Ep: 83: Financial Predictions For 2023
THE X'S & O'S
A new year, and a new financial outlook!
Bringing in the new year means it’s time for RPA Wealth Management to make some 2023 financial predictions.
In this episode, Matthew Theal, Brent Pasqua and Joshua Winterswyk discuss the recently passed Secure Act 2.0, 2023 interest rates, and what investors can expect entering a new year during a bear market.
Matthew, Brent, and Joshua discuss:
The recently passed Secure Act 2.0 is and how it can affect your retirement plans
The end of China’s “Zero Covid Mandate” and how this event could affect North America’s economy
Going into 2023 in a bear market and what that means for investors
Why and how you should change your expectations when investing in a bear market
And more
Resources:
Connect With RPA Wealth Management:
Transcript
Welcome to The Retirement Plan Playbook with Brent Pasqua, Matthew Theal and Joshua Winterswyk from RPA Wealth Management. In this podcast, we cover current events, retirement planning strategies. And provide you with the tools to help you build a successful retirement playbook in any political or financial landscape.
Join Brent, Matthew and Joshua as they navigate the issues that can make the later stages of your retirement plan challenging and help you create the best Retirement Plan Playbook. Now let's get to the show.
Hello, and welcome to The Retirement Plan Playbook. I'm your host, Brent Pasqua, and today we're joined by our regular co-host, Matthew Theal and Joshua Winterswyk. And we're here to discuss the secure Act, which is the Secure Act 2.0, and our predictions for 2023. As we get this thing rolling, we're settling into our new office here in Claremont.
How are you guys liking it? Hey, Brent. Great to see you. You know, welcome to 2023 New Year, new US new office. I'm, I'm digging it out here. I like it. My office is a lot smaller than my old office, uh, that we had at Rancho, but I really like it. I, I don't know what it is. I feel like it's easier to concentrate in a smaller room than a bigger room.
Uh, I guess I'm just weird like that. What about you, Josh? Maybe it's cuz you have more windows. Yeah, that might be. And like, maybe cuz my desk, like I could kind of see out the window, but it's really easy to concentrate. I like it. I feel like every time I walk into your office, I just wanna walk right back out.
That's, that's good. I like that. Maybe it means less people are coming into my office to bother me. Wow. You know, since my work is so important. , but, but Josh, you found some way to get the bigger office. So how did that work out? I let Matt. Matt, Matt picked and I somehow got a little, it's just a little bit bigger.
It's not much bigger though. No, I gave, I gave you the bigger office cause I wanted to be a team player. , no. Yeah, right. When I come into your office, I want to stay, like, I will sit there and have a conversation, but when I go into Matt's it's like, I'm just like that guy that just turns right back around.
Matt, I'm, it's just the attitude though. You feel the attitude. I dunno to talk about the Claremont office though, to be honest. I love it. I, we've only been here for a few weeks and I'm really enjoying it. Love it. It's nice. Um, and it's, it's really improved. We used to have to go through walks in a parking lot by train tracks and now we could like go through walks by other businesses and, you know, shops and restaurants and it's, it's just a really nice environment down here.
I think a lot of people can pick up on over the years that we're really kind of healthy. We eat healthy, we work out. and it's becoming already, we've only been here for less than a month. It's really hard to not go and eat down the street cuz everything is right here and all the restaurants are incredible.
Oh yeah. I wanted a bagel sandwich this morning. There's a bagel shop right here. Yeah, I was thinking that too. But then also, you know, once five o'clock rolls around, they're like, oh, happy hour dude. Just grab a beer before the ride home. . Yeah. There's a, there's a lot of entertainment right in this area where it's just really difficult to try to like stay on task.
Don't go, don't even go get that midday coffee that you really want. You know, that's a lot of calories. Sun of Temptation, I think we went to is that, what's that place called? Iron and, uh, iron and Kin. Iron and Cannon. And we got the MAA lattes the other day when, um, you were out the dentist and, oh God, they were, You were really good.
And, and what's interesting is, like before in, in all the office spaces that we've had for the last 10 years, we've never had anything close by. Like everything we, we would have to literally go in your car and drive to and go get something. So it was never really worth it. But now we could just walk and that temptation is just really increasing.
It's good though. It's motivating. It is. It's great. All right, so let's get in the hot take headlines. Uh, China announced that the end of its zero covid mandate. Since ending the mandate, COVID cases are coming in at the tens of millions per day. It's really interesting, I think because for so long they were on the zero covid, and while they didn't wh any covid in their country and did everything to mitigate covid, now they've just realized they can't control it, and now they're unleashing covid across the world.
How will this really impact the economy in 2023? Yeah, so I think, um, you know, when you talk to most economists who aren't, talking about inflation or interest rates here in the us they're focused on this China story right now. Um, because it's a big inflationary event. If we remember back to 2021 what it was like when we kind of got the vaccine and then everyone, kind of started to get covid, right?
