January 2025
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Ep. 118 Inherited an IRA? What to Know for 2025
Ep. 117 Hidden Gems in Real Estate Investing
Hello, everyone, and thank you for joining us for another episode of THE FINANCIAL COMMUTE. I'm your host, Chris Galeski, and joining this
conversation today is my partner, Chief Operating Officer and Chief Marketing Officer, Stacey McKinnon. Stacey, thank you for joining me and having a conversation.
Oh, I'm so excited about this. This is a topic that you and I are very passionate about.
Yeah. Investing in uncertain times. I mean, as I think about it, there's always times of uncertainty. So you're pretty much just stuck investing in uncertain times. Always. It's true. We never really know what's going to happen tomorrow. But as always, thinking about this conversation, I mean, it comes back to the point of like, why do people invest?
And for the most part, people have to invest. Number one, it'd be un-American not to invest.
That's true.
But number two, people need to invest because of inflation, because of uncertain things that can happen in life, because they need to replace a paycheck when they walk away from work. There's a whole host of reasons why people need to invest. And like it takes me back to that bucket approach and if I was going to design the perfect sort of investment strategy for me, I'd make sure that I've got one bucket.
That's my emergency fund that takes care of all my needs. I would then figure out how much money I need to put in that second bucket that's going to drive the income that I need to live my life. So what's my spending plan? What's the lifestyle I want to live. How much money I need to go at the end of that bucket to drive that income.
And then whatever's left I can invest towards growth. Long term appreciation covering the cost of inflation, long term care, the unknowns, the world. And so today it's like with all the uncertainty that's going on, some people are really worried about that second and third bucket. And we've got to have a lot of different conversations with clients, like what's going to happen when Trump comes into play.
And, you know, these geopolitical risks and wars, like, how do I manage that? Are there opportunities and I should I be doing this? It's so fascinating the number of conversations that we have day over day.
I mean, it's incredible. I just even the hit on your bucket, I know not only do the bucketing approach, but I actually have different accounts for all of those different things because I like the idea of looking at an account and saying, oh, that's my travel bucket. That's like set aside for me to enjoy life.
And so I love the bucketing approach for that reason.
The travel bucket is the one where you now all of a sudden don't have guilt because you told yourself that's what this is for, and it's awesome.
And then I try to leverage points to make the travel bucket even bigger. It's a whole really, really, I think strategic game. I'm planning to go travel more, but I think the bucketing approach is very important. On the point that you made, though, around clients coming to us and just feeling so much uncertainty, whether it was around the election or inflation or I.
One of the things that I try to like tell clients is just ignore it if you can. I think that's a little bit different than being a member of society and being an investor. So as a member of society, I don't think I think we have to be educated. We have to understand what's happening in politics or inflation news.
I think it's an important aspect of how we live our daily life. As an investor, though, it had all possible. I want client portfolios to perform well with our list of names in the headlines, and I think one of the challenges that I face in having these conversations with clients is that it feels like because the headline news is so much entertainment today, it's a lot of propaganda.
It's a lot of like in-your-face scare tactics. Sometimes that translates into how they see their portfolio. And I, I know that for us as a firm, and you and I talked about this a lot, it's so important that we find investments that ignore that noise, too. So not only emotionally having our clients ignore the noise, but then actually finding investment opportunities, ignore that noise.
Well, because in today's world, almost every headline has some type of like a repercussion in the market, whether it's in stocks and bonds. And if we can give our clients more investments that are not impacted by the headlines and that makes me feel like we've done our job. It's so fulfilling to think about a world where our clients can sleep better at night, because whatever they hear on the news doesn't impact their retirement.
Saving for college, going on those trips and traveling.
So Meghan brings that up a lot. When we talked to her about the investment strategies that they're looking for for our clients. And it's not that we don't love stocks. I mean, we like stocks. We think that there's uncertainty around how they're going to perform. So Meghan's always looking for things that are going to, you know, be a little bit more consistent, be able to weather in times of uncertainty and to be able to provide that, that consistent return and that anchor to either generate income or get the growth that's needed because stocks are just somewhat unknown.
