[Stephen] Hello everyone and welcome to the 2021 Navalign Media Outlook. I’m Stephen Rischall and today I am joined by my partners, Chris Carter, Neal Frankle, Matt Stadelman and David Jacobs. You know, a lot has gone on so far the first six months of this year, we have a lot to catch up on in this session. Everything from this COVID recovery, inflation is back in focus, interest rates, yeah, they are going up, government debt is rising and that list goes on. So, Chris, I wanna start with you. One thing we’ve been hearing from a lot of clients is the market’s so high. Does it have any room to keep going? What do we think?

[Chris] Great question, Stephen and good morning everyone or good afternoon, I guess, depending on where you’re joining us from, we do get that question often. And you know, what I’m about to say is really predicated on the fact that, you know, we’re assuming that we’re gonna really continue to reopen and emerge from COVID, but obviously any big, big setbacks with COVID are really gonna impact what we’re gonna say basically in the next 20 to 30 minutes. But that being said, we are fairly optimistic about the trajectory of where the stock market could go and I’m gonna briefly touch on just a few of the reasons why. Number one, it’s early in the business cycle. So if you look at the stages of the business cycle, we’re currently in recovery, you know, approaching maybe even growth, equity markets tend to lead the business cycle. This cycle appears to have a little bit of room to run the last five elongated US business cycles lasted on average seven years and produced a cumulative GDP growth of about 25%. So we’re just at the one year mark of this current cycle and the GDP is only really returning to where it was at the start of 2020. Number two, we all know that the economy is hot, right? Consumer spending, business investment, housing, they’re all booming at the same time. So leading indicators for the economy are approaching multi-year highs suggesting, you know, that maybe the economy does have a good chance of growing at an above trend rate for the foreseeable future. A strong economy can suggest that companies are gonna grow into their valuations. So what that means is, you know, people are asking a lot about the market is not only at the price level at an all-time high, but if you look at like the price to earnings ratio or the valuations were kind of at the top end of historical averages there, but valuations are almost always elevated one year after a recession. So history tells us that stocks do grow into their multiples after almost every recession, basically for the past 20 to 30 years that has happened and corporate earnings are rocketing higher, right? The S&P 500 shattered anticipated earnings growth in the first quarter growing, I think 52% compared to an expected 20 or 25%. So, you know, we’re just at the beginning of second quarter results here, but, you know, earnings are gonna be a very important part of the story, but it’s a really good sign that the returns are being influenced by those earnings, the E in that price to earnings and not just the price to earnings ratio expanding. So that’s a good sign. Number four I guess, I would say that the Fed really isn’t expected to raise rates until I don’t know, late 22, maybe even 2023. So they’re gonna wait until the real unemployment rate, which, you know, includes part-time workers and those who aren’t really that attached to the labor force. That’s still above 10%. So that’s a number that they wanna see lower. So there are no hurry to implement any rate hikes, but you probably will start hearing if you haven’t already the term tapering. So tapering is, you know, what happens when the fed reduces the rate at which it’s buying a lot of these assets, right? Buying bonds under… You’ve also probably heard the term quantitative easing. So it’s the first step in the process of either winding down or completely withdrawing from that kind of stimulus program. And, you know, I know David’s gonna talk a little bit about, you know, the bond market, but in the Fed’s most recent meeting, they basically are forecasting in 2023, a couple rate hikes. So even though we’re a ways away, you know, that certainly could happen, but rising rates aren’t necessarily bad for the stock market. If you look at history, you know, periods of when the ten-year rises, you know, as long as the rates aren’t rising dramatically fast stocks actually do reasonably well in that environment. You know, the labor market is interesting, right? So there’s, I guess I would call there’s a lot of capacity in the economy to increase production. So businesses are not only looking to rehire to match some of this demand, but they’re also investing in their businesses. So I know, cap backs or capital expenditures are back to pre-pandemic levels, but the economy isn’t really close to full employment as I mentioned earlier. The goal for unemployment is below 4%, pre-pandemic was about 3.5 and now we’re just shy of 6%. So there’s still seven or 7.5 million people who had jobs in February of 2020 that are no longer working. So it’s about the same number as during the depths of the financial crisis 10 years ago or longer 12 years ago now. So despite the overall weakness of the labor market, you know, there’s good reasons to think that the recovery will accelerate in the coming months, primarily because the unemployment insurance benefits are set to expire in a lot of places in September. Just a few more quick things I’ll touch on. There’s a lot of cash on the sidelines. Cash is everywhere. On the consumer side, they have cash to spend. Companies are using cash on their balance sheet to invest and innovate and adapt to the changing world that we’ve been in in the past year and a half. But as of early June, there’s about $4.5 trillion in money market assets. Average is typically around one or 1.5 trillion, so that money could come into the stock market and if it does, that’s another bullish sign for equities and last but not least there’s investor sentiment is close to what we would call overbought, but it’s not at euphoric levels that we saw like during the.com crisis and the best. I saw this stat so I’m gonna make sure I get the numbers right. It says that since the global financial crisis, so since 08, 09 investors have allocated over $3 trillion into bond mutual funds and ETFs and a trillion into money market. So really safe investments. But on the other hand, they’ve only allocated about 550 billion. So a fraction of that into equity strategy. So it appears that there’s space to go before investors appear euphoric. So there are a lot of reasons why we’re optimistic. As I said earlier, the COVID, reopening all that could certainly impact the trajectory of where we’re going, but you know, it is important obviously to still have a balanced approach and to work with your advisor to see if you need to make any changes to your allocation. So I would suggest you do that. Many have asked about inflation, the big I word. I know that’s a very big topic of discussion. So I’m gonna pass it off to Neal who’ll just give a few thoughts on that topic.