It's now like if you haven't had covid, you're kind. , oddball at, at this point, or you're extremely lucky. Yeah. Your chances are much higher to have had covid by this point. Yeah. Like most people I talk to have had it pretty much really once or even twice by now. So I, I think, you know, China's gonna go through that same phenomenon, but also you know, their spending's gonna increase.
They're gonna start doing a lot more traveling, going to events just like we did here in America. And I, I expect it's gonna cost some inflation. You know, which is actually the big problem in the world right now. There's too much inflation. So this is another inflationary event that might make prices rise a little bit more.
Uh, really interesting on the supply chains and just logistics globally were hurt through the lockdowns in China, but short term because of them all getting covid D and they're going to lack workers and, um, just commerce, it's gonna cause a kind of a, a ripple effect now with this opening of their country.
how much impact does this have on us here and what the market already went through last year, and how much of this kind of boils over to this year? Uh, that's a good question. I think it's, you know, really difficult, but I'm sure some of that inflation might get exported to us here in the us. Like Josh was saying, there's a chance supply chains get disrupted.
Uh, I know Apple's just, been really struggling to get products out of China. This year they're having trouble keeping up with the demand still. . So, um, yeah, we could see some issues there, but also you know, you're probably gonna see Chinese stocks start to rise as the economy does better, right?
Because GDP in China is gonna grow, uh, people are gonna be spending money, so that should help Chinese stocks actually go up and they've been in a pretty bad bear market for a while. That's one of their goals, right? Yeah, absolutely. Another interesting story is watching what's happening with Tesla, uh, in 2022.
Tesla's stock declined 65% and already in 2023, it's down 12% in the first week of the year. What's happening with Tesla's stock? The company seems to be still pouring cars out there. I mean, the, the roads are full of Tesla's and Elon Musk's popularity is dropping since buying Twitter. It's, I guess, hard to figure out what's happening here with Tesla stock.
Yeah, so I from really 20 20, 20 21, Tesla as a business was crushing it and the stock was flying and it really became everybody's favorite stock to own right. It was Apple and Tesla. And what's happened here is really just a phenomenon of what's going on in the market. It's just impacting Tesla a lot more as interest rates have been rising.
Therefore, the price we're willing to pay for stocks is less than we were when they were at zero. and Tesla's been going under what we call, it's multiple contractions. So there's this thing called the PE ratio when we evaluate stocks, and that's the price to earnings ratio. So you take the price of the stock and divide it by the earnings, and you get a multiple.
That's when investors are willing to pay for it. Last year, the peak for Tesla's price to earnings ratio was 1,370, so that's 1 3 70. That's an astronomical p. It's pretty much unheard of and you know, it means it's at bubble levels basically. Now it's selling at 33 times earnings, which is still really, really high.
But it's came down so much and that's because the stock has dropped. It's not necessary that Tesla's business is doing poorly. Right. They're still pumping out cars, like you said, br I mean, there's, everywhere you look, there's a white model Y on the, on the freeway. But it, it's] just that the economy has changed and the price investors are willing to pay for Tesla stock is a lot lower than where it previously was.
It's extremely overvalued. I mean, it was so much overvalued that Tesla, when you compare it to other car makers, only accounts for like 10% of the revenue. These other automakers. Actually create, but the size of Tesla was double the size of gm, some of these bigger automakers. So naturally we knew that it's been overvalued for a long time and we're finally just realizing it's coming back down to reality.
Yeah, and, and the other thing too is, so the largest shareholder in Tesla is obviously Elon Musk, right? He owns the company and he was selling Tesla shares all of 2022 to, fund the Twitter. and also to probably, you know, diversify his holdings a little bit and you know, he's such a large holder that his sales are gonna knock the stock down in price and then force other people to, to sell as it goes down.
I think he was selling shares even back in 2020 and 2021, if I'm correct. He was, yeah. And I think it really accelerated, into last year and that's never good when you have. Founder selling shares? No, not at all. Um, and in his case, it, you know, obviously he looks pretty smart because he, did use the money to diversify into Twitter, whether you believe in him purchasing it or not.
It was a way for him to, sell some shares and buy a, buy another business. But I can't like help but to also mention that the amount of EV cars coming to market has almost. from a few years ago. And so the competition's getting better. Yes. Um, they also dealt with production issues because of China, like we just talked about as well, relating those two stories together.
So I think there's just a lot of variables and we're cleaning out the, the froth from Tesla. Yeah. And at the end of the day, it's an automaker. I've, most clients don't call me getting excited to own Ford chairs. Ford has a pretty sweet EV as well. That Ford e Mustang, that's a cool car. And they has a, a car, I think the F-150 truck coming out, that's also an ev.