You just don't know what's going to happen until the next question becomes like, how are we going to access these magical things that are not impacted by the headlines that we hear every day? And there are some really interesting stock substitutes out there. Do you mind sharing?
Yeah, I mean, one is like a really small sleeve with the manager that we have and it's it's whiskey aging. And people oftentimes like there's so many different ways to make money out in the world of investing. But whiskey aging is actually fascinating to me because not only is it a really good diversifier amongst traditional stocks and bonds, real estate, other things, but there is real value in high end aged spirits.
It's going to appreciate in value. People are going to continue to consume that too, that that type of, spirit. And so it's a way that we look for things outside stocks and bonds. And then there's obviously the real estate stuff that we do. I mean, whether it's industrial real estate, you know, building out distribution centers. That way we can get our Amazon packages quicker, whether it's, you know, filling the need for more housing, senior care facilities or, you know, just about anything.
I mean, I love real estate as a diversifier, but there's a lot of different places that you can go besides just investing in stocks.
Yeah. And one statistic that I heard on the whiskey aging is that a barrel of whiskey that's aged for years is four times the price as one aged one year. And so you just think about the simplicity of that. If you can invest into something and over a four year period the price grows by four times. I mean, that's not that different than investing in the stock market.
But you don't have stock market rates. You don't have headlines and news causing your whiskey barrels to go down like that. That's those two things are not correlated together. And so I love it, that we find investments that truly yin and yang. They don't. It doesn't matter what happens in the office. I was actually reading a very interesting statistic not that long ago.
It was talking about how many people are moving into investments like this, and it was something like 52% of investors are going to be seeking out assets, just really, really fascinating and interesting. And so part of our job as advisors is to stay on top of that and to continue finding these things that are just maybe a little off the wall, but make sense a little bit more than some of market, right.
Apples are really complicated companies. So many sub products and different business lines would take forever to understand. Yeah, aging is a little bit more straightforward. It's like you produce the whiskey and then you put it in a bottle and you sell it. It's fascinating how some of these alternatives are more simple.
It really is. And on that note, with alternatives, I mean, I think you admit you shared something with me about, endowments looking to increase their allocation to alternatives. Yeah. By 52% next year. So if you're an endowment, that act really can actually have a long term mindset on investing. And let's say they've got 10% alternative exposure today.
They're looking to go to 15% next year. Or if they're at 20% today, they're looking to go to 30%. And so alternatives are a big or big hot topic in the investment world today because stocks are uncertain, bonds aren't really providing a lot of diversification. And so like let's talk a little bit about fixed income. And so I know as a firm we invest a little bit in traditional bonds.
But we look for other places to find income. And some of those are in the alternative space. Like talk to me a little bit about the importance of some of our fixed income alternatives and what we look at.
Well, even if you just think about fixed income and bonds in the history of the bonds, it used to be a few decades ago that an investor could have part of their portfolio in stocks for growth and part of their portfolio and bond street income, and that provided a safety net for them. That was fairly consistent over the last ten years.
Do you know what the return has been in the most popular bond index?
Oh, man, I'd say it's probably close to 2%.
One and a half. Yeah, 1.5% returns in the bond index. That is not enough to live on. Have you been to the grocery store lately? Why is my grocery bill $300 a week for two people to actually be able to eat every day? It is incredible. It's incredible. Right. And so we look at what's happening in bonds and how it's not that safe haven that used to be there for all the clients we work with.
They still need the income. They still need to provide their lifestyle. They have to pay for this, like Secretary Galvin has brought up. And so the question becomes, where can we find investments, where we think that safety is there, that there's a lot of downside protection for our clients, but the income is much higher.
And so that's been something that's been, a constant evolution of for us as an organization is how do we increase the allocation to our clients to these higher yielding, higher income investments? And so just some examples of that might look like, giving a private loan that's backed by real assets as a business with real assets could be real estate.
They could be inventory. They could be. But by providing private loans backed by real assets, we're able to get higher yields by just going into the private space instead of the public space. There's also loans that we can give to what I would consider like slightly recession proof businesses like food companies or medical, because even if a recession hits, people still have to eat and they still need their medicine.
And so if you can find in the private space some of these loans that provide more income and we think are more recession proof or protect on the downside, our clients are going to be much better off the network.
