Super Bowl Financial Predictions
by SGL Financial
Our 2 Cents – Episode #243
Super Bowl Financial Predictions
Game on! In today’s episode of Our 2 Cents, the Lewits break down early February headlines, share their Super Bowl insights, and tackle listener questions. Tune in using the link below!
- Gabriel’s Quick Hits:
- The torch is lit, and the Winter Olympics are officially underway.
- Groundhog Day verdicts are in! Are you Team Punxsutawney Phil or Team Woodstock Willie?
- The Super Bowl Indicator:
- Is your Super Bowl pick also your market prediction?
- Listener Questions:
- “My daughter is 12 years old and helps with work around our home. We pay her to teach her responsibility and the value of earning money. Does her work qualify as earned income and can I fund a Roth IRA for her based on that?” — Hisham
- “I was paying $113,000 for both of my kids to go to school out east 8-10 years ago. I had two in college at the same time. Can I ask what you think of donor advised funds?”— Scott
- “Do you consider bonds to be a good source of retirement income?”— Megan
- “I retired three years ago thinking that my wife would be retiring soon after me. I bought a camper and everything; I’m ready to see the country. She keeps saying that we need her to work for six more months, but then when that six months is up, she says we need her to work for six more months. How do I convince her that it’s ok to retire?”— Richard
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Podcast Transcript
Announcer: You’re listening to Our 2 Cents with the team from SGL Financial, Building Wealth for Life. Steve Lewit is the President of SGL Financial, and Gabriel Lewit is the CEO. They’re here to discuss all the latest and financial news, trends, strategies, and more.
Gabriel Lewit: Welcome back, everybody. This is Gabriel Lewit here and Steven Lewit for Our 2 Cents. We’ve got a phenomenal show lined up for you here on Super Bowl weekend, and hopefully you’ve got your picks picked out and you’re ready for your team to win.
Steve Lewit: Did you pick your boxes?
Gabriel Lewit: Yep, we did some Super Bowl squares here at the office. I picked the winning combination of boxes.
Steve Lewit: No, that’s impossible.
Gabriel Lewit: I feel good about the ones I selected. I picked six boxes.
Steve Lewit: No, you shouldn’t feel very good.
Gabriel Lewit: And if you don’t know what we’re talking about, Super Bowl squares is a, well, basically a form of gambling, but you find other people that want to gamble their money away with you. You pick some spots on 100 different squares. Depending on who has what score at the end of a quarter, or at the end of the game, you can win prizes, typically cash money.
Steve Lewit: I never thought of it as gambling, but it is.
Gabriel Lewit: It is. It is indeed gambling. But it’s lighthearted fun.
Steve Lewit: Yes, yes.
Gabriel Lewit: And so yeah, there’s still time. I think they do online versions of this too if you don’t have people that you know that can fill up 100 Super Bowl squares. You could also do it with a dollar per square. You don’t have to have big money on here, but it gives you something fun to root for in the game other than a team, especially if you’re like me and you don’t have a favorite dog in this fight.
My son says he wants to have the Patriots win, and my daughter says the Seahawks. What am I supposed to do?
Steve Lewit: No, not the Patriots. No.
Gabriel Lewit: I’m going to root for the ones that make me money.
Steve Lewit: Did you have a methodology of picking your squares?
Gabriel Lewit: I told you I know exactly which ones we’re going to win, so I picked those ones, of course.
Steve Lewit: Can you pick stocks for me?
Gabriel Lewit: My skills are limited solely to Super Bowl squares.
Steve Lewit: Super Bowl squares.
Gabriel Lewit: There are no other forms of my clairvoyance.
Steve Lewit: That’s it.
Gabriel Lewit: That’s it.
Steve Lewit: Once a year. You’re a one-shot pony, right? A one-trick pony.
Gabriel Lewit: Well, actually I’m lying and I lose every single time I play. Hope spring’s eternal, though.
Steve Lewit: It does, it does.
Gabriel Lewit: All right, well, we’ve got-
Steve Lewit: I’m very excited about the first-
Gabriel Lewit: Well, we’ve got a handful of just little quick hits for you guys. We try to keep you in the know on the most important things in life other than your money. And Super Bowl squares is one of those, but also could be impacting your money. I guess that counts.