So like Josh is saying, increased competition. , but I mean, that's why the, the price is going down. Uh, it might go down a little bit more this year, uh, but long term I'm, I'm still, I'm sure it's still a great investment. There's a lot of really good technology in Tesla. They're leading the self-driving revolution, which is really cool.
But we're probably just not gonna see the PE ratio it, 1300 times earnings again. That's ridiculous. Yeah, and I think competition's really interesting right now with that, cuz you know, I've looked at wanting to buy a Tesla for a while. now you start in the back of your mind before like you buy something that's that expensive, you start to think, well there's a lot of other options out there.
Is it really worth just getting the same car that's everybody else has? And you know, should you look at other options? The competition is, is really heating up. Yeah, absolutely. The, the value, the long term value to Tesla is in their charging network. Nobody else has been able to compete with that. Cuz you know, you could drive your Tesla.
Around the USA and just go to all their different supercharger stations. Nobody else has that. That's a huge value. Yep. All right. Well, let's get into our retirement planning corner. Today we're going to go do a two-part retirement planning corner. Uh, the first we'll discuss the secure act of 2.0, and then we'll discuss really the themes of 2023.
To start. On December 23rd, 2022, the US House of Representatives passed a consolidation appropriations act. Uh, what is the 2023 bill authorizing roughly 1.7 trillion in new federal spending? Included in this Mons 4,000 plus page document was the much anticipated and long awaited retirement bill known as the secure Act of 2.0.
Now, the first secure act of 2.0 was what passed in 2020. And so now, this is now a new version of Secure Act 2.0, but I think why this is actually critically important is because a lot of things in this bill does impact many clients and many people financially. Let's start with those, one of them being with required minimum distributions.
What's happening with that age? Uh, so starting this year, the RMD age has been it's been raised to 73 for individuals born between 1951 and 1959. So that would be a lot of people who listened to this show. Your RMD age was previously 70 and a half, then it got moved to 72, and now it's gotten bumped out again to 73 and it's gonna be 75 for people born in 1960 or.
So now if you were born 1960 or later, your RMD age is 75. Previously, like I said, it was 70 and a half, and then 72. Um, one, this is kind of confusing because now it's kind of based on your birth year instead of just being okay when you turn 72, your R m RMD is, you know, X, Y, Z. Now, you know, if you're 19 six or later at 75, and then obviously if you're in the 51 to 59 age, 1951 to 1959.
Birth year. Your rmd, um, is 73. So just kind of confusing. Um, I wish it was a little bit more standardized. Cause I think a lot of people are gonna get really confused here. But it is good they're pushing out the r and d. Uh, that's good for people who don't need to rely on their retirement savings for income and retirement.
So somebody that was born. 1951 was supposed to take an R M D this year, correct? Cuz it would've been 72 this year. So did they have to take it this. ? I believe not. So if let to fact check that. Yes. Yeah. We do have to fact check that because I think that there is some exceptions there or potentially that they do have to take that.
So, and this is interesting too because I think this is following a lot of some social security numbers, right? So there's ages with full retirement age and then years re collector for social social security. This seems to be following some of those numbers, so it's interesting that they're kind of age basing this out.
Similar to social security now. Yeah, very similar. I think it opens up a lot of like financial planning techniques. . And I think that also, like if, if we're just giving kind of, the opinion of our clients as well they're gonna like this because a lot of people don't like being forced to having to take money earlier if they don't need it.
So this does give you options. If you do need it, you could still take it, but it's not also requiring you. So I think it's pretty unique and I think it's a, a good thing. But like Matt said, making it more complic. No, I feel bad for the people who maybe missed even the first secure act, right? Because they already had started their rmd, so they didn't get included in 72.
And then anybody last year who started their rmd is now left behind a as well. So yeah. Interesting. Yeah. So what the RMD again is, is the amount of amount that you will have to take out of your ira once you reach a certain age. So you have to take a distribu. Now they're changing when you have to take those distributions and now it's all based on these different years of when you were born.
Now complicating not how much you're gonna have to take out, but necessarily when you're going to start taking it out. Yes. So what's happening then with the 401k, RMDs and Roth four Ohk. So before there was a requirement under the RMD rules that if you did have Roth or post-tax money in a four. That you'd have to take an required minimum distribution or an RMD from that account.
Um, this wasn't the case for Roth IRAs. It was only Roth 401ks. And now the Secure Act 2.0 is mandating that you don't have to take an RMD from a Roth four Oh. anymore. Yeah, this is such a weird one. Cause I was like, well, when I read it, why wouldn't the people with Roth 401ks just automatically ruled or Roth IRA to avoid the RMD in the first.
But now I, thi having some more time to let this, like, to think it over in my brain. This is a bill that was just done by like corporate retirement specialists. Totally. A hundred percent. This is a pro provision to keep the money in the plan that Yeah, cuz they were upset that why would a client be taking money out of a Roth 401k and it's leaving us as the retirement.
