Are You Spending Enough?

September 7, 2019

On this week’s show, Karl explores the spending side of financial planning. Most of us know how to save, but do we know how to spend? Have you ever really examined where you love spending your money?



Hey, good morning everybody. Welcome to the podcast. My name is Karl Eggerss. Just a reminder, the show is brought to you by Covenant, Lifestyle. Legacy. Philanthropy.® And we’re going to get into a little bit of that later on in the show about what does that mean, because that all ties into creating richer lives. So put that on the back burner for just a minute, just a reminder, our telephone number, (210) 526-0057 and also for those of you in the South Texas area and maybe further out than that, I will be on again this weekend on Sunday morning on the local CBS affiliate talking about the three biggest mistakes that I see when it comes to social security.

Now, last week, I was on the same station talking about the trade war and tariffs and so forth and people even outside of our local area did get to see it because it was picked up nationally, which was kind of cool and hopefully it’s the same thing this time, but most of you are in our viewing area. So make sure to tune in. I’m not quite sure if it’s in the 6:00 AM hour or the 7:00 AM hour. So just set the DVR for both hours and then you’ll be covered.

So the three biggest mistakes I see when it comes to social security and some of those we’ve talked about on this podcast in prior months and years, but kind of refresh some of that and talking about what’s important today regarding social security because they have tweaked the rules as they seem to always do. All right, well let’s jump right in.

Of course, Monday we had the Labor Day holiday, Happy Labor Day to all you guys and gals. We also are now in football season, which is really exciting, right? The weather’s just about to change. I was actually in Washington, DC this past week. Somebody joked and said, “Are you trying to get some stuff changed?” No, I wasn’t up there trying to get anything changed. I don’t have any kind of influence like that.

Up there for a conference and got to cruise by Arlington National Cemetery and the Pentagon and it’s just a beautiful city. I’ve actually been there twice in the last year for different business trips and I really, it’s a city I really enjoy. It really makes you stop and think and appreciate it. Anyway, the point of telling you that was the cab driver, or the Uber driver I should say, don’t know anybody takes a cab anymore, but the Uber driver on the way to the airport was saying, “Man, it’s such a cool morning.” And it was, it was very cool and to just reminded me, we’re on the cusp and on the tail end of hot summer days and hot summer nights and we’re fast approaching fall, which is my favorite time of the year and probably a lot of yours as well. Football certainly ties into that.

So we had Monday off, come in Tuesday and there was some negative news though. The week got off on a wrong foot because the ISM Manufacturing Report came in and it fell into contraction territory. In other words, this is a survey and it fell below 50. Oh my gosh, first time we’ve seen that in a few years. Another check mark that says we’re going into recession, right? Well not so fast. Another football reference there. If you don’t know what that means, you need to watch ESPN Game Day. So keep in mind this survey is a survey, it’s just that. And so it’s fueled by emotional human beings and you know, so we need to think about that. And you really need to separate, because there’s a lot of data that comes your way every day and some of you pay attention to it and some of you don’t.

Some of it’s hard data meaning it’s just official numbers and some of it is soft data, which is surveys. And the surveys, we’re always skeptical of and have been, but they are what they are and it’s certainly people are feeling a little more sour than they have been, especially when it comes to manufacturing because we are seeing a slow down. But what’s interesting about this is there is research showing that when this indicator does fall below 50, you would think that must be trouble for the stock market. That’s not the case. The stock market is much higher a year after this index goes below 50. So again, you know, take some of this with a grain of salt. And also there is a difference between a slowdown and what your portfolio does. Okay, so keep that in mind. Now we also did see construction spending came in a little weaker this week as well, and we found out that Trump was furious.

President Trump was furious when China retaliated. Remember a few weeks ago when they came out in and basically retaliated and slapped some tariffs on us. He wanted to go back and double the tariffs and apparently he received some phone calls from some higher up CEOs and his staff saying, hold on, hold on before you do that. And so he didn’t actually do that. And of course he retaliated with the September 1st deadline which came and went and tariffs did get initiated but they weren’t double. So apparently he apparently was not happy with China.

