The Largest Roth IRA In History?

Jun 26, 2021 | Investing

The stock market reached new highs this week, but Karl sees a few warning signs. Plus, the story of perhaps the largest Roth IRA in history.

Hey, welcome to the podcast, everybody. Thank you for joining me. We appreciate it, as always. Our telephone number, 210-526-0057, our website,, Hey, by the way, we have a weekly educational email that goes out. There’s nothing for sale in there. It’s just an educational email. What we do is we grab everything from our website, with all of our information that we have posted on the site for the week. And it’s things like this podcast. It’s our chief investment officer’s weekly blog. It is maybe a television interview regarding this very specific topic.

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All right, well, let’s get right into it here and do a little quick recap of really some of the market moving topics this past week. Probably the biggest one is we saw, speaking of Bitcoin, we saw it reach that 50% drop from its high. So I don’t get the sense there’s still the majority of you participating in cryptocurrencies. Does it validate it, the fact that it fell so much, that you’re glad you didn’t participate, or does it make you say maybe I should, because of the fact that it is off its high so much? Give me your thoughts on that.

Also, we had something called quadruple witching a week ago. You remember there was a couple of weeks ago a pretty nasty selloff one day, and it happened to be what’s called quadruple witching. So sometimes it’s important, you know, you look at the news and you think, well, surely the market dropped because of X, Y, or Z, but sometimes it has to do with some of these factors like quadruple witching, where a lot of options and stock futures all mature and expire on the very same day. And it can lead to extra volatility one way or the other. And that’s what we saw. We saw a big downdraft a week ago, and then this past week we saw just the opposite.

Market was very, very strong this week, and you can’t really place a good reason on why that was. I mean, we had some economic data that, again, it would lead you to believe that we are seeing some inflation. We certainly are. Again, we have been talking about the fact that it may not be long lasting or persistent inflation the way that a lot of people think about it. And so we saw, like, for example, these durable goods orders missed expectations. Now, it was the second highest since 2014, because businesses are still struggling with this demand, and they have supply issues, but it missed the estimates, and remember, durable goods are the washing machines, the big, heavy things that you don’t buy that often. So we’re seeing an uptick in those, but we don’t think that’s going to last.

And we’re starting to see more and more signs, at least I am, of things that lead me to believe that we’re going to see the economy start to slow a bit. It’s still going in the right direction. But slow over the next few weeks and months. And maybe that’s what the market is grasping onto, is, hey, you know what? This economy is still recovering, but do we have to worry about the Fed tomorrow? Remember all that talk a couple of weeks ago? Oh my gosh, the Fed may raise rates, or they’re thinking about starting to talk about raising rates. Well, maybe the markets [inaudible 00:06:22], I don’t know, but we’re still seeing the markets move higher, but we are seeing a little more selectively, and that’s something we have to watch for in the next few weeks.

One other thing I saw that was really interesting was Peter Thiel, he’s the co-founder of PayPal, which has been a fairly successful little venture. And now he’s, of course, investor in lots of different other firms. Apparently, this is as of two years ago, he has five billion dollars in his Roth IRA. So think about that. So he apparently invested in PayPal back when it was worth a penny or whatever it was when it first started out, and he put it in a Roth IRA and hit the jackpot. So it could be the largest Roth IRA. Now, I’ve heard also some rumblings that Mark Zuckerberg apparently had done the same thing. I don’t know. But this, five billion dollar in a Roth IRA, and then the question is coming up, well, should we be doing something about this? We meaning the government, should the government be taxing this guy?

My personal opinion is no. I mean, he played by the rules. He put a risky asset inside of a Roth IRA, his most aggressive asset. Good job, pat on the back, and his Roth IRA has grown tax free. That is how it has been. That’s the rules. So now everybody wants to go back and change the rules because they want to try to tax this. So you’re hearing about these billionaire tax and all these different things. I’m curious what you guys think about that.