So this role is helping them out by keeping the money there. Yeah. We really should remove special interest from Washington . Good luck with that. All right, so let's get into the next one into 2.0. Qualified charitable distributions, um, are a big part of how money comes out and where the money goes from an ira.
Tell us what happened to the rules around qcd. Yeah. So, um, what a qc d is, is you could basically give your r m D to charity or part of it from your retirement account only. It's a popular strategy with a fair number of people, um, who are charitably inclined. Um, that said, what they did is they, they're putting a cap on it, so the annual limit's gonna be a hundred thousand dollars, and that'll be index for inflation.
You know, big change here. I don't really see this impacting too many people other than extreme high net worth. Not many people give more than a hundred thousand dollars a charity in the first place. It's usually somewhere around, five to 10,000 a year I find for most people. So not a massive change.
But there is a cap now. I think that the index for inflation though is, is. , right? It's not going to stay a hundred thousand forever. So, uh, one of the strategies people use with qualified charitable distribution is, let's say that you are in an age where you have to take a required minimum distribution and you're already giving to charity or a church, or making donations.
You can essentially, instead of making those donations from your checking account or writing a check to them, you can make those donations from your IRA and pay it directly to the charity. And that will help you a lot of times, tax. And so it's a very helpful strategy when implemented. If you're already giving to a charity, it's probably a better way to do it if you're having to take distributions from your IRA or if you're already just taking your IRA distributions, it can be very advantageous.
So, I think this does obviously sort of change a little bit on just on the limits, but doesn't really have a big impact, like you're saying, man, on how much people are gonna give versus the limits. All right, Josh, tell us a little bit about the 401K and the simple IRA catchup contributions. So the Secure Act 2.0 making things more complicated.
Again. So for 401ks, you had a provision within the 401k that if you were over 50 years old, you could. Place even more money into that 401k. I was called a catch up contribution. Now with the Secure Act 2.0, the catch up contribution limit for individuals age 60 to 63 in 2025 or later will have an increased limit.
Up to $10,000. That catch up provision right now for 2023 is 7,500, so it's going up for individuals between age 60 and 63, but this doesn't start until 2025. The same type of provision is being adjusted with simple IRAs. That is going up to $5,000. As far as a catch up contribution for individuals age 60 to 63, that's an increase from $3,500.
When I read this, I just wanna bang my head in the table and say, why? Like, again, making things more complex for no reason at. Just boost the, the contra ketchup contribution for have a age 50 bracket and then an age 60 bracket, right? Like, this is just so confusing and lawmakers, they're just so like, distorted from reality what's going on?
Like, nobody's gonna understand this, barely anybody to understands what a ketchup contribution is in the first place. The, my first thought is, The idea's good, right? Like yes, we're increasing the catch up contributions for people still working over 60, but in practice and for individuals. It makes it so complicated that our, how many people are really gonna, if they're not researching this, gonna even implement it.
And like you said, just make up the ketchup, contribution the same for everyone over 50 and push it up to 10. And it's easier for everyone involved. So many people are gonna mess this up. And then the fact that you can only do it for two years. . Or is it three years? Three years. And then, af at age 64, you can't do any anymore , so then you have to revert back to the old system.
Yeah. And just a nightmare for like TPAs, for 401K companies, , everything in this bill is making everything that much more complicated. Going back to the required minimum distribution. Geez. Because now the, if you miss a required minimum distribution, the penalty is substantial. It's, if you had a $10,000 required minimum distribu.
and you miss it. It's a $5,000 penalty. It's 50%. I mean, this thing, all of this is making everything complicated. Yeah. Way more complicated than it has to be. If you're listening to this and thinking, man, this sounds complicated, just stop voting these people in office, , that's a good recommendation. Is that your recommendation for today?
That is my recommendation and, and I'll tell you to everyone out there listening, I mean, how complicated this. This isn't just complicated for you, it's complicated for us because we have to go back and double check all the time throughout the year what the, the contributions, the limitations requirement of distribution.
I mean, we're having to constantly go back and look all this up cuz it's never the same. Like every year they're making changes, they're making adjustments or changing substantial part of the rules and they're rolling them back and then they're starting points and they're ending. . Just keep it simple, but it's not, yeah.
Making those changes, like how much then is it really benefiting the individual? Like making it more complicated? There's so much more room for air. All right. Let's go into 2023, and let's also discuss how 2022 went. We all know last year, uh, was a poor year for investors. The Dow Jones declined by 7.5%.
Bonds declined by a whopping 14.9. And the SMP was down 17% while the Nasdaq finished down the worst, down 30%. Um, today let's discuss some of the key themes and trends that we believe will shape, uh, the investment landscape in the coming year, and hopefully start to get a better idea of what this year may possibly look like.
