Welcome to Retirement Unpacked with Al Smith, owner of Golden Eagle Financial. You want a retirement plan that alleviates your fears about the future, so you know your money will last. As a chartered financial consultant, Al Smith will help you find a balance between the risk and reward of the market and the safety of your retirement income. And now here’s your host, Al Smith. Welcome to another program of Retirement Unpacked. I want to thank you for tuning in. I have some good information for you this afternoon that I think you will find useful. Before that, I want to invite everyone who’s listening to Western Welcome Week in Downtown Littleton coming up not this weekend, but the following weekend. That’s the weekend of the 15th, 16th and 17th. There is a concert at Stern Park on Friday, on Saturday. There are parades and Golden Eagle Financial, my company will have a big booth right there. I think it’s either on Main Street or Prince, but if you come to it, you’ll want to walk all over the place because there’s all kinds of booths with all kinds of things, adventurous, some of them are for sale, some of them are non-profits. And given an election year, I’m sure there’s some political ones also. But Western Welcome Week is a big event. And our booth, we’re going to be giving away a lot of things. There’ll be a grand prize. There will be a wheel to spend and we are going to have a transparent booth where people can go inside the booth and there will be currency flying around. There are certain rules about grabbing the currency, but everyone who goes in there normally comes out with a fistful of cash to say the very least. And you have to spend the wheel to see if you get to go into the booth to grab the currency. But any event, I highly encourage, if you haven’t been to Western Welcome Week, think about that. And to come, bring the kids, it’s a week from this weekend and a lot of things going on a few days before and so forth. It’s one of the big events that, and I think they’ve been doing this for, oh, somewhere between 50 and 100 years in downtown Lidlton. So it’s quite a tradition. And I will be there so you’ll get to know me and as well as a few family members. Well, we have had quite a week, this past week, especially when we begin toward the end of last week. There have been some declines in the market and that always causes some concern to say the very least. And I have quite a few things to talk about that. Why does the market go down? People ask me, well, is it going to come back? And before it went down, people ask me, is it going to continue to grow, continue to grow? Well, a lot of things to say about that. Some reasons that the market went down in the first place were rising fears of inflation. And then you probably are thinking, well, what would cause those fears? Well, certain events, certain things that make inflation appear to me, to be more likely, then bonds have what’s called an inverted yield curve. Some economic gurus say that is possibly leaning toward inflation. And that’s where short-term bonds have higher yields than long-term bonds, which is kind of odd. But they say that is likely to lead toward a recession, not a depression, but a recession. And to give some numbers to what occurred, the S&P went down by about 3% that Dow Jones went down about 2.6. And essentially, a lot of talk has been out there. But also, with the exception of 2022, which we have already bounced back from, the market has been doing nothing but going up. And the losses in 2022 were clearly recovered in 2023. And since that time in 2023, the market has continued to grow. And some gurus have described the market as that it is being overvaluated based on price earning ratios and things like that. And I’m not going to get too far into the weeds with economic jargon and things of that nature. But in general, I think it’s fair to point out that the market has been doing nothing but growing. So, a correction of this type is kind of to be expected. Now, what’s going to occur after this is going to depend on some of the same things that have caused it to fall, such as future jobs reports. That was one of the things that caused some of the concerns about a recession. I think there were 144,000 new jobs, but they were expecting about a quarter million. And the unemployment rate has been going up for about the last six months. It’s not terribly high, but it’s going in the wrong direction. And I think it’s 4.3. Don’t hold me to that. But about six months ago or so, it was only about 4 percent. And it has been growing very slowly over time. And so, when some of these factors raise their ugly heads, then some of those who are trading stocks institutionally make some decisions that can be the impetus to have the market decline to some degree. And by that, I’m referring to people who are controlling the purse strings for union, pension funds, retirement funds, mutual funds owned by mutual fund companies and things of this nature. And when those folks who control literally billions of invested dollars when they start making some change, that has a real effect on the markets. There’s no question about that. And geopolitical events, the things that are going on in the Middle East and markets also in Europe have fallen. So the United States is not in a vacuum in terms of the economic realities that we are facing out there. And the other thing, one of the things that is the major, a major component in the health of the US market is consumer spending. And if consumer spending, if the confidence goes down a little bit in that, that is one of the other factors that can cause a market to decline. If consumer spending goes down, a great deal of our whole economy depends on consumer spending. So if we look at an aggregate of all of these things, inflation, although it’s come down, it’s kind of still there. The recent increase in interest rates, one of the other things that has been described as a possible cause is they were some of the financial gurus who make these predictions. We’re anticipating that the Fed would lower interest rates. They have, since they have raised them for so long in their attempt to fight inflation, it has slowed down a lot of the economy, especially with young people wanting to purchase homes. It wasn’t that long ago. And I meet people and sit down and talk to them about their mortgage. A lot of people I talk to have mortgages between two and four percent. And right now, they’re in the neighborhood of seven. And that makes it much more difficult for people to buy homes, not to mention the fact that real estate has continued to appreciate. So all of these things have sort of been factors that