But let’s dive right into really what was moving the markets this week, because it was a good week for the markets. It’s just, it’s interesting, it’s getting a little more selective, and we’re starting to see the participation dwindle a little bit. Now that can be temporary, but it’s something we watch for. I mean, you did see the biggest strength was in areas like oil and gas, retail. I mean, those were up seven, 8% this week. The banks, as the interest rates spiked up a little bit, 6.6% for regional banks this week, a little over 6% for banks in general.

Remember, this is why you listen to this podcast, guys. We talked about financials last week at the end of the podcast, that I thought it looked like a very interesting area. And I liked it simply because, A, I thought it was undervalued, and B, I thought that the yield curve, the interest rates going down, would only go down so far. And so here we are, and they bounce back really, really strongly this week. So we saw big movement, financials, energy. Those were your biggest areas, but even small caps are up over 5% this week.

What was down? Yeah, you guessed it. The volatility index, down almost to that 15 level, down about 25% this week alone, and bonds got hit a little bit as interest rates, again, spiked back up. And that comes to one of the questions this week that I got, which was if the volatility index is so low, does that predict a correction coming? And the answer is no, it does not. We’ve seen the volatility be extremely low. In fact, I mean, we’ve seen it really 2015 all the way through March of 2020, it had spikes, temporary spikes, but it didn’t forecast a correction.

Now, here’s what it can do if you’re into puts, which is really what the volatility index is built on, essentially. It does mean that insurance for your portfolio is cheap right now. So if you are concerned about a correction, you do think something bad is coming in the next few weeks and months, and maybe even couple of years, you can buy insurance on your portfolio. And I use that term lightly, because insurance, it’s not literal insurance, but it is protection against the downside to minimize, mitigate some of those losses. And so it’s cheap right now. That’s what the volatility index being at 15 means. It means you can buy protection for your portfolio cheaply.

Now, I’m not saying you should. I’m saying if you want to, it’s cheap. That’s in stark contrast to when the volatility index got up to 90 or so last, I think it was 85 or 90, March of 2020. It had that huge spike. So it coincides with selloffs, but it doesn’t forecast corrections coming.

But let’s talk about the market right now because there is some little warning signs of potential correction. One of them is, and I mentioned it earlier, the narrowing of the market. If you go back to November of 2020, what did we see? Soon as the first vaccine by Pfizer was ready to go, everything changed. We started to see broad participation in the markets. It was the home builders, the cruise ships, the very economically sensitive stocks started to go up, and everything was working. Now, we’re starting to see that narrow just a bit. And again, it could be temporary, but it’s something to watch because we have a pocket of the market, as I’ve been saying, that’s very, very expensive. There’s some stocks that are just ridiculously overpriced. And I think they are very, very dangerous.

And there are some areas that are still very good deals. I mentioned them earlier, just like financials. There are pockets of good deals. So you just have to be more selective, but it appears to me that maybe what the market is starting to do is kind of funnel down. And when I say the market, the market’s not a person, right? We’re talking about investors as a whole seem to be focusing a little more on specific areas. So let’s continue to watch that. Especially let’s watch interest rates, because if they do bump up a little more, does that start to affect the technology stocks? They tend to do better when rates are lower.

But we are starting to get a little bit of a focused stock market, but big, big gains this week. I mean, again, risk-on still grinding higher. And this is precisely why, and I mentioned it last week and I’ll mention it again, this is why we diversify, is because just how bonds had a great week two weeks ago, they had a bad week this week. Just because technology is overpriced, that’s why we don’t dismiss it and we do want to own some of it, because of the fact that expensive things can continue to go up.

So don’t box yourself in a corner by your personal beliefs or you know what’s going to happen in a certain area. We see that all the time when it comes to elections, right? The market’s got to go down because of the election coming up, and that just has not been the case in a lot of these scenarios. It didn’t happen in November of 2020, and frankly in 2016, the markets zoomed higher, as well. And we’ve had two different outcomes, haven’t we?

