate this. I’ve already maxed out my 401k. I guess there’s nothing as an employee left to do.” It’s right here. This doesn’t impact your 401k. You can still put in 19,000 as of right now, 19,000 if you’re under 50. 25,000 if you’re over 50 per year into a 401k and you can do 7,000 into the HSA.

Casey Keller:                      Correct.

Karl Eggerss:                      Those are mutually exclusive.

Casey Keller:                      That’s correct.

Karl Eggerss:                      Wow. This is awesome. The best savings account ever created. Casey Keller, thanks for this information. Very, very valuable and we will have you back soon.

Casey Keller:                      My pleasure, Carl, thanks.

Speaker 2:                          Please remember that past performance may not be indicative of future results. Different types of investments involve varying degrees of risk and there can be no assurance that the future performance of any specific investment, investment strategy or product, including the investments and or investment strategies recommended or undertaken by Covenant Multifamily Offices, LLC, Covenant, or any non-investment related content will be profitable, equal any corresponding indicated historical performance levels, be suitable for your portfolio or individual situation, or prove successful.

  Moreover, you should not assume that any discussion or information serves as the receipt of or as a substitute for personalized investment advice from Covenant. To the extent that a listener has any questions regarding the applicability of any specific issue discussed above to his/her individual situation, he/she is encouraged to consult with a professional advisor of his/her choosing. Covenant is neither a law firm nor certified public accounting firm, and no portion of the newsletter content should be construed as legal or accounting advice. A copy of our current written disclosure brochure discussing our advisory services and fees is available upon request or at

It’s Not All Bad – Covenant’s Weekly Synopsis

October 7, 2019

In this week’s edition:

  • Last Week Today – A summary of news impacting the financial markets and the economy.
  • It’s Not All Bad – Survey data is weak, but hard economic data is holding up better.
  • Twitter Put – It’s difficult to short this market.
  • Behavioral Finance – Representativeness, the stereotyping bias


Last Week Today. Australia’s central bank joined the global monetary policy easing cycle and cut their official borrowing rate to an all-time low 0.75%, attempting to sustain an expansionary business cycle that has lasted nearly 20 years (Australia’s last recession was in 1991). | Brokerage powerhouse Charles Schwab announced they would no longer charge trading commissions. ETrade and Ameritrade followed suit quickly, and in a world of negative interest rates, it’s not unreasonable to question if brokerages might pay investors to trade someday. | After a 15-year administrative process, last month the World Trade Organization ruled the European Union’s subsidies of the French airline manufacturer Airbus were illegal and that the U.S. is therefore authorized to levy retaliatory tariffs on $7.5 billion of European goods. The U.S. announced the tariffs on planes, cheese, and whiskey on Wednesday. The European Union promised to retaliate, even though these tariffs followed traditional trade dispute guidelines. | Saudi Arabia announced they had restored full oil production at the facility attacked by drones in mid-September. | For a summary of weekly, month-to-date, and year-to-date financial market performance, please click here.

It’s Not All Bad. Recent data on the U.S. economy is signaling a further downshift in the growth rate, which is not surprising as we’ve been expecting slower growth and warning that 2018 was an anomaly. Tax cuts and fiscal stimulus propelled economic activity well above its sustainable rate, and now that the effects of the stimulants are wearing off, growth is slowing. The big question investors and economists are debating is whether this is the end of the 10-year expansion or a mid-cycle slowdown a la 2015/2016.

Much of the soft data (e.g., the ISM surveys released last week) is pretty concerning, but the hard data (i.e., non-survey data) is holding up reasonably well. For example, in September, the unemployment rate hit a 50-year low of 3.5%, and wages continue to rise, even if at a slower pace than earlier this year.