Wednesday we came in and we saw Hong Kong, there is de-escalation in some of the protests and so forth, and so the market went up. It was up over 200 points. Very strong day internally, if you looked at the breadth of the market. We really started to see some of these out of favor areas like value, which we’ve been talking about outperform growth. And we started to see just good breadth across the market. And we also saw some positive economic news overseas, which was really interesting. So we’re getting some better than expected global economic news. So you know, we may be forgetting about a recession here. We may be forgetting about a recession globally. Neither one may happen.

Then we saw Thursday, could we get follow up to the strong day on Wednesday. And we heard late Wednesday, I think it was, late Wednesday night, we heard that China wanted to meet and a meeting was set for October. Now remember, that meeting was supposed to be September and but it was October. Dow futures immediately jumped Thursday evening, or excuse me, Wednesday evening to 250 points. And then we had another really strong day on Thursday. The stock market, the Dow finished up 400 points. Interestingly enough though, it wasn’t as strong of a day as it was on Wednesday.

So even though the Dow was up twice as much, when we looked underneath the hood, it wasn’t as strong, but still a good solid day. And we saw the bond market get hit along with the rates and kind of that whole, it was a really risk on day and we hadn’t seen that in quite a while. And we also saw the yield curve, which of course everybody’s, what’s the yield curve? What’s the inversion? What does all that mean? Well, don’t worry about it right now because it just went positive again. Okay, so forget about that for the time being.

And here’s the other thing. Remember I mentioned the ISM manufacturing survey that came out on Tuesday that was weaker than expected and below 50? The services one came out on Thursday and it was better than expected and very strong. It was a number of 56, which doesn’t mean much to you, but that’s a really strong number. Now again, a survey. So let’s take that a little light, but better than expected. And then we saw the ADP employment change. And remember this is a non-government number, so we have a government number that came out on Friday, the Jobs Report, this is always a precursor to that. This is from the company ADP, which you may get your paycheck from. It came out 195,000 versus the 148,000 estimate, big beat. And so that kind of given a positive. So the market just went up Thursday and just stayed up there.

And then Friday of course, kind of a calm day. We did see a Jobs Report that was a little weaker than expected, but good enough. In the last, I think the last three months the average job’s growth is, or average are added have been about 156,000, which is good. That is a good number.

That 156,000 is enough to keep the economy going, and again, the consumer is still spending, so we won’t spend too much time on that, but pretty much a flat day for the market. But now we’re only about a percent and a half off of the high. So again, what have we had? Some volatility, but not a lot of movement from start to finish. And really that’s how it’s been the last 18 months or so as the word tariff has entered the vocabulary of everybody around.

Now here’s what’s interesting. This is Groundhog Day. I mean, how many times, over the last 18 months, have we seen the two sides talking? Market goes up, we see a potential deal. Deal falls apart, escalation. Market goes down, capitulation. Let’s come back to the table. Either one side or the other, market goes back up.

The meetings are going tremendous, they’re friends, and then we hear all the negative talk, and we’re not going to let… We’re not going to stand for this. It didn’t work. It goes back down, so we’ve seen this before, so let’s see if October comes with a deal.

Now, remember, they apparently had a deal that was pretty close, but when it came to reinforcement, the Chinese said, “No. No. No We will do the deal, but we don’t want to be… have any consequences if we don’t do some of the things that are in the deal.” Then what’s the deal? That’s why things escalated back a few months ago.

I do want to switch gears here. Last week, and it’s gotten a lot of publicity, Michael Burry, who was, of course, one of the main characters in The Big Short, which was a true story, it was a book by Michael Lewis, then a movie, and, of course, he made a fortune by betting against the housing market. In other words, when the housing market collapsed, he had some securities that he actually had created and made a ton of money, took a while, but made a ton of money, and, of course, he came out and said there is a bubble in passive investing, and I mentioned that I agreed with that, but we were talking about it internally, and I wanted to clarify some things because maybe you need some clarification, too, and I think, a lot of people, there have been some debates online and all over the place about what did he really mean, and I want to clarify.

