Intro: Royal Standley of Oregon Pacific Financial Advisors, offering security through United Planners Financial Services, member FINRA SIPC, guides clients with empathy in discovering and reaching their financial goals and creates financial plans for clients so they can live their lives by design. In these episodes, he relates his financial insights and discusses timely topics. Royal strives for excellence and has a passion for sharing his knowledge and supporting his community. Now, onto the show.
Royal Standley: Discussions in this show are for educational purposes only. Information presented should not be considered specific investment advice or a recommendation to take any particular course of action. Always consult with a financial professional regarding your personal situation before making any financial decisions. The views and opinions expressed are based on current economic and market conditions and are subject to change. All investing involves risk, including the potential for loss of principle. Securities offered through United Planners Financial Services, member FINRA SIPC. Advisory service offered through Oregon Pacific Financial Advisors, Inc. Oregon Pacific Financial Advisors and United Planners are independent companies and neither Oregon Pacific Financial Advisors nor United Planners offers tax or legal advice.
Bill Tucker: And welcome to the Life by Design podcast with your host, Royal Standley of Oregon Pacific Financial Advisors. Royal, very good to be with you again. It's been an interesting investment environment for folks. I'm curious what your take on the landscape is and how, how do, how do you, what are you telling clients these days to navigate through, I guess the only way to call it would be these uncertain times in the market.
Royal: Yeah. So we're, we're having some interesting conversations with, with all of our clients about where we're at right now with what happened in 2022 driven by the Feds raising interest rates so aggressively right now we had the Feds come out in their most recent meeting, they did not raise interest rates, which was a nice change of pace.
Bill: Yeah [chuckle]
Royal: But they definitely left the door open for more interest rate, rate hikes down the road, as well as this, this term, “higher for longer.” We're going to have higher interest rates for longer than we all expected.
Bill: Which is funny on a couple of different fronts, but not funny on some others. Decipher, you know, there's a lot of controversy, as I know, you know, in the markets about whether the Fed or when the Fed is going to stop raising rates. And nobody, I don't even think the Fed at this point knows where and what it's going to do. So what's that do to us as investors and what's that do to you as a portfolio manager?
Royal: Yeah, absolutely. So, remember what the Feds are trying to do is slow down the economy to bring down that inflation number. And right now we are in this, this perfect storm. You know, really in the eye of the storm because we still have a phenomenal jobs market happening. We've seen inflation come down from that 9% peak we saw in 2022. So, it looks like, wow, things are working. Oh, are we going to have a soft landing and not have to deal with, you know, a big recession or an economic crisis or, whatever the crisis du jour is.
The interesting thing right now with what the Feds are doing is I think they're probably getting close to satisfied with what they've done. Uh, they know they're going to need to give the economy time to continue digesting that, that we are going to be highr for longer.
Bill: Mm-hmm.
Royal: And what I love about the Fed is, because of the way they are structured, they can get the benefits of hiking an interest rate without actually hiking that interest rate. By leaving the door open saying no, no, no, we might hike it later, we see those, uh, those, those bond yields rising today,
Bill: Mm-hmm.
Royal: Uh, after that announcement yesterday. So, they get that added benefit of saying, hey, we might do this. We might do this, but they don't actually have to go through with it. So, I think that puts them in a really interesting position where they can continue slowing the economy without actually going through the pain of an actual rate hike.
Bill: Interesting. Let the market do the work for them as it were.
Royal: Exactly. Yeah.
Bill: So what it's like, what does that, what does that do for us though, Royal. I mean, by “us,” I'm talking about us collectively as investors. What, what's your guidance to, uh, to your clients at this point in terms of this environment? Are you advising them to look at interest rate investments or what are, what are you telling folks?
Royal: Well, the, the number one conversation I have been having with, with folks just across the board is,
Bill: Mm-hmm.
Royal: Looking at their bank accounts and saying, what are you making on your money right now? We went through 10 plus years where it didn't really matter what type of an account you had your savings in.
Bill: Yeah.