We got the Olympics starting today. Don’t be like me, which you couldn’t anyways because I thought last night was the first night of the Olympics and I was frantically searching for Olympic information and I couldn’t find any. I thought my TV providers were just terrible. But turns out it’s actually tonight, Friday, the day we’re recording this. When I say it doesn’t matter anyways, because by the time you hear this episode, it’ll be Sunday and the Olympics will be already started.
Steve Lewit: In full swing.
Gabriel Lewit: Yes.
Steve Lewit: Well, it’s actually started. The curling people are actually competing already.
Gabriel Lewit: Yeah, I’ve never understood it when they do some activities before the opening event. Why can’t they just do the opening event one night sooner before any of the activities start? I don’t know.
Steve Lewit: And why curling?
Gabriel Lewit: People love curling.
Steve Lewit: Is curling the next pickleball?
Gabriel Lewit: I have no idea.
But anyways, here’s just a little bit about the Olympics. There’s two co-host cities, Milan and Cortina d’Ampezzo. I don’t know if I’m saying that right.
Steve Lewit: No, I don’t either.
Gabriel Lewit: Okay. But yeah, it’s going to have both a cosmopolitan and alpine identities. Whatever live thing I was watching last night, which was not the opening ceremony, it was snowing. It was quite pretty there, which is fitting for the Winter Olympics. I do like the Winter Olympics more so…
I would say I like the summer quite as much as the winter Olympic sports, but everybody has their favorite. I plan to tune in to quite a few of these. I’m going to watch a little figure skating with my daughter, going to do a little bit of snowboarding, half pipe, big air, all those things. That’s a blast for my past. If you don’t know, I used to be a snowboard instructor in a previous younger life.
Steve Lewit: Yeah, something about snow and seeing people come down those big downhills at 150 miles an hour and crashing into the walls. There’s something about the Olympics in the winter that’s, I think, more exciting than just watching people run.
Gabriel Lewit: Yeah, and if you think you’re too old-
Steve Lewit: Or jump.
Gabriel Lewit: Yeah, there is.
If you think you’re too old to make the Olympics, keep in mind that the oldest Olympian is a 54-year-old curler named Rick Ruohonen of Brooklyn Park, Minnesota.
Steve Lewit: Yeah. Curling, I don’t think takes much physical, what should I say, prowess. Yeah. I mean, other than-
Gabriel Lewit: Is this the one where they’re sliding down the ice and pushing-
Steve Lewit: They’re sliding down the ice with a broom.
Gabriel Lewit: A little broom ahead of the thing, which I have no clue what it does, but I guess it moves it a little bit.
Steve Lewit: Well, it moves it a little bit. It’s like a chess match. It’s actually somewhat interesting for a few minutes.
Gabriel Lewit: Yeah.
Well, apparently, in case you were wondering, there’s a new sport. There is a new sport this year called skimo.
Steve Lewit: How do they think of it? What is skimo?
Gabriel Lewit: Well, it’s ski mountaineering, AKA skimo, is making its debut at the winter games this year. Athletes have to ascend the course uphill using climbing skins on their skis. And then they have to transition to boot packing, which involves carrying skis on their packs while still climbing uphill in their ski boots. And then finally, they have to race downhill on skis.
It’s basically downhill skiing without the chairlifts.
Steve Lewit: Well, who makes this a sport? I mean, who cares?
Gabriel Lewit: Well, the head of the sport for USA skimo, which apparently is its name, says it attracts those who enjoy physical suffering, so yeah.
Steve Lewit: Viewers won’t watch it because they don’t want to physically suffer.
Gabriel Lewit: I don’t know. Yeah, so there you go. That’s the scoop on the Olympics.
Steve Lewit: Wait until pickleball gets in. I think it’s slated for the next one or the one after.
Gabriel Lewit: Sure, sure. Yeah, I mean, why not do pickleball with your hands? That would be fun.
Steve Lewit: Yeah, or flat football. When is that going into the Olympics?
Gabriel Lewit: Who knows?
Okay, other very important news, Punxsutawney Phil has spoken. He saw his shadow.
Steve Lewit: Now folks, I want you to know that Gabriel did not know how to pronounce Punxsutawney Phil just like I didn’t.
Gabriel Lewit: This is one of those times where the person telling you something is incorrect, and they’re actually projecting because he was the one that didn’t know how to say it.
Steve Lewit: You didn’t know.