Source: FTN Financial

Moreover, total weekly hours worked were stable, which is often an early warning sign if managers begin cutting hours. Indeed, even in the troubled manufacturing sector, the workweek has held steady for the last three months at 41.5 hours vs. a long-term average of 40.8 (source: Foleynomics). Our thesis on the economy for the last several years has been “Good But Not Great.” That is, at this stage, the economy is only capable of growing at about 2% per year. It’s not the eye-popping 4%+ growth rates experienced in past expansions, but ten years into the economic cycle, it’s not bad. We’re not Pollyannaish about the economy, and, yes, the risks of recession are higher than at the beginning of the year. We’re watching closely, but currently sticking with our theme until the data tells us otherwise.


Twitter Put? Early last week, the ISM Manufacturing survey plummeted to 47.8 (10-year lows), and the export orders component hit 41 (well below 50, which is the dividing line between growth and contraction). On Thursday, the ISM Services survey for September hit 3-year lows at 52.6, and stocks fell hard before reversing mid-day. Typically, when stocks fall quickly, insurance on stocks gets more expensive (i.e., the pricing of put options rises quickly). But that didn’t happen during last week’s sell-off. Why?

With the election only a year away, President Trump and his team’s most significant advantages are a strong economy and a rising equity market. Remember James Carville’s “It’s the economy stupid” campaign slogan Bill Clinton rode to victory in 1992? Investors have seen markets turn on a dime because of Trump’s tweets. Thus, they’re reticent to be short the market when new all-time highs are merely a tweet away and the Chinese trade delegation is visiting the U.S. this week.

Be well,



How the Mind Works Against Successful Investing – Representativeness aka “The Stereotyping Bias”

(Entry #9 in a series on Behavioral Finance)

As we’ve touched on before in this series, the human mind is an incredibly powerful system. Yet, in spite of that potential power, humans are conditioned to use mental shortcuts or “rules of thumb” when making decisions or judgments. There are sound evolutionary reasons for these shortcuts or heuristics, and psychologists like Steven Pinker theorize, “Our brains are shaped for fitness, not for truth.” In other words, despite the enormous power of our brains, our default way of thinking is better suited for survival than for the types of problems we face today. On the prairie, our ancestors benefited from making quick-decisions to avoid danger, but in today’s world, most decisions are not about survival, and these hard-wired short cuts can lead to poor choices.

Representative Bias, for example, occurs when people rely on a rough, best-fit approximation about something (an idea, an object, a thought, etc.) based on only a few observations. Researchers call this phenomenon the “law of small numbers,” which equates to drawing conclusions about an entire population based on a few available data points. In other words, we wrongly judge that something, or group of things, is more representative than it actually is.

In sociology, representative bias presents itself as stereotyping groups of people by race, sex, political beliefs, etc. For example, consider how jurors’ opinions about whether a defendant is guilty or innocent might be biased by how they believe a criminal should look. If the accused has an intimidating presence or angry eyes, the jurors may be more likely to perceive that individual as guilty.

In finance, representative bias leads to critical errors when investors draw conclusions based on insignificant statistical data. For example, investors may think they see patterns in data where none exist or expect future patterns to resemble past ones.  However, unless highly trained in the art of technical analysis, these investors typically only find trends when they’re well established. Hence, the investor tends to be reactive, jumping on board late in the trend and failing to forecast the all-important trend change, leading to the wealth debilitating practice of buying high and selling low.

This bias also emerges when investors are selecting portfolio managers based on a limited set of performance data. A new manager may have a great year or two of performance, leading investors to believe he can continue to generate the same high returns in the future. The mental shortcut of assuming the past is representative of the future, precludes investors from putting in the work to understand the strategy and trying to discern if the excellent performance is the result of luck or skill. As the old Wall Street saying goes, “you can’t eat last year’s returns.” Or, as the Securities and Exchange Commission (SEC) requires managers to disclose with all of their marketing, “Past performance is not indicative of future results.”