Royal: You know, you weren't making anything no matter what the account was, but now we have a lot of clients who feel comfortable with, you know, a couple $100,000 of cash or are looking to save up for a home or some sort of purchase there. And so that's really where we're going in-depth and looking at their balance sheets and saying, hey, anything above your emergency savings, let's start looking to get a higher yield on that, either through moving it to a high-yield money market account, put it in into CDs. If you still need kind of that FDIC insurance there and safety.
So that's really the number one conversation that we're having because I see a lot of folks who say, ‘oh, it's, it's really scary out there. I don't want to be in the market.’ I'm like, well, that's fine. You don't have to be in the market, but let's try to get 4 or 5% on this money that you have making half a percent.
Bill: Yeah. I was going to ask what, what, what kind of, what kind of invests investment returns can they expect to see on an interest rate investment?
Royal: Yeah, on a money market account, you know, depending on where you're going, uh, some of the online banks are, uh, up around 5% right now. They're, they're offering on a teaser rate.
CDs are the more interesting one. We're still seeing CDs really peak around a year to 18 months, meaning that you can buy a CD for a, a really impressive rate, usually over 5%.
Bill: Wow.
Royal: Uh, at the one year to 18 month level. But if you want to guarantee that higher rate for longer, let's say, ‘Oh, well, great. I'll, if it's, if it's, you know, 5.5% at 18 months, it must be 7% at 10 years.’ And it's not. What we see here is because of the way the, uh, interest rate curve is structured right now we really have this peak here in most certificates of deposits, where after about two years, we really start seeing those interest rates come down where you might be able to get 4% on a CD that goes out three to five years.
So that's really a function right here of you can lock in a better rate. You just can't lock it in for much, for very long. And we'll see how those interest rates and those products adjust with this new, uh, philosophy that the, uh, the Feds are pushing, you know, higher for longer, but that's, that's another piece that I'm, I'm really talking to folks about is if you are extremely risk adverse, let's go out and look for products where we can extend a really good rate of return out for a longer period of time, let's say five to seven years,
Bill: Yeah.
Royal: Where you can lock in something, you know, around 5% + for a longer period of time, still not making an investment in the stock market, but just locking that in and getting a good rate of return because we don't know what the future holds. We don't know if we have a major economic crisis next year, that interest rates don't just fall back down to, you know, below 3%.
Bill: Right.
Royal: So, we just want to be really, really tactical here to say, hey, let's lock it in. You know, if you can get 5%, that's a pretty good interest rate. And if interest rates keep creeping up a little bit, a little bit more, that's okay. You left a little bit of money on the table, but you're locked in for a nice period of time.
Bill: What kind of instruments offer those kinds of returns? What are you, what are you pointing to your, pointing your investors to?
Royal: Yeah, there's a few different them. The simplest I think is just a simple fixed annuity, which is a deposit with an insurance company for a specified number of years. You know, you can buy them all the way down to two years, up to 10 years, and it guarantees a tax-deferred interest rate with really no variability there at all. And those are nice, safe products. We have clients who just invest in fixed annuities, and for the most part, they're, they're fine no matter what happens in the market, because when they bought it, they knew exactly what they're getting on their, on their money that they've deposited there.
Bill: You're foregoing, though. I mean, this has always been my hesitancy.
Royal: Mm-hmm.
Bill: So, speak to me as if I'm your client. Yeah, you can give me that 5%, but won't I be sacrificing and foregoing potential gains in the market? How do I balance that in my mind when I'm looking at my portfolio and what to do with it?
Royal: Yeah, that's an excellent question. First of all, there's a lot of investors who just won't go anywhere near the market.
Bill: [chuckle] Yeah, all right.
Royal: You know, there's a lot of folks that just, just don't want to do that. They just want to get a, a a safer rate of return. And they're okay foregoing a higher rate of return for a complete and total lack of volatility. You know, what's that old, uh, was it Will Rogers? The, uh, the old saying about it's not the return on your capital. It's the return of your capital.
Bill: Yes, that's right. [laughter]. It's also what it's very, there's a variation along the lines. It's not what you, it's not what you make. It's what you keep.