Gabriel Lewit: Actually, you’re thinking of Producer Gabby also.
Steve Lewit: Oh, Producer Gabby and Katie.
Gabriel Lewit: Gabby and Gabriel, I know they sound similar.
Steve Lewit: I thought it was like-
Gabriel Lewit: I have-
Gabriel Lewit: As a child, watch extensive copious amounts of Groundhog Day, the movie, so I know precisely how to pronounce Punxsutawney Phil. Just saying.
Steve Lewit: That was a good movie, by the way.
Gabriel Lewit: Folks, I’m sorry to tell you there’s going to be six more weeks of winter ahead.
Steve Lewit: Unless you go to the other guy, Woodstock Willie, is that it? Woodstock Willie said, “No, Punxsutawney Phil is incorrect and we are getting warm weather immediately.”
Gabriel Lewit: Who the heck is Woodstock Willie?
Steve Lewit: I have no idea, but Gabe, Producer Katie told me about it.
Gabriel Lewit: I’ve never heard of this in my life.
Steve Lewit: Okay.
Gabriel Lewit: Woodstock Willie.
Steve Lewit: Woodstock Willie is.
Gabriel Lewit: Is he a local guy? Oh, Woodstock, Illinois. We’re looking it up, folks. The official furry weather-predicting groundhog for Woodstock, Illinois. Huh.
Steve Lewit: Yeah.
Gabriel Lewit: Oh, it’s in the town where the 1993 film Groundhog Day was shot. Oh, okay. I didn’t know that.
Steve Lewit: Yeah, you see?
Gabriel Lewit: So wait, what did Woodstock Willie see? His shadow? Oh, he says early spring.
Steve Lewit: Early spring.
Gabriel Lewit: Okay, we’re in trouble. We’re in trouble, okay.
Steve Lewit: You want to bet on it? We can do boxes on it.
Gabriel Lewit: We could.
All right, now for a little bit of fun because it is Super Bowl weekend and this does have a financial component to it… Okay, so we’re going to move a little bit into our main topics here for today, but it’s-
Steve Lewit: You’re skipping my most favorite topic.
Gabriel Lewit: What’s that?
Steve Lewit: Flying cars are coming.
Gabriel Lewit: We’re going to talk about that maybe on one of the next shows. Make sure we get enough time for it.
Steve Lewit: They’re flying cars.
Gabriel Lewit: Yeah, so there’s flying cars. Also, of quick notes, the Artemis launch, I think it was Artemis, got postponed. The moon launch.
Steve Lewit: The moon launch, yeah.
Gabriel Lewit: We’ll circle back to that when it comes up.
Steve Lewit: You want to get to business.
Gabriel Lewit: The business here.
Steve Lewit: Yes, go to the business.
Gabriel Lewit: You got to give the listeners what they want is really the important part of the show.
Steve Lewit: It is. Well, we are a financial company. We should talk about money and finances, yes.
Gabriel Lewit: Okay, so there’s something, it’s Super Bowl weekend. I’m not sure if we talked about this last year or not, but there’s something that’s a gentleman named… Hold on. Leonard Koppett, who was a sports writer for the New York Times, he introduced back in 1978, which at the time he noticed a correlation that 11 out of 12 Super Bowl outcomes had accurately predicted the market’s direction for going forward.
Okay, so he named this the Super Bowl Market Indicator. Okay, and basically here’s what it says. Okay, “a win for an NFL team from the AFC, the American Football Conference, predicts a stock market decline, AKA a bear market, in the coming year. On the other hand, a win for a team from the NFC, National Football Conference,” which is where our Bears hail from, “can foretell a rise in the market, or a bull run, for the upcoming year.”
Steve Lewit: So that would be the Patriots are-
Gabriel Lewit: Patriots are AFC.
Steve Lewit: … AFC, and the-
Gabriel Lewit: The Seahawks-
Steve Lewit: … Seahawks are the NFC.
Gabriel Lewit: … are the NFC. If you were to put some stock into this, no pun intended, you would want to root for the Seahawks because it means that there will be a bull market run according to this completely unreliable statistical indicator.
Steve Lewit: I’m investing all my money because they’re going to win. I can’t wait.
Gabriel Lewit: What would be really interesting if, Producer Gabby, you can make a note at the end of the year. Maybe in our December episode, we can see if this was correct for this year. We’ll see if the Super Bowl indicator held any merit.
