Does A New Year Mean A New Strategy? (Audio Podcast)

January 4, 2020

On this week’s podcast, Karl Eggerss discusses the new year and the what you should and shouldn’t be doing just because the calendar changed.

Hey everybody. Welcome to Creating Richer Lives, the podcast. Happy New Year. This is our first show of the year. If you’re new to the show, welcome aboard. If you are somebody that’s been around for years and years and years, you’re always welcome and we ask and encourage your feedback. You can do that by emailing us or however you want to get ahold of us. (210) 526-0057 is our telephone number and the website is My name is Karl Eggerss.

This show is brought to you by Covenant Lifestyle Legacy Philanthropy. At Covenant, the goal is to unburden clients from the daily cares of financial management.

All right. You know that when the clock changes to January 1st, we celebrate that by having a big ball drop in Times Square and wearing glasses that say 2020 on them and going to parties, and nothing really changes from January 1st to December 31st but it’s a reminder the gyms are crowded for at least a month or two and then that kind of tapers off. New year’s resolutions, and I’m going to change this, I’m going to do that. It’s at least a reminder to reflect back on what you did poorly and maybe what you’d like to change going forward. It could be your diet. It could be your exercise routine. It could also be what did you do poorly with your portfolio or your finances. Did you not save enough? Did you spend too much? Did you not do some of the planning that you really should have done?

Well, it’s not too late. You can do that now. So it is a good reminder as the clock changed over to January 1st, 2020. Of course you always hear make sure you go up and change your batteries in your smoke detectors. It’s a good time to do that. I would also encourage you, while you’re doing that and you’re on the ladder trying to figure out where that chirping is coming from, I would also encourage you change your passwords on a lot of your accounts, especially your sensitive accounts, whether it’s your bank accounts, credit card accounts, social media accounts, all of that. Change it.

If you are not using a password manager, I would highly encourage you to do that. There’s a few of them out there. I won’t endorse any one of them, but there are a few of them out there. I don’t know how I would survive without a password manager. My passwords are very long and complicated because it will generate a password for you with numbers and characters and crazy symbols. I would never be able to remember that. I don’t have to keep a piece of paper in my drawer. But this is a good time to do that. So I would encourage you to do it this weekend while you’re changing those smoke detector batteries.

But as I mentioned, I mean look forward here. I don’t think that this is a time to say, okay, last year was great in the stock market, but going forward, what do I do now? Well, just again, because the clock changed and the date changed does not mean you overhaul your portfolio. What you do though is you do look and say, are there things that I really did want to sell last year but because of tax reasons I didn’t? Okay. You can make some modifications. Certainly as we’ve been talking about, the market has been overbought, which is a technical term meaning a lot of people leaning one way and it’s due for a pause or a rest. It looked like we might get that this week because of the airstrike on Iran. So we’re going to spend some time talking about that. But it’s, again, not a time to make massive changes and overhaul to your portfolio just because we’re in a new year. That’s really silly to do.

Now, this week was interesting because I saw one of the funniest tweets out there, which was on Thursdays, the gentleman said, is it Wednesday? Is it Thursday? Is it Sunday? That’s how I felt. If you’re somebody, if you’re not retired and you’re still working, having these holidays, right smack dab in the middle of the week on a Wednesday really throws your routine off. So you kind of go to work one day and then you’re off one day and then you go back to work another day. It did feel like, what date is this? Here we are, it’s Saturday morning. You’ve got your coffee, you’re listening to the podcast, and we’re going to get back into a routine now, hopefully.

Right? But I got some calls yesterday from some of the media outlets saying, “Hey, can you talk to us about what’s going on with the markets, how this strike in Iran will affect the markets?” So did some of those interviews on Friday. Let’s back up a little bit because as we came into the new year, we watched the market start off on January 2nd, of course it was closed on the first, but we start on January 2nd with a 300 point update for the Dow Jones. It was a really interesting day on Thursday though because of the fact that if you looked at the underpinnings, I think small caps either eked out a very tiny gain or were down most of the day. Very interesting to watch that as large caps were doing well.

