Play It Again Sam

On this week’s show, Karl discusses all the geopolitical risk in the market right now and how it feels eerily similar to what we saw a couple of months ago.  

Also, the financial advisory world is changing rapidly.  Karl walks you through where we came from and where we’re going.  Big changes are happening that are going to make for a financially healthier investor.

Hey everybody. Welcome to The Eggerss Report. It’s your investing playbook. Thank you very much for joining me. My name is Karl Eggerss and this is The Eggerss Report. Just a reminder, our website is eggersscapital.com, E-G-G-E-R-S-S capital.com. Our telephone number, 210-526-0057, 210-526-0057. If you have a question on anything we’re here to help. Anything regarding your finances, we are here to help. And you can go to the website. There’s probably something we’ve written on what you’re looking for, but you can certainly, always call us on the telephone on 210-526-0057. But our website eggersscapital.com, a lot of good information on there.

We always get people telling us, giving us good feedback and telling us that, “Hey, we like your site because it’s nice and simple. It’s transparent. It’s simple. You basically have some investor education on there. You’ve got financial planning. You’ve got investment management. You’ve got the three things that you do and when we’re ready to contact you, we clicked on the green button and that was it.”

And that’s the way we built. We built the site specifically to make it simple and easy. You will not see sail boats. You will not see couples in bathtubs holding hands. You will not see all those things. So you know because again, all of that stuff is fluff. Those things are kind of the prototypical financial website, right? It’s meant to illustrate that you who’ve been working your whole life can hand you money over to somebody and then you can go sailing. And it’s not always that simple. There’s a lot of things in between, yes, we’d love for you to go sailing if that is your intent, but there’s a lot of things in between, and our job is to help you get there. It may be sailing. It may be something else.

But having said that, we have real meat on our website. We have articles that we write ourselves, and we have things that we feel like are going to impact you and your portfolio. So that’s the way we do it. And we get a lot of positive feedback from that. So not bashing other websites how they do it but what I’ve seen is a lot of other websites simply just don’t tell you anything. It’s just more of a … almost like a business card. And we try to make ours not news, because you can get news anywhere, but our opinions of taking some of that news and interpreting them and helping you through whatever it is going on in your life.

So again, whether it’s financial planning, which can include social security analysis. We have people that come in and say, “Hey, I’ve got a 401k. I’m about to retire. Should I take a pension also? Or should I take a lump sum?” And in my 401k, maybe they have pretax money. Maybe they have post tax money. Maybe they have Roth 401k. You know all of these things, how do those things interact with retiring and again maybe having Social Security and determining when to take that, education planning. Those types of things. And then, once we figure all that out and have a road map, then it’s about how do we get there given interest rates moving around and stocks moving around, and how much international should I have and small cap? And should I have alternative investments? Should I have a lot in the stock market or a little in the stock market?

Those are all questions that we try to answer for you and we do. So that is really the information you’ll find on our website at eggersscapital.com. Now, later on in the show we are going to really delve into that on that theme of what really financial advisory is, where it started. You know if you needed some help with your finances, where it really evolved to and where we think it’s going and it’s happening at a rapid rate. So we’re going to tell you about that because it’s going to affect you and then on top of that we’re going to tell you what we’re doing about it. So stay tuned for that in just a minute.

Now this week we had some really … a lot of primarily geopolitical things going on, right? First we heard that the … Monday we came in and the Dow’s up 300 points because Mnuchin, Steve Mnuchin comes on and says, “Oh, well we don’t have a trade war with China. We have a trade dispute and by the way that dispute is on hold.” So what does that mean? Well, the trade disputes on hold so we’re basically, all the tariffs and all of those things were put on hold as we’re talking to China through this. And the market really liked that. Great. Well this is why the market started going down the first place maybe back a couple of months ago.

So we saw that on Monday, and then of course Tuesday we come in and the market’s down about 175 points because Trump was saying that the summit with North Korea would probably be delayed and he said he wasn’t happy with trade talks with China. So you know, and immediately the market falls on that and then of course Thursday, the summit’s off. Thursday evening North Korea says, “Well you know actually we wouldn’t mind it being back on and we’re willing to meet anytime, anywhere.” And then you start hearing rumors that, “No,the summit may be back on and it may happen at the date we intended it to happen.” So the markets are jostling around a little bit, not a tremendous amount especially on a percentage basis but they are moving a bit on this.