Steve Lewit: That’s great, I like it. Okay, I like it.
Gabriel Lewit: So, if you were a Patriots fan, you are rooting for a bear market. I’m sorry to tell you, so you just got to keep that in mind.
Steve Lewit: Yeah. Plus if you’re a Patriots fan, you have other things to worry about by being a Patriots fan.
Gabriel Lewit: Oh, that’s mean.
Steve Lewit: It is mean. It is so well-
Gabriel Lewit: Coming from a Giants fan.
Steve Lewit: … from a New York Times-
Gabriel Lewit: When’s the last time you were in the Super Bowl?
Steve Lewit: We beat the Patriots two times in the Super Bowl.
Gabriel Lewit: When?
Steve Lewit: I forgot the year that they were-
Gabriel Lewit: 1942?
Steve Lewit: No, no, no, no, in the last 20 years. Well, they had a perfect season. We went into the Super Bowl, and I thought we would definitely lose and we beat them. And then we beat them another Super Bowl, and the 1986 Bears beat them-
Gabriel Lewit: Okay, go. There you
Steve Lewit: … badly.
Gabriel Lewit: Well, last thing on this topic, while statistically since 1967 this indicator is correct 71% of the time, it’s been wrong the vast majority of the time over the last 10 years in specific. It’s been right only twice out of the last 10 years.
Steve Lewit: There you go.
Gabriel Lewit: So don’t put too much weight on it.
Steve Lewit: Everything averages out.
Gabriel Lewit: Yes, indeed.
Okay, so we wanted to talk today about some listener questions, and we’ll probably use these as a jump off point to, number one, talk about the questions, but also talk about some of the concepts behind the questions. And so, to kick things off, we had Hisham, who I don’t know if we had preliminarily talked about this or not, but we had an episode a few months ago where we talked about setting up Roth IRAs for kids and how you need earned income for kids to be able to fund those Roth IRAs.
Okay, and Hisham had asked, well, if… Basically, his daughter is 12 years old, and she’s done a lot of work around the house. They’ve basically paid her to do those work items, okay? I was wondering if that counts, and can he fund Roth IRAs based on this work, okay? Things like helping out with younger kids and doing work around the house and all these kind of things.
The quick answer, Hisham, which I think we emailed you this, but we thought we’d share it on the show for others that might be in the same boat is, well, we wouldn’t recommend it.
Steve Lewit: We love the way you think, though. Very clever.
Gabriel Lewit: Okay, so typically that’s, I think, would be considered a pretty gray area, very gray, one that might get you into potential hot water. We tend to try to avoid those. Just because it’s really hard to justify what kind of work, was there any 1099s that were paid? Was it fair market wages? What is the fair market wage for work around the house, right? These are just slippery slopes.
Steve Lewit: And can you employ a 12-year-old? I don’t even know if you’re allowed to employ a 12-year-old.
Gabriel Lewit: I think 12-year-olds can work, right? And they can get paid, but I think if it’s your own child, right, there’s generally accepted rule is to not do that.
Steve Lewit: The IRS might frown on that idea.
Gabriel Lewit: Yeah. Well, so yeah, there have been issues in the past.
Steve Lewit: Well, if they ever caught it.
Gabriel Lewit: Well, and the question is how do you prove it?
Steve Lewit: Yep.
Gabriel Lewit: Right, how do you prove it? There’s too many gray areas for that for us to say, “Yeah, go ahead and do that,” right?
Now, let’s say your 12-year-old-
Steve Lewit: Now, if you have a business-
Gabriel Lewit: Let’s say they go around and they cut all the neighbor’s yards and mowing the lawn or shoveling snow and everyone’s giving them 20 bucks here or 20 bucks there, whatever the case might be. That would be a different story versus you paying your own kids for work around the house, right? You’d be able to go and interview neighbors. They would say, “Yeah, I paid so-and-so 20 bucks for pet here and mow my lawn or whatever the case is, watching my kids, babysitting somebody else’s kids.”
I just think you don’t want to do that when it’s somebody from your own child and your own family household. Hopefully that helps answer that question, right?
Steve Lewit: Did you ever pay your kids to do chores?
Gabriel Lewit: Well, I do pay my kids an allowance, and they do have chores that they are expected to do in a roundabout way.