Addressing representative bias is difficult but not impossible.  As with most heuristics, overcoming representative bias requires effort. For example, using an investment diary to record your reasoning (or investment thesis) before investing, along with the expected outcome. As time goes by, record the performance of the investment and compare it to your thesis. When divergences occur, try to understand what elements of your forecast were inaccurate and why.  Over time this practice can help you identify your natural biases to become a more effective investor.

Investors Breathe A Sigh Of Relief

October 5, 2019

On this week’s show, Karl discusses how the Friday jobs report may have saved the day.  Plus, which economics really matter?

Hey, good morning, everybody. Welcome to the podcast, Creating Richer Lives. Don’t forget, if you want to go to the website, it’s Everything we do is on that front page. We have video, we have audio, we have text, we have … you name it, it’s on there. It’s all of our best ideas, our thoughts, are right on the homepage there. If you ever need our help, of course, you can do that by clicking some more buttons on there or you can simply call us at 210-526-0057. The show is brought to you by Covenant: Lifestyle, Legacy, Philanthropy, where the goal is to unburden clients from the daily cares of financial management.

All right, let’s jump right in it here. By the way, next week we’re going to have on Casey Keller to talk about the best savings account ever created. How’s that for a tease? That’ll make you come back and listen, right? And it truly is the best savings account ever created and it’s something you may be aware of but maybe not using properly. So we’re going to get into that next week. He will be in studio discussing that. So I’ve asked him to come in to chat about that. You can also follow us on our social media. We’re on Facebook, we’re on Twitter, etcetera, so make sure you do that and share the show with folks. We’re trying to get more listeners, and we do every week. Many of you hear us each and every week and we thank you for that.

All right, it was an interesting week, and as I do, when we get a little bit of volatility, I asked the question to you, what did you do? Monday, Dow jumped about 100 points. Everything was looking pretty good. Everybody’s pretty confident. Maybe we get a China deal, blah, blah blah, and then we come in Tuesday and we got … big headline here … the worst ISM Manufacturing survey in 10 years. It’s supposed to be 50.4, which doesn’t mean much to you, but above 50 means expansion, below 50 means contraction. It was 47.8. Recession fear spike, the VIX jumps up, the volatility index, the Dow falls almost 350 points and, by the way, we had a big drop first day of October. Are we going to have the same fourth quarter we did last year? That was a big concern that day and then, of course, Thursday, and I’ll come back to what happened earlier in the week, but to tie that together, that ISM Manufacturing survey, there is an ISM services that also came out survey. It was below where it should have been as well.

Now here’s the thing with these, those are surveys. That’s the keyword. Now, is it apples to apples? Yes, it is. We see that every month. It gets reported. But you need to understand when you see some of these headlines, what is actual hard economic data and what are polls or surveys? As you know, who fills out surveys? Human beings. Are human beings emotional? Do you think most human beings in the United States, given all the headlines, whether it’s impeachment, trade wars, geopolitical risks, whatever it is, do you think people feel great right now or do you think they feel okay? Pretty general question, but most people are concerned about potential recession. So when they fill these surveys out, whoever does, they’re not in a great mood and that’s what it tells you. So what you need to look at is the difference, and every day we get probably five or six economic indicators coming out on my Bloomberg machine, flashes and actually has audio, which is a little spooky. The computer starts talking to me, telling me what’s going on. It said that we had these economic reports. Look, the economic reports either, again, are hard data, which is real economic numbers, or it’s soft, which is surveys.

The difference right now between the hard data and the soft data is pretty wide. What’s happening is the soft data is getting worse and worse and the hard data is actually doing pretty well. You can go back and look, but various studies suggest that when we have that type of divergence, the stock market usually responds pretty well and it makes sense because if the real data is pretty good but people just don’t feel good about it, eventually, as the market goes up, they change their tune and things come back in line. That was a big thing this week. I mean that’s what caused the stock market to fall 350 points on Tuesday, fall an additional 500 points on Wednesday, fall 300 points on Thursday. So we were sitting here down 11, 1200 points at the lows, and then Thursday we saw little turnaround. Earlier in the week I had emailed our team internally with a technical picture showing that we could see some pullback this week just based on some technical levels. We got that pullback and then it got fairly oversold, right? The pendulum swung too far one way and we got a little bounce on Thursday and, of course, we got the bounce on Friday, and the bounce on Friday was a relief rally.