Royal: Yeah. When we look at taxes and that sort of thing, but yeah, I think just right there, if we're looking at the conversation I'm having most is, is for that safe money, that money that you need to know is there, let's spend some time here and look to extend out how long we can get this excellent interest rate that we're getting of 5%. And that's before we even start shifting over and start looking at the bond markets and what's happened there. If you look at ‘2022, worst year we've ever had in the bond markets.
Bill: Right.
Royal: You know, it could, a conservative investor who just bought the bond, index was down about 13% last year.
Bill:Hmm.
Royal: So far this year you might be flat, might be up one to 2% because we're still dealing with these interest rate hikes just at nowhere the speed that we saw in 2022.
Bill: Right.
Royal: But we know that as bond prices drop, those yields start coming up. And right now you're seeing bond funds that are yielding in that 4 - 5% range, depending on the structure, depending on the type.
Bill: Really?
Royal: Yeah, yeah. And so now we're starting to see does it make sense to start looking at bonds? Because the other flip side of this is if we go into another recession, probably the first reaction of the Fed will be to cut interest rates. And as they cut interest rates the value of those bond prices will go up as the yields come down. Right now, we really feel like there is some good potential, finally, after 10 years in the bond market, especially for conservative investors.
And not only for conservative investors, but also for any investors in a balanced type portfolio where you have 60% of your funds in the stock market and 40% in bond funds. That's kind of a standard asset allocation for a lot of investors. And for the last, you know, 15 years, probably you haven't gotten much at all, uh, in real return numbers from your, that 40% in bonds.
Bill: No, no. And that's why, that's why I wonder where the, I really need to hear from you where that portion of my portfolio makes any kind of sense. Because, you're right for the last 15 years or so, the bond market has been a disaster in terms of investing and the stock market was, was phenomenal. Assuming of course you picked the right stocks, but, but by comparison, stocks have just romped over to the bond market. So, speaking on a personal level, it has been very, very hard for me to look at bond market investments right now. I mean, so what's your guidance for your clients and what, and what do you tell them in terms of, you know, what to do in that area?
Royal: Well, the first thing that I do is I remind them that past performance is no indicator of future results.
Bill: [laughing] Yes.
Royal :Because we, we, we have to have that mentality. Stocks have, uh, been the best investment that is accessible to most people over time. You know, we, we all see those charts of, hey, here's a graph, ff you would have invested it in 1929 and what happens. The harder part to read on those charts is those periods of time where the market just goes sideways. You know, from 1968 to 1982, if you are a stock investor, you really got your head bashed in.
Bill: Hmm.
Royal: You had so much volatility in a sideways moving market. It was really the question of what am I doing here as an investor during that period of time? Same thing with being an investor, if you would have started investing in 2000 and just held on for 10 years, you were basically where you started. We go through periods of times like this where we have really positive bear markets, like we've lived through over the last 15 years, and we go through sideways markets like the 2000s, like the ‘70s.
So, the question is, is where we're at right now in the markets, are we closer to that sideways markets or do we have another leg up in the stock market. And that's really where diversification becomes so important.
Bill: So how, how are you advising or what are you, what are you telling your clients in terms of diversification? What does that look like now?
Royal: So really it's a conversation that stems from, well, I can just put everything in an S&P 500 index fund and beat, beat everything that anybody's doing. Once again, past performance. It's been an excellent investment, but we have the benefit of hindsight there. So that's why we're looking at not getting rid of the S&P 500, but diversifying away from that, looking internationally, looking at a well-designed bond portfolio and then using other products that we can build in like real estate, you know, like something with a guaranteed rate of return, uh, that can help diversify away some of that risk in case we do go into a sideways or a down market. Because we do have some, some demographic things happening in this country that are going to have a major effect. While, we have an excellent jobs market right now, and we're starting to see some of those wages come up, we also have, I don't know if you've heard about this baby boomers are retiring. Baby boomers are stopping work. They're getting out of being savers for the last 40 years. And they're starting to spend that money down.
Bill: Hmmm.