Steve Lewit: In a roundabout, but you didn’t say to your kids, “Look, you wash the dishes. I’ll give you $5.”
Gabriel Lewit: I have not monetized our household chores in that way, no.
Steve Lewit: Well, that’s a different argument. Is that a good thing or a bad thing? I don’t want to judge this, but I never… When you grew up, we just expected you to do chores. We didn’t give you anything.
Gabriel Lewit: Well, yeah, that’s a whole-
Steve Lewit: That’s why you are the way you are today.
Gabriel Lewit: When we spin off our parenting podcast, we will dig into that one in greater detail.
Steve Lewit: No, I never thought of why you are the way you are today. I deprived you of earnings.
Gabriel Lewit: Yeah. Yeah, there may be. Maybe that’s it.
Steve Lewit: I think that’s it. I apologize.
Gabriel Lewit: In any way, shape, or form, no, I wouldn’t recommend funding the Roth IRA with that situation in mind.
Steve Lewit: Should have paid you.
Gabriel Lewit: All right, we had another question from our listener, Scott. Okay, First, he made a comment this about the cost for his kids to go to school because we were talking about school costs on a previous episode. Scott shared that he paid 113,000 for both of his kids to go to school out east, but that was eight to 10 years ago.
Steve Lewit: 113,000 total or per year?
Gabriel Lewit: It doesn’t say. Okay, so maybe it was total. It says for total for both, which is way cheaper, right? I just had a client tell me last week that his son got accepted to Cornell.
Steve Lewit: Yep. Oh, my. Okay, your brother went to Cornell.
Gabriel Lewit: I do know this, yep, which I referenced. And then he said it would be about $98,000 per year-
Steve Lewit: That’s correct. I thought it was a little over 100.
Gabriel Lewit: … okay, for his son to go there.
Steve Lewit: Yeah, and I have a client whose daughter was accepted to Harvard.
Gabriel Lewit: Harvard.
Steve Lewit: Harvard, and it’s going to be a half million-dollar bill.
Gabriel Lewit: Yeah.
Steve Lewit: Yeah, I mean, it sounds crazy to say that.
Gabriel Lewit: Well, and we were also talking some of the bigger name state schools. For example, University of Michigan, if you’re not a Michigan resident, if you’re from Illinois, I think is also up there in the 70s or 80s you’re saying $1,000 per year if you’re not a state resident.
Steve Lewit: Now your younger brother goes to Purdue, which is a state school.
Gabriel Lewit: Correct, yep.
Steve Lewit: That’s about 50, 55. I think it’s about that. It’s very reasonable actually in comparison.
Gabriel Lewit: Well, yeah, so as we were getting into that topic a couple months ago, we were just talking about how expensive school is. This is just an example of some various price points that are out there, but expensive, expensive.
Steve Lewit: Yeah, so you have three kids. How old is my oldest grandchild? Nine? Nine?
Gabriel Lewit: He is nine, he’ll be 10 in… I’m glad you knew that. That was a good one.
Steve Lewit: Yeah.
Gabriel Lewit: He’ll be 10 on April 4th.
Steve Lewit: Yeah, so in nine years, we have… Oh no, you have college.
Gabriel Lewit: It could be a – I like this.
Steve Lewit: No, no, no, you have college for three kids coming up.
Gabriel Lewit: Yeah. Yeah, exactly, so let’s say they all went to Cornell, which I don’t care if they go to Cornell or not. Who knows? Wherever they want to go is great. Yeah, if it was 100,000 a year.
Steve Lewit: Today.
Gabriel Lewit: Today, right? Let’s say that was the number today, who knows? Let’s say it averages for all three kids 100 grand a year because some might go to more, some might go to less, it’s going to be in the future. That’d be 100,000 times four times three, which is 1.2 mil.
Steve Lewit: Oh, my gosh. Maybe I should pay you for doing chores around the office. We should give them a bonus for chores around the office.
Gabriel Lewit: When there’s all the salt from the snow that we’ve been getting, I could mop. I could mop.
Steve Lewit: Yeah, you could mop up.
Gabriel Lewit: Can I fund my Roth IRA with that?
Steve Lewit: Absolutely, absolutely. It’s kind of daunting. A lot of our clients, Gabriel, will do things for their grandkids, 529s and so on.