So it’s almost what did well in 2019 continued on the first day of 2020, but we also saw some really strange statistics. We saw the NASDAQ up a lot and yet there were some real negativity under the surface. Are we starting to see where the quality of the rallies starting to fade a little bit and were due for a pullback? Then of course we did get this information on Thursday evening about this airstrike. Oil went up, gold went up, the VIX went up, the volatility index, and stocks went down initially. That was kind of the big news of the week, but we did see some other things. I think one reason we saw the market jump on Thursday was China is now adding liquidity to their markets just like the Federal Reserve is. If you don’t think the Federal Reserve is doing QE, you’re not really understanding what they’re really doing. They’re doing quantitative easing right now. That’s the biggest differentiator now versus a year ago.

That’s what I’ve been talking about the last several weeks on the podcast is look, you go back a year ago, the Fed was hiking and they were scheduled to do more hikes in 2019 but they didn’t. They changed their tune, markets healed and up we went because not only did they stop hiking, they started cutting. It was a six cut or hike, let’s call it a six interest rate move difference. That was a big game changer. That was the biggest thing to drive the markets last year. Yes, we started to get some positive news around trade, but these things like airstrikes and North Korea and the trash talking that we saw, all of that stuff we’ll call it, pales in comparison to the liquidity. When there’s liquidity in the markets via the Federal Reserve, you’re going to see markets go up. That came with interest rate cuts and this quantitative easing.

What we saw Thursday was China said we’re doing the same thing, and that buoyed markets, especially international markets. So that’s a big deal. That’s what’s going on. That’s why you’re not seeing a massive overreaction to these airstrikes. Are the airstrikes a big deal? Absolutely they’re a big deal. But in our world, meaning this podcast and the finance world, it’s not. If anything, potential skirmishes and more war has been stimulative in the past, which is a sad commentary, but it has. But you did see oil spike but not anything crazy. It wasn’t like oil went up 8%. Oil jumped about 4%, then we had some bullish data and from the supply demand figures and it actually with a bigger draw. And oil at mid day on Friday was up like 2%. You would think there’d be some profit taking in other areas of the market, technology areas like that and then energy would get a boost, and it did. There was some buying in there and the usual suspects got hurt, right? You got the automotive companies down, you’ve got the airlines down because gas prices are going up.

So gas prices are likely to go up and stay up for a while. But we still have a lot of oil out there. That’s why these energy stocks have been pretty bad in 2019 and maybe they’ll get a little rotation in 2020. In fact, I haven’t verified this, but I did see a stat the other day saying that Apple, the company, is bigger than the energy sector, which is amazing. But Apple went over $300 a share. It’s kind of gone parabolic now, had a really nice 2019. Kind of surprising, but it may be because of the fact that it’s going from a hardware company, which doesn’t get a big premium, to a software company, which does get a big premium. Wall Street is starting to realize that and they’re giving them a bigger valuation, higher PE to justify a higher PE. But that’s another story.

But my point is that you have energy, which is hated, small now and kind of left for dead. It may be getting some legs. Now one other thing we saw this week was more economic data and the manufacturing sector, while we were talking about green shoots the last few weeks, maybe somebody came out with some Roundup and turned those green shoots into Brown weeds because manufacturing, the ISM manufacturing came on Friday morning. It was the lowest it’s been since the financial crisis. So we need to continue to watch that because again, while we did not have a recession in 2019 and still don’t look like we’re going to have one soon, we still have an economy that’s vulnerable. We still know it can grow faster. We can always grow faster, but again, what’s trumping that? No pun intended.

What’s trumping that is the stimulus. The Fed has lowered rates. They said we’re not going to raise them anytime soon, and then China’s jumping on board. That’s a big deal. That’s that’s what the last 10 or so years has been about is that the Fed put, meaning anytime the markets got in trouble, the Fed would come to the rescue and they kept interest rates low and people have been used to extra stimulus, extra liquidity. That’s really what it’s all about. I don’t think that’s going to change anytime soon. So continue to watch that.