Royal: So what does that do? That money's coming out of the stock market. It's going into more secure investments. So how much kind of dry powder is out there to continue driving the stock market higher and higher. So, we, those fundamental features there really, I think the case today for getting a diversified portfolio with a lot of different kind of, um, uh, stop-gaps there to protect people on the downside and probably start shifting away from those folks who said, I'll just be an investor in the S&P 500, which has done phenomenally well for a lot of folks,
Bill: Right.
Royal: But when, when that ride stops and things start getting volatile, that's where mistakes are made. And if you're not kind of rebalancing out of that, that's really where people are starting to make really hard decisions. I remember 2008, 2009, folks are saying, I can't retire anymore. I've got to keep working another four or five years. Same thing with, with, uh, you know, that, that initial decline during COVID, same thing in 2022, those major declines change people's behavior. So, that's where having that diversified portfolio really help so you don't have to make decisions about your life based off of what's happening in the market.
Bill: Yeah, but that's hard. I mean, you know, if I were sitting there in front of you as your client, I'd be like, that's, that's reasonable. And that makes sense, Royal, but boy, that's hard. And, everything just seems so volatile right now that. It's a little unsettling. The interest rate environment seems unsettled. The, the, the economy seems unsettled. Politics seems unsettled. It's a, it feels like a crazy time. But, you know, it just, wow.
Royal: You know what I think is fascinating? I think we have such terrible memories. It's always been like this. It's always been something or, or, or another that was telling us that, oh, this is it. It was a good ride. It's over now. You know, you look back at those, uh, at those events that we've lived through, you know, living through the seventies, living through the eighties and just looking back and going, yes, it, no, it wasn't bad. We, we made it. We only feel that way because of hindsight going through those. That was tough. 1987, right? 1987, that felt like the end of the world.
Bill: Oh, yes, it did.
Royal: But we made it through. This feels like the end of the world. But in 10 years, we're going to look back and say, hey, we made it through.
Bill: Yeah.
Royal: And if we don't, well, then we don't have anything to worry about.
Bill [laughing] That is true. And it's like, in speaking of that, you know, perspective on interest rates is actually very, very interesting. The rates that we're currently experiencing historically, aren't anything exceptional, are they?
Royal: Not at all.
Bill: I mean, they're, they're exceptional in terms of the last 10 years of what we've seen, but in terms of like looking, looking at it over time, we're at a pretty unimpressive, I don't know, we're, we're not anywhere near the peaks of interest rates that we've seen.
Royal: No, not, not at all. Not at all. When we look back at the, you know, even early nineties, eighties, seventies, we're nowhere near. So right now we have interest rates right now on treasuries about where they were at the beginning of 2008.
Bill: Mm-hmm.
Royal: So let's, let's just put that in perspective. That was just 15 years ago. And for those last 15 years, we had the Feds manipulating interest rates to keep them artificially low to drive up stocks and real estate prices.
Bill: Yeah.
Royal: That's really what the environment has been. When we talk about the S&P's done really well over the last 15 years, well, why do you think that is? The Feds kept interest rates low, so companies could borrow more money. Individuals could borrow more money and buy homes. Companies could borrow more money and reinvest it. They didn't have to pay the price for capital, and we had the markets rally. We had home prices recover and rally well past those 2009 lows. So, thinking that we're going to have that again with interest rates coming up to a more realistic level, just starts to become a little harder to swallow.
And I'm in no way saying you should get out of the stock market. What I'm saying is, is we need to have conversations about risk as well as what are you looking to accomplish with the rest of your life? You look at a chart going from 1928 to, to 19 or uh, to 2023 and you're like, oh, okay, well, great. I'll just do that. But you don't have 90 plus years to draw through all these things. We have a very finite, uh, period of time to save and then to spend. So, our, our time horizon, as much as we want to be rational investors, we're, we're not.
Bill: No. I mean, no, we're not. I was going to try and craft an argument that maybe we were sometimes, but no, a lot of, because it's, um, it's emotional. It's emotional and it's really hard. And, and I think that's the role of financial advisors like yourself for your clients is you're, you're, you're kind of like the investment therapist, as it were,
Royal: Absolutely.