Gabriel Lewit: Well, it is only getting more expensive. Scott, I appreciate you sharing the cost there so we could talk a little bit about that on the show. Just gives us a sense of perspective of how things have changed over the years. Eight to 10 years ago, probably half as much as it was now, right? It could be an eight to 10 years, I mean, if it was twice as much as what I just said, gosh, that would be nuts. All right.
All right, so yeah, of course, Scott or Hisham, if you have follow-up questions on these, you can always email us back. We can talk more about these things offline off the show. But we’ve got a couple more listener questions that have come in, and let’s see here. We’ve got Megan. Megan had asked, “Do you consider bonds to be a good source of retirement income?” Okay, this is one of our, I would say, favorite topics to talk about. Steve, in just a quick one-sentence, two-sentence answer, and then we can elaborate upon it, how would you answer that question?
Steve Lewit: I would say yes and no. I would straddle the fence here.
Bonds can produce revenue. You invest $100,000 in bonds and it pays 4%, then that’s 4,000 bucks, right? Now, and if you have a million dollars and you put them in bonds and let’s say you get $40,000 a year, that is a source of one way of getting retirement income.
Now, is that the best way for you? Well, that depends. It really depends. Here’s the question, Gabriel. I’m getting $40,000 by using a million, and I can do that. Let’s say the rates stay fairly stable, which is a interest rate risk, but let’s leave that on the… The real question is, can I get the same $40,000 using less than a million dollars somewhere else, and do I want to do that? That would be the answer to that question is yes, they are, but have you investigated other ways of deriving income which may be more efficient and more consistent than the bonds?
Gabriel Lewit: Yeah. Megan, when I saw your question, are bonds a good source of retirement income, I had a little flashback to one of my favorite recent persons in my life, Ben Johnson, the coach of the Chicago Bears. Okay, and if you were watching any of the Bears this year and any of the post-game videos, Mr. Ben Johnson had a thing going with all of his players called good, better, best, okay?
It’s funny because if you ever read the message boards, people all around the state of Chicago, anywhere they would go and they would see the words good, better, or good, better, they would start to post these things on the message boards because everybody was really getting into it. That’s what I was thinking about here, right? Are bonds a good source of retirement income? Yeah.
Steve Lewit: Yeah. Yeah, absolutely.
Gabriel Lewit: Yeah, and then what you were saying is, is there something better?
Steve Lewit: Better.
Gabriel Lewit: And I think conceptually we could ask this question, and this is arguable, what is the best source of retirement income that’s out there? But this good, better, best philosophy or theme can be applied to a lot of things in life, not just the Chicago Bears’ playing abilities.
I thought that was an interesting way just to lead into this topic here for Megan.
Steve Lewit: Yeah, I love it. Good, better, best folks might be different for each person. Bonds might be right for one person. Let’s see, structured notes might be right for another person, annuities might be right for another person. There’s no rule on what’s better, better, best.
Gabriel Lewit: Better, better, best?
Steve Lewit: Better, better, best. But there is a ranking of better, better, best that you should be aware of.
Gabriel Lewit: You’re going to just start saying that.
Steve Lewit: I’m going to use it as a vocal exercise. Better, better, best. Better, better, best. Better, better, best. That’s better than rub a buggy bumper.
Gabriel Lewit: I don’t know what to say about that, all right.
Well, so Megan, yes, bonds are a very good default source of income. If you are in a 401(k), you’re going to have target date funds, which automatically give you some percentage of bonds and a greater percentage as you get closer to retirement, generally for the purpose of both safety and also income predictability. But you could also go out and buy individual bond ladders. You could buy individual bonds themselves. You could buy bond funds. You could buy tips, which are treasury inflation protected securities, which are bonds. You could buy government bonds.
There’s an entire world of bonds, which actually I can’t recall offhand if we’ve done a deep dive into bonds. We have at some point in the past, so we could always find that episode.
Steve Lewit: We have. It’s been a while back.
Now, what if someone tells you, Gabriel, “Well, I can get 8% on a bond.” What would you say?
Gabriel Lewit: Well, that’s a great question. There are different types of bonds as we were just talking about, Megan. If you are in high-yield corporate junk bonds, I would say no, those are not a good source of retirement income. In fact, I would say they’re not even good in the good, better, best. They’re average. Average, good, better, best.
Steve Lewit: Well, they’re good as long as the company doesn’t go out of business.