Why was it a relief? Because the fears of earlier in the week with these ISM surveys was that were the same fears we saw back in August, which is recession, right? We see all these economic indicators, headlines, the worst manufacturing survey in 10 years, Dow falls, people are, “Oh my gosh, here we go again.” So those recession fears are real and are the chances and the odds of a recession higher today than they were several months ago? Yes, they are. But we still don’t see that happen, but the odds are higher. You know why? Another reason they’re higher is because we haven’t had one, and that’s a natural part of the economic cycle is a recession. So at some point we will have one and we’re closer today than we were yesterday. But as I’ve been saying, even if we do have recession, who’s not to say it’s not a mild recession versus a huge financial crisis, which is what people are fearful of. We’re going to have a recession at some point. That’s a normal part of the business cycle, but the fear of this recession and the “Is the Federal Reserve lowering interest rate fast enough?” is the concern.

If you want to hear some positive, have you noticed, remember all the talk about the inverted yield curve about a month ago, two months ago? We were doomed to go into recession. We are doomed for financial crisis because the yield curve had flattened. Remember, the yield curve being long-term interest rates, that difference between that and short term interest rates. Normally, long-term interest rates are higher than short, and that wasn’t the case. It actually flipped the other way where the short-term rates were higher than the long-term rates. That has resolved itself partially because the Fed lowered interest rates. They control the short side. They lowered it, but many thought that that wouldn’t fix anything, and it has. The yield curve steepened. That’s a really good sign.

So we were coming into Friday morning with some fear that we were going to have a bad jobs report, because we had this really big anticipated jobs report. What happened in September? Was it going to confirm these bad surveys? Was it going to confirm that things are starting to fall apart again? The payroll number, the non-farm payrolls for September came in at 136,000, which was worse than the estimate of 145,000, but as usual, last month’s was revised. They changed it, and that’s the problem with these. They always tinker around with them after the fact. They revised last month’s up by 38,000, a big revision up. So when you blended the two months together, there was a sigh of relief. You could almost hear it around Wall Street.

Why is that so important? Because we’ve been saying the consumer is 70% of the economy, big part. If the consumer keeps spending, economy’s okay. If the consumer has trouble, that’s when we could go into recession. Now, there was a slower pace of raises. People are still getting raises, a little bit slower pace in September than the prior month, but they’re still getting raises, and we have unemployment at a 50-year low, five-zero. Unbelievable. So it doesn’t smell and look like a recession, but as we’ve been saying, we’ve been slowing down and we’re more vulnerable, especially to a shock, as I’ve been saying, a shock to the economy. So we’ve been slowing, but is there a recession? It sure doesn’t feel like one and look like one, but we did see interest rates come down a bit probably because of that wage number that wasn’t as good. But one of the most overused terms is Goldilocks. There’s a lot of overused terms in our industry, the stock picker’s market where Wall Street meets Main Street, the new normal. These are all things that we’re tired of hearing over and over for the last 10 years.

Another one is, it’s a Goldilocks economy, not too hot, not too cold. We have the Federal Reserve that’s going to probably continue lowering interest rates and yet the economy is still okay. That’s a good combination for stocks, and we still have things like dividends paying more than bonds. In that environment, people tend to go towards stocks. By the way, with all these economic reports that I mentioned earlier that came out this week, there’s another survey, if you want to get into the survey thing, there’s another company called Markit, M-A-R-K-I-T. They do their own manufacturing and services, and theirs have been coming in okay. So who do you believe? Well, ISM goes back much further so they get more credibility on the street, but there are other surveys that weren’t as bad just for comparison’s sake.