Couldn't agree with you more. I mean, this is something that we've been looking at for quite some time and continue to do, but again, like a traditional bond is just a loan. Yeah, it's the same thing is making a private loan backed by real estate or trucking equipment or food or health care royalties. I mean, you're making the same trade off and it's a little bit easier to understand the asset that's behind it.
And if we can get definitely a higher return, a more consistent one, it's an attractive opportunity to be in. And I think that's why a lot of endowments are looking at reallocating dollars to the alternative.
How can we find these things. And this has been something we've been doing for years and years. So what's nice for us is that we have the due diligence process. We're able to evaluate these things because we've seen them before. We know where there's red flags or what the operational documents need to look like. And so that's been part of our ethos, but something that we're continuing to pursue.
I know that there's also a few other areas that we try to dig into when it comes to diversifying away from just traditional stocks and bonds and into these alternatives. What else has been top of mind for you as you think about creating more resilient portfolios for our clients?
If I just look at the elephant in the room, I mean, you've got $35 trillion worth of debt here in the US and probably $100 trillion or more across the globe of money that's been printed and put out in the system. And, you know, that led to inflation, which is just basically driven using your actual dollars that you have in your pocket.
And I know it's a hard concept to understand, but like if you go back to the early 1900s, an ounce of gold was around $200 an ounce, and that could buy a really nice Italian suit. Today, gold's at, what, $2,600 an ounce? Guess what? It can still buy a really nice Italian suit. And so there are a number of different types of investments, whether it's gold and some people, you know, think bitcoin, where there's a store of value in an asset that's going to do well over time, especially in times of uncertainty and in times where, things are inflationary.
Bitcoin is something that we're fascinated with and look at. We haven't even dipped our toes in the water yet. We're we're still looking at how that might perform during, you know, really bad or tough times. But look, it's hard to ignore something that's now worth $100,000, a coin that, you know, ten years ago was just sort of like, this is the thing.
I'm not really sure it's a thing. I think it's just a concept. But more and more institutions are actually getting behind it, and it's something that we continue to look at as well.
For most of our clients who have the financial opportunity to invest a little bit at any point, it's not necessarily a bad idea as long as that's not what you're betting your retirement on. I think that, it's fine to explore that a little bit. And I see the argument for it being complimentary to having.
As you think, as we talked a little bit about like the alternatives. So we're using alternatives, whether it's the private lending or the whiskey aging or the real estate as an alternative for stocks and our bonds. Like what are some of the biggest risks that you know, people face by not having more money in the stock market or trying to avoid U.S international stocks, or more traditional type asset?
I think FOMO might be the biggest risk, with FOMO being fear of missing out, right? I've had lots of conversations with clients where they have, dinner with friends or they're sitting on the couch with their children and they're chatting about the markets, and they say something to the effect of, oh my gosh, I made this much money in Nvidia.
I made this much money in Apple. I was able to score on this one thing that was a part of the market. And I can feel really, I think inflating to somebody that is, is choosing to invest in alternatives that are a little bit more consistent in many ways dependable, things that they can like, touch and feel and see.
You almost have to stop yourself from comparing yourself to your friend or your child who has a different profile than you, different risk tolerance, different years ahead of them, where they can afford to take on different levels of risk in the market.
We still think stocks are a good play, not for your whole portfolio. Generally speaking, it's about a third or less of the portfolio that we're allocating to stocks. We just think that there's other opportunities that exist while you sleep better at night. And so I think one of the biggest risks that investors face is that by now, and if they can get beyond that, I think to totally appreciate that.
The fear of missing out is a very real thing. And it happens across the board. But it's not only that's why financial planning is so important. It's not only the return that you want to have and be able to be part of those conversations, but what's the return that you actually need to have in order for all of your dreams, wishes, and thoughts to come true?
Oftentimes those are two very different things. Yeah. I mean, I was talking with a client recently that, you know, has enough money to sustain the rest of their life and do everything that they want to do. And they said, hey, you know, Bitcoin's at 100,000. Should I buy something? And I said, okay, Mr. Client, let's just say we took $50,000 that we invested in a Bitcoin and let's say Bitcoin actually went to $1 million.