[Neal] Thanks a lot, Chris. Only a few thoughts I’ll put, I’d go for a couple hours on this one. Is that okay?

[Chris] Stephen, can you see how our numbers dwindling as he’s talking.

[Stephen] I guess everyone’s dropping off now. Thanks Neal.

[Neal] Well, first, Chris, thanks a lot that. What I really liked about your presentation was a lot of perspective and I think that’s always important. And when you talk about having perspective, inflation is super important because it’s a hot topic right now. People are reading about it, they’re hearing about it, there’s articles on the internet. So it’s important that we understand it and have the right perspective. And the reality is just like what you said, Chris about moderate increases in interest rates while moderate inflation can be very, very good for investors. We’re used to no inflation or very little inflation, but moderate inflation can actually be very good and extreme inflation is usually not so good. We spoke a little bit more about that in well, Navalign I was not in the video, but I think Stephen and David if I’m not mistaken or Chris, whatever. Some other partners spoke about that last month. So the question is, are we looking at extreme inflation out of control, what’s the situation? So it’s important again to have perspective and the reality is that the Fed targets 2% inflation. That’s the amount of inflation they consider healthy. Before the pandemic for example, in 2019 inflation was 1.76. And during the pandemic we had the economic shutdown of course and inflation was running at 1.36. There was almost no inflation. Now, so far as of June, 2021, the annual inflation rate is 5.6%. Now that’s far above what’s considered healthy and what’s even more noteworthy is it shows a very fast increase compared to the prior year and the year before that. So the question is, is this a problem? Is this a trend? Well, obviously we don’t know for sure, but we do know that if high inflation continues at that rate, it’s gonna be a problem, but there’s a lot of experts who suggested inflation is only temporary right now. They say that inflation shot up as soon as the economy sort of came back online, because as soon as the economy opened up, there were supply bottlenecks and shortages. And when goods and services are hard to come by, prices go up quickly. But that isn’t a permanent problem because as soon as the fully economy comes back on stream, those bottlenecks and supply shortages should disappear. And in fact, 80% of this big inflation problem that we’re seeing this big increase was a result of those short-term conditions.

[Stephen] Yeah, I mean, I agree with you Neal, the US economy, the global economy, it’s definitely not back to 100% better than we were, but we’re not back to 100% yet and I think this is also going to be short-lived and it also, it’s not like the prices and inflation is going up for everything, right? It seems like certain categories, certain goods and services are experiencing a lot of inflation. Others, not so much.

[Neal] Right, well, actually I agree. And Chris sent around a really cool graphic the other day and maybe you could put that up on the screen and Chris, maybe you could go over that that sort of explains the duality of inflation.

[Chris] Yeah, sure. One thing also, as you mentioned, Neal modest inflation can be good for stocks and that’s true. The tipping point at least historically has been about 4%. If inflation can be under 4%, the stock market actually performs very well. When it goes over 4%, it dramatically changes. So keep that in mind. That’s kind of the tipping point. So yeah, as you said, Neal, there’s, you know, a lot of the inflationary spikes were largely contained to kind of specific less sticky areas of the economy. So, you know, whether it’s like airline fares, that’s, you know, if it’s up on the screen up 24%. Well, that’s coming off when a point when no one was flying and the airfares were so low now they’re just getting back to normal. So, you know, airfare, gas, all those have seen, you know, they have normalized, but have seen massive jumps. Then on the other side, you know, really important things, really more important criteria like rent and medical care and food are all under 2%, really. So there is this bifurcated inflation absolutely. But again, we do expect it to taper down a little bit, but it is important to know that there is that that difference going on and the number is being driven, at least that headline CPI numbers being driven by some of those very specific areas in the economy.