the people who are big investors have taken into consideration. And when those big investors, the institutional investors and those who do what’s called programmed trading, they have a tendency to sway the market. And approximately 30 percent of all the trading that goes on in the market is done by program trading. And program trading means when thousands and thousands of shares are bought or sold all at once. And some of that’s done by hedge funds. Some of it done by mutual funds. Some of it’s done by managers of pension funds, teachers union funds. And these entities have billions of dollars. And when they do things, it has quite an effect on the total market. I watched one video and it was put out by someone who has kind of a real calming influence. And basically it was a gal who pointed out that people are all very concerned about what’s happened over the last five days. But what she brought to everyone’s attention is well what’s been going on for the last five years. And the last five years have been quite good with the exception of 2022. And we did bounce back from that to put that in context. The NASDAQ, which is probably the most volatile of the major indices, it lost 35 percent in 2022. That’s quite an enormous nose dive. But in 2023, it grew by 53 percent. Now what’s coincidental is if an investment loses 35 percent in one year, it needs 53 percent the following year in order to get back to even. But the point she was making is if we look at what has happened in the last five days in the context of what’s been going on over the last five years, we’re in pretty good shape. And one of the people with whom I work, where I place my investment business, is put a kind of a bulletin out. And he’s pointed out that in general the markets have had a good year. And we were kind of over due for a correction, especially with technology stocks. And another thing is a correction in this August and September timeframe is very consistent with certain seasonal tendencies, especially in election years. And so apparently if we look historically for the market to have a decline in August or September during election years is quite common. And the unemployment was one of the things that was kind of a growth scare. And that triggered the potential of a recession. I don’t believe it’s going to happen, but I’m not a prognosticator. And certainly the global tensions and the global unrest, things going on in the Middle East. Those are certainly something to be thinking about. And also as I mentioned earlier, people were anticipating that the Federal Reserve was going to cut rates before September, but they didn’t. And we’re anticipating and we’re hoping there will be a rate cut in September. And although inflation is coming down, that’s kind of why we were anticipating the Fed to lower rates before September. Now for diversified investors, bonds have usually rallied during these traditional times when the equity markets fall. The other thing is if you are an investor, I think we need to look at what’s happened here in the last week in light of a bigger picture because long-term opportunities often present themselves when the market goes down. Why is investors after there’s a decline in value of the Dow or the S&P or the NASDAQ, if people and some of them, I know, do. I talk to people frequently who have money that’s in CDs or sitting in the wayside. A good time to enter the market is after there has been a correction because I’m not a doomsday person. I believe the market will come back and these corrections are to be anticipated. So I think these seasonal weaknesses will fade and I think that corporate profits will remain resilient. And I think there will be rate cuts in the market and that we’re going to have a strong fourth quarter of this year. He said that predictions are really hard, especially if they’re about the future. I’m going to have a little bit of a history lesson about what took place in 2008 right after the break. Every day that you don’t have golden eagle financial managing your retirement, you’re losing money. As you move closer to retirement, Al Smith of golden eagle financial can help you make up for lost time and ensure that your resources are performing well. Now is the time to reevaluate your flex spending account, life insurance, savings plan, or anything else that you’re doing. As you prepare to retire on your terms, compound interest as you say for retirement is exponential. Every day you wait will cost you money. So you need to contact Al Smith of golden eagle financial today to create your customized solution by going to the advertiser’s page at kalzradio.com. Investment advisory services offer through Brookstone Capital Management LLC, a registered investment advisor. B.C.M. and golden eagle financial limited are independent of each other. Insurance products and services are not offered through B.C.M. but are offered in sold for individually licensed in appointed agents. Welcome back to retirement unpacked. We were talking about some of the factors that were behind the recent decline in the markets and I believe the markets will come back. But it’s good to have kind of some idea what things are looking at, not just from what has taken place here in the last few days, but what’s going on in the bigger picture because the stock market isn’t some place to get rich quick. It’s not like flipping a house or something like that. It’s for people who invest in the long term and most of us realize that in the long term the stock market is a good place for certainly part of our money. One of the things that our government has set up, which is helpful in the event of extreme market volatility, one of the things they’ve set up are what are called circuit breakers. Well if you’ve ever had lights go out in your house or things like that and one of the first things you do is you go to the box and you look and see if a breaker has tripped. And if it has you can flip it back on and whatever appliance was causing that, I think the most common ones are space heaters. I’ve worked in an office that had a very poor heating system and in the debt of winter we’d often have to use space heaters and in order to be comfortable we’d have to run so much juice through them that they would trip the breakers. But essentially circuit breakers in electronics are what these other circuit breakers are to the stock market. And basically what they do when the market becomes too volatile they halt trading. And there’s three levels that they do that. The first level is if there is a 7% change. The second level if there’s a 13% change and the third level a 20% change. And this is not only for different indices like the