So if you got a ten times return, so you had $50,000 grow to $500,000. Will that change your life or will you do anything different because of that? His answer was no. He said it would just make me feel good.
But don't lose my money, you know? So I don't want the 50,000 to go down to 20 because that would be more painful. So, you know, he chose not to do it for other reasons.
But that's a good point. I mean, look, we've had essentially 15 years of barely up markets, a few blips in there, but other than that, it's been fairly consistent. Yeah. And so sometimes we forget about what it's down like, it feels like what it means to me. Can you share just your perspective on the market today?
What are the downside risks that exist and why? Maybe avoiding them for more consistent returns might be in some investors' best interest?
Yeah, I mean avoid is the most common word to be used with this when you're making exchange for one investment for another. Yeah. But in reality like we're still participating in many of these things. So as, as a firm we're not avoiding it completely. But at the end of the day with where valuations are today, they're higher from a price to earnings or price to sales than they were in 2007, 2008.
They're higher than they were back in the.com bubble. I mean we're at expensive valuations in terms of price. So right now if you're looking to add dollars into the stock market, you're buying it at a high price. This stuff is not on sale. And so when we've had a couple years like we've had the last couple or even the last 15, you've got to look out the front of the window and say, what?
What are the returns that I expect going forward? And they're not likely to be as high as we just saw. And so people would benefit by taking a little bit of risk off the table, because if they don't, they could realistically see in a normal, you know, recession or normal pullback, a 20 to 40% loss in the value of an asset.
Yeah. And that's things like traditional stocks with great companies. But you know something like Bitcoin, it's gone down 70 or 80% in value like every four years for the past 10 or 12 years. Like that's a wild ride to be a part of.
Even if you think about the last decade, from 2000 to 2000, ten people bought in at the market. The highest valuations that existed participated in that crash at the same ten years. So you have things like the last decade and stocks you have what I would maybe even term is the last decade and bonds the last ten years.
These things have a place in the portfolio, but I don't know that they should be the majority of the portfolio. I think a nice one. Third exposure to the markets and participating upside and sharing with your friends at dinner is good, but then maybe the other two-thirds can be some things that you can have more.
Look, I've got a client that lost decent chunk of money during the financial crisis in 2008, 2009. They were scared of stocks for like eight years. And then they met us. Well, so they were pretty much just invested in bonds during a zero interest rate environment. The money was barely growing. They were uncertain on whether or not they could make some of the large purchases or vacations that they really wanted to, but when they came over to us as clients, because we had access to higher income alternatives that provided the income that they needed to be, we feel comfortable taking those vacations.
So now we have a little bit of stock exposure for them, and they've been able to participate in this growth last 6 or 7 years that otherwise they would not have been. And so, you know, there's the flip side of that too. I've got some clients that are on the edge of can I retire? And they ask themselves that next question, well, how am I going to get a paycheck when I do retire?
And you look at their portfolio and they're primarily invested in stocks, and the reason why they're so not confident with making that decision is because the uncertainty year over year. And so by having conversations with them and being able to, you know, build out that income bucket to generate enough income for them to be able to walk away from work they've never been happier.
If they're not looking at their portfolio, they're not worried they're taking vacations. And so it's not about avoiding something. It's just having the right mix for you, in my opinion.
Yeah. I love that story that you were talking. I was thinking about how there's really two goals and objectives that investors should have. A one goal and objective is maybe a little bit more straightforward in my investing in good opportunities by investing in an opportunity to provide income, if that's what I want, if that's what I want, I think that's one step.
But the second step that you just described is, are my investment choices leading to that, or why are they leaving leading to travel or are they leading to retiring at the age I want to retire? And I think that that's really powerful when clients can think about their investment goals as these two parts. It's one in my investing in the right things, but two are those things leading to me living.
Yeah, I love having these conversations and customizing things for clients. It's a lot better than, hey, what did you do? Okay, cool. I'm going to do that basically. Stacy, I've had so much fun having this conversation today talking about how to invest in uncertain times. Odds are pretty good over the next 20 or 30 years as we work together and, you know, talk to clients, there's going to be a lot more uncertainty down the road.
Thank you so much for this conversation.
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