Now, a couple of things that happened this week. Number one, there were some interesting discussion about what happens when the stock market gets off to a bad start in October because we know that last October, November, December was pretty darn bad. People are scared of October primarily because of 1987. Bespoke did a really interesting study that said, “What happens when the S&P 500 falls over 1% the first day of trading in October?” They grabbed all these times this has happened going back to 1931 and, I don’t know, there’s maybe 10 or 12 times that’s happened. The median gain the rest of October is 1.97%; the median gain the rest of the year, 7.25%, with only one of those times where the stock market continued to fall, which was 1931, Great Depression.

So generally speaking, when October starts off bad, we tend to have a pretty good run the rest of the year for what that’s worth. I give you these kind of tongue-in-cheek, there’s some statistics behind it, but who’s to say this October is not different? But we do have some history on our side in terms of a positive market after a bad first day. We had really three first days, bad days. We had obviously down 350 that first day, and then we had 500, and then fortunately we had a little Thursday intraday turnaround. But I can tell you, we’re seeing probably a mediocre rally on Thursday and Friday was definitely a little stronger and built as the day went on, which was encouraging.

Other big news this week, this is really big, is Charles Schwab announced 0% commissions. Now, full disclaimer, we keep our client’s accounts at Charles Schwab or Fidelity. So Charles Schwab goes to 0% commissions. So the trade stocks there, and they already had a lot of ETFs that were free, but to trade stocks, it’s free. Free trading. Why would they do this? Well, here’s what’s interesting. People often wonder where do these places make their money? Remember, Charles Schwab is a bank. So what they pay out, what they lend, that’s where they make a lot of their money. They also have a lot of other things they do. Trading, I believe I have this right, is about 8% of their revenue. So they got hurt that day. The stock fell when they announced this because that’s less trading revenue. But guess what else happened? TD Ameritrade followed suit. E*Trade, their stock was down 25% I believe that day. So the companies that are relying on trading for the revenue got hit harder.

So Charles Schwab is playing prevent defense here. We already know there’s places that do free trading. They’re the first broke … and this was inevitable. I mean if you’ve been watching, when I first started in the ’90s, discount brokerage houses were still charging $30 a trade. It was a significant amount and it’s been coming down, down, down, and here we are at zero. Probably Fidelity will follow suit, but these places do make money. It’s almost a lost leader, to be able to announce and advertise free trading gets people to open accounts there, thus they make money in other ways, and that’s the plan.

Now, it’s great for you and I. It’s great. We have free trading. That is a big deal because it allows you to do things. Maybe you’re on the fringe in terms of the size of your portfolio and you wanted to use individual equities, but you’ve been using ETFs or funds because you just didn’t want to pay transaction costs. That’s not the case anymore. So we have zero commissions there and, again, everybody’s following suit. But really fascinating. It’s changed the ballgame. When, I would ask, when are we going to see negative commissions? We’ve seen negative interest rates. When do we see negative commissions? When do they start paying you to do a trade? You buy hundred shares of XYZ stock and we’re going to put five bucks in your account. Who knows? That may happen. That may happen.

The other thing we’re seeing is a big drop in real estate prices in certain areas and primarily they are the most heated areas. We’re still seeing strong gains in a lot of areas, and housing is actually starting to pick up, but in terms of these overpriced areas like Manhattan, a report came out this week that Manhattan real estate prices are falling at the fastest pace since the financial crisis. Remember, we were seeing apartments and condos going for 3,000 bucks a foot, $3,000 a foot. So for that to come down, it should, that’s frothy, that’s a bubble. At some point, they’ll get to equilibrium and people take advantage. But you’re seeing a lot of foreign money dry up and, and that can be for several reasons. We got oil prices fall and so wealthy people from oil rich countries maybe not coming in; Brazil has been struggling. There’s issues in Hong Kong. We obviously see China slowing down. So a lot of the foreign buying in Manhattan is slowing down. That’s probably why you’re seeing this more so than just the economy slowing and it’s falling.