And so interesting to watch, that those events have been driving stocks up and down, and meanwhile, economically things are still going well. Now, we have seen this before, haven’t we? This is, “Play it again, Sam.” You know if you go back a couple of months ago what did we see? We saw Trump would say something that sounded like there was going to be zero negotiation. So basically, “Hey, we’re not getting what we want, we’re done.” Market freaks out. A few weeks passes by and lo and behold, whoever he’s talking about, come back to the table. We hear that, yes they are negotiating and that’s how you negotiate, right?

We heard that with China. We hear it with North Korea. We heard it Mexico. We hear it with all these countries. This is the way he does it. He comes out publicly and says, “The US is first. My job is to defend the US. We will be militarily prepared in case something goes wrong. But it’s something to do with trade, we need a better deal.” And then you hear the other side say, “This is ridiculous.” And the market falls. Then you hear a few weeks later they come back and say, “Well yes, we’re will to buy more American products. We’re willing to help you reduce this, the trade deficit.” Market goes back up. So again, you see a pattern here. Recognize the pattern that the market will sell off on some of these headlines but behind the scenes there are good fundamentals going on and market goes up accordingly.

Now, one thing that we are watching is there’s a little bit percolating going on behind the scenes with some of these emerging markets, if you watch their currencies. If you watch their bonds and things like that, there’s some things that we’re starting to watch and we need to be continuing to watch that because those are signs, you know you watch these signs of stress in the financial markets, not only here but around the world and we’re not seeing any of the United States but around the world you’re starting to see some cracks. Is that the beginning of something that’s going to be wide spread or is it contained within those particular countries? So that’s something we have to watch because again, if it spills over and we start to see some financial stress in the United States, even if the stock market’s not going up, it could be an indication that it might go down eventually.

So we need to watch that. But for right now, we don’t see any of that stress, that financial stress in the US and we continued to see that this bull market is alive and well. It’s not racing back up to new highs and so there’s some people saying, “Hey, this correction’s taking too long to recover.” But there are still good things happening beneath the surface. So what’s going to be the next catalyst? Who knows? But we did hear on Wednesday, President Trump may be pushing through by November another round of tax cuts. Markets seem to ignore that type of information. So you know, we’ll see if that comes to pass. Pretty aggressive agenda, wouldn’t you say?

So that’s really … and all of this during this week, that oil was falling, so we started to see a little pull back in oil. There’s talks about production cuts and things of this nature. So oil stocks really were the ones that got hit the most this week. And really some of that metals, mining, steel, those types of ETF’s really got hit, those types of areas.

And on the flip side, you started to see things like Semiconductors made a comeback and interest rates sensitive things made a come back too because interest rates that ten year went below 3%. So you started to see money come back into utilities, back into treasury bonds, back into real estate investment trusts. Even gold did well this week. So kind of a mixed bag for the most part this week. So that was kind of your weekly wrap-up.

All right. So I wanted to spend some time today talking about the financial advisory industry, and some of you listening don’t use a financial advisor and that’s fine. Some of you use a financial advisor, and it’s not Eggerss Capital Management and that’s fine. And some of you are clients of Eggerss Capital Management and have been for quite a while and that’s fine.

But I want to explain to you really what’s happening in our industry right, because it’s extremely important as we move forward. So I’m going to tell you what things have happened, where we are today, and where we’re going, not only I think the industry’s moving but where Eggerss Capital Management is specifically moving. And again, if you don’t use an advisor, this is important for you to understand because it’ll help you determine if you are going to use one in the future, what it might look like, and it could tip the scales on whether you need one or not.

So of course, we all remember the old E.F. Hutton commercials, right? Remember that back in the day, where the old stock brokerage world, remember Trading Places the movie and just the old school, cigars, suits and really it wasn’t about really financial advice back then. It was more about stocks and bonds and they were just looked in a vacuum and they were ideas. They were things pitched to you, sold to you, and they had no rhythm or reason in your portfolio perhaps. And so there wasn’t a lot of people really looking at your overall situation. And we had stock certificates and we had, you know, not looking at the whole picture as I mentioned.