Last year wasn't great. Um, what is your theme for this year? Yeah, Brent. So I'll, I'll get us started. The theme for this year is we're in a bear. and I was meeting with a client the other day and I was, you know, talking about the bear market and how, you know, we kind of need to change the way that we think about stocks and think about how, the return we expect from our portfolio.
And then the client stopped me and said, you know, Matthew, I don't even know what a bear market is. I was like, oh, okay, so we gotta go backwards. So what a bear market is, is when stock prices declined by 20% or more, which is what happened last year, right? So we're in a bear market. The bear market started last January, so in January of 22 is when the bear market started.
The next question a lot of people have is, well, how long is this gonna last? Right? Because I don't like losing money in my stocks. And bear markets can last anywhere from a couple weeks to months to years. And we remember it. During 2020, we actually had a bear market. The stocks crashed by 30%. That was a month long bear market.
It was so short. Most people didn't even notice. . That said though, on average bear markets last a lot shorter or a lot shorter than bull markets, right? Bull markets usually last five to 10 years. Bear markets usually last six months to two years. So the good news is we're one year into this bear market.
It'll probably end sometime this year or early next year, and then we'll resume a new both phase and those usually last at least five years. So that's good. That's something to be optimistic. As far as investment opportunities in bear markets, we just kind of have to change our expectations for a few years of what we expect our portfolios are gonna gain.
Typically, the best investments are holding some cash, so that'd be, you know, increasing your emergency fund or having a little extra cash cushion in your portfolio. It'd be buying treasury bonds. I think we'll probably talk about that later, but that's one of our favorite investment strategies right now is.
Short-term T-bills yielding, you know, four and a half, almost 5%. Gold again, is a, usually performs pretty well in the bear market. And then the best performing stocks last year. And I'd expect them to be pretty good this year as well. Or, you know, holding those utility companies, consumer staples and healthcare.
You know, that's kind of the playbook to make it through a bear market. And we've been trying to position our clients' portfolios for this. But again, as we go into 23, as we end the in 22 with clearly in a bear market, we just have to change our expectations for a portfolio to change how we're gonna think about investing.
And at least for another six months to a year, I think this changes like creating a new normal. . Right. And what you're saying, and what I'm hearing you say is we have to adjust to kind of what is a new normal. Yes, absolutely. And it is like such a unique year. Like the economy actually did pretty good.
Yes, it did. We avoided recession, we added jobs. There was some growth towards the end of this year too, just GDP wise, like, but then the stock market, we're in a bear market. Just very unique period that we're in right now. I think it is because of this change in, in establishing this new normal. Yeah, a absolutely.
The big theme, I'd say bear market, but you have to be patient, right? You're gonna get really good opportunities in bear markets to invest the, favorite strategy for buying stocks during the bear market is you just do a dollar cost average, cuz there's no way to predict when it's gonna.
But if you're slowly buying shares at low prices, guess what? When they go back up to higher prices, you're gonna have more money than you do today. So what should people do right now if they're retired or they think about retirement in their portfolio with knowing that, we're in this bear market, there are opportunities.
Should people go out and make, you know these rash decisions or changes to their portfolio, to defensive stocks or to short term? Well, I, I think we'll get into it in a minute, but the, the, it's a blessing and a curse. So if you're like looking to retire right now, that's really good. Especially if, you know your 401k is held up pretty good.
You have, you have a, you know, fair amount of money. What we could do is we could buy short term bonds that are paying four and a half percent and that could take care of your income for the whole year. And then you, and then we can invest the rest in stocks and you don't really care what happens to the stock prices cuz you're getting your monthly.
You have a safe place for your, your income you need in the short term, finally. Yeah, absolutely. Interest rates are hired. Just to explain though, two T-bills for the listeners, anyone who knows, a lot of people are familiar with like bank CDs, it's a CD basically offered by the the government. So just to kind of explain that in simple terms too.
Yeah, that's a really good way to clarify it. Um, Josh, what is your theme for this year? My theme is going to be a topic that we've discussed a lot on this podcast over the last 12 months, which is interest rates. We've seen interest rate hikes all of last year and interest rates we know can affect the economy and markets and in tons of different ways, and, and we've even felt it within our own personal household.
My first kind of impact or, or kind of theme to these higher interest rate climate that we're in is that it is going to be more expensive to purchase and borrow and finance anything right now for individual households in America. And this is going to change your budget, right? This is gonna change your plans, whether if it's for a new car, if you plan to move or upgrade a house, or, um, just finance let's say a remodel, right?
This is gonna change the remodeling landscape from it being in high demand through Covid to potentially. Pulling out that home equity line of credit to remodel or add a pool your backyard, because that interest rate's going to be a lot higher. Um, as a result of this though too, it can be, or it can discourage companies from actually acquiring or starting new projects.