But this is very different than 2008 financial crisis when all housing was overpriced, generally speaking. You have pockets, and it’s no different than the stock market. You have pockets of bubbles and you have in the stocks and you have pockets of bubbles in real estate, perfectly normal capitalism. There’s also good deals around, if you look hard, just like in the stock market. So I think we need to make sure we don’t paint a huge broad brush, whether it’s real estate or whether it’s stocks, that everything’s expensive, therefore, I should sit in cash or, therefore, I should sell all my real estate. That’s one of the big mistakes people can make.

So we know what moved the markets this week. What actually did move? Well, after all that volatility and jostle and back and forth, markets were slightly down. Small caps probably got hit harder than large caps. I think the Dow is down less than 1%, the S&P down less than half a percent. Small caps’ down depending on which index you look at somewhere around between one-and-a-half and two-and-a-half percent; international markets’ down for developed; interesting, emerging markets’ up on the week based on the EEM emerging market, the MSCI emerging markets ETF, which was up about 0.8% and you still had this, it’s weird, you still have a value momentum back and forth, almost this tug of war where we heard … two weeks ago you heard me talk about value having a dramatic out-performance. That subsided quite a bit, so everything’s still going up. It’s just there’s a lot of back and forth, and we did see bonds gain partially this week. We also saw gold up a little bit this week as well. In terms of sectors, the things that got hurt the worst: financials, energy, and materials, were all in the red. The strongest areas you saw were technology, information technology, specifically healthcare. Those were the two biggest gainers and we also saw staples go up this week as well.

So really, again, a lot of movement, but you see the theme here is that we’re still churning around but I think the longer we go without breaking down, which is everybody’s fear, eventually we will burst out to the upside with some good news because we have a lot of negative news flow. We’ve talked about the negative equity flows coming out. We know we got political stuff happening and protests. You name it, there’s a lot of things negative going on. If we get positive interest rate environment in terms of the Fed lowering rates and if we get good earnings and some progress on the trade deal, I think we do burst out to the upside and, again, what happens when we break to new highs? It tends to suck more money and it tends to cause people to go, “Oops, I was wrong,” premature, and they start buying and it’s a self-fulfilling prophecy and up you go. That’s generally what happens.

All right, everybody, that is going to wrap it up. Don’t forget to tune in next week and also go to, and if you need our help, 210-526-0057; 210-526-0057. Don’t forget, you can listen to the podcast on Spotify. We’re on Stitcher. We’re on iHeartRadio. Of course, we’re on Apple Podcasts. You can listen to it on, if you wish. Tons of ways to listen to it. Share it, like it, comment, do all those social media type things and we’d appreciate it, as always. We thank you, as always, for listening to the podcast. Thank you for your comments, positive feedback and your emails, asking questions and giving thoughts. Again, going back to the very beginning of the show, what did I ask you? Did you do anything this week? Did it start to scare you that we were starting to get a little more volatility? Did you buy anything or did you hold still? I can tell you, we did see for the most part. We held still. We didn’t do much. All right, have a great week, everybody.

Please remember that past performance may not be indicative of future results. Different types of investments involve varying degrees of risk and there could be no assurance that the future performance of any specific investment, investment strategy, or product, including the investments and/or investment strategies recommended or undertaken by Covenant Multifamily Offices, LLC, Covenant, or any non-investment-related content will be profitable, equal any corresponding indicated historical performance levels, be suitable for your portfolio or individual situation, or prove successful. Moreover, you should not assume that any discussion or information serves as the receipt of or as a substitute for personalized investment advice from Covenant. To the extent that a listener has any questions regarding the applicability of any specific issue discussed above to his or her individual situation, he/she is encouraged to consult with a professional advisor of his/her choosing. Covenant is neither a law firm nor certified public accounting firm, and no portion of the newsletter content should be construed as legal or accounting advice. A copy of our current written disclosure brochure discussing our advisory services and fees is available upon request or at