S&P or the Dow but it’s also for certain individual stocks. These are sort of like stop losses or something like that. And what caused them to cause the government to create these vehicles is in October, 19th of 1987 those of you who’ve been around a little bit longer like myself the Dow Jones dropped 23% in 1987. Some of you may remember what was called the savings and loan crisis. There was also a big decline in oil and gas. There were people before 1987 who were making boat loads of money in oil and gas and after 1987 many of them were selling a real estate or had moved to another part of the country or taken up a different career because it was sort of a bust. But that’s when these circuit breakers came into effect and they affect not only various indices like the NASDAQ and the Dow and so forth but they can also affect individual securities. One of the times when the breaker tripped and this is an interesting tidbit of history was on May 6th of 2010. The Dow dropped 1,000 points on May 6th, 2010 but it recovered literally minutes later. You talk about volatility that is an incredible example. Now those of us who’ve been around a little while, nearly everyone I talk to who is anywhere close to retirement age has a pretty clear idea of what things were like in 2008. It was definitely an ugly time for investors but how many of us really know what caused it? Well, the powers in government and I think this included George Bush and maybe his predecessor Bill Clinton, they wanted everybody to be able to own a home. And so as a result, the qualifications for home purchase were reduced. People with lower incomes, lower credit scores were able to purchase homes through and that’s why the terminology for this time frame is called the subprime crisis. Now Fannie Mae which is the federal entity that is responsible for mortgages like Freddie Mack, that’s the other one, they were responsible for making all of these home loans. And I remember speaking to people at that time and they, realtors and mortgage people had some terminology for some of those loans. There was one they called a ninja loan. It was no income, no job. And I talked to a realtor lady and at a closing she saw someone who had very poor credit and so forth, closed on a home with no money down and the purchaser walked away with the check for $5,000 and I didn’t look at all the numbers to figure out quite how that happened. But those were the kinds of things that were going on at that time. There were also people, realtors who were in co-hutes with appraisers that were overvaluing properties and after the soon to happen for closure were walking away with thousands and thousands of dollars. That was purely criminal behavior but this kind of lacks rules makes that sort of thing much, much easier. But any event after all of these subprime mortgages were put out there, there became a new financial product to called mortgage backed securities. They called them credit default swaps. Big companies could buy these mortgages and the hopes of making a big profit. The biggest company who did that that ultimately was bailed out is AIG. AIG is one of the 50 largest corporations on the whole planet. There are the biggest insurance company in the United States, AIG and they were bailed out to the tune of $150 billion. They did pay it all back. In 2013, General Motors was also bailed out and the 2008 crisis wasn’t caused by automotive companies but they suffered just many, many big corporations suffered. The bottom line is when credit is eased and if something really looks too good to be true, then it probably is. The rules for credit and for home purchase and things of that nature, they’re out there for a reason. The companies who did all those mortgage backed securities and credit default swaps, they lost billions of dollars. If you want to see how that works, there’s a movie out called The Big Short. It’s been around for quite some time. The actor is Christian Bale and he plays a really smart financial guru and he’s walking around his office in Mermudas and Barefoot and he starts looking at all of these mortgages and the credit that is behind them and he couldn’t believe all the money that was tied up in these mortgages which based on these eased credit rules were likely to fail. What a short is, a short is when you’re betting that a stock is going to lose its value. He invested tons of money against the companies who were doing the credit default swaps and so forth and I’m sure he made a boatload of money as a result but the movie is very interesting because it tracks how the whole thing sort of work and how the deck of cards kind of fell down and so forth. Lastly, people sometimes ask me how can I be protected from these kinds of losses? If you’re fully in the market, you can kind of write everything out which means that your account is going to fall and then it’s going to climb again when the market recovers. But there are financial products that are nearly immune from these market fluctuations and I don’t mean like money in the bank where you can get no more than 5%. There’s quite a few different ones. Structured notes, for example, they pay a fixed rate of interest and they pay anywhere depending on which notes anywhere from 8 to 10.5% on a regular basis. They’re one-year products and the only way there would be any risk to principle is if there were a 30% drop in the markets. And I’m not saying that can’t happen but the chances of that happening is very slim. The ones that pay a slightly lower rate of interest, there’s only about a 3% chance of that kind of market loss. There are also what are called buffered portfolios and they essentially they have a cap on how much your account can grow but they also have a buffer or a floor so that your account is protected up to a certain level that can be anywhere from 15 to 30%. So there are some things that you can do to help protect yourself from market downturns if you’d like to have a conversation about that. Call me at my office, 303-744-1128. Thank you for tuning in. God bless you and let’s keep our leaders in our prayers along with the folks in Israel. Bye now. Thank you for listening to Retirement Unpacked with your host Al Smith of Golden Eagle Financial. Set up a free consultation with Al today at klsiradio.com/money. Find your purpose in retirement with Golden Eagle Financial. Investment Advisory Services offered through Brookstone Capital Management LLC, a registered investment advisor. VCM and Golden Eagle Financial Limited are independent of each other. Insurance products and services are not offered through BCM but are offered and sold through individually licensed and appointed agents.