Gabriel Lewit: Yeah, they pay more, but they’re highly risky. Both in the sense of volatility in their pricing, and also in the sense that they could go and default, meaning you wouldn’t get your money back that you gave to the company in return for the interest payments. They may not be worth a risk if you’re looking for predictable income.
Steve Lewit: Yeah, just remember folks out there that if there is a higher return, there is always a higher risk. You can’t have one without the other.
For example, Gabriel, we have people come in and say, “Well, I can get eight, 10% dividends.” Yeah, you can.
Gabriel Lewit: Well, I just had some-
Steve Lewit: If they were safe, why wouldn’t everybody be doing that?
Gabriel Lewit: Just as a little aside to what you just mentioned, I had a client yesterday. We had a review. He said, “How are we doing?” We went through everything. He’s doing very good. He did very good last year. He said, “Well, I guess I was just wondering because I had friends all last year just telling me just how much money they’ve been making in the market last year and these big numbers. My numbers didn’t seem as large as that.” And so we had a whole conversation about this.
Yes, at the end of the day if you have a buddy or a friend that loves to talk about how their stock that they handpicked right tripled in price last year, well, two things. Which is what I said to my client yesterday, is number one, we got to understand risk return. What that person often doesn’t understand that happens, in my opinion, to get lucky and pick a stock that doubles or triples is exactly how much risk they have exposed to there, right? They could lose all of that equally as fast. Actually, many people don’t even know that. They just think that they have something that ballooned in value, and it’s just going to stay there until the rug sometimes gets pulled out from under them.
Steve Lewit: Look what just happened-
Gabriel Lewit: It comes falling back down.
Steve Lewit: Happened with gold.
Gabriel Lewit: Yeah, gold and silver. Yeah, silver lost 30% in a day just a couple days ago. Okay, so-
Steve Lewit: Goes up slow, goes down quick.
Gabriel Lewit: Can’t go up fast. Things that go up fast can fall very fast. And then I said to him, “But the question really is, is that what you want? Did you want something that can triple in price or it could lose 75% of its value at any point in time?” He said, “Well, no, that’s not what I want.” I said, “Well, that’s not what we have,” right? We have something that is going to do well, earn maybe 12, 14% in an up year, but not going to lose nearly as much or very little in a down year or none in a small down year. That’s a better fit for your plan that you’re trying to build.
Steve Lewit: Yeah, I think what happens, Gabriel, is that folks get used to… For example, you buy a high-yield bond and you get used to that yield. It comes in every month, and after a time you become immune to the risk side of it. It’s like, “Oh, nothing is going to happen.”
I have a client that this guy is brilliant on trading options. I mean brilliant, and he’s been cleaning up. It’s like, “Why don’t I use that for income, Steve?” I said, “Well, you can, but at what point does it not work?” He says, “Oh, it’ll always work.” I said, “Come on, you know better than that. ” He says, “Yeah, I know better than that, but that’s a dilemma.”
Gabriel Lewit: Yeah, so I think things like this go back, Megan, to what your preferences are, your time horizons, your goals, your needs, and that’s where a good plan comes into play.
But to quickly answer your question, yeah, generally speaking, the right set of bonds in your portfolio can be a very good choice. But there’s probably going to be some better options that we could explore with.
Steve Lewit: Yeah, or that’s part of your income plan, but it’s not your entire income plan.
Gabriel Lewit: Yeah.
All right, so now we had Richard, last listener question for today. Richard said he retired a few years ago, expecting his wife would be retiring soon after him.
Steve Lewit: Uh-oh.
Gabriel Lewit: He said, “Bought a camper and everything, ready to travel the country.”
Steve Lewit: I think I know what’s coming here.
Gabriel Lewit: “She keeps saying that we need her to work for six more months. And then when that six months is up, she keeps saying she needs to keep working longer. How do I convince her,” in Richard’s words, “that it’s okay to retire?”
Steve Lewit: Richard, you need a financial plan.
It’s really interesting, Gabriel, and you know this with your clients too, is that folks think they have to work because they’re unsure of their numbers. They don’t see it in black and white that they’re just fine. Now, a plan may not change her mind. Some people are just stuck. “I think I’m going to run out of money. I better work,” or, “We don’t have enough,” or, “I got to pay for this,” or, “I got to pay for that.” But once you have a plan and the numbers are in black and white in front of you and you can see it’s worked out and the plan is reasonable, done with conservative numbers, that often helps a spouse who thinks they have to work take a deep breath and say, “Maybe I really don’t.”