But again, I would say the overall market is still overbought. Now that we are in a new year, again trimming some of those positions that you are dying to get rid of or trim last year for tax reasons, you’re able to do it now. It isn’t a bad time to do that because again, what’s a good deal out there and what’s not a good deal? This is where he tweaked the portfolio and make some modifications. If you have IRAs of course, or Roth IRAs, you could have been doing any of that all along. It doesn’t mean just because the market is overbought that it has to go down. It to me has been pretty resilient with these types of news event like what we saw on Thursday evening. Pretty resilient market, wouldn’t you say? It’s because we’re in a bull market and we don’t have any indication of the work I do to suggest that the bull market is coming to an end.

But let’s watch this deterioration I was talking about over the last couple of days where we saw the indices go up, but kind of under the surface you’re like there wasn’t a lot of stocks going up. In fact, you could look on your screen on Thursday and a lot of stocks were down on Thursday, yet the Dow Jones was up 300. That’s what you have to watch. You have to really look underneath the surface.

So let’s continue to see if that was a one day deal or if that’s a theme. If it’s a theme, then we may have to worry about a correction coming that’s a little bigger, but we might get a correction. Again, let’s not get confused with a correction and vibration versus, uh-oh, something’s coming. I talked to people who say, “Look, all I’m worried about is the election, so when we get close to election, maybe I’ll start to do something then.” That’s not going to work. The reason why is because by the time you’re wanting to do something, and do something means adding protection to the portfolio, selling whatever it might be, by the time you want to do that, the protection is expensive and the stock market’s already fallen a little bit.

The time to do something is now if you’re worried about that. But look again, we don’t know how that’s going to come out. Not only the results of election, but how the market reacts to the election. Everybody thinks they know, and we’ve talked about that probably the most polarizing figure, well, probably president Trump’s pretty polarizing. But in terms of the markets, it’s got to be Elizabeth Warren. As her numbers have dropped, the stock market coincidentally or not has gone up. So yes, we can say that. We can watch that. But who’s to say that Trump doesn’t win and the market sells out. We don’t know. Right? Again, let’s rewind a little bit, make modifications, but it still goes back to what are you trying to do? If you have a Roth IRA, let’s say you have a half a million dollars to your name in investments and you have a Roth IRA that’s $50,000 that you know you’re never going to use, it’s for the next generation at least, that should be aggressive. Don’t get too cute with that. Don’t try to sell that out because the election’s coming and then buy back in.

That should be your most aggressive money more than likely. Again, all things being equal. I don’t know your situation. Not giving you advice cause I don’t know who you are. You can email me and then we can get to know each other and some of you do, and we do know each other, but you see my point is that there are modifications to make. But at the end of the day you still have to look at your portfolio and it has to map over properly with what you’re trying to do. Sometimes there’s a mismatch between someone’s willingness to take risk and their ability to take risk. I met a couple this week, their ability is quite high. They will probably never touch this particular chunk of money that we are managing for them or going to manage for them.

But yet they’re never really big, big risk takers. Okay, so let’s talk through that. We know they can’t be ultra risky because they won’t stick with it. They could afford to be, but they won’t do it. So they can’t be 100% stocks. On the flip side, should we as an advisor acquiesce to the client’s feelings without doing the appropriate thing, which is to have some inflation protection in there in the form of the stock market? The answer’s no. So what we do is we come with a reasonable allocation one, they can sleep at night. It’s not principle protected, it’s going to be a little volatile, but we can kind of look over history how volatile it’s going to be relative to the market. This is where you show the stress test. Here’s how it’s done in the past and here’s kind of what it looks like.

So if the market was down X, we kind of know this portfolio might be down Y to Z in this range, and you’re kind of given those. Is that something that makes sense? Yeah, we could live with that. Good. Then they could still take on more risk if we get the stock market, let’s say is ever down 15 or 20 or 25% and if they’re open to that, that’s great. That’s the conversations that you have as opposed to just what the annuity salesman would do is say, “Oh, you’re scared of the stock market? Yeah, me too. Boy, this thing, it is a roller coaster, isn’t it? Well, why don’t you sign on the dotted line here? I get paid up 7% commission. I lock your money up for years and years, and I pander to your fear of the market.”