So the goal is to have, I know, it’s cliche, but a diversified portfolio. Really, the challenge, frankly, is on the fixed income side. What are you going to do about your bond portfolio? Do you just have plain vanilla bonds? If you do, then you need to take a look at that, potentially. How far out on the duration scale are your bond mutual funds, your ETFs, your individual bonds? How much credit risk are you taking? You see that junk bonds are yielding very, very little now. So there’s a lot of risk out there, and we’re not getting paid on the income side as much as we used to. That’s why we’ve been offering this free report the last several months, because we’re trying to find ways and we have ways of earning extra income, and we’re trying to do it as safely as possible.

But let me reiterate. There is no free lunch. If you want 100% principal protection, you have to sit and earn nothing. But if you’re willing to take some risk, and it’s managed, there is still some yield out there. And again, we’re talking about non-stock money. There are ways to do it. And look, I’ve met people that live off of dividend income. They live off of their stock portfolio, and that is a great thing to do. Dividends can, stocks can obviously keep up with inflation and beat inflation. The income can get increased over time. But here’s a concern. I think people need to start diversifying their income stream, because if taxes change, or should I say when income taxes change, this could force companies to start changing the way they distribute their capital or manage their capital. They may not be sending out dividends like they had in the past.

And so could you see, if you’re living off dividend income, a dividend decrease because of the tax situation? If that’s the case, you need to start diversifying. Maybe you need real estate income. Maybe you need to get some income from lending your money. There’s lots of different ways to get income in the markets rather than just dividends, and also just plain vanilla bonds. I mean, again, as I mentioned, bonds, people throw them in one bucket, but you’ve got international. You’ve got credit quality to deal with. You’ve got duration, how long they are, when they’re going to mature. There are certain parts of the market, for example, when the government told us in March of 2020, they told us, we’re going to go out and buy these particular types of bonds. That’s what we did, was we went out and bought those particular types of bonds because that’s what they told us. They gave us the playbook.

And now we see different areas of the market where it’s not as easy, but there are opportunities in the bond market. So even within the bond market, you have to shift around. But to me, the biggest challenge you may have over the next several years is going to be what do I do with my non-stock money, the safer money to get income. And there’s lots of things that can be done. Unfortunately, most of them may not be in a traditional ETF or a traditional mutual fund. So you’re going to have to get creative. There’s always something to do. There’s always solutions. And that’s what we try to provide here at Covenant, but it’s not easy. And that’s why we spend the time to do that.

So we’ll probably be doing some webinars over the next few weeks and months, going over some of those types of things. And they’re not recommendations. They’re places for you to start your research, for you to go, I didn’t know this was out there and existed, but everybody’s situation is different. But let’s continue to watch the market. Again, we also saw an infrastructure deal announced this week. We’ll see what the details are of that, because you saw some of the infrastructure stocks go way up, but again, let’s watch the market to see does the narrowing continue or does this market continue to broaden out?

And I do think, for those that have listened for a long time, you know I’m not a huge seasonality guy. In other words, well, here we are in June and July and August, and the markets typically do this, so we’re going to invest accordingly. I wouldn’t change my allocation based on that. What I would say is this market is repeating some of the patterns it’s had in the past, given certain circumstances. And usually over the next three or four months, it’s been kind of a grind it through type of summer. So don’t be surprised if we churn around for a while, and if we do and don’t go dramatically lower, then fantastic. But it wouldn’t surprise me to see some sort of correction. And so again, as I always say, know what you own, look in your portfolio, and if you want to own high growth stuff or momentum, great. Just know that you own that. And if you want to own value, great. Know that you own that.

All right, that’s going to wrap it up, a little abbreviated show this weekend. We certainly did not have huge news this week to move the markets, but another good week and a reason why you stay diversified, stay invested, according to your specific plan. If you need help with your specific plan, give us a call at 210-526-0057 or visit us at Take care, everybody.

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