And I remember, I mean, look, I am 46 year old and I remember my … I started trading stocks when I was 14 years old. And I had stock certificates. And I remember, I didn’t have my license. And I would ask my mom to take me to the bank to get my stock certificates out of the safe deposit box because I wanted to sell a stock. That was in my lifetime. So this was not that long ago. And that’s what the world looked like. And we look in the newspaper and see what the stock did and it was a little more of a long term strategy, right? Because it was hard to trade.

But what was the advice we were giving? It was more of a transaction oriented world. And then we had this movement in the 70s and kind of in the 80s and hard core in the 90s where financial planning came into the picture. Well, let’s look at the investments but let’s look at the investments in conjunction with everything else going on in your life. You know, what is your risk look like in terms of your insurance and what is your income needs look like and how does Social Security play a part in this? And people started looking at financial planning. Hence, there is designations that came out. The certified financial planning designation came out. Having said all of that, we still were in an era where things were being sold to you, right? Commission based products. That was … so people were combining financial planning by saying, you need this, that, or the other and I will sell it to you. And you paid them a commission and that’s kind of how the world worked.

And then in the mid 90s, which was when I was really getting my career started in this, I knew from the get-go that I was going to be a fee advisor where I wanted to manage assets, do financial planning to manage assets on a fee basis. I didn’t want to be in the commission world. And it was hard because not a lot companies were doing that. But as we moved into the late 90s and into the 2000s you started to hear about registered investment advisors that had this fiduciary obligation and its started to kind of morph into a little more of a holistic approach.

And then of course in the last few years, what of we of had? We’ve had the fiduciary rule coming out from the department of labor, and it’s concerning your IRA’s, and we’re still in the middle of that where you’re seeing this transformation of advisors that everybody was calling themselves an advisor but you, all of a sudden, had to be questioning in the last couple of years, are you a fiduciary or not? And a lot of people have come to us and said, “Hey, my person isn’t saying they’re fiduciary. And I don’t know if I’m getting the best advice.” Well you may or may not be, because they have a conflict of interest when they’re not a fiduciary because they’re not having to do by law what’s in your best interest, they can do what’s in their best interest legally.” And that’s not good.

So as we continue to move forward, we’re seeing more and more people I think really switching over to a world where there’s more disclosure, and commissions still exist but it’s changing rapidly. There’s more disclosure on how those commissions work. I think consumers are asking more questions. They’re asking the right questions. How do you get paid? You know all those different things. Is this the best … should I be investing in this and if so, are there other options? Why are you just telling about this one? Those are really important things. But as we’ve moved forward here, what we’re starting to see and it’s … you’re seeing the intersection of technology which the financial industry has been way behind in technology and now we’re going into this S-curve. They were at the beginning of an S-curve where technology is ramping up rapidly. Things are in the cloud. There’s integrations between companies, rapidly.

So because of that, Eggerss Capital Management has also been ramping up our technology the last few years and we’re at a really exciting time. So here’s where we are right now. It used to be somebody would come in to … just like the doctor’s office, they would come in and with a clipboard and we’d have some forms for them to fill out. Who are you? What are you looking for? Why are you here? And we’d talk about a meeting and we’d file cabinets and all that stuff. Now those things are in the cloud, right? You get confirmations sometimes from your doctor or wherever that you have a dentist appointment coming up and you hit “c” on your phone to confirm and boom, it’s done. And we’re seeing that. We’re seeing go to our portal and fill out all your information before you come to the doctor and it’s electronic. And you go, this is great. Now we still seem to be lacking where there’s all our records are held in the medical industry.

But in the financial industry, we’re starting to see that come along as well. And it’s happening at a rapid pace. And again, what we’re looking at is more advisors are starting to more towards and should be and we are, this holistic approach. You know, Eggerss Capital Management doesn’t just do investments. Eggerss Capital Management does not just do financial planning. Now, what we don’t do is, we don’t sell things on commission. We have access to a lot of things that normally might have a commission through another channel but we choose not to use those which is better for the consumer in our opinion, better for our clients.