And ultimately all of this change can lead to slower economic growth with higher interest rates. We're contracting the money supply, so growth can potentially slow. And this is gonna be a theme throughout all of 2023 unless the fed pivot. . Yeah, this is the new normal. Higher rates. Higher rates for longer.
I was looking at purchasing a Tesla and I looked at the financing costs. I said, Nope, I'm not doing it. It was, the interest rate was like 6.7% for perfect credit. There's, you know, no way you can make that math make sense, which is probably another reason why something like Tesla stock was down 66% last year.
So what will people. for cars or Yeah. What, when, when they need a loan and they're not willing or wanting to pay six, 7%. I mean, well, if you need a car that bad, you're gonna, find one like Josh had in your budget, you're not gonna buy a Tesla model three. You're gonna buy a Toyota Corolla. Everyone's gonna be downgrading.
There's more options. Yeah. Right. Maybe even look at used. Leasing strategies. I mean, there are different options out of there, but again, rates, are they gonna stay high? That's another question to be asked too. And how high, um, so is the rate short term? Is it long term? Yeah. And then even like, you look at housing, right?
Maybe you can't afford the four bedroom house. You gotta go over the three bedroom house. Or you know, the house that's, you know, thousand square feet less. Or you wait and you save more. Yeah, absolutely. And so you can't afford it. So with this though, does prices start to come down? It appears that everything still is very expensive.
It is cuz demand is is still very good. It's still very healthy. I had talked about the economy still doing good last year, but you're starting to see the signs, right? The signs are savings, account rates are dwindling, credit card debts coming back up. Um, you're starting to see car lots being actually having inventory for the first time.
There's actually cars on the lots. So all of these variables are going to affect prices. Um, they're going to drive prices potentially. Because people are going to back off on those purchases if we're looking at it compared to last year. So does that, for something like that to happen, does that take weeks?
Is it gonna be months in this year? Is it gonna be the whole year? When does this actually really start to. Take effect. We've already see it affecting in certain areas, but it can take a long time. Right? Because we were coming from a very healthy situation from American households. So because of that, this can take months for it to kind of reset.
We're al also seeing that in the housing market, right? Prices haven't fell, fall off in a cliff yet, even though interest rates have doubled in the last year. Yeah. And they might may not even fall off a cliff. They might slowly decline. Like again, I was meeting with a. We're updating their balance sheet and one of their homes decreased by like $75,000 and the other one had decreased by like a hundred thousand.
You know, percentage wise, it's probably about five and 7% of each home. But again, it's gonna happen slowly and it's probably gonna decrease a little bit more into this year. , but it's also coming after a period where you had 30% growth and probably your home over the last three years. Yeah, absolutely.
So houses are kind of like the Tesla stock home. not that bad. Tesla's a lot worse. I will say though, on interest rates on the other side of this, right, we're talking about interest rates going up and it being more of an effect on people purchasing, but it also has an effect on savers, right? It makes it more attractive for investors to earn a higher yield on money.
This can lead to a shift from money being spent to being saved. See it more attractive than spending that money on a home improvement project. We're gonna save that money. We're gonna implement a strategy, like Matt said, of buying T-bills at 4.5% for the year. So because the interest rates are higher, that affects, um, the yields on these cash management products and savings accounts and t-bills.
And you're gonna look at getting a better rate there. Yeah. So that's like the trade off, right? And that's why it's not good to do debt right now because you can get four and a half percent. on a tbi. So then, you know, if you're buying a house at, you know, 6% or 7%, or you're buying a car at six and a half, 7%, then you know, you're basically just throwing money away.
Burning it up. Yep. And then the third really. Theme we wanted to talk about with interest rates is this can affect stock and bond prices. We've seen this. Interest rates are a very complicated variable. Um, and like we talked about with Texas stock, it can affect the overall value of these assets and investors because of this interest rate.
Hike over the last 12 months might be not as willing to pay a higher price for the same assets out there. So effectively driving prices lower. Or they might want to just hold cash more like we just talked about. So we're not purchasing high risk assets like we were at the rate we were over the last 2, 3, 3 years.
Yeah. At the end of the year I started seeing that with a lot of clients that we work with, whereas like, you know what? Let's reduce our stock positions. Like we don't need to deal with this volatility. Let's, let's take the T bell at four and a half percent. Like we're happy with that. Like we could live, we could sleep with that, but it's also like you sold an investment prosperity or you, you know, had a big bonus or you had an inheritance that you received, you might be less likely to buy those risk assets in this type of climate, um, and hold that cash for some time.
Yeah, absolutely. Makes sense. Makes a good point. Is there any other interest rate impacts for this? . Yeah. And it, with interest rates being higher, it could effectively change or adjust the exchange rate for countries currencies. Um, and this can be very complicated. This can affect economic growth and, and, um, you know, so just in so many variables, um, interest rates are highly complicated.