When you think about passive investing, what do you think of, because some people hear that and they think, “I’ve got a diversified portfolio and I’m supposed to make some modifications over time based on my life, but I’m supposed to be patient with it and let it be. Isn’t that passive? What’s wrong with that?”

I agree 100%. I really think what he’s talking about, and he mentioned it a couple of times, or the articles did, with Bloomberg, it’s really about proper diversification. That’s really what we’re talking about. We’re not talking about is there a bubble in “passive investing?” That’s the word he mentioned, but really what he was specifically saying was there are some small cap value stocks, in other words, things that are out of favor that are dirt cheap and on the same… At the same time, there are some indices and some large companies that are weighting those indices that are causing those to be over-owned and maybe overvalued, and I think that part is true, but to call the whole passive investing a bubble, I don’t know if that was the right terminology, and so we’re probably talking about semantics a little bit here, but it is important because I do think there are… I mean, bubble is a strong word. Bubble means it’s going to pop and something horrible is going to happen.

I’ve been saying I don’t believe that a 2008 will happen again anytime soon, and that’s not a prediction. That’s just my opinion. I think that was something that was a once in a generation, or once in a lifetime I should say, situation. Now, what could happen is more of what we might have seen in the dot-com bubble where a large chunk of stocks are too expensive, and they did pop, but there was a lot of things that did very well during that time, so diversification worked very well, and my fear is that there are some people that aren’t as diversified as they think they are because they primarily own the Standard & Poor’s 500 and they own just a bond index, and what if interest rates start to creep up and so bonds, while they may not collapse, what if they just don’t make any money? Including the interest, they don’t make any money for a few years and, at the same time, what if the Standard & Poor’s 500 is the worst-performing index and it really struggles?

Meanwhile, some of the other areas like international stocks, which have struggled, or commodities or different strategies that are in mutual funds, what if those start to do very well? Or specific sectors, what if energy, which is already in a bear market, what if energy starts to do well on its own, these specific sectors or specific industries? To me, I just believe that over the long term that folks do need to do their homework, and, yes, you need to have a diversified portfolio, but 2008 taught people a pretty good lesson that, number one, sometimes cash is not a bad option. That was an option in 2008, and that was one of the few things that actually made money.

The year 2000 was very, very different, and I think that’s the point is that, again, there are some pockets of the market that probably are in a bubble and there are some things that are really cheap, so what does that mean? That just means for you to really look at your portfolio and make adjustments if need be. That doesn’t mean, when he says a passive investing bubble, that doesn’t mean move to the sidelines in cash. I don’t even think he meant that, but it got portrayed as something very different than what it was, and I probably didn’t do a good job last week of explaining that.

Now, I didn’t get any comments or feedback from you guys. I just wanted to clarify that because it’s really, really important because, the things that are not performing well the last few years, people are starting to give up on them, and these are asset classes. These are industries and sectors and… that has worked over the long term. Now, we know stocks are the best performing asset class over the long term, so why not just put 100% of your money in stocks? You can do that especially if you don’t need the money anytime soon. You could do that.

Why do people even put bonds in there if they don’t make as much money in stocks over the long term? Because they want something to pull from when they want to buy more stocks or they want to smooth out the bumpier ride. There’s lots of reasons, but there are other asset classes as well, but let’s say you did only do stocks. You said, “Yes, I’m in it for the long term. I just want stocks.” There are still a lot of different ways to do that. You can use cap weighted indices such as the Standard & Poor’s 500. You can use point weighted indices such as the Dow Jones, or you can use smart beta ETFs, which basically are a little more equal weight, so, if they have 500 companies in them, for example, they’ll equal weight them, but, also, the waiting and how much they own and maybe even certain stocks they own have a fundamental bent to them.