So we have access to these things. And we have a lot of tools in the tool belt. But it all starts with this financial planning. So the way this is happening and again, this is happening at a really, really rapid rate right now. But the way this is happening is eventually what’s going to happen is you’re going to go to, let’s say you’re a client of ours and I can tell you the way we’re going to do it going forward, I can’t tell you what everybody else is going to do.

But you’re going to be able to go in and say, “I have an app. It’s an Eggerss Capital Management app.” It has our logo on there. You click on it. It brings up your holdings, your recent transactions, your recent income activity, maybe withdrawals that have been going out of your account. So you get a snapshot of where you are but on top of that you also get maybe your budgeting tools built in there. So if you’re wanting to see how much money you’ve been spending that particular month, both coming in and out, you see that budget, how the budget’s performing. You have a risk assessment built in there. Your insurance is in there. Your auto policies are in there, you know so you can go to this place and see where your deductibles are. It’s amazing how many people we ask when they come in, “Do you have insurance?” “Yes I think I have some through my work. My wife may have some. It could be 25,000, might be 100, I don’t know.”

We hear that a lot. So this would have a dashboard that has all of your insurance, your premiums. You would also have, you know, anything else financially related, your beneficiaries sitting right on there. And then from that, we can not only do you have a dashboard, but from that the advisor, us, can look at your situation and say, “Okay, now let’s analyze these numbers.” Now that we see the entire picture, we can start figuring out how to optimize this.

Did you know that maybe you can go shopping for some other insurance that’s a lot cheaper? And again, we don’t sell it, but we can point you to the right direction to get cheaper insurance. Do you have the right coverage? Should you be doing a Roth conversion? Did you know really what tax bracket you really are in? Because you said you were in this tax bracket but I can see all the data now and you’re not in that tax bracket. And so we can drive decisions that way based on investments, based on Roth’s, all those different things and then how much of your check should be going to pretax or post tax. Do you have a Roth 401k? Should you be taking Social Security now or later? How much income do you need vs growth oriented investments? We can’t know those things and give you those answers until we know the complete picture.

And right there is a little more of a manual process, right? We have some of these tools we’re doing with our clients right now where we have them aggregate some of these on a dashboard and we used it for financial planning. That is happening right now. What’s changing as we go forward is, where it’s a one stop place for you to see your entire health of everything outside of even things that we’re doing.

You know, so for example if you have credit monitoring done, it would be in that dashboard so that you could see everything that’s impacting your credit, you can see who’s taking into your credit. Again, having this one place to look at this. It is happening. This is going to happen within the next 12 to 24 months we believe. And so we currently use a lot of the technologies when somebody’s new, inquiring about us. We have them kind of fill out some information in a digital way. We look at it from the 30,000 foot view. We put in our financial planning system. They may have a vault where we’re looking at reports and so forth.

Those all things happening but as we now start integrating other things, we’re we can see the 401k’s on the dashboard. We can see their auto policies and their life insurance policies on the dashboard. We can see their credit monitoring on the dashboard. All that stuff is going to happen to where you will see everything in one place, and know as you move along from day to day, whether you are on track, or not on track. So the technology is happening. That’s still doesn’t mean that you get good advice though.

Interpreting that data is important and so this is where I think the intersection of a financial advisor, an independent one who doesn’t have an ax to grind selling you something, and the technology come together. Because technology has been out there. The last few years in the investment world, we’ve seen a real ramp up in technology. It’s very easy to go in and invest in some type of low cost basket now. That’s pretty easy. There’s algorithms. There’s stuff like that.

Unfortunately, I think the last few years has masked some of the mistakes people are making. I’ll give you an example. The stock market’s going up. The bond market’s going up. Set it and forget it. Don’t put a lot of thought behind it to be honest. And the market’s go up. What is masks is, are you saving enough because you don’t have to save a lot when your account’s going go up, right? And are you spending too much? You can spend more when your account’s going up. You’re wealthier. So you spend more. All these things are happening because you’re not having … you also don’t have to do a lot analysis. Because everything’s going up so why would I need to diversify? Why do I need to own maybe individual stocks or bonds or alternative investments when the stock market just keeps going up? It won’t always be that way. And so what it does, it masks maybe other problems going on in your life and we can find solutions.