[Stephen] Exactly, but Neal, let me ask you, this is getting back to the topic of inflation and wages. Chris talked earlier about a lot of the labor shortages. I mean, what have we been hearing more about that the labor shortages, wages rising, what do you think?

[Neal] Well, thanks, Chris actually did touch on this too. We do have labor shortages across the United States and that’s been forcing employers to offer much higher wages to lure workers to come back, but because special government unemployment programs are probably gonna end over the next couple of months, we expect that force that’s pushing inflation up to diminish. And along those same lines, you know, the government has put a lot of stimulus into the system and for example, the American Rescue Plan, it’s still in effect, but that program is set to end at the end of 2022. So that inflation force could be temporary. So the bottom line is if things go as expected, we don’t necessarily expect long-term problematic inflation, but as we all know, things don’t always go to plan. One, there’s a few things that could go differently than expected. One is that inflation could seep into the overall labor market. And that would be a long-term push on inflation which would be an issue. But on the other hand, you know, and again, it’s been mentioned before, COVID is starting to heat up around the world in different places and if that becomes a big problem, who knows what the business or government response might be and how that might impact inflation. And you know, that could put a damper on inflation if we have more shutdowns. What if companies are really kind of upset about the fact that they can’t find employees and they make longterm investment in technology to replace expensive labor that could reduce cost pressure over the long run and reduce inflation. What would the government do then? We don’t know these things. And then back to the force that might push inflation up. Chris mentioned that the economy is growing quickly. It’s true. If that continues longer than expected, that would certainly push consumption up and inflation up. And the bottom is, we don’t know if that’s gonna happen or if it does, what it might look like. So, you know, as always, there are just so many variables, no one would have expected a year, a year and a half ago, that we would be in the situation that we’re in now. And likewise, we have so many variables that it’s just very difficult. It’s impossible to make reliable prediction about inflation. If you ask, you know, we’d all, all of the partners have discussed this and it’s just impossible to predict it. So we think having the right long-term investment approach and not getting swayed by the emotions of what’s happening in any one day despite what we’re reading or hearing in the media, having a long-term plan and reviewing and staying on that point is absolutely the best thing right now. It’s just way too risky to predict what the future of inflation might be.

[David] I was gonna say, I think if you think about it in terms of the reason we have inflation is ‘cause people are out spending money and the things that are really inflated like lumber, cars, oil, and gas, this is… Those industries are roaring back. So to put inflation stocks together, the stock market is high, but there’s still a lot of companies that are depressed that really got hit hard by COVID. And that’s where we’re seeing a lot of inflation now, ‘cause we’re all back and travel and leisure is an easy one to point to, you know, all of us hopefully most of you have travel plans for this Summer, for the first time in a year and change and it’s exciting. So the demand for flights, the demand for certain things is up and that’s putting pressure on prices. So I think when you put it all together, it does make some sense that this is… Inflation is short term, but in some ways it’s actually positive for these beaten down industries, which gives the stock market some room to run in those areas.

[Stephen] Right, one thing though, that I think we can predict about inflation is that it actually poses a risk to cash, right? Your purchasing power. So usually we think of keeping money in the bank as a very safe thing to do and it is. The likelihood of you losing dollars is very low, but your purchasing power decreasing because now the cost of gas and airfare and everything else along with that has increased. I mean, that’s a real risk to holding too much cash on the sidelines and just like Chris talked about earlier, we know there is a lot of cash still on the sidelines that has yet to enter the economy, yet to enter the investment markets. And I think that’s certainly another question that a lot of clients have been asking us as well, what to do with that money.