You have some methodology other than the bigger the company, the higher the weighting because, really, if you think about it, cap weighted indices are a popularity contest. The bigger the company, the heavier the weight, people put money in, and more money goes towards that stock. Now, it’s always been that way, and it’s worked, and so I personally believe that a hybrid approach of all of this works well. I own some Standard & Poor’s 500 in our strategies. We do own that. We also own some smart beta. We also own some active mutual funds, some funds that really don’t correlate with the market. We own bond funds.

Even if I say I don’t like the bond market right now, don’t misunderstand and say, “Then we should sell all of our bonds.” That is not what I’m saying, but you may make adjustments, but it all goes back to really your situation. That’s what this is about because if you think some of those other things aren’t going to work or you don’t need certain stocks, or how much you have in stocks I should say, and how much is in bonds and all that, that’s all based on your plan, and it’s really based on how much, I would say, comfort you want because if you don’t want the comfort, you could do more stocks, I mean, because we have the evidence to suggest that stocks have done the best over the long term. We have that evidence. We know that, so why don’t people do that?

It’s because it’s a bumpier ride, and that’s why you get paid a premium over the long term, so, if you read the article about Michael Burry, he was suggesting about it, and it talked about some specific stocks he likes, but he just believes there’s a part of the market that’s really undervalued and a part that’s overvalued, and he believes a lot of people are starting to do… Through index funds and through ETFs and target date funds, he thinks a lot of folks are probably overexposed in those areas, and I think that’s true to a certain extent. I think that there’s probably a lot of people out there that are under-diversified simply because it has… these things haven’t performed well, that are the diversifiers, and I see it.

Now, when it comes to things like target date funds, would I rather you be in that than not? Yes, because, back in the day when interest rates were higher, people, and target dates didn’t exist, I would see 401(k)s all the time where they were 100% in the stable value, and they didn’t need the money for 20 or 30 years, and it was because they were risk-averse, so the target date funds are sometimes the default option in a plan. In other words, when an employee signs up, it automatically goes in some basket. That’s actually a good thing, and I’m seeing more of that and, unfortunately

Or fortunately, some of the employees don’t know what they own and they’re actually invested in a diversified portfolio and it’s a target-date fund. And they just see a target date of 2045 and they say, “Fantastic. That’s when I’m going to retire. So that must be the fund I own but I don’t know what’s inside there.” All it is is a fund of funds, right? And the longer date, the more riskier it is. In general, that’s good. That’s better than not having something. I would rather see them more diversified by hand-selecting some of the funds but they don’t know how to do that. And so that’s where it fits. But I do think they have one major flaw, which we’ve talked about numerous times, that your retirement date coincides with your risk appetite. So in other words, you’re using one factor, which is your age. I don’t agree with that but does it get people investing over the longterm? Yes.

Now, before we wrap up today, I want to ask you a question. I was asked this question this week and this is all about creating richer lives. The question I was asked this week was, what do I love spending money on? You know, we always talk about saving and investing. What do I love spending money on? It only took me a couple of minutes to really think about it. And I’m going to ask you the same thing and I want to know what you love to spend money on. Because the goal should be that you make a plan, and we can help you make that plan, to spend money on those things. It could be given to charity, right? That’s the philanthropy and our tagline. It could be given to kids or grandkids or paying for their education. That is the legacy part. Or it could be, we love to travel. That is the lifestyle part. That’s what creating richer lives is all about. We can’t answer that for you, but we can certainly ask.

And so when I was asked, what do I love to spend money on? In other words, what do I not feel guilty about spending money on? And that’s just, I just like doing it. Number one I would say would be going out to dinner or lunch or breakfast. I just really enjoy going out to eat. Some people don’t like to go out to eat. They don’t, it’s expensive, right? Number one, you have to drive there. It’s more gas. You have to spend money on tipping and food costs are going up and it takes time. It’s just expensive. And some people like to cook. I love to go out. My wife loves to go out. We like to go out to eat. And that’s something that we really enjoy.