Bill: Where you, you're like, Bill, you need to be calm and take a deep breath here. And it does, you, you mentioned more conservative attitudes and things like that, I think that, you know, doesn't it matter to some degree where your client is at their particular stage? I, I'm sure your, your advice to the 30 something is radically different from what you are talking about with your 60 somethings, or maybe it's not, I don't know.
Royal: No, it's, it's absolutely different because they're, they're, they're, they're trying to accomplish two different things. One is accumulating and growing wealth. The other, you know, at 67, yeah, they're interested in growing their wealth, but they're a whole lot more interested in not outliving their wealth.
Bill: Well, yeah. Yeah, because, well, and the feeling is, is if you grow your wealth, you're far, far less likely to outlive it as it were.
Royal: Yeah, and that, that's where that balancing act comes in of how can we make sure and give you comfort that you're not going to outlive your money. And that's, and that's really where all of the financial planning comes in. All of our annual reviews, looking at those numbers to say, is there something we need to be concerned about in 20years? What can we do about it now? That's where all the financial planning comes in. And then from there, we can, we can go back in and design the investment allocation to meet the client where they're at from a comfort level.
Bill: Right.
Royal: And, you know, give them that diversification that we think is going to pay off over time.
Bill: I know this is a little outside of the box, but, but in terms of your overall investment advice we talk about stock and we talk about bonds. We talk about CDs. At any point, does international investments or international markets come into what you're talking about with your clients or are you staying away from that area for now?
Royal: No, I think international needs to be a part of an allocation, and we've changed our allocations, you know, based off of, you know, how much do we want to allocate to that space, but we still feel like there's really good potential in that space, especially when we look at, uh, the price-to-earnings of international versus the US.
Bill: Yeah.
Royal: So, this is really just allocating where, where, where the value is. Do we want to buy something expensive and overpriced, hoping that it continues to go, go up, or do we want to buy something cheap with a good dividend that has more potential for growth and possibly less risk? So that's where we want to keep those allocations there to international and then just continue to rebalance.
Because remember, rebalancing is simply taking profits, when they occur and redistributing them around the portfolio. It's a good thing. It lowers the amount of risk you're taking in a portfolio and it improves your rate of return over the long run.
Bill: Wow.
Royal: Yeah. The, I think the easiest way to really talk through all this is there's no one size fits all investment advice for anyone. It's really the question of who are you, how do you approach money, how do you approach risk, and what are you trying to accomplish with the remaining time you have. And then from there, if you're working with a financial planner, we can help you design that investment allocation. So one, you don't outlive your money, and two, you don't take on a whole lot of extra stress in your life worrying about the markets.
Bill: Hmm.
Royal: Because those two things are, I think, the most concerning things for people in retirement. Is I don't want to lose money and I don't want to run out of money.
Bill: I think it's the most, you know, Retirement or not, I think most people would say, no, I do not want to run out of money.
Royal: But it's, but it's a lot different when you're working and you're going to get in a paycheck.
Bill: Yeah, no, no, it is very, very different as a matter of fact.
Royal: Yeah.
Bill: So if for those listeners who may be listening for the first time and aren't familiar with you, um, how do they reach out and get ahold of you if they're, they're interested in more information or further conversation?
Royal: Yeah, absolutely. You can visit our website at www.opfa.com. All of my contact information is up there. You can schedule a telephone call or first appointment with me or any one of my team, and we can sit down and have this conversation to have this analysis and really come up with an individualized plan to help you approach retirement, get through retirement and pass on your wealth to that next generation.
Bill: That's great. Thank you so much, Royal. I really appreciate your insight. I'm sure the listeners do as well. And, uh, for you who are listening, thank you so much for tuning in and taking the time, uh, to listen to the podcast. We hope you liked it. If you're a new listener, please hit the subscribe button. That way you don't have to remember when and where you heard this podcast and where you found it. It will be delivered to you and you can get the next edition without missing a beat. On behalf of Royal and everybody at Oregon Pacific Financial Advisors, I'm Bill Tucker thanking you for tuning in and reminding you. Don't wait. Live your best day today.
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