Gabriel Lewit: Yeah, I agree. I think I use analogies a lot, and lately I’ve come up with one that I feel like I’m probably going to stick with for a while because it tends to be-
Steve Lewit: It seems to be another football analogy.
Gabriel Lewit: It isn’t, actually. No, it’s a GPS. A GPS system in your car or navigation system, Google Maps, right?
I don’t know if any of you have ever had this experience. I like to get to places on time, of course, but I drive a little faster. I just like to cut it as close as I can, right? I don’t want to get there super early and just sit around in the parking lot, right? I want to get there. If it’s something starts at nine o’clock, I want to get there at 8:57, okay? Let’s call it that.
Steve Lewit: Like father likes son.
Gabriel Lewit: All right, and my wife, on the other hand, if something starts at 9:00 she’d probably want to be there at like 8:30. And so it’s always there’s this battle of like, “We got to leave, we got to leave.” I’m like, “No, we don’t. We don’t have to leave.”
What we’ve ended up finding out is let’s Google Maps this, okay? We’d put it into the GPS and let’s say you were going to leave somewhere at 8:00 AM and it shows you getting there at 8:30. This has come up a lot because our son has travel soccer games and we have places we have to be on time, and it’s been happening a lot. Over time we’ve come to realize Google Maps is pretty accurate with its assessments.
Steve Lewit: It is. It is, yeah.
Gabriel Lewit: The moment we know exactly how long it’s likely to take to get there, we can plan everything based around that because we have reliability and confidence in the numbers being shown to us by Google Maps.
Steve Lewit: Well, you have a reference point that’s independent and accurate.
Gabriel Lewit: Now, what does this have to do with financial planning? Well, if you’re feeling like you can’t retire because you’re unsure if you have enough money, what you could do is look at a financial plan. If you had confidence that that plan was predictable, accurate with a high degree of uncertainty, maybe a little variation here and there, a little buffer room, we always leave a little buffer room with the Google Maps in case there’s traffic, you can make plans based around that, right? Not what time you’re leaving the house to get somewhere, but what time are you going to retire because you know you have enough money to get you through the rest of your retirement years with confidence and predictability.
That’s what we mean when we say a plan. It gives you that ability to make decisions right now that are going to impact you long term. That’s I think what you guys might need. It might help to get her ready to travel the world in the RV.
Steve Lewit: It moves the conversation from an emotional conversation where someone is in fear of running out of money, I got to work, to a data-based conversation. Say, look, here’s what the numbers say. Now let’s talk in reference to that, and that could take the emotion out of it.
Gabriel Lewit: Exactly, exactly. Hopefully that helps, Richard. We’re here to help if it would be helpful for you.
Anybody here can send us emails or questions if you’d like us to talk about them on the show on one of our upcoming shows here. You can email us info@sglfinancial.com. We do love hearing from you. We do collect your questions. We will answer them periodically on the show. Thank you for inquiring because it gives us something to talk about.
Steve Lewit: You bet.
Gabriel Lewit: If you would like our help to create a financial plan or review your financial plan situation, call us anytime (847) 499-3330, or go to sglfinancial.com and click Contact Us.
Steve Lewit: And go Seahawks.
Gabriel Lewit: May the best team win.
Steve Lewit: Well, the best team will win.
Gabriel Lewit: That’s why I said that.
Steve Lewit: Great.
Gabriel Lewit: All right, may the best team win.
Steve Lewit: May the best team win.
Gabriel Lewit: We’ll see you all on the next show. Bye now.
Steve Lewit: And may the force be with you all.
Gabriel Lewit: Or that, too.
Steve Lewit: Or that, too.
Gabriel Lewit: All right, bye now.
Steve Lewit: Bye everybody. Stay well, bye.
Announcer: Thanks for listening to Our 2 Cents with Steve and Gabriel Lewit. For any questions about your finances, give SGL a call at (847) 499-3330, or visit us on the web at sglfinancial.com and be sure to subscribe to join us on next week’s episode.
Prerecorded Voice: Investment Advisory Services are offered through SGL Financial LLC, an SEC Registered Investment Advisor. Insurance and other financial products are offered separately through individually licensed and appointed agents.