[Matt] I mean, if I can chime in here, it’s a little disturbing to see the amount of deposits in money markets and in banks right now. It’s good that people have saved money and it’s large part because of the economy shut down last year due to the pandemic. So it’s understandable that people are sitting on cash right now, but you know, sitting on cash isn’t really a good sound investment choice particularly if it’s more cash than you really need for your emergency reserves. I see all these bank balances and you saw that chart earlier of how many, how drastic the amount of money market balances have gone up over the last year. The only people that really come out ahead are our banks and it probably is reflected in you’re now seeing bank stocks and the prices of banks going up. So for investors in our banks, we’re actually making money because they’re making money, they have high deposits, they’re still not doing the loans that they want to, but at the same time, you know, we go back to what should the investor be doing with their cash? You should certainly should be investing in because each of those dollars that aren’t invested and will only result in that negative return, ultimately in your purchase power over time. Neal did a great job of outlining what’s happening with inflation and if our money is just sitting there not making anything, we’re not putting it to work and not having it doing anything, you know, we’re facing this real problem here of higher inflation that we acknowledge hopefully can be contained by the Fed, but they’re saying it’s going to be higher in the next year to two, they’re gonna let it go higher. So it makes it even more urgent for those people with cash on the sidelines to actually put it to work and do something with it. We have a rule of thumb, you know, bear with me if I’m repeating myself, but essentially most people, all people should have an emergency room reserved. Now this is cash in the bank of three to six months. That’s generally accepted as a reasonable amount of money for those periods of time where you need to access money because you’re either out of work because you’re injured or you’re out of a job because you’re transitioning whatever the case may be having that three to six months of living expenses to pay your bills is super important. But every non-emergency reserve dollar above that just represents a lost opportunity. So I think it really is important for people to identify how much cash they really should have on hand and deploy or put to work the cash that they do have that’s excess and it should be consistent with your long range plan. You know, I can’t help, but sound a little bias here, but we would want you to continue to de-grow your money so that you have a safe sound retirement and then you can live your life the way you want to. Any amount of money that’s on the sidelines just looks like that again, it looks like that lost opportunity. Of course, situations are gonna change. We need to be able to adjust your risk accordingly as your life circumstances change. But you know, we’ve touched on this. Chris touched on this, I know David touched on this and certainly Neal touched on this. We can’t let short-term emotions influence what our long range plan is. Long range plans is important to stay the course and any new dollars coming in should be pegged to the amount of risk tolerance that you’ve worked on with your advisor and identify that’s appropriate for you. The one thing that I think people have asked us questions about is well, okay, in a diversified portfolio, what about bonds? Well, interesting thing about bonds is that in the second quarter, people that were holding cash, they missed out on positive returns in most bond sectors. And of course that translates into and in Q2, you lost purchasing power due to inflation ‘cause we know that inflation has been going up. So we’ve been hearing a lot about bonds lately. I know David, you have some thoughts about investing in bonds and how we feel about that as part of our portfolio.

[Neal] real quick on the cash. I think that one reason people have excess cash and Matt, you hit it on the nail, hit the nail on the head, that everyone’s cash needs are different, but people have excess cash needs sometimes when they say, “Well, I don’t know what’s gonna happen, “given the economic or political uncertainty.” Well, if that were the reasoning to have too much cash, all of us in this room, we would have had all our money in cash since we started in the career, because there’s always uncertainty, there’s always unknown and unknowable things. And what’s critical is, you know, you can say, well, if you’re… As you said, Matt, you know, if your own individual situations you’ve got some big things happening that’s one thing, but to keep in cash, because you have some concerns about the politics or the economics, you know, that’s difficult because it’s always been that. And let me just give you my… I consulted my crystal ball this morning and it told me that there will always be uncertainty and there will always be unknowing unknowable thing. So it’s… The only unfortunate alternative option is to have the long-term approach and to stick with it.

Yeah, thank you, go ahead, David.

[David]- Can I borrow your crystal ball? Mine’s broken.

[Neal] It’s for rent, it’s for rent.

[Stephen] I heard inflation’s kicking the price of rent up for your crystal ball though.