As opposed to saying, “You know what the greatest growth engine in the world has ever been and had a tremendous year last year and was up almost 30% and is at all time highs despite your fears, despite elections despite this, that and the other? Yeah, it’s the stock market and we need to have some of that in your portfolio. For your protection, this is actually lowering your risk in the longterm by adding some stocks in some form or fashion.” That’s an appropriate conversation, but they’re salesmen.

Why do you think some mutual fund companies have a gazillion mutual funds? Because what they want you to do is they want you to go on their website and you take a risk assessment tool and it says you’re this old, you’ve had this experience in the market and based on that, we have a fund that matches exactly. This fund was built for you. Well, yeah. If they have 200 or 300 funds, of course one of them is going to going to match the little grid where you’re this age and you’re this much risk and whether your two fingers meet, that’s the fun for you. That’s not really how it should be.

So there’s what’s your ability to take risks, what’s appropriate for you, and then what are you willing to stick with? That’s the allocation that somebody should have. Then you do make tweaks to that based on market conditions and based on what’s going on in the world. So even if somebody needs to be 100% stocks, do they throw it all in today into the market when we’re near all time highs? Maybe not. Maybe you dollar cost average in over time. Maybe you cherry pick some positions that aren’t at all time highs and you average in that way. Lots of ways to do it. But this is maybe, maybe it doesn’t have to be now, but because we’re here and I’m playing along with everybody saying it’s January, so it’s a good time to do this and do that and do this. Step back, look at the portfolio. Does it make sense for you?

Again, what I don’t want to see is a portfolio of hodgepodge, different ideas because the uncle at Thanksgiving told you about a new pot stock coming out and you’ve got to invest in that. Then somebody on TV told you to invest in that and you had some of that in there and then you saw a mutual fund commercial with a sailboat. So naturally, you got to own some of that because who wouldn’t want to be on a sailboat in retirement?

That’s not really how you put a portfolio together, but you know. Let’s really put a portfolio together that makes sense for you. So this is a good time to assess that because it’s January, right? We’ll play along because … Let’s do this in July. How about that? We’ll do it in July, but no, it’s January. It’s good reminder. It’s a fresh start. Let’s take a look at everything. But please, please, please do not think because the clock changed one minute or one second and we’re in a new year that well, what’s this year going to bring?

That’s not how investing works. Investing is a longterm game where you make modifications over time. We will go through a recession, we’ll go through a bear market again and we’ll make modifications along the way in your life will change, right? So that’s another reason for modification. But we don’t make modifications because a bad guy was killed in an airstrike and the news is hyping it up in one day and we’re going to World War III. By the way, here we are at all time highs, even after World War II and World War I and Vietnam and the Gulf Crisis and Gulf War in 1990 and ’91. We’re still at all time highs. So it always does go back to your timeframe and what you’re trying to accomplish. Again, when you only need this particular money.

But yeah, it was a kind of a bifurcated week. I’m looking forward to next week getting into more of a groove, but I was here for you, wasn’t I? All through the last few weeks. Some were on vacation, I was podcasting, there was some things going on, but it was pretty quiet. I mean, we’ve had a very quiet stock market in 2019. It probably will pick up some volatility in 2020 simply because yes, we have the election later on, but simply because that’s just what markets do. After a period of calm, they’re going to have a period of volatility, right? Sun goes down, it’s going to come back up more than likely the next day. It’s just what happens with these things.

But look, interesting week nevertheless and getting a little bit of movement. So let’s continue to monitor that. If you have any questions about your portfolio, you say, “Hey, here you’re talking about a plan. Here you’re talking about a strategy and putting together a portfolio. I don’t know how to do that. I don’t know if you can assess it for me.” Yes, we can do that at Covenant. Telephone number is or again, Don’t forget the podcast is available on Spotify. It’s available on iTunes podcasting or I think they call it Apple podcast now, Stitcher Radio, on our website, You can get all that information sent to you each and every week in what we call Covenant You. It’s our educational piece that goes out every Monday afternoon. There’s plenty of ways to sign up for that as well.

All right, new year and I’m still as fat as I was last year. I didn’t join a gym yet, but I don’t know. I’ll run around the living room or something. All right. Have a wonderful weekend, everybody. Take care, and we’ll see you back here next week on Creating Richer Lives.

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