Uh, as you're seeing, and it can affect so many pieces of our economy and markets globally. It sounds like 2023 could possibly be a, a tough year. What could we do to mitigate. these challenges. Yeah. I'll jump in. I'll, I'll take the first three then. Josh, you could go through kind of the last three of the playbook here.
But our, our favorite strategy, I, we've been doing it with so many clients, the last three months is just going without bond ladder. Um, we could probably do a show on that to explain it a little bit more in depth to it. Basically you buy the three month, six month, nine month, and one year, uh, t bill, and every time one of your bills comes due, you repurchase a one year.
It's a great strategy for high interest rates. It's a very safe investment strategy that's currently at market rates is paned out about 4.6% per year. Really good, spot to put, put money in right now. And I think that it's like one of the biggest. advantages of this strategy is the flexibility.
It creates tons of flexibility. And then, you know, if you wanna buy stocks, dollar cost average into, into index funds, um, that's what I'm doing with my retirement money. Every two weeks I get a paycheck, the money goes into my 4 0 1 and I buy stock, um, index funds with it. We have other clients who are doing this great strategy for a bear market.
Like I said, you're, you're buying those funds. At low prices, you're getting more shares. So when prices go higher again, you're gonna have more money. And then finally you could rebalance that portfolio you know, making sure everything's in line. Maybe you'll, you're moving more to US and international stocks.
Maybe you're moving some out of bonds. I don't know. Everybody's scenario is different, but a rebalance is a really good strategy here as well. Tune up. Exactly. Change the oil. What else you got, Josh? Yeah, so I think that it's important to avoid debt at times like these two. You know, going into a year with a lot of uncertainty and higher interest rates.
You don't want to be paying high interest rates on a bunch of outstanding debt or any new debt. So that's gonna, Be something you really wanna manage in 2023. Also, avoiding extreme risk. We've seen, we're reminded in 2022 about the risk that these assets do have. We just talked about Tesla being down 60 plus percent.
You can look at the cryptocurrency markets. There is risk out there. Let's try to avoid the extreme risk, let's be calculated and, and then lastly, maximizing interest on your savings accounts. So, you know, making every dollar work for. . So if you do have money that's at a traditional bank looking to implement some new cash management strategies is gonna help offset some of that inflation and those higher interest rates that are out there.
But all three of these can also help through these difficult kind of times. Yeah. At minimum, right now on savings accounts, if you have 10,000 in the savings account, you should be getting $300 in interest on an annual basis. So that would be a 3% rate and that should be your minimum bar. If your account, if your savings account is not giving you that, you need to move your savings somewhere.
Yeah. And I think that's a really important key is in times where things are becoming more expensive and you're having to pay a higher interest when needing to borrow money. If you have money sitting liquid, you should be taking advantage of having your money at paying higher interest rate. Yeah. It's, you know, that $300 in interest is the equivalent of a.
Low level Apple watch, brand new . So if you think of it on that terms, like why wouldn't you move your money in that higher savings account, get a free Apple Watch at the end of the year. That could be your like entertainment budget though for, you know, a month or two. Yeah, absolutely. If you're not going out that much.
Yeah. All right, well let's get into RPA recommends, Matthew, what do you have for us? All right. So I had avoided this for a long time. I love truffles like the taste of truffles, uh, with my food. Like chocolate truffles? No, no. Like the, you know, French truffles that you put on food. Kind like an u una flavor is what it's called.
It's like a savory flavor. Yeah. This seems very high end to me. I'm not what familiar with like what is the tool they use to like shave 'em off? Honestly? Yeah, it's like a Parmesan cheese type deal. Got it, got it. Um, but anyways, so they could liquefy truffles and turn it into kind of like an oil that sounds.
Yeah. It's not, but there, so there's this company. He has lot of truffle around his house, , the, my wife got me this, this bottle of hot sauce called the, the, it's the truffle hot sauce. It's called trough Hot sauce. And it's hot sauce mixed with truffles. It was so good. It's the best hot sauce I've ever had in my life.
It goes great on everything. We're already on our second bottle and we got our first bottle at Christmas. We just destroyed it. Can I make a request? Can you bring some to the new office? Can you get one for here? Yeah, I could go in for you for here. Um, they sell it at Whole Foods, so if you go to any Whole Foods we'll have it.
Is this like a $40 bottle off hot sauce? No, I think it's like 20 bucks. Truffles are expensive, but No, no, no. It's not funny. 20 bucks. Dude, my taps only five bucks at the whole grocery store for a dude. I don't know why you guys are joking. A, a bowl of Chipotle costs $22. That's true. And I'm telling you some hot sauce that's gonna last you, you know, a couple weeks is 20 bucks.
Yeah. But this also goes in line so that everyone knows that. Sent us a picture of his pasta getting truffles sprinkled all over it over the break, over over Christmas break. So I've never experienced truffles in this way. I've had a chocolate truffle, but I mean, I'm not having truffle hot sauce. Yeah, it's completely different things.