[David] Yeah, I’ve heard the same thing. I mean, look, I think that this is all really important stuff I think I know personally, I’ve gotten a ton of questions about the market inflation cash and bonds and I think as the one who pulled the short straw and gets to talk about the least exciting investment in the world, which is bonds, just because you’re afraid of the stock market doesn’t mean you should keep money in cash, right? As Neal just said and Matt just said, if you keep money in cash, you’re losing because inflation is gonna be higher than average. It’s usually around 2%, it’s gonna be higher this year. You’re earning less than 1% on your cash which you are, then you’re losing your future purchasing power. It’s negative real returns. So the option doesn’t have to be stocks. Doesn’t have to be real estate. It could be something as boring as bonds, but many of you may have heard the bond market is dead or the future of the bond market it’s in a bubble. Warren Buffet, the greatest investor of our generation said at the beginning of the year, that the 40 years secular drop in interest rates. Those of you who we’re around in the early 80’s remember interest rates were in the mid teens. And basically until 2021, I know you were there, you know, I was there too. I was a little younger though. Interest rates went from teens down to under 1% and Warren Buffet who’s famous for his stock. So maybe we shouldn’t listen to his bond advice, but he said, look, “Bond market’s basically dead “and it’s not a place you should be keeping money.” And to some extent that’s true, but to some extent we disagree. So before I get into those reasons, I wanna see like, why would you hold bonds to begin with in general, other than to keep ahead of inflation. It’s mostly because of risk you wanna be risk averse. You know, maybe you’re just… You don’t wanna have all your money and things that can go up and down at 50% like stocks and you don’t wanna keep all your money in cash. So where do you put it? There’s number one, number two, if you’re approaching retirement or in retirement, you don’t wanna have, you don’t wanna be in the distribution phase of your life where you’re spending your investments and you have too much in stocks and when the stock market crashes like it did a year ago, you’re forced to sell stocks while they’re way down. So we typically say, you know, if you’ve got money that’s five, 10 plus years, that can be in stocks. You know, because the market has always done well over a 10 year plus period. But if you’ve got money, shorter-term money, it really should be in bonds. And as an asset if you’ve got money that’s, you know, emergency money or something you’re gonna spend, you know, you’re gonna buy a house next year. You’re got a big tax bill due next April. You wanna have that money in cash. So people invest in bonds because they wanna earn money above cash, but not be in the stock market. And what’s the risk in bonds? Why is the bond market dead? Well, as interest rates move and as we all know interest rates are extremely low. And from when Warren Buffet had that quote, interest rates have risen. As interest rates rise, bond prices fall and the longer you are, the longer bond you hold. Meaning your bonds mature in one year, five years, 10 years, up to 30 years. The longer the bond, the more the price drops temporarily as interest rates go up. So if you’re in a two plus two year bond and the interest rates go up 1% that bond price will fall roughly 2%, four years, six years, you get little fall four and 6%. That measures duration. It’s a complicated way to calculate like bond risks, but those risks are overblown because what you actually wants as a bond investor is for rates to go up over time ‘cause you get paid more income. So most of our clients and I don’t know what do you guys think? What percentage of our clients own bonds 80 or 90%? I think most of us in our financial plans will recommend bonds for most people. I know I have a good chunk of bonds, even though I’m only 45 about to be 46. I almost at 46. So it’s really important that we have a balance and you don’t necessarily avoid bonds because you hear that the bond world is not a place to be because that’s been in the financial news a lot including the . So what does that mean? What’s the future hold and what are we doing about it? So we do believe the interest rates are gonna be rising. The tenure has actually come down a little bit lately because of some uncertainty, whether it’s COVID or who knows there’s always uncertainty as Neal said, but what we’ve done and what we did many, many months ago in the first quarter is we actually eliminated our client holdings for the most part, in what we would call core intermediate term bonds. Those are those five or six year bonds that if rates go up 1%, you would lose 5% temporarily. So we actually completely eliminated our exposure to that in favor of two things. One, shorter term bonds, which we’ve held which were a far less interest rate sensitive and we’ve taken a little bit more credit risks. So some higher yielding, shorter term bonds, which have done quite well this year. And we’ve also for the first time in my 25 year career, we’ve invested in what we now call strategic income which actually aren’t bonds at all. What they are is a few different hedged equity strategies, where you invest in high yielding stocks, but the fund manager basically shorts the market so you have no market exposure, which sounds complicated, but after a lot of research and many months of research, our team here felt it was… The risk was very, very comparable to intermediate bonds except and this is a big, except in a rising interest rate environment that we expect for the next few years. These investments could return in the 3, 4, 5, maybe even 6% range, as opposed to our forecast for intermediate bonds of somewhere between zero and 2%. So for those of you who are sitting on a lot of cash or worried about the bond market, or worried about the stock market even you should understand that we have implemented strategies that will keep ahead of this inflation that is going to hurt your purchasing power and still have a lot of safety nets that are gonna protect your money. So it’s our view that bonds are not… The bond market is not dead, you just have to be smart with how you go about doing it, holding a bond index fund the Vanguard total bond market index is not a good investment right now. What is a good investment there’s some of the strategies we’ve implemented, which by the way for the year the bond market of those of you follow it, which I’m sure none of you do the bond market’s down around 1% for the year, our bonds, depending on your account and how you’re allocated to munies or taxables, et cetera, were somewhere between 1% and 3% up. So this strategy is already paying off. We feel really good about it. And those of you that are holding too much cash or worried about the stock market, this is really something we should be talking about.

- That was great, David, thank you. I mean, so in summary and to wrap this up the last or I should say the first six months of the year have been pretty exciting. We definitely don’t know what’s going to happen with COVID The Delta variant, the land variants. So keep our eyes on that. Everyone should keep their eyes on that and be safe of course, but clearly it seems like the stock market, the global economy, the US economy still has a lot of capacity, a lot of room to run some of that it’s what’s leading to this near term inflation like Neal discussed so inflation, right? The cost of goods, certain goods are going up a lot faster than others. And hey, if you’ve got too much cash on the sidelines, that’s really gonna be hurting your purchasing power because that same dollar today may not buy as many goods as it can a year or two or three from now. So if you are looking for ways to invest that money and you don’t want that volatility of the stock market well, there’s other types of things you can invest in, of course that aren’t necessarily the stock market from alternative investments like real estate and commodities of course, bonds, fixed income, strategic income, bottom line, your money should be working for you and it should be aligned with your financial plan. Now during the session and even before we had a lot of questions come in. We’re probably not gonna be able to answer all of them, but I was sifting through them a moment ago and I’m just looking at the ones that there’s like a few people asking somewhat similar questions. So I’m just gonna put these questions up and we’ll kind of toss it around you round Robin guys, a couple questions related to retirement, someone here she’s getting ready to retire and wants to know, what do I need to know? How am I gonna be able to retire in this environment right now? Who wants to take that one?