But you know what my number one answer was? Technology. I love spending money on technology. And I don’t mean huge things but little gadgets. For those of you that know me and most of you do, I think, I’m a techie. I’m an early adopter. For example, probably about nine months ago, I bought something called a DJI Osmo Pocket. DJI is a Chinese company that makes the best drones and cameras for the drones out there. Now, what they decided to do was take the camera technology off the drone. I don’t have a drone but they made the small little camera, 4K, it follows your face around and it’s literally the size of like a Pez dispenser. Every time I go film something of a daughter’s volleyball game, son’s tennis match, you name it, I had this little thing out. Or I’ll set up a little tripod and it hooks up to my phone and people always ask, “What is that? What is that little thing?”

I love technology and I love how fast technology’s going. And one thing I think we’ll talk about on a future show is I recently upgraded my home to a smart home. And that can mean a lot of different things to different people. But I want to share my experiences with you, the pros and cons, how much it cost, because again, this show, as we move along here, we’re going to talk about the markets but we’re also going to talk about things that I think can help you create that richer life.

But I want to know from you, what is that thing that you spend money on, that you just love to spend money on? It could be clothes, it could be travel, travel’s a real popular one. But it could be travel. I don’t care. It doesn’t matter to me. In other words, I don’t judge what people spend their money on if they say, I love to do this. And some people obviously tell us, “Hey, we want to have a specific budget for travel. We do really nice trips.” Great. Let’s create the financial plan to do that. Let’s do that. So, that’s our job is to help you create that richer life. Or, as I said, it could be, “We love supporting missionaries in our house, so we’re going to add on to our house an extra room or two or casita and that’s where they’re going to stay.” Or “we’re buying a bigger house because yes, we don’t have kids in our house but we want a bigger house because we’re always entertaining missionaries”, for example. Fantastic. Let’s figure out how to do that from a mathematical and a financial standpoint.

So I thought that was an interesting question I was asked. But it got me thinking, because we are taught to save, save, save, and I’ve never, at least none of my clients have ever run out of money. And what does that mean? That probably means they weren’t spending enough. Right? Because, I mean, yeah, if we knew when we were going to pass away and we could have a dollar in our pocket, that would be ideal. We don’t. But there is something in between where people die with too much money unless that’s their intent. So again, do we have an intent to leave money to a charity, the next generation? We don’t want to give it to the IRS. At least I don’t. I don’t know if you do, if you want to do that, we can certainly help you do that. I don’t think you do. So, that’s what this is all about.

And so, I’m going to continue to tell you about the markets because that’s what I love. That’s my passion is market commentary and digging into the data and figuring out why things are moving the way they are and really help you alleviate some of the noise, which most of it’s noise. And also to keep you on track and let you understand like this week, for example, value stocks started out performing. That’s a very important thing to understand. And it’s also important to understand that most of the movement right now is because of trade, not because of earnings, not because of interest rates, it’s about trade. That’s mainly what’s moving the market. And that’s important for you to know.

So, I’m always going to talk about that stuff, but I also want to continue to bring guests on from time to time and we’re going to expand that more and more as we move along. And again, just a reminder, probably in the next couple of weeks, we’re going to start, for those of you that had been getting the podcast via email, you’re going to get a few more things in that email. So we’re going to have an informational email once a week with the podcast, my radio interview, our CIO’s blog, and anything else we produce, which is video. It could be an interview on television, for example, the social security, and then special things that may not be out to the public for example. But they may be an educational piece that’s video that we’re going to send you that may be a three or four or five-minute snippet. So, really excited about that. We’re probably maybe a week, a week and a half away from doing that.

So we got some cool changes and again, That site is going to have some of that on it and, of course, have some blog articles and so forth. If you need our help to create your richer life and especially some of the things that we’ve talked about, again, trying to figure out what your real goals are, how to spend some of your money, then we can have a conversation. (210) 526-0057 or just go to and we’re happy to talk to you. Have a great weekend, everybody. Enjoy it. And let’s go watch some football. Take care.