Um, you're gonna get a little taste. He's gonna bring us one. You know what, I'm gonna take the RPA recommend and, you know, maybe I'll try it. , what do you have for us, Josh? I, I'm gonna go with, we do a lot of like, end of the year tips, but to start the year I'm recommending revisit that household budget.
Let's get off on the right foot. We always talk about end of year strategies, but here's a beginning of the year strategy and a recommendation. We just talk about interest rates changing, budget's changing. If life's changed, go back, have that money day with whoever you consult with financially and revisit just your cash flow and your budget.
I think it's a great time. Uh, it's always a good time, but I think to begin the year, it's always a, a good time as well. Something never fun to do. Like what's the best way for people to do it? Uh, we always talk about software being good. Um, I think it's more interactive, it's visual. Instead of you going, you know, balancing a checkbook or creating an Excel spreadsheet, um, you can upload your accounts to there.
So I think just reviewing that history and like the categories through, um, some sort of software that you use. There's tons out there. A quick Google shirt. Sure. Use Nerd Wallet to, to find the best one. Um, but I think that's probably the, the best way. But I mean, you can take it back to old school. Look at your statements, go back and, and see that.
Or, again, use the online banking. I know they have a lot of tools just within the, the online banking stuff now that you can use. You could also open, um, you know, your favorite glass of wine or your favorite beer. Do it while you enjoy a nice alcoholic beverage and maybe put on a TV show on Netflix that you could binge in 30 minutes where you really don't have to pay a.
And you're paying attention to your finances, but if you need a laugh, you can look at the show, right? Or you could just add some truffle hot sauce to your why you do that. That's what I was gonna say. , wondering why you spent $20 on your hot sauce? What about you, Brent? Uh, so for my recommend is for people that have either young kids or, or grandkids that are, you know, under the age of 12.
We actually purchased a, a, what they call a gab watch. It's g a bbb, uh, watches for our kids for Christmas. And the reason why is cuz there's certain times where we need to get ahold of our kids, whether it's when they're getting outta school. Um, where they may not be with us and we needed a, a way to get ahold of them, but we didn't want to buy them like an iPhone where it has a lot of distraction or an Apple watch.
Tons of distractions, just tons of stuff that we didn't want them, um, spending their time on. And a gab watch is really built for that age group where they can basically just respond to our text message or call. , um, there's no apps where they're able to download apps and there's no pictures. There's, it's very, very minimal of what they can do, but perfect for where our kids are at in an age and anytime where even right now, when they're on Christmas break.
They need something from me. They can just call me with their watch and they'll text me and it, it's a very good way for them to be able to communicate maturely as young kids, but not have the distraction in some of the risks that it has within a phone or some of the other things that you have out there.
Remember back in the nineties when we were in high school or junior high and like we had pagers and our parents would page us like, you know, like the call home code or whatever. Yeah. It's kind of like that, but for like kids. Yeah, and it's much more modernized and it's much easier. I mean, they can call me, you know, and, and talk to me through their watch, which.
Obviously much better than what a pager was. And you know, we were in our teenage years when, when pagers were out, but it's a great way for them to communicate with us. That's cool. No, you, you showed those to us and they looked awesome. I was like really excited to see if they were excited to get them.
And you said that they were so that's cool too. They really enjoy them. But such a cool. Advancement in technology. No more pagers. It, it's probably cool though, cause like, I remember when I got my first pager, I was like, oh yeah, I'm a cool kid in school now. Cause I got a pager like everybody else. I'm sure there's other kids who have watches like that.
They're, and they feel cool wearing them. Yeah. And what you do is you, you only authorize contacts in their watch, so they can't, there's no keypad for them to dial a number. There's on, they can only contact the people that. Have authorized insight That's cool with their watch. That's cool. So there's a whole system around it that's really protective.
Um, but it's a great way for them to, for us to be able to communicate without, you know, them playing with their watch in class. That's awesome. I imagine, you know, technology like this even grows and becomes more and more popular with a lot of people as we learn the downfalls of having, you know, an open iPhone or an open Android phone.
Yeah. and, and one hour of them having that watch. I thought to myself, I better look at what the text message costs and, and minutes cost. And thank god it's unlimited because I was like, this is gonna run up some Bill. You got 13 text messages in the last four minutes. ? Yeah, . All right. So as we close out, if you're feeling overwhelmed or unsure about how to navigate these volatile to markets, we encourage you to reach out to us at RPA Wealth Management.
Our team of experienced financial advisors are here to help you. For obviously your retirement and make the most of your savings and invest. Uh, don't let the challenges of last year droll your retirement plans. Contact us today and let us help you get back on track. And as always, thank you for listening to the Retirement Plan Playbook.
Thank you. Thank you.
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