- I’ll jump in real quick, Stephen. And that’s obviously a very individualized question and everyone’s situation is gonna be very, very different. But the first thing that comes to my mind is, you know, retirement is a big change in someone’s life obviously, but it shouldn’t necessarily mean that your investment plan has to change that drastically ‘cause this is something that, you know, you and us as your advisor had been working at and you know, it’s not a switch that gets flipped that you all of a sudden need to drastically change what you’ve been doing, because let’s face it there’s a good chance and hopefully you’re gonna be in retirement for decades. So you need that. You need part of the portfolio to be growing. So again, a very specific question to every individual client and investor, but that’s my first thought is, you know, it should be something that we’ve been planning for and you know, getting ready for not something that we have to make a drastic switch right away.

- Yeah, I think, I mean, I think everyone’s spending is different and in retirement it’s different. And when you first retire, you tend to spend a little bit more, you check those things off your bucket list. I know a lot of people come and say, “How much do I need to retire?” And it’s kind of a loaded question as Chris said, I can’t help but think when I first entered the business that number was usually around you could spend around 5% of your investments without tapping into principle, which is in and of itself somewhat of a fallacy ‘cause that principal is there for you to spend retirement. But I think it’s what we’ve noticed is we’ve done a lot of financial plans this year. We’ve changed our return expectations, such because interest rates are so low that 5% old school number is really more like 3.5 or 4% these days, but I think the key is, it’s okay to spend principle especially when you need to, especially for that first big trip that you take to Europe or wherever you like to go when you’re first retired that African safari, you know, if you’re gonna spend 10, 20, $50,000, it doesn’t have to come out of earnings. It doesn’t have to come out of interest. And in every year that the market doesn’t do well. So, you know, in the years it doesn’t do well maybe you’re touching your principle out of your bond money, so you don’t have to sell your stocks, you know. So it really depends and it really but your financial plan should be fluid and evaluated on an ongoing basis.

- Yeah, that was great. We had some questions coming in. Oh, sure. Yeah, go for it Neal.

- I’m sorry. You know, the other thing that occurs to me is that we’re living in a time where, you know, we’re constantly bombarded with fantastical information and information from the internet and so forth. And I think as we approach retirement, it’s very difficult not to allow those, you know, emotional bombardment of information to impact, you know, when we’re working, we think, oh, we can ride through it, but when we’re retired we, you know, it becomes a little bit more… We listened to a little bit more that’s maybe a big problem because even though as both David and Chris mentioned, when you’re hired, you’re gonna re be retired for 20, 30, 40 years hopefully and your investment strategy and needs don’t necessarily change right off the bat. You might take income, but you want an income to last for 20, 30, 40 years. So I think the best advice that I could provide, you know, in this format would be get back meet with us one-on-one and also don’t allow the news to impact your longterm retirement income plans.

- That’s so true and Neal, you’re gonna have to watch the replay of that. Your face froze a few times, I guess it’s the nature of these live stream events, but we got all the audio. So a couple of just didn’t look so pretty. Move on to the next question.

- That could be of benefit.

- We move on to the next one. We had several people chiming in asking about just government debt, right? So it is true the government debt is at the highest level it’s ever been in the history of well, I was tracking this stuff and, you know, the US dollar and all of that, you know, does that necessarily mean that the market’s going to crash or that we’re in for a wild ride ahead? I mean, how much do we all feel that, you know, increasing government debt and spending is potentially gonna hurt or maybe benefit the stock market and the private sector?

- That’s a really good question because it’s so in our face, the stimulus and the trillions of dollars that are now flooding our markets, our banks and I think the risk there is far less than the risk of them not doing it. So we looked at the financial crisis in 2008, huge stimulus bailout. It was different to be sure because those were banks being bailed out, but the risk of them not doing it was basically the great depression, right? The great depression happened. The government didn’t step in. They said, “Free markets let businesses fail.” And we had a 10 year, basically, you know, 30% unemployment nightmare, 2008 came around they changed their tune. And now 2020 comes around with a pandemic and it’s another bailout. And I think without that, we would be in a far different position right now in terms of our own personal net worth in our own stock market and everything I think we’d be, you know, pushing into a depression probably last year. So first off, I think it was necessary and required. In terms of the effect long-term of course the dollars are the most in human history because our economy is the biggest it’s ever been. So I think we have to look relative to our economy and our GDP and this will be basically the same percentage of debt relative to GDP as we had in World War II. So putting that in perspective, the largest outlay of capital ever from the US government was certainly World War II and we’re at that and possibly gonna exceed it. So there will be some repercussions down the road. The most interesting, the most likely scenario is it’s mid to long-term where we see how that works. It could result in some higher taxes. I think we all know that’s on the horizon to help start paying for some of this, but I think the economy heating up doesn’t in and of itself have that trickle down effect as well. So it’s not something that really should affect the short term, meaning this year or next year, but it’s something we’re certainly monitoring and it hasn’t gotten quite out of control. The US relative to the world is still in far battle. There are houses in far better fiscal shape than most other countries dealing with this because our economy is so strong, but it is certainly something we’re monitoring.