So to me, it’s about optimizing. Some of you are doing a really good job of saving. You maybe have enough to retire but what are you going to do with that money? Are you just hording it to protect it and you really don’t know what you … what are you trying to do? Are you trying to leave it to the next generation? Are you trying to spend it down to a certain level? This is where forecasting and planning comes in. And again, it’s like pulling teeth sometimes to get all the information from people and sometimes we get information and they my fill things out wrong.

So imagine, that you are doing this analysis on your own and you put an … and we had this happen one time, somebody had a $30,000 account and they put an extra zero and it became a $300,000 account. And they’re doing an analysis on their own that says, “You can retire. You are comfortable.” And they go actually do that and it’s because they didn’t put the data in correctly as opposed to having an advisor look at it saying, “Let me get this straight. This doesn’t make sense. How would you end up with a $300,000 IRA when you’ve never work before and you’re still fairly young.” “Oh that should have been 30,000.”

So this question and answer, this back and forth is really important to, again, extract out, make you think about, what are the things you’re trying to accomplish and then using the technology that we have nowadays to get there. And I think that’s where the intersection comes into having an advisor walking alongside of you, to point out things that you’re doing wrong, or affirm things that you’re doing correctly.

And it’s an exciting time because again, I will say the FinTech Industry, financial technology is really behind the times and it’s catching up at a pretty rapid rate to other areas. You know, you can even look at how banking is done. Yeah, they have online banking, but the way we transact monies is still kind of archaic in my opinion, and so we have a long way to go and so some of these big technology firms, Microsoft, Google, Alibaba, those companies are going to get into this industry and disrupt it in a positive way.

So I think that’s a really good thing happening. I think as we move forward you’re going to see us adopting these things because we are always on the forefront of technology in what we do. And we use very little paper nowadays. The only time we use paper is when people request it or sometimes for application purposes. They don’t want to go through an electronic document signing. But they have that ability so we have all of those things available but the really … combining it into this nice one portal is something that we will be doing over the next few years. That is going to happen. Could be in the next few months.

So again, this is not to persuade you to use an advisor. It’s not to tell you shouldn’t be using an advisor. It’s not saying you should be using us. I’m telling you what we’re doing, where the industry’s going and if you still sitting there with somebody who is a representative or a salesman for an insurance company, or mutual fund company, or some big brokerage house that not making the decisions, can’t articulate why they are buying or selling something, you have a salesman who may or may not be doing things in your best interest.

So at the very least, I would suggest looking for registered investment advisor who is a fiduciary, that takes out the conflicts of interest, however that still doesn’t mean that you’re getting good advice, and so some of this advice can it be articulated to where they can show it to you? Here’s the payoff. If you do this, this is going to lead to approximately another $50,000 over your lifetime, you know the math behind it. And again, once you see that, then you feel confident that you’re getting the right advice and also if somebody isn’t compensated for that advice differently than other advice. You know well if you do this, I get paid this. But if you don’t do that, I don’t. That’s a problem because they’re going to have bias towards putting you in stuff that you may or may not need to be in.

And so we get paid basically the same regardless of what we put people in so they know they’re getting the best advice at least what we think at that particular time. So that’s a little bit about what we do and also where the industry’s going. It’s a very cool time. There’s a lot of integrations going on, kind of behind the scenes. A lot of startup technology companies who do very specific things and it’s almost an add-on sometimes. Those are getting kind of gobbled up by some of the bigger companies and really exciting so. We are excited to be a part of some of that and we’ll keep you updated over the next few months on some of the changes we’re making at Eggerss Capital Management. Of course our clients will be seeing it over the next several months and couple of years as we go through this process so.

Appreciate it and have a great weekend, everybody. Thank you for joining us here on The Eggerss Report. Don’t forget eggersscapital.com. 210-526-0057. Take care everybody.

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