- Yup, indeed. We got a couple a little comments kind of like questions, but okay, so Bitcoin cryptocurrencies, you know, they’re down over 50 to 80%. Yeah, that is true. Some even more than that. 50 to 80% from their highs, you know, should I be buying this?

- No, no. Well, that’s what an asterisk. I think as an investor if you could take the money that you would otherwise invest in Bitcoin, toss it in the trashcan, light it on fire and be okay with that and the loss of it, then I think Bitcoin or cryptocurrencies could be a worthwhile investment for you because the risk is so high. It’s such a volatile investment right now. It’s about as risky as you can get. It’s just not something that certainly Navalign gonna purchase for any of our clients. We’re not gonna endorse it, but, you know, if people really wanna invest in like the thrill of tossing their money away potentially then I mean, as long as it doesn’t affect your long range plan, you know, I say, good luck, God speed.

- But how do you really feel about it?

- Well, I mean, here’s something that’s masquerading right now. It’s masquerading as a currency. Now, most people I think, most rational people when you drill it down, want their currencies to be stable, as stable as can be. That’s why people are hoarding their money in cash right now ‘cause that’s as stable as they can get. So let’s take that a step further. What currency right now is typically viewed as the most stable? Well, that’s the US dollar. So we have this investment that’s out there in cryptocurrencies, masquerading as a currency when it frankly isn’t because its volatility doesn’t match what traditionally people expect out of currencies. So, you know, ultimately someday Bitcoin and other cryptocurrencies might actually get a foothold. And this could be the way that people exchange for goods and services rather than through dollars. They could be cryptocurrencies. The technology, that’s the foundation for cryptocurrencies among other things like NFTs and now it’s the blockchain technology is also supporting contractual obligations or contracts for insurance and other things. Blockchain itself is a very, very important technology that will likely someday be the foundation for a lot of the way people do business. So that said, there’s a lot of opportunities in blockchain itself as a technology, there’s still some kinks to iron out with blockchain. It still requires massive amounts of computing power. So it’s certainly not very eco-friendly at the moment and it still needs to sort of blockchain itself needs to jump this hurdle of trust that how it works is really truly safe and really truly impenetrable from fraud. So there’s a bit of a leap of faith because of the system is so complex and it relies on multiple computers all over the world. People have to sort of get used to the fact that they can trust that this platform will truly work. So circling back Bitcoin cryptocurrencies investments today. You’re right, David, I’m not a fan.

- I think from experience that it’s a very tight group of people that believe in these things and they’re very good at trying to convince you why you should be doing it too. So just be careful, they’re of self motivated ‘cause they are already in it and they want you to get into it too and push the prices higher. I totally, I think we all totally agree with Matt. It’s just… There’s no fundamentals behind it that make any sense why it should have any value close to where it is. It has fallen close to 50% in the last few months, it’s still up 10000% from where it was a few years ago. It just doesn’t make a whole lot of sense.

- Right and I’ll add to that. I mean, Matt pointed it out. Now a lot of folks actually do not call them cryptocurrencies ‘cause technically in a lot of cases, they are not currencies. Very few of these can you actually use to buy anything at all. And definitely not efficiently. They call them crypto assets. So you know, I’d second Matt says, if you have a high tolerance for risk, a very high tolerance for risk, this is as risky as it gets, riskier than investing in IPO’s, riskier than investing in emerging markets, riskier than investing in your friend’s lemonade stand. I mean, this is as risky as it gets. If you are okay with speculating with some of your portfolio, some of your net worth, it can make some sense, but you really need to be careful. There are some serious ethical implications and more likely than not the way that we see these crypto assets today and the speculation in them. It already seems like the speculation is going down a bit, that’s probably a positive thing and whatever the future holds for these crypto assets and more importantly blockchain as a whole, which is much, much bigger than the crypto assets, that’s really where I think the opportunity is too. I mean, it’s with blockchain and the implications for blockchain and smart contracts and hopefully things we can do that are gonna be a lot more energy efficient and not be so involved with illicit activity. So yeah, I mean, right now I would agree probably not the greatest investment especially if you’re someone that has any adverse reaction to a volatility or to risk. Another one we have, oh, taxes, you knew this was gonna come up. Yeah, I just did a video about the Biden tax proposal. So do we have an update on capital gains tax rates? You know, we don’t… I mentioned in that video and definitely stay tuned into the news. I mean, Congress still has to talk about this and negotiate it and vote on it. So nothing has officially passed yet, but look, let’s sort of base this on what we do know, right? We just talked about interest rates are increasing more than likely, right? Government debt increasing more than likely you put those two things together, it seems more than likely that some part of the tax code is gonna have to change, right? The government’s probably gonna be fundraising a little bit more and I don’t just mean writing more parking tickets. That’s your municipality, your local municipality. The federal government and the state government, we do anticipate that there will be some changes looming for capital gains taxes and there’s probably some changes looming for ordinary income taxes. I’m not gonna begin to predict what they are. The one prediction I will make is that taxes are probably going up not coming down anytime soon. So, I mean, those are kind of the two big ones, ordinary income taxes, capital gains taxes. The other one that they may, you know, start touching is estate tax. It’s a whole other system in the way that estate tax is calculated and stepped up a basis at the time that someone’s passing. If you have questions more about how this might… What these implications are for your personal financial situation, let’s schedule a meeting and talk about that, but right now there is nothing definitive, but certainly it is something to keep an eye on ‘cause taxes are probably changing soon. And then here’s a good one, you know, real estate prices and values. They seem like they’re so high. Can they continue to go up like this or are we in a real estate bubble? Anyone wants to take that one?

- I’ll take a stab at it. I think it’s… The reasons why real estate prices have gone up and I think I saw a month ago, this is nationally. So every… Depending on where you live, the pockets of real estate are gonna be higher or lower than this but the average 12 month gain for real estate prices nationally was about 12% I saw And I believe I saw San Diego is one of the bigger markets at 25% and those are gigantic numbers obviously, but the reasons behind it are somewhat valid. You have historically low interest rates so people can afford mortgages. The cash balances are higher. So they have money to spend and people are, you know, the demand for moving to more so suburbs or rural areas certainly is a thing. So where’s it gonna go? Obviously that’s impossible to predict, but you know, those fundamentals are fairly strong, but I mean, no way is it gonna be… I shouldn’t say no way, but I would be shocked if you get anything close to what the previous 12 months have been, but there are fundamental reasons why, but overall I think the market is certainly can still be strong for a while in terms of housing prices, but clearly not growing at the clip that it has been.

- Yeah, I agree. I think this comes up a lot ‘cause most of you listening here that are homeowners with many of you are, that’s a huge asset that typically when we do your financial plan we don’t include because you plan to live there for as long as you can and hope to live maybe the rest of your life. And I can tell you from clients selling recently with multiple cash offers, excess dollar, hundreds of thousands of dollars over asking. Some places just don’t make a whole lot of sense right now. I think COVID did make us all realize that maybe we stuck in our homes. We would like to have a bigger home or one in a different part of town, you know, and I live in LA in the Valley and I’ve thought about it too. But I think taking what Chris said to another way to look at it, it’s not too different than the stock market which has also surged during COVID, you know, our expectation isn’t necessarily the real estate market’s gonna crash. It rarely does. Even in 2005, 2008, it pulled back, it did fall 50%. Well, maybe if you were in certain parts of the world where there’s a lot of dirt, like a desert area or something like that, but if you were in Los Angeles or New York or major metropolitan area the prices were pretty, pretty solid. They just didn’t grow for a handful of years. So that’s more likely the scenario is where our expectation for future growth of home price is tempered, but really no reason that it should crash. So if you’re looking to upgrade or you’re a first time home buyer, you know, waiting two years doesn’t mean you’re gonna get a 20% discount, but if you’re looking to eventually downgrade or downsize and it is part of your financial plan, the equity in your house is going to go towards your future retirement. Now may be a time to start thinking about it because it is really, really, really hot. And unfortunately, whatever you move down into will be hot as well, but if you’re selling a $2 million house gonna buy a $1 million house, you know, it still benefits you. So that’s kinda my thoughts on that.

- Wonderful. Well, hey, it looks like we’re nearing almost an hour and we still have people that are tuning in and watching. So thank you all so much for joining us and in spending this Sunday with us. For those of you that are actually catching the replay, hey, you made it to the end and thank you as well for tuning in. Again, if you have any questions, if it’s time for you to update your financial plan, it’s always a good time to review your financial plan. You know how to reach out, you know how to give us a call and give us an email until next time, I’m Stephen, along with my partners, Chris Neal, Matt, and David and we appreciate you tuning in to the 2021 Navalign